Exhibit 10.2

 

 

 

AMENDED AND RESTATED

SECURITY AGREEMENT

dated as of

February 20, 2014

by and among

SHEA HOMES LIMITED PARTNERSHIP,

SHEA HOMES FUNDING CORP.,

THE GRANTORS IDENTIFIED HEREIN,

U.S. BANK NATIONAL ASSOCIATION,

as Administrative Agent

and

WELLS FARGO BANK, NATIONAL ASSOCIATION,

as Collateral Agent

Reference is made to the Intercreditor Agreement (as defined in this Agreement).
Notwithstanding any other provision contained herein, this Agreement, the Liens
created hereby and the rights, remedies, duties and obligations provided for
herein are subject in all respects to the terms of the Intercreditor Agreement.
In the event of any conflict or inconsistency between the provisions of this
Agreement and the terms of the Intercreditor Agreement, the terms of the
Intercreditor Agreement shall control.

 

 

 

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TABLE OF CONTENTS

 

          Page

ARTICLE I DEFINITIONS

   2

        SECTION 1.01.

  

Defined Terms

   2

        SECTION 1.02.

  

Other Defined Terms

   2

ARTICLE II RESERVED.

   8

ARTICLE III PLEDGE OF SECURITIES

   8

        SECTION 3.01.

  

Pledge

   8

        SECTION 3.02.

  

Delivery of the Pledged Collateral

   10

        SECTION 3.03.

  

Representations, Warranties and Covenants

   10

        SECTION 3.04.

  

Certification of Limited Liability Company and Limited Partnership Interests

   11

        SECTION 3.05.

  

Registration in Nominee Name; Denominations

   12

        SECTION 3.06.

  

Voting Rights; Dividends and Interest

   12

ARTICLE IV SECURITY INTERESTS IN PERSONAL PROPERTY

   14

        SECTION 4.01.

  

Security Interest

   14

        SECTION 4.02.

  

Representations and Warranties

   17

        SECTION 4.03.

  

Covenants

   18

        SECTION 4.04.

  

Other Actions

   22

        SECTION 4.05.

  

Covenants Regarding Patent, Trademark and Copyright Collateral

   24

ARTICLE V REMEDIES

   26

        SECTION 5.01.

  

Remedies Upon Default

   26

        SECTION 5.02.

  

Application of Proceeds

   27

        SECTION 5.03.

  

Grant of License to Use Intellectual Property

   28

        SECTION 5.04.

  

Securities Act

   29

ARTICLE VI INDEMNITY, SUBROGATION AND SUBORDINATION

   29

        SECTION 6.01.

  

Indemnity and Subrogation

   29

        SECTION 6.02.

  

Contribution and Subrogation

   30

        SECTION 6.03.

  

Subordination

   30

ARTICLE VII MISCELLANEOUS

   30

        SECTION 7.01.

  

Notices

   30

        SECTION 7.02.

  

Waivers; Amendment

   31

        SECTION 7.03.

  

Collateral Agent’s Fees and Expenses; Indemnification

   31

        SECTION 7.04.

  

Successors and Assigns

   32

        SECTION 7.05.

  

Survival of Agreement

   32

        SECTION 7.06.

  

Counterparts; Effectiveness; Several Agreement

   32

        SECTION 7.07.

  

Severability

   32

        SECTION 7.08.

  

Reserved

   33

        SECTION 7.09.

  

Governing Law; Jurisdiction; Consent to Service of Process

   33

 

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        SECTION 7.10.

  

WAIVER OF JURY TRIAL

   33

        SECTION 7.11.

  

Headings

   34

        SECTION 7.12.

  

Security Interest Absolute

   34

        SECTION 7.13.

  

Termination or Release

   34

        SECTION 7.14.

  

Additional Guarantors

   35

        SECTION 7.15.

  

Collateral Agent Appointed Attorney-in-Fact

   35

        SECTION 7.16.

  

Intercreditor Agreement Govern

   36

        SECTION 7.17.

  

Joint Obligor/Suretyship Provisions

   36

 

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Schedules

Schedule I

  

    Guarantors

Schedule II

  

    Pledged Equity Interests; Pledged Debt Securities

Schedule III

  

    Intellectual Property

Schedule IV

  

    Commercial Tort Claims

Exhibits

Exhibit A

  

    Form of Supplement To Security Agreement

Exhibit B

  

    Form of Perfection Certificate

 

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AMENDED AND RESTATED

SECURITY AGREEMENT

This Amended and Restated Security Agreement dated as of February 20, 2014 (this
“Agreement”), is made by and among Shea Homes Limited Partnership, a California
limited partnership (the “Company”), Shea Homes Funding Corp., a Delaware
corporation (the “Corporate Issuer” and, together with the Company, the
“Issuers”), the other Grantors (as defined below) from time to time a party
hereto, U.S. Bank National Association, a national banking association, as
“Administrative Agent” under the Revolving Facility Agreement described below
(“Administrative Agent”) and Wells Fargo Bank, National Association, as
“Collateral Agent” under the Intercreditor Agreement described below
(“Collateral Agent”).

RECITALS

A.        Reference is made to: (i) the Indenture dated as of May 10, 2011 (as
amended, supplemented or otherwise modified from time to time, the “Indenture”),
by and among the Company, the Corporate Issuer, the Guarantors from time to time
a party thereto and Wells Fargo Bank, National Association, as Trustee (the
“Trustee”); (ii) the Credit Agreement dated as of February 20, 2014 (as amended,
supplemented or otherwise modified from time to time, the “Revolving Facility
Agreement”) by and among the Company, Administrative Agent and the “Lenders”
from time to time a party thereto (“Revolving Facility Lenders”); (iii) the
Guaranty dated as of February 20, 2014 (as amended, supplemented or otherwise
modified from time to time, the “Revolving Facility Guaranty”) made by the
Guarantors from time to time a party thereto in favor of Administrative Agent
and the Revolving Facility Lenders; and (iv) the Amended and Restated
Intercreditor Agreement dated as of February 20, 2014 (as amended, supplemented
or otherwise modified from time to time, the “Intercreditor Agreement”), by and
among the Administrative Agent, the Collateral Agent, the Company, the Corporate
Issuer, the Trustee and the other parties from time to time a party thereto.

B.        This Agreement amends and restates in its entirety that certain
Security Agreement dated as of May 10, 2011 (the “Prior Security Agreement”) by
and among the Company, the Corporate Issuer and the other “Grantors” a party
thereto, Credit Suisse AG, as the “Administrative Agent” thereunder, and
Collateral Agent.

C. As an inducement (among other things) to (i) the Holders to continue to hold
Notes from the Issuers previously purchased pursuant to the Indenture, (ii) the
Revolving Facility Lenders to extend credit to the Issuers pursuant to the
Revolving Facility Agreement, and (iii) the Collateral Agent, the Trustee and
Administrative Agent to enter into the amended and restated Intercreditor
Agreement, the Issuers and the other Grantors designated herein have agreed to
enter into this Agreement to grant the Collateral Agent (for the benefit of the
Secured Parties) a lien on the Collateral (as defined below).

Accordingly, the parties hereto agree as follows:

 

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ARTICLE I

DEFINITIONS

SECTION 1.01.        Defined Terms.

(a)        Each capitalized term used but not defined herein shall have the
meaning specified in the Intercreditor Agreement and, if not defined therein,
then in the Indenture or the Revolving Facility Agreement, as applicable, as in
effect on the date hereof. Terms defined herein by reference to the
Intercreditor Agreement, the Indenture or the Revolving Facility Agreement have
the meanings set forth in such documents, as in effect on the date hereof. Terms
used (but not defined) in this Agreement that are defined in the New York UCC
shall have the meanings specified in the New York UCC (including those
capitalized terms describing types of Article 9 Collateral used in
Section 4.01(a) and other provisions herein). The term “instrument” shall have
the meaning specified in Article 9 of the New York UCC.

(b)        The rules of construction specified in Section 1.02 of the Indenture
and in the Revolving Facility Agreement also apply to this Agreement.

SECTION 1.02.        Other Defined Terms. As used in this Agreement, the
following terms have the meanings specified below:

“Account Debtor” means any Person who is or who may become obligated to any
Grantor under, with respect to or on account of an Account.

“Administrative Agent” has the meaning assigned to such term in the introductory
paragraph to this Agreement.

“Agreement” has the meaning assigned to such term in the introductory paragraph
to this Agreement.

“Applicable Authorized Representative” shall have the meaning assigned to such
term in the Intercreditor Agreement.

“Article 9 Collateral” has the meaning assigned to such term in Section 4.01.

“Business Day” shall mean any day other than a Saturday, Sunday or day on which
banks in New York City are authorized or required to close by law.

“Claiming Party” has the meaning assigned to such term in Section 6.02.

“Collateral” means Article 9 Collateral and Pledged Collateral and, where the
context requires, any assets of any Credit Party upon which a Lien is granted
pursuant to any other Security Document to secure any Obligations.

“Collateral Accounts” shall mean the Controlled Deposit Accounts and the
Controlled Securities Accounts.

 

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“Collateral Agent” shall mean Wells Fargo Bank, National Association, in its
capacity as collateral agent as appointed hereunder and under the Intercreditor
Agreement, and its successors and permitted assigns in such capacity.

“Commercial Tort Action” shall mean any action, other than an action primarily
seeking declaratory or injunctive relief with respect to claims asserted or
expected to be asserted by Persons other than the Grantors, that is commenced by
a Grantor in which such Grantor seeks damages arising out of commercial torts
committed against it that would reasonably be expected to result in a damage
award to it exceeding $500,000.

“Company” has the meaning assigned to such term in the introductory paragraph to
this Agreement.

“Contributing Party” has the meaning assigned to such term in Section 6.02.

“Control” has the following meanings:

(a)        when used with respect to any Security or Security Entitlement, the
meaning specified in New York UCC Section 8-106; and

(b)        when used with respect to any Deposit Account, that the Collateral
Agent shall have met one of the requirements for control specified in New York
UCC Section 9-104.

“Controlled Deposit Account” means a Deposit Account of a Grantor (i) that is
subject to a Deposit Account Control Agreement or (ii) as to which the
Collateral Agent is the Depositary Bank’s “customer” (as defined in New York UCC
Section 4-104) or the bank which is the Collateral Agent is also the Depositary
Bank.

“Controlled Securities Account” means a Securities Account of a Grantor that is
maintained in the name of such Grantor at an office of a Securities Intermediary
located in the United States and, together with all Financial Assets credited
thereto and all related Security Entitlements, is subject to a Securities
Account Control Agreement among such Grantor, the Collateral Agent and such
securities intermediary.

“Copyright License” means any written agreement, now or hereafter in effect,
granting to any third party any right now or hereafter under any Copyright now
or hereafter owned by any Grantor or that such Grantor otherwise has the right
to license, or granting any right to any Grantor under any Copyright now or
hereafter owned by any third party, or that a third party now or hereafter
otherwise has the right to license and all rights of such Grantor under any such
agreement.

“Copyrights” means, with respect to any Person, all the following now owned or
hereafter acquired by such Person: (a) all copyright rights in any work subject
to the copyright laws of the United States or any other country, whether as
author, assignee, transferee or otherwise, and (b) all registrations and
applications for registration of any such copyright in the United States or any
other country, including registrations, recordings, supplemental registrations
and pending applications for registration in the United States Copyright Office
(or any similar

 

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office in any other country), including, in the case of clauses (a) and (b),
those listed on Schedule III.

“Corporate Issuer” has the meaning assigned to such term in the introductory
paragraph to this Agreement.

“Credit Party” means, the Company, the Corporate Issuer and the Guarantors.

“Deposit Account Control Agreement” means, with respect to any Deposit Account
of any Grantor, an agreement in form and substance reasonably satisfactory to
the Administrative Agent and the Applicable Authorized Representative and such
Grantor among such Grantor, the Collateral Agent and the relevant Depositary
Bank establishing the Collateral Agent’s Control with respect to such Deposit
Account.

“Depositary Bank” shall mean a bank at which a Controlled Deposit Account is
maintained.

“Event of Default” shall mean an “Event of Default” as defined in the
Intercreditor Agreement which is continuing.

“Excluded Accounts” has the meaning assigned to such term in Section 4.01(a).

“Excluded Stock Collateral” has the meaning assigned to such term in
Section 3.01(b).

“Excluded Property” has the meaning assigned to such term in Section 4.01(a).

“Federal Securities Laws” has the meaning assigned to such term in Section 5.04.

“General Intangibles” shall mean “General Intangibles” as defined in the New
York UCC and shall include Intellectual Property.

“Governmental Authority” means the government of the United States of America,
any other nation or 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 body exercising such powers or functions, such as the
European Union or the European Central Bank).

“Grantors” means the Company, the Corporate Issuer and the Guarantors.

“Guarantors” means the Persons set forth on Schedule I hereto and each other
Person that becomes a Guarantor pursuant to the Indenture or the Revolving
Facility Agreement after the Issue Date.

“Indenture” has the meaning assigned to such term in Recital A to this
Agreement.

 

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“Intellectual Property” means all intellectual and similar property of every
kind and nature now owned or hereafter acquired by any Grantor, including
inventions, designs, Patents, Copyrights, Licenses, Trademarks, trade secrets,
domain names, confidential or proprietary technical and business information,
know-how, show-how or other data or information, software and databases and all
embodiments or fixations thereof and related documentation, registrations and
franchises, and all additions, improvements and accessions to, and books and
records describing or used in connection with, any of the foregoing.

“Intercompany Note” has the meaning assigned to such term in Section 3.02(b).

“Intercreditor Agreement” has the meaning assigned to such term in Recital A to
this Agreement.

“Issue Date” has the meaning assigned to such term in the Indenture.

“Issuers” has the meaning assigned to such term in the introductory paragraph to
this Agreement.

“Letter of Credit” shall mean a “Letter of Credit” issued under, and as defined
in, the Revolving Facility Agreement.

“License” means any Patent License, Trademark License, Copyright License or
other license or sublicense agreement to which any Grantor is a party, including
those listed on Schedule III.

“New York UCC” means the Uniform Commercial Code as from time to time in effect
in the State of New York.

“Note Documents” means (a) the Notes, the Indenture, this Agreement, the
Security Documents (as defined in the Indenture), the Intercreditor Agreement,
the Real Property Collateral Management Agreement and (b) any other related
document or instrument executed and delivered pursuant to any Note Document
described in clause (a) evidencing or governing any Notes Obligations
thereunder.

“Notes Obligations” means (a) the due and punctual payment by the Issuers of
(i) the principal of and interest (including interest accruing during the
pendency of any bankruptcy, insolvency, receivership or other similar
proceeding, regardless of whether allowed or allowable in such proceeding) on
the Notes, when and as due, whether at maturity, by acceleration, upon one or
more dates set for prepayment or otherwise and (ii) all other monetary
obligations of either Issuer to any of the Secured Parties under the Indenture
and each of the other Note Documents, including obligations to pay fees, expense
reimbursement obligations and indemnification obligations, whether primary,
secondary, direct, contingent, fixed or otherwise (including monetary
obligations incurred during the pendency of any bankruptcy, insolvency,
receivership or other similar proceeding, regardless of whether allowed or
allowable in such proceeding), (b) the due and punctual performance of all other
obligations of the Issuers to any of the Secured Parties under or pursuant to
the Indenture and each of the other Note Documents, and (c) the due and punctual
payment and performance of all the obligations of each other Grantor to any of
the Secured Parties under or pursuant to this Agreement and each of the other

 

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Note Documents (including monetary obligations incurred during the pendency of
any bankruptcy, insolvency, receivership or other similar proceeding, regardless
of whether allowed or allowable in such proceeding).

“Obligations” means, collectively, the Revolving Facility Obligations and the
Notes Obligations.

“Parallel Obligations” means the independent obligations of any of the Credit
Parties arising pursuant to the Intercreditor Agreement to pay to the Collateral
Agent sums equal to the sums owed by such Credit Party to the Secured Parties
(or any of them) under the Note Documents or the Revolving Facility Documents.

“Patent License” means any written agreement, now or hereafter in effect,
granting to any third party any right to make, use or sell any invention on
which a Patent, now or hereafter owned by any Grantor or that any Grantor now or
hereafter otherwise has the right to license, is in existence, or granting to
any Grantor any right to make, use or sell any invention on which a patent, now
or hereafter owned by any third party, is in existence, and all rights of any
Grantor under any such agreement.

“Patents” means, with respect to any Person, all the following now owned or
hereafter acquired by such Person: (a) all letters patent of the United States
or the equivalent thereof in any other country, all registrations and recordings
thereof, and all applications for letters patent of the United States or the
equivalent thereof in any other country, including registrations, recordings and
pending applications in the United States Patent and Trademark Office or any
similar offices in any other country, including those listed on Schedule III,
and (b) all reissues, continuations, divisions, continuations-in-part, renewals
or extensions thereof, and the inventions disclosed or claimed therein,
including the right to make, use and/or sell the inventions disclosed or claimed
therein.

“Perfection Certificate” means a certificate substantially in the form of
Exhibit B, completed and supplemented with the schedules and attachments
contemplated thereby, and duly executed by the chief financial officer and the
chief legal officer of the Issuers.

“Pledged Collateral” has the meaning assigned to such term in Section 3.01(a).

“Pledged Debt Securities” has the meaning assigned to such term in Section
3.01(a).

“Pledged Equity Interests” has the meaning assigned to such term in
Section 3.01(a).

“Pledged Securities” means any promissory notes, stock certificates, unit
certificates, or other securities now or hereafter included in the Pledged
Collateral, including all certificates, instruments or other documents
representing or evidencing any Pledged Collateral.

“Real Property Collateral Management Agreement” means the Amended and Restated
Real Property Collateral Management Agreement dated as of February 20, 2014, by
and among the Issuers and the Collateral Agent.

 

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“Revolving Facility Agreement” has the meaning assigned to such term in Recital
A to this Agreement.

“Revolving Facility Documents” means (a) the Revolving Facility Agreement, the
Notes (as such term is defined in the Revolving Facility Agreement), the
Revolving Facility Guaranty, this Agreement, the Pari Passu Lien Security
Documents (as defined in the Revolving Facility Agreement), the Intercreditor
Agreement, the Real Property Collateral Management Agreement and any other
document designated by the Administrative Agent as a Revolving Facility
Document, and (b) any other related document or instrument executed and
delivered pursuant to any Revolving Facility Document described in clause (a)
evidencing, governing, guaranteeing or securing any Revolving Facility
Obligations thereunder.

“Revolving Facility Guaranty” has the meaning assigned to such term in Recital A
to this Agreement.

“Revolving Facility Lenders”: has the meaning assigned to such term in Recital A
to this Agreement.

“Revolving Facility Obligations” means (a) the due and punctual payment or
repayment of all principal, interest, reimbursements, indemnification
obligations, fees, cash collateral obligations and other monetary obligations of
any type or nature that are now owing or that hereafter become owing by any or
all Credit Parties to Administrative Agent or any or all of the Revolving
Facility Lenders or any other Secured Party pursuant to the Revolving Facility
Agreement, the Revolving Facility Guaranty or the other Revolving Facility
Documents and (b) the due and punctual payment and performance of all other
covenants, representations, warranties and obligations of any type or nature
that now or hereafter become owing or required to be performed by any or all
Credit Parties to Administrative Agent or any or all of the Revolving Facility
Lenders or any other Secured Party under the Revolving Facility Documents; and,
for the avoidance of doubt (with respect to clause (a) and clause (b) above),
(i) including all “Obligations,” all “Loans” and all “LC Obligations” (as such
terms are defined in the Revolving Facility Agreement), (ii) including all
interest, other amounts and obligations accruing during the pendency of any
bankruptcy, insolvency, receivership or other similar proceeding, regardless of
whether allowed or allowable in such proceeding, and (iii) whether primary,
secondary, direct, contingent, fixed or otherwise.

“Secured Parties” means (a) the Holders, (b) the Revolving Facility Lenders,
(c) the Administrative Agent, (d) the LC Issuer (as defined in the Revolving
Facility Agreement), (e) the Collateral Agent, (f) the Trustee, (g) the
beneficiaries of each indemnification obligation undertaken by any Grantor under
any Note Document or Revolving Facility Document and (h) the successors and
assigns of each of the foregoing.

“Securities Account Control Agreement” means, when used with respect to a
Securities Account of a Grantor, an agreement in form and substance reasonably
satisfactory to the Administrative Agent and the Applicable Authorized
Representative and such Grantor among the relevant securities intermediary, such
Grantor and the Collateral Agent establishing the Collateral Agent’s Control
with respect to such Securities Account.

 

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“Security Documents” shall mean this Agreement, the Real Property Collateral
Management Agreement and each of the security agreements, mortgages and other
security instruments or documents executed and delivered pursuant to this
Agreement or the Note Documents or the Revolving Facility Documents or otherwise
executed and delivered to secure the Obligations.

“Security Interest” has the meaning assigned to such term in Section 4.01(a).

“Trademark License” means any written agreement, now or hereafter in effect,
granting to any third party any right to use any Trademark now or hereafter
owned by any Grantor or that any Grantor otherwise has the right to license, or
granting to any Grantor any right to use any Trademark now or hereafter owned by
any third party or that a third party now or hereafter otherwise has the right
to license, and all rights of any Grantor under any such agreement.

“Trademarks” means, with respect to any Person, all the following now owned or
hereafter acquired by such Person: (a) all trademarks, service marks, trade
names, corporate names, company names, business names, fictitious business
names, trade styles, trade dress, logos, other source or business identifiers,
designs and general intangibles of like nature, now existing or hereafter
adopted or acquired, all registrations and recordings thereof, and all
registration and recording applications filed in connection therewith, including
registrations and registration applications in the United States Patent and
Trademark Office or any similar offices in any State of the United States or any
other country or any political subdivision thereof, and all extensions or
renewals thereof, including those listed on Schedule III, (b) all goodwill
associated therewith or symbolized thereby, and (c) all other assets, rights and
interests that uniquely reflect or embody such goodwill.

ARTICLE II

RESERVED.

ARTICLE III

PLEDGE OF SECURITIES

SECTION 3.01.        Pledge.

(a)        As security for the payment or performance, as the case may be, in
full of the Obligations, each Grantor hereby assigns and pledges to the
Collateral Agent, its successors and assigns, for the benefit of the Secured
Parties, and hereby grants to the Collateral Agent, its successors and assigns,
for the benefit of the Secured Parties, a security interest in, all such
Grantor’s right, title and interest in, to and under: (i)(x) the shares of
capital stock and other Equity Interests owned by it including those listed on
Schedule II, (y) any other Equity Interests obtained in the future by such
Grantor and (z) the certificates representing all such Equity Interests
(collectively, the “Pledged Equity Interests”); (ii)(x) the debt securities
owned by it, including those listed opposite the name of such Grantor on
Schedule II, (y) any debt securities in the future issued to such Grantor and
(z) the promissory notes and any other instruments

 

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evidencing all such debt securities (the “Pledged Debt Securities”); (iii) all
other property that may be delivered to and held by the Collateral Agent
pursuant to the terms of this Section 3.01(a); (iv) subject to Section 3.06, all
payments of principal or interest, dividends, cash, instruments and other
property from time to time received, receivable or otherwise distributed in
respect of, in exchange for or upon the conversion of, and all other Proceeds
received in respect of, the securities referred to in clauses (i) and
(ii) above; (v) subject to Section 3.06, all rights and privileges of such
Grantor with respect to the securities and other property referred to in
clauses (i), (ii), (iii) and (iv) above; and (vi) all Proceeds of any of the
foregoing (the items referred to in clauses (i) through (vi) above being
collectively referred to as the “Pledged Collateral”)

(b)        Notwithstanding the foregoing, the capital stock and securities of
any Guarantor will constitute Pledged Collateral (or Article 9 Collateral, as
the case may be) with respect to the Notes only to the extent that the securing
of the Notes Obligations with such capital stock and securities would not
require such Guarantor to file separate financial statements with the SEC under
Rule 3-16 of Regulation S-X under the Securities Act. Subject to 3.01(d), in the
event that Rule 3-16 of Regulation S-X under the Securities Act requires or is
amended, modified or interpreted by the SEC to require (or is replaced with
another rule or regulation that would require) the filing with the SEC of
separate financial statements of any Guarantor due to the fact that such
Guarantor’s capital stock and securities secure the Notes Obligations, then the
capital stock and securities of such Guarantor shall automatically be deemed not
to be part of the Pledged Collateral and, to the extent previously delivered to
the Collateral Agent, the certificates evidencing all such capital stock and
securities shall be returned to such Guarantor (but only to the extent necessary
for such Guarantor to not be subject to such requirement to provide separate
financial statements) and such excluded portion of the capital stock and
securities is referred to as the “Excluded Stock Collateral”. In such event, the
Security Documents may be amended, modified or supplemented, without the consent
of any Secured Party, to the extent necessary to release the security interests
on the Excluded Stock Collateral. In the event that Rule 3-16 of Regulation S-X
under the Securities Act is amended, modified or interpreted by the SEC to
permit (or is replaced with another rule or regulation that would permit) any
Guarantor’s Excluded Stock Collateral to secure the Notes Obligations in excess
of the amount then pledged without the filing with the SEC of separate financial
statements of such Guarantor, then the capital stock and securities of such
Guarantor shall automatically be deemed to be a part of the Pledged Collateral
(but only to the extent possible without such Guarantor becoming subject to any
such filing requirement). In such event, the Security Documents may be amended
or modified, without the consent of any Secured Party, to the extent necessary
to subject to the Liens under the Security Documents such additional capital
stock and securities.

(c)        In addition, Pledged Collateral shall not include (and no security
interest shall be granted in) (1) the Equity Interests in Partners Insurance
Company, a Hawaii corporation and (2) any right, title or interest in or under
any capital stock or other Equity Interests in any Persons that are bona fide
joint ventures with third parties to the extent, but only to the extent, that
such a grant is expressly prohibited by the organizational documents governing
such Person.

(d)        Notwithstanding the foregoing, unless and until the Discharge of
Revolving Facility Obligations has occurred, any Pledged Collateral (or
Article 9 Collateral, as the case may be) that would otherwise become Excluded
Stock Collateral pursuant to

 

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Section 3.01(b) shall remain Pledged Collateral (or Article 9 Collateral, as the
case may be) granted hereunder to secure the Revolving Facility Obligations.

SECTION 3.02.        Delivery of the Pledged Collateral.

(a)        Each Grantor agrees promptly to deliver or cause to be delivered to
the Collateral Agent any and all Pledged Securities.

(b)        Each Grantor will (i) cause any Indebtedness that is owing to any
Credit Party by another Credit Party to be evidenced by an intercompany note
(the “Intercompany Note”) and (ii) in respect of any Indebtedness for borrowed
money owed to such Grantor by any Person that is evidenced by a promissory note,
pledge and deliver such promissory note to the Collateral Agent pursuant to the
terms hereof.

(c)        Upon delivery to the Collateral Agent, (i) any certificated Pledged
Securities shall be accompanied by stock powers duly executed in blank or other
instruments of transfer satisfactory to the Collateral Agent and by such other
instruments and documents as the Collateral Agent may reasonably request and
(ii) all other property comprising part of the Pledged Collateral shall be
accompanied by proper instruments of assignment duly executed by the applicable
Grantor and such other instruments or documents as the Collateral Agent may
reasonably request. Each delivery of Pledged Securities shall be accompanied by
a schedule describing the securities, which schedule shall be attached hereto as
Schedule II and made a part hereof, provided that failure to attach any such
schedule hereto shall not affect the validity of such pledge of such Pledged
Securities. Each schedule so delivered shall supplement any prior schedules so
delivered.

SECTION 3.03.        Representations, Warranties and Covenants. The Grantors
jointly and severally represent, warrant and covenant to and with the Collateral
Agent, for the benefit of the Secured Parties, that:

(a)        Schedule II correctly sets forth, as of the date hereof, the
percentage of the issued and outstanding units of each class of the Equity
Interests of the issuer thereof represented by the Pledged Equity Interests and
includes all Equity Interests, debt securities and promissory notes required to
be pledged hereunder on the date hereof;

(b)        the Pledged Equity Interests and Pledged Debt Securities have been
duly and validly authorized and issued by the issuers thereof and (i) in the
case of Pledged Equity Interests, are fully paid and nonassessable (except for
such assessments and capital contributions as are required in connection with
the organizational documents of any Person that is not a wholly owned Subsidiary
and whose Equity Interests constitute Pledged Equity Interests) and (ii) in the
case of Pledged Debt Securities, are legal, valid and binding obligations of the
issuers thereof; provided that, with respect to bona fide joint ventures with
third parties, the representations made in this paragraph (b) must only be true
and correct to the extent the Grantors have knowledge thereof;

(c)        except for the security interests granted hereunder, each of the
Grantors (i) is and will continue to be the direct owner, beneficially and of
record, of the Pledged Securities indicated on Schedule II as owned by such
Grantor except to the extent such Grantor

 

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ceases to own such Pledged Securities as a result of disposition or other
transfer made in compliance with the Indenture and the Revolving Facility
Agreement, (ii) holds the same free and clear of all Liens, other than Liens
created by this Agreement, Permitted Liens and transfers made in compliance with
the Indenture and the Revolving Facility Agreement, (iii) will make no
assignment, pledge, hypothecation or transfer of, or create or permit to exist
any security interest in or other Lien on, the Pledged Collateral, other than
Liens created by this Agreement, Permitted Liens and transfers made in
compliance with the Indenture and the Revolving Facility Agreement and (iv) will
defend its title or interest thereto or therein against any and all Liens (other
than the Liens created by this Agreement and Permitted Liens), however arising,
of all Persons whomsoever;

(d)        except for restrictions and limitations imposed by the Note Documents
and the Revolving Facility Documents or securities laws generally, the Pledged
Collateral is and will continue to be freely transferable and assignable, and
none of the Pledged Collateral is or will be subject to any option, right of
first refusal, shareholders agreement, charter, by-law or other organizational
document provisions or contractual restriction of any nature that might
reasonably be expected to prohibit, impair, delay or otherwise affect the pledge
of such Pledged Collateral hereunder, the sale or disposition thereof pursuant
hereto or the exercise by the Collateral Agent of rights and remedies hereunder;

(e)        each of the Grantors has the power and authority to pledge the
Pledged Collateral pledged by it hereunder in the manner hereby done or
contemplated;

(f)        no consent or approval of any Governmental Authority, any securities
exchange or any other Person was or is necessary to the validity of the pledge
effected hereby (other than such as have been obtained and are in full force and
effect);

(g)        by virtue of the execution and delivery by the Grantors of this
Agreement, when any Pledged Securities are delivered to the Collateral Agent in
accordance with this Agreement, the Collateral Agent will obtain a legal, valid
and perfected lien upon and security interest in such Pledged Securities as
security for the payment and performance of the Obligations, prior to all other
liens and security interests created and perfected by a method other than by
control under Article 9 of the New York UCC; and

(h)        the pledge effected hereby is effective to vest in the Collateral
Agent, for the benefit of the Secured Parties, the rights of the Collateral
Agent in the Pledged Collateral as set forth herein.

SECTION 3.04.        Certification of Limited Liability Company and Limited
Partnership Interests. Each Grantor agrees that interests in any wholly owned
limited liability company or limited partnership owned by such Grantor and
pledged hereunder shall be represented by a certificate, shall be a “security”
within the meaning of Article 8 of the New York UCC and shall be governed by
Article 8 of the New York UCC. Each Grantor acknowledges and agrees that (i) to
the extent each interest in any non-wholly owned limited liability company or
limited partnership controlled now or in the future by such Grantor and pledged
hereunder is a “security” within the meaning of Article 8 of the New York UCC
and is governed by Article 8 of the New York UCC, such interest shall be
certificated and (ii) each such

 

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interest shall at all times hereafter continue to be such a security and
represented by such certificate. Each Grantor further acknowledges and agrees
that with respect to any interest in any non-wholly owned limited liability
company or limited partnership controlled now or in the future by such Grantor
and pledged hereunder that is not a “security” within the meaning of Article 8
of the New York UCC, such Grantor shall at no time elect to treat any such
interest as a “security” within the meaning of Article 8 of the New York UCC,
nor shall such interest be represented by a certificate, unless such Grantor
provides prior written notification to the Collateral Agent of such election and
such interest is thereafter represented by a certificate that is promptly
delivered to the Collateral Agent pursuant to the terms hereof.

SECTION 3.05.        Registration in Nominee Name; Denominations. The Collateral
Agent, on behalf of the Secured Parties, shall have the right (in its sole and
absolute discretion) to hold the Pledged Securities (i) in its own name as
pledgee, (ii) the name of its nominee (as pledgee or as sub-agent) or (iii) the
name of the applicable Grantor, endorsed or assigned in blank or in favor of the
Collateral Agent; provided that, in the case of clause (ii), an Event of Default
has occurred and is continuing. Each Grantor will promptly give to the
Collateral Agent copies of any notices or other communications received by it
with respect to Pledged Securities registered in the name of such Grantor. The
Collateral Agent shall at all times have the right to exchange the certificates
representing Pledged Securities for certificates of smaller or larger
denominations for any purpose consistent with this Agreement.

SECTION 3.06.        Voting Rights; Dividends and Interest.

(a)        Unless and until an Event of Default shall have occurred and be
continuing and the Collateral Agent shall have notified the Grantors that their
rights under this Section 3.06 are being suspended:

(i)        each Grantor shall be entitled to exercise any and all voting and/or
other consensual rights and powers inuring to an owner of Pledged Collateral or
any part thereof for any purpose consistent with the terms of this Agreement,
the Note Documents and the Revolving Facility Documents, provided that such
rights and powers shall not be exercised in any manner that could materially and
adversely affect the rights inuring to a holder of any Pledged Collateral or the
rights and remedies of any of the Collateral Agent or the other Secured Parties
under this Agreement or the Note Documents and the Revolving Facility Documents
or the ability of the Secured Parties to exercise the same;

(ii)        the Collateral Agent shall execute and deliver to each Grantor, or
cause to be executed and delivered to such Grantor, all such proxies, powers of
attorney and other instruments as such Grantor may reasonably request for the
purpose of enabling such Grantor to exercise the voting and/or consensual rights
and powers it is entitled to exercise pursuant to subparagraph (i) above;

(iii)        Each Grantor shall be entitled to receive and retain any and all
dividends, interest, principal and other distributions paid on or distributed in
respect of the Pledged Collateral to the extent and only to the extent that such
dividends, interest, principal and other distributions are permitted by, and

 

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otherwise paid or distributed in accordance with, the terms and conditions of
the Note Documents and the Revolving Facility Documents and applicable laws,
provided that any noncash dividends, interest, principal or other distributions
that would constitute Pledged Equity Interests or Pledged Debt Securities,
whether resulting from a subdivision, combination or reclassification of the
outstanding Equity Interests of the issuer of any Pledged Securities or received
in exchange for Pledged Securities or any part thereof, or in redemption
thereof, or as a result of any merger, consolidation, acquisition or other
exchange of assets to which such issuer may be a party or otherwise, shall be
and become part of the Pledged Collateral and, if received by any Grantor, shall
not be commingled by such Grantor with any of its other funds or property but
shall be held separate and apart therefrom, shall be held in trust for the
benefit of the Collateral Agent and shall be forthwith delivered to the
Collateral Agent in the same form as so received (with any necessary
endorsement).

(b)        Upon the occurrence and during the continuance of an Event of
Default, after the Collateral Agent shall have notified the Grantors of the
suspension of their rights under paragraph (a)(iii) of this Section 3.06, then
all rights of any Grantor to dividends, interest, principal or other
distributions that such Grantor is authorized to receive pursuant to
paragraph (a)(iii) of this Section 3.06 shall cease, and all such rights shall
thereupon become vested in the Collateral Agent, which shall have the sole and
exclusive right and authority to receive and retain such dividends, interest,
principal or other distributions. All dividends, interest, principal or other
distributions received by any Grantor contrary to the provisions of this
Section 3.06 shall be held in trust for the benefit of the Collateral Agent,
shall be segregated from other property or funds of such Grantor and shall be
forthwith delivered to the Collateral Agent upon demand in the same form as so
received (with any necessary endorsement). Any and all money and other property
paid over to or received by the Collateral Agent pursuant to the provisions of
this paragraph (b) shall be retained by the Collateral Agent in an account to be
established by the Collateral Agent upon receipt of such money or other property
and shall be applied in accordance with the provisions of Section 5.02. After
all Events of Default have been cured or waived and the Issuers have delivered
to the Collateral Agent a certificate to that effect, the Collateral Agent shall
promptly repay to each Grantor (without interest) all dividends, interest,
principal or other distributions that such Grantor would otherwise be permitted
to retain pursuant to the terms of paragraph (a)(iii) of this Section 3.06 and
that remain in such account.

(c)        Upon the occurrence and during the continuance of an Event of
Default, after the Collateral Agent shall have notified the Grantors of the
suspension of their rights under paragraph (a)(i) of this Section 3.06, then all
rights of any Grantor to exercise the voting and consensual rights and powers it
is entitled to exercise pursuant to paragraph (a)(i) of this Section 3.06, and
the obligations of the Collateral Agent under paragraph (a)(ii) of this
Section 3.06, shall cease, and all such rights shall thereupon become vested in
the Collateral Agent, which shall have the sole and exclusive right and
authority to exercise such voting and consensual rights and powers, provided
that, unless otherwise directed by requisite party pursuant to the Intercreditor
Agreement, the Collateral Agent shall have the right from time to time following
and during the continuance of an Event of Default to permit the Grantors to
exercise such rights.

 

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(d)        Any notice given by the Collateral Agent to the Grantors suspending
their rights under paragraph (a) of this Section 3.06 (i) may be given by
telephone if promptly confirmed in writing, (ii) may be given to one or more of
the Grantors at the same or different times and (iii) may suspend the rights of
the Grantors under paragraph (a)(i) or paragraph (a)(iii) in part without
suspending all such rights (as specified by the Collateral Agent in its sole and
absolute discretion) and without waiving or otherwise affecting the Collateral
Agent’s right to give additional notices from time to time suspending other
rights so long as an Event of Default has occurred and is continuing.

ARTICLE IV

SECURITY INTERESTS IN PERSONAL PROPERTY

SECTION 4.01.        Security Interest.

(a)        As security for the payment or performance, as the case may be, in
full of the Obligations, each Grantor hereby grants to the Collateral Agent, its
successors and assigns, for the benefit of the Secured Parties, a security
interest (the “Security Interest”) in, all right, title and interest in and to
any and all the following assets and properties now owned or at any time
hereafter acquired by such Grantor or in which such Grantor now has or at any
time in the future may acquire any right, title or interest (collectively, the
“Article 9 Collateral”) (terms used below and in other provisions of this
Agreement to describe types of Article 9 Collateral, which terms are not
otherwise defined herein, shall having the meanings specified in the New York
UCC):

(i)        all Accounts;

(ii)        all Chattel Paper;

(iii)        all cash and Deposit Accounts;

(iv)        all Documents;

(v)        all Equipment;

(vi)        all General Intangibles;

(vii)        all Instruments;

(viii)        all Inventory;

(ix)        all Investment Property;

(x)        Letter-of-Credit rights;

(xi)        Commercial Tort Claims (as described in the Perfection Certificate
or a document provided pursuant to Section 4.04(f));

 

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(xii)        all books and records pertaining to the Article 9 Collateral; and

(xiii)        to the extent not otherwise included, all Proceeds and products of
any and all the foregoing and all collateral security and guarantees given by
any Person with respect to any of the foregoing;

provided, however, that the Article 9 Collateral shall not include the following
(collectively, the “Excluded Property”):

(A)        personal property where the cost of obtaining a security interest or
perfection thereof exceeds its benefits (as reasonably determined by the
Company’s Governing Body in a resolution delivered to the Collateral Agent);

(B)        assets, with respect to which any applicable law or the terms of any
applicable contract prohibits the creation or perfection of security interests
therein or that otherwise results in a default, waiver or termination of rights
or privileges arising under such law or contract (other than to the extent that
any such law or contract term would be rendered ineffective pursuant to Sections
9-406, 9-407, 9-408 or 9-409 of the New York UCC or any other applicable law or
principles of equity); provided, however, that such security interest shall
attach immediately at such time as the condition causing such prohibition shall
be remedied and, to the extent severable, shall attach immediately to any
portion of any such contract that does not result in any such prohibition,
including any Proceeds of any such contract;

(C)        all Trademarks and other Intellectual Property bearing the name
“Shea” or a variant thereof; provided that (x) the Collateral Agent, the
Administrative Agent and the Applicable Authorized Representative (for the
benefit of the Secured Parties) shall have a non-exclusive License to use such
Intellectual Property in connection with the exercise of remedies upon a Default
or Event of Default and (y) the Grantors hereby grant to the Collateral Agent,
the Administrative Agent and the Applicable Authorized Representative (for the
benefit of the Secured Parties) such a License for such use in any such event;

(D)        any trademark applications filed in the United States Patent and
Trademark Office on the basis of such Grantor’s “intent-to-use” such trademark
to the extent that granting a Security Interest in such trademark application
prior to such filing would adversely affect the enforceability or validity or
result in the voiding of such trademark application, unless and until acceptable
evidence of use of the trademark has been filed with and accepted by the United
States Patent and Trademark Office pursuant to Section 1(c) or Section 1(d) of
the Lanham Act (15 U.S.C. 1051, et seq.), whereupon such trademark application
will, without any further action taken on the part of such Grantor or the
Collateral Agent, be deemed to constitute Collateral;

(E)        cash collateral supporting (i) deductible, retention and other
obligations to insurance carriers, (ii) reimbursement claims in respect of
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credit and surety providers, (iii) contingent claims arising in respect of
community facility district, metro-district, mello-roos, subdivision improvement
and similar obligations arising in the ordinary course of business of a
homebuilder and (iv) cash management services;

(F)        equity interests in joint ventures with respect to which the
agreements governing such joint ventures prohibit the creation or perfection of
security interests in such equity interests;

(G)        any leasehold interests in real property;

(H)        any real property in a community under development with a dollar
amount of investment as of the most recent quarter end (as determined in
accordance with GAAP) of less than $2,000,000 or with less than 10 lots
remaining unsold;

(I)        vehicles covered by a certificate of title; and

(J)        (i) any Deposit Account or Securities Account that is established
solely for the purpose of funding payroll, benefits, trust or other compensation
benefits to employees and (ii) any other Deposit Account and Securities Account
the aggregate balance in which does not exceed $2,000,000 for all such excluded
accounts at any one time outstanding (the accounts described in clauses (i) and
(ii), collectively the “Excluded Accounts”).

(b)        Each Grantor hereby irrevocably authorizes the Collateral Agent at
any time and from time to time to file in any relevant jurisdiction any
financing statements (including fixture filings) with respect to the Article 9
Collateral or any part thereof and amendments thereto that (i) indicate the
Collateral as all assets of such Grantor or words of similar effect as being of
an equal or lesser scope or with greater detail, and (ii) contain the
information required by Article 9 of the Uniform Commercial Code of each
applicable jurisdiction for the filing of any financing statement or amendment,
including (A) whether such Grantor is an organization, the type of organization
and any organizational identification number issued to such Grantor and (B) in
the case of a financing statement filed as a fixture filing or covering
Article 9 Collateral constituting minerals or the like to be extracted or timber
to be cut, a sufficient description of the real property to which such Article 9
Collateral relates. Each Grantor agrees to promptly provide such information to
the Collateral Agent.

Each Grantor also ratifies its authorization for the Collateral Agent to file in
any relevant jurisdiction any financing statements or amendments thereto if
filed prior to the date hereof.

The Collateral Agent is further authorized to file with the United States Patent
and Trademark Office or United States Copyright Office (or any successor office
or any similar office in any other country) such documents as may be necessary
or advisable for the purpose of perfecting, confirming, continuing, enforcing or
protecting the Security Interest granted by each Grantor, without the signature
of any Grantor, and naming any Grantor or the Grantors as debtors and the
Collateral Agent as secured party.

 

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(c)        The Security Interest and the security interest granted pursuant to
Article III are granted as security only and shall not subject the Collateral
Agent or any other Secured Party to, or in any way alter or modify, any
obligation or liability of any Grantor with respect to or arising out of the
Collateral.

SECTION 4.02.        Representations and Warranties. The Grantors jointly and
severally represent and warrant to the Collateral Agent and the Secured Parties
that:

(a)        Each Grantor has good and valid rights in and title to the Article 9
Collateral with respect to which it has purported to grant a Security Interest
hereunder and has full power and authority to grant to the Collateral Agent the
Security Interest in such Article 9 Collateral pursuant hereto and to execute,
deliver and perform its obligations in accordance with the terms of this
Agreement, without the consent or approval of any other Person other than any
consent or approval that has been obtained.

(b)        (i) The Perfection Certificate has been duly prepared, completed and
executed and the information set forth therein, including the exact legal name
of each Grantor, is correct and complete as of the Issue Date; (ii) the Uniform
Commercial Code financing statements (including fixture filings, as applicable)
or other appropriate filings, recordings or registrations prepared by the
Collateral Agent based upon the information provided to the Collateral Agent in
the Perfection Certificate for filing in each governmental, municipal or other
office specified in Schedule 6 to the Perfection Certificate (or specified by
notice from the Issuers to the Collateral Agent after the Issue Date in the case
of filings, recordings or registrations required by Section 4.22 of the
Indenture and Section 6.11 (or other applicable provisions) of the Revolving
Facility Agreement), are all the filings, recordings and registrations (other
than filings required to be made in the United States Patent and Trademark
Office and the United States Copyright Office in order to perfect the Security
Interest in Article 9 Collateral consisting of United States Patents, Trademarks
and Copyrights) that are necessary to publish notice of and protect the validity
of and to establish a legal, valid and perfected security interest in favor of
the Collateral Agent (for the benefit of the Secured Parties) in respect of all
Article 9 Collateral in which the Security Interest may be perfected by filing,
recording or registration in the United States (or any political subdivision
thereof) and its territories and possessions, and no further or subsequent
filing, refiling, recording, rerecording, registration or reregistration is
necessary in any such jurisdiction, except as provided under applicable law with
respect to the filing of amended financing statements or continuation
statements; (iii) each Grantor represents and warrants that a fully executed
agreement in the form hereof (or a fully executed short form agreement (A) in
the case of Trademarks and Copyrights, in form and substance substantially
similar to the short form agreements delivered on the Issue Date or (B) in the
case of Patents, in form and substance reasonably satisfactory to the Collateral
Agent), and containing a description of all Article 9 Collateral consisting of
Intellectual Property shall have been received and recorded within three months
after the execution of this Agreement with respect to United States Patents and
United States registered Trademarks (and Trademarks for which United States
registration applications are pending) and within one month after the execution
of this Agreement with respect to United States registered Copyrights has been
delivered to the Collateral Agent for recording by the United States Patent and
Trademark Office and the United States Copyright Office pursuant to
35 U.S.C. § 261, 15 U.S.C. § 1060 or 17 U.S.C. § 205 and the regulations
thereunder, as applicable, and otherwise as may be required pursuant to the laws

 

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of any other necessary jurisdiction, to protect the validity of and to establish
a legal, valid and perfected security interest in favor of the Collateral Agent
(for the benefit of the Secured Parties) in respect of all Article 9 Collateral
consisting of Patents, Trademarks and Copyrights in which a security interest
may be perfected by filing, recording or registration in the United States (or
any political subdivision thereof) and its territories and possessions, and no
further or subsequent filing, refiling, recording, rerecording, registration or
reregistration is necessary (other than such actions as are necessary to perfect
the Security Interest with respect to any Article 9 Collateral consisting of
Patents, Trademarks and Copyrights (or registration or application for
registration thereof) acquired or developed after the date hereof).

(c)        The Security Interest constitutes (i) a legal and valid security
interest in all the Article 9 Collateral securing the payment and performance of
the Obligations, (ii) subject to the filings described in Section 4.02(b), a
perfected first-priority security interest in all Article 9 Collateral (subject
only to Permitted Liens) in which a security interest may be perfected by
filing, recording or registering a financing statement or analogous document in
the United States (or any political subdivision thereof) and its territories and
possessions pursuant to the Uniform Commercial Code or other applicable law in
such jurisdictions and (iii) a first-priority security interest that shall be
perfected in all Article 9 Collateral (subject only to Permitted Liens) in which
a security interest may be perfected upon the receipt and recording of this
Agreement or the Short Form Agreement with the United States Patent and
Trademark Office and the United States Copyright Office, as applicable, within
the three-month period (commencing as of the date hereof) pursuant to 35 U.S.C.
§ 261 or 15 U.S.C. § 1060 or the one month period (commencing as of the date
hereof) pursuant to 17 U.S.C. § 205 and otherwise as may be required pursuant to
the laws of any other necessary jurisdiction. The Security Interest is and shall
be prior to any other Lien on any of the Article 9 Collateral, other than
Permitted Liens that have priority as a matter of law and Permitted Liens
expressly permitted to be prior to the Security Interest pursuant to the
Indenture, the Revolving Facility Agreement and the other Security Documents.

(d)        The Article 9 Collateral is owned by the Grantors free and clear of
any Lien, except for Permitted Liens. None of the Grantors has filed or
consented to the filing of (i) any financing statement or analogous document
under the Uniform Commercial Code or any other applicable laws covering any
Article 9 Collateral, (ii) any assignment in which any Grantor assigns any
Collateral or any security agreement or similar instrument covering any
Article 9 Collateral with the United States Patent and Trademark Office or the
United States Copyright Office or (iii) any assignment in which any Grantor
assigns any Article 9 Collateral or any security agreement or similar instrument
covering any Article 9 Collateral with any foreign governmental, municipal or
other office, which financing statement or analogous document, assignment,
security agreement or similar instrument is still in effect, except, in each
case, for Permitted Liens.

SECTION 4.03.        Covenants.

(a)        Each Grantor agrees promptly to notify the Collateral Agent in
writing of any change in (i) corporate name, (ii) the location of its chief
executive office, its principal place of business or its principal accounting
office, (iii) its identity or type of organization or corporate structure,
(iv) its Federal Taxpayer Identification Number or organizational identification
number or (v) its jurisdiction of organization. Each Grantor agrees to promptly
provide the

 

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Collateral Agent with certified organizational documents reflecting any of the
changes described in the first sentence of this paragraph. Each Grantor agrees
not to effect or permit any change referred to in the preceding sentence unless
all filings have been made (or provisions reasonably satisfactory to the
Administrative Agent or Applicable Authorized Representative to make such
filings prior to the lapse of the perfected security interest granted herein
shall have been made) under the Uniform Commercial Code or otherwise that are
required in order for the Collateral Agent to continue at all times following
such change to have a valid, legal and perfected security interest, having the
priority required by this Agreement, in all the Article 9 Collateral. Each
Grantor agrees promptly to notify the Collateral Agent if (i) any material
portion of the Article 9 Collateral owned or held by such Grantor is damaged,
destroyed, or subject to condemnation and (ii) such Article 9 Collateral is
material to the business of the Company and the Subsidiary Guarantors as a
whole.

(b)        Each year, at the time of delivery of annual financial statements
with respect to the preceding fiscal year pursuant to Section 4.19(a) of the
Indenture and Section 6.1 of the Revolving Facility Agreement, the Issuers shall
deliver to the Collateral Agent a certificate executed by the chief financial
officer and the chief legal officer of the Issuers (i) setting forth the
information required pursuant to the Perfection Certificate or confirming that
there has been no change in such information since the date of such certificate
or the date of the most recent certificate delivered pursuant to this
Section 4.03(b) and (ii) certifying that all Uniform Commercial Code financing
statements (including fixture filings, as applicable) or other appropriate
filings recordings or registrations, including all refilings, rerecordings and
registrations, containing a description of the Collateral have been filed of
record in each governmental, municipal or other appropriate office in each
jurisdiction identified pursuant to clause (a) of this Section 4.03 to the
extent necessary to protect and perfect the Security Interest for a period of
not less than 18 months after the date of such certificate (except as noted
therein with respect to any continuation statements to be filed within such
period). Each certificate delivered pursuant to this Section 4.03(b) shall
identify in the format of Schedule III all registered Intellectual Property and
applications for registration (other than any Intellectual Property that is
Excluded Property) of any Grantor in existence on the date thereof and not then
listed on such Schedules or previously so identified to the Collateral Agent.

(c)        Each Grantor shall, at its own expense, take any and all actions
necessary to defend title to the Article 9 Collateral against all Persons and to
defend the Security Interest of the Collateral Agent in the Article 9 Collateral
and the priority thereof against any Lien not permitted pursuant to Section 4.08
of the Indenture and Section 6.17 of the Revolving Facility Agreement.

(d)        Each Grantor agrees, at its own expense, to execute, acknowledge,
deliver and cause to be duly filed all such further instruments and documents
and take all such actions as the Collateral Agent may from time to time
reasonably request to better assure, preserve, protect and perfect the Security
Interest and the rights and remedies created hereby, including the payment of
any fees and taxes required in connection with the execution and delivery of
this Agreement, the granting of the Security Interest and the filing of any
financing statements (including fixture filings) or other documents in
connection herewith or therewith. If any amount payable under or in connection
with any of the Article 9 Collateral shall be or become evidenced by any
promissory note or other instrument, such note or instrument shall be promptly

 

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pledged and delivered to the Collateral Agent, duly endorsed in a manner
satisfactory to the Collateral Agent.

Without limiting the generality of the foregoing, each Grantor hereby authorizes
the Collateral Agent, with prompt notice thereof to the Grantors, to supplement
this Agreement by supplementing Schedule III or adding additional schedules
hereto to identify specifically any asset or item that may constitute
Copyrights, exclusive Licenses, Patents or Trademarks, provided that any Grantor
shall have the right, exercisable within 10 days after it has been notified by
the Collateral Agent of the specific identification of such Collateral, to
advise the Collateral Agent in writing of any inaccuracy of the representations
and warranties made by such Grantor hereunder with respect to such Collateral.
Each Grantor agrees that it will use commercially reasonable efforts to take
such action as shall be necessary in order that all representations and
warranties hereunder shall be true and correct with respect to such Collateral
within 30 days after the date it has been notified by the Collateral Agent of
the specific identification of such Collateral.

(e)        Upon the occurrence of an Event of Default, the Collateral Agent and
such Persons as the Collateral Agent may reasonably designate shall have the
right, at the Grantors’ own cost and expense, to inspect the Article 9
Collateral, all records related thereto (and to make extracts and copies from
such records) and the premises upon which any of the Article 9 Collateral is
located, to discuss the Grantors’ affairs with the officers of the Grantors and
their independent accountants and to verify under reasonable procedures the
validity, amount, quality, quantity, value, condition and status of, or any
other matter relating to, the Article 9 Collateral, including, in the case of
Accounts or Article 9 Collateral in the possession of any third party, by
contacting Account Debtors or the third party possessing such Article 9
Collateral for the purpose of making such a verification; provided that, in the
event such Event of Default has been cured in accordance with the Revolving
Facility Agreement or the Indenture, as applicable, (i) the Company shall notify
the Collateral Agent of the date of such cure and (ii) the Collateral Agent may
only exercise the rights provided in this paragraph (e) for a period of 90 days
following such cure. The Collateral Agent shall have the absolute right to share
any information it gains from such inspection or verification with any Secured
Party.

(f)        At its option following the occurrence and during the continuance of
an Event of Default, the Collateral Agent may discharge past due taxes,
assessments, charges, fees, Liens, security interests or other encumbrances at
any time levied or placed on the Article 9 Collateral and not permitted pursuant
to Section 4.08 of the Indenture and Section 6.17 of the Revolving Facility
Agreement, and may pay for the maintenance and preservation of the Article 9
Collateral to the extent any Grantor fails to do so as required by the
Indenture, the Revolving Facility Agreement or this Agreement, and each Grantor
jointly and severally agrees to reimburse the Collateral Agent on demand for any
payment made or any expense incurred by the Collateral Agent pursuant to the
foregoing authorization, provided that nothing in this paragraph shall be
interpreted as excusing any Grantor from the performance of, or imposing any
obligation on the Collateral Agent or any Secured Party to cure or perform, any
covenants or other promises of any Grantor with respect to taxes, assessments,
charges, fees, Liens, security interests or other encumbrances and maintenance
as set forth herein, in the Note Documents or in the Revolving Facility
Documents.

 

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(g)        If at any time any Grantor shall take a security interest in any
property of an Account Debtor or any other Person to secure payment and
performance of an Account, such Grantor shall promptly assign such security
interest to the Collateral Agent. Such assignment need not be documented or
filed of public record unless necessary to continue the perfected status of the
security interest against creditors of and transferees from the Account Debtor
or other Person granting the security interest.

(h)        Each Grantor shall remain liable to observe and perform all the
conditions and obligations to be observed and performed by it under each
contract, agreement or instrument relating to the Article 9 Collateral, all in
accordance with the terms and conditions thereof, and each Grantor jointly and
severally agrees to indemnify and hold harmless the Collateral Agent and the
Secured Parties from and against any and all liability for such performance.

(i)        None of the Grantors shall make or permit to be made an assignment,
pledge or hypothecation of the Article 9 Collateral or shall grant any other
Lien in respect of the Article 9 Collateral, except as permitted by the
Indenture and the Revolving Facility Agreement. None of the Grantors shall make
or permit to be made any transfer of the Article 9 Collateral and each Grantor
shall remain at all times in possession of the Article 9 Collateral owned by it,
except that unless and until the Collateral Agent shall notify the Grantors that
an Event of Default shall have occurred and be continuing and that during the
continuance thereof the Grantors shall not sell, convey, lease, assign, transfer
or otherwise dispose of any Article 9 Collateral (which notice may be given by
telephone if promptly confirmed in writing), the Grantors may use and dispose of
the Article 9 Collateral in any lawful manner not inconsistent with the
provisions of this Agreement, the Note Documents or the Revolving Facility
Documents.

(j)        Upon the occurrence and continuance of an Event of Default, none of
the Grantors will, without the Collateral Agent’s prior written consent, grant
any extension of the time of payment of any Accounts included in the Article 9
Collateral, compromise, compound or settle the same for less than the full
amount thereof, release, wholly or partly, any Person liable for the payment
thereof or allow any credit or discount whatsoever thereon, other than
extensions, compromises, settlements, releases, credits or discounts granted or
made in the ordinary course of business and consistent with its current
practices and in accordance with such prudent and standard practice used in
industries that are the same as or similar to those in which such Grantor is
engaged.

(k)        The Grantors, at their own expense, shall maintain or cause to be
maintained insurance covering physical loss or damage to the Inventory and
Equipment. Each Grantor irrevocably makes, constitutes and appoints the
Collateral Agent (and all officers, employees or agents designated by the
Collateral Agent) as such Grantor’s true and lawful agent (and attorney-in-fact)
for the purpose, during the continuance of an Event of Default, of making,
settling and adjusting claims in respect of Article 9 Collateral under policies
of insurance, endorsing the name of such Grantor on any check, draft, instrument
or other item of payment for the proceeds of such policies of insurance and for
making all determinations and decisions with respect thereto. In the event that
any Grantor at any time or times shall fail to obtain or maintain any of the
policies of insurance required hereby or to pay any premium in whole or part
relating thereto, the Collateral Agent may, without waiving or releasing any
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Grantors hereunder or any Event of Default, in its sole discretion, obtain and
maintain such policies of insurance and pay such premium and take any other
actions with respect thereto as the Collateral Agent deems advisable. All sums
disbursed by the Collateral Agent in connection with this paragraph, including
reasonable attorneys’ fees, court costs, expenses and other charges relating
thereto, shall be payable, upon demand, by the Grantors to the Collateral Agent
and shall be additional Obligations secured hereby.

(l)        Each Grantor shall maintain, in a manner consistent with the
practices of similarly situated companies engaged in the same or similar line of
business, records of its Chattel Paper and its books, records and documents
evidencing or pertaining thereto.

(m)        As promptly as practicable, and in any event within 30 days, after
the Issue Date, the Company and each other Credit Party will deliver all
Securities Account Control Agreements that would otherwise have been required to
be delivered on the Issue Date.

SECTION 4.04.        Other Actions. In order to further insure the attachment,
perfection and priority of, and the ability of the Collateral Agent to enforce,
the Security Interest, each Grantor agrees, in each case at such Grantor’s own
expense, to take the following actions with respect to the following Article 9
Collateral:

(a)        Instruments and Tangible Chattel Paper. If any Grantor shall at any
time hold or acquire any Instruments or Tangible Chattel Paper, such Grantor
shall promptly endorse, assign and deliver the same to the Collateral Agent,
accompanied by such instruments of transfer or assignment duly executed in blank
as the Collateral Agent may from time to time reasonably request.

(b)        Deposit Accounts. For each Deposit Account that any Grantor at any
time opens or maintains, such Grantor shall, either (i) cause the depositary
bank to agree to comply with instructions from the Collateral Agent to such
depositary bank directing the disposition of funds from time to time credited to
such deposit account, without further consent of such Grantor or any other
Person, pursuant to an agreement reasonably satisfactory to the Collateral
Agent, or (ii) arrange for the Collateral Agent to become the customer of the
depositary bank with respect to such Deposit Account, with the Grantor being
permitted, only with the consent of the Collateral Agent, to exercise rights to
withdraw funds from such deposit account. The Collateral Agent agrees with each
Grantor that the Collateral Agent shall not give any such instructions or
withhold any withdrawal rights from any Grantor unless an Event of Default has
occurred and is continuing or, after giving effect to any withdrawal would
occur. The provisions of this paragraph shall not apply to (A) any Deposit
Account for which any Grantor, the depositary bank and the Collateral Agent have
entered into a cash collateral agreement specially negotiated among such
Grantor, the depositary bank and the Collateral Agent for the specific purpose
set forth therein, (B) Deposit Accounts for which the Collateral Agent is the
depositary, (C) segregated Deposit Accounts holding exclusively cash collateral
constituting Excluded Property and (D) Excluded Accounts.

(c)        Investment Property. Except to the extent otherwise provided in
Article III, if any Grantor shall at any time hold or acquire any certificated
securities, such Grantor shall promptly endorse, assign and deliver the same to
the Collateral Agent,

 

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accompanied by such instruments of transfer or assignment duly executed in blank
as the Collateral Agent may from time to time specify. If any securities now or
hereafter acquired by any Grantor are uncertificated and are issued to such
Grantor or its nominee directly by the issuer thereof, such Grantor shall
promptly notify the Collateral Agent thereof and, pursuant to an agreement in
form and substance reasonably satisfactory to the Collateral Agent, either
(i) cause the issuer to agree to comply with instructions from the Collateral
Agent as to such securities, without further consent of any Grantor or such
nominee, or (ii) arrange for the Collateral Agent to become the registered owner
of the securities. If any securities, whether certificated or uncertificated, or
other investment property now or hereafter acquired by any Grantor are held by
such Grantor or its nominee through a securities intermediary or commodity
intermediary in a Securities Account that is not an Excluded Account, such
Grantor shall immediately notify the Collateral Agent thereof and, pursuant to
an agreement in form and substance reasonably satisfactory to the Collateral
Agent, either (i) cause such securities intermediary or commodity intermediary,
as the case may be, to agree to comply with entitlement orders or other
instructions from the Collateral Agent to such securities intermediary as to
such security entitlements or to apply any value distributed on account of any
commodity contract as directed by the Collateral Agent to such commodity
intermediary, as the case may be, in each case without further consent of any
Grantor, such nominee, or any other Person, or (ii) in the case of Financial
Assets or other Investment Property held through a securities intermediary,
arrange for the Collateral Agent to become the entitlement holder with respect
to such Investment Property, with the Grantor being permitted, only with the
consent of the Collateral Agent, to exercise rights to withdraw or otherwise
deal with such Investment Property. The Collateral Agent agrees with each of the
Grantors that the Collateral Agent shall not give any such entitlement orders or
instructions or directions to any such issuer, securities intermediary or
commodity intermediary, and shall not withhold its consent to the exercise of
any withdrawal or dealing rights by any Grantor, unless an Event of Default has
occurred and is continuing, or, after giving effect to any such investment and
withdrawal rights, would occur. The provisions of this paragraph shall not apply
to any Financial Assets credited to a securities account for which the
Collateral Agent is the securities intermediary.

(d)        Electronic Chattel Paper and Transferable Records. If any Grantor at
any time holds or acquires an interest in any Electronic Chattel Paper or any
“transferable record,” as that term is defined in Section 201 of the Federal
Electronic Signatures in Global and National Commerce Act, or in Section 16 of
the Uniform Electronic Transactions Act as in effect in any relevant
jurisdiction, such Grantor shall promptly notify the Collateral Agent thereof
and shall take such action necessary to vest in the Collateral Agent control
under New York UCC Section 9-105 of such Electronic Chattel Paper or control
under Section 201 of the Federal Electronic Signatures in Global and National
Commerce Act or, as the case may be, Section 16 of the Uniform Electronic
Transactions Act, as so in effect in such jurisdiction, of such transferable
record. The Collateral Agent agrees with such Grantor that the Collateral Agent
will arrange, pursuant to procedures reasonably satisfactory to the Collateral
Agent and so long as such procedures will not result in the Collateral Agent’s
loss of control, for the Grantor to make alterations to the Electronic Chattel
Paper or transferable record permitted under UCC Section 9-105 or, as the case
may be, Section 201 of the Federal Electronic Signatures in Global and National
Commerce Act or Section 16 of the Uniform Electronic Transactions Act for a
party in control to allow without loss of control, unless an Event of Default
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continuing or would occur after taking into account any action by such Grantor
with respect to such Electronic Chattel Paper or transferable record.

(e)        Letter-of-Credit Rights. If any Grantor is at any time a beneficiary
under a letter of credit now or hereafter issued in favor of such Grantor, such
Grantor shall promptly notify the Collateral Agent thereof and such Grantor
shall, pursuant to an agreement in form and substance reasonably satisfactory to
the Collateral Agent, either (i) arrange for the issuer and any confirmer of
such letter of credit to consent to an assignment to the Collateral Agent of the
proceeds of any drawing under the letter of credit or (ii) arrange for the
Collateral Agent to become the transferee beneficiary of the letter of credit,
with the Collateral Agent agreeing, in each case, that the proceeds of any
drawing under the letter of credit are to be paid to the applicable Grantor
unless an Event of Default has occurred or is continuing.

(f)        Commercial Tort Claims. If any Grantor shall at any time undertake a
Commercial Tort Action, the Grantor shall promptly notify the Collateral Agent
thereof in a writing signed by such Grantor, including a summary description of
such claim, and grant to the Collateral Agent in such writing a first-priority
security interest therein and in the proceeds thereof, all upon the terms of
this Agreement, with such writing to be in form and substance as necessary to
perfect the security interest in such Commercial Tort Action.

SECTION 4.05.        Covenants Regarding Patent, Trademark and Copyright
Collateral.

(a)        Each Grantor agrees that it will not do any act or omit do to any act
(and will exercise commercially reasonable efforts to prevent its licensees from
doing any act omitting to do any act) whereby any Patent material to the conduct
of the businesses of a Grantor may become invalidated or dedicated to the
public, and agrees that it shall continue to mark any products covered by a
Patent that is material to the conduct of such Grantor’s business with the
relevant patent number as necessary and sufficient to establish and preserve its
maximum rights under applicable patent laws.

(b)        Each Grantor (either itself or through its licensees or its
sublicensees) will, for each Trademark material to the conduct of such Grantor’s
business, (i) maintain such Trademark in full force free from any claim of
abandonment or invalidity for non-use, (ii) maintain the quality of products and
services offered under such Trademark, (iii) display such Trademark with notice
of Federal or foreign registration to the extent necessary and sufficient to
establish and preserve its maximum rights under applicable law and (iv) not
knowingly use or knowingly permit the use of such Trademark in violation of any
third party rights.

(c)        Each Grantor (either itself or through its licensees or sublicensees)
will, for each work covered by a Copyright material to the conduct of such
Grantor’s business, continue to publish, reproduce, display, adopt and
distribute the work with appropriate copyright notice as necessary and
sufficient to establish and preserve its maximum rights under applicable
copyright laws.

 

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(d)        Each Grantor shall notify the Collateral Agent promptly if it knows
or has reason to know that any Patent, Trademark or Copyright that is material
to the conduct of a Grantor’s business may become abandoned, lost or dedicated
to the public, or of any materially adverse determination or development
(including the institution of, or any such determination or development in, any
proceeding in the United States Patent and Trademark Office, United States
Copyright Office or any court or similar office of any country) regarding such
Grantor’s ownership of any Patent, Trademark or Copyright material to the
conduct of its business, its right to register the same, or its right to keep
and maintain the same.

(e)        Contemporaneously with the delivery of quarterly financial statements
to the Trustee pursuant to Section 4.19(a) of the Indenture and to the
Administrative Agent pursuant to Section 6.1 of the Revolving Facility
Agreement, each Grantor shall (i) notify the Collateral Agent of any application
for any Patent, Trademark or Copyright (or for the registration of any Trademark
or Copyright) with the United States Patent and Trademark Office, United States
Copyright Office or any office or agency in any political subdivision of the
United States or in any other country or any political subdivision thereof since
the last such notification (or, in the case of the first quarter following the
Issue Date, since the Issue Date), (ii) execute and deliver any and all
agreements, instruments, documents and papers necessary to evidence the
Collateral Agent’s first-priority security interest in such Patent, Trademark or
Copyright and (iii) each Grantor hereby appoints the Collateral Agent as its
attorney-in-fact to execute and file such writings for the foregoing purposes,
all acts of such attorney being hereby ratified and confirmed; such power, being
coupled with an interest, is irrevocable.

(f)        Each Grantor will take all necessary steps that are consistent with
the practice in any proceeding before the United States Patent and Trademark
Office, United States Copyright Office or any office or agency in any political
subdivision of the United States or in any other country or any political
subdivision thereof, to maintain and pursue each material application relating
to the Patents, Trademarks and/or Copyrights (and to obtain the relevant grant
or registration) and to maintain each issued Patent and each registration of the
Trademarks and Copyrights that is material to the conduct of any Grantor’s
business, including timely filings of applications for renewal, affidavits of
use, affidavits of incontestability and payment of maintenance fees, and, if
consistent with good business judgment, to initiate opposition, interference and
cancelation proceedings against third parties.

(g)        In the event that any Grantor has reason to believe that any
Article 9 Collateral consisting of a Patent, Trademark or Copyright material to
the conduct of any Grantor’s business has been or is about to be infringed,
misappropriated or diluted by a third party, such Grantor promptly shall notify
the Collateral Agent and shall, if consistent with good business judgment,
promptly sue for infringement, misappropriation or dilution and to recover any
and all damages for such infringement, misappropriation or dilution, and take
such other actions as are appropriate under the circumstances to protect such
Article 9 Collateral.

(h)        Upon and during the continuance of an Event of Default, each Grantor
shall use commercially reasonable efforts to obtain all requisite consents or
approvals by the licensor of each Copyright License, Patent License or Trademark
License under which such Grantor is a licensee to effect the assignment of all
such Grantor’s right, title and interest thereunder to the Collateral Agent or
its designee.

 

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ARTICLE V

REMEDIES

SECTION 5.01.        Remedies Upon Default. Upon the occurrence and during the
continuance of an Event of Default, each Grantor agrees to deliver each item of
tangible Collateral to the Collateral Agent on demand, and it is agreed that the
Collateral Agent shall, upon the occurrence and during the continuance of an
Event of Default, have the right to take any of or all the following actions at
the same or different times: (a) with respect to any Article 9 Collateral
consisting of Intellectual Property, on demand, to cause the Security Interest
to become an assignment, transfer and conveyance of any of or all such Article 9
Collateral by the applicable Grantors to the Collateral Agent, or to license or
sublicense, whether general, special or otherwise, and whether on an exclusive
or nonexclusive basis, any such Article 9 Collateral throughout the world on
such terms and conditions and in such manner as the Collateral Agent shall
determine (other than in violation of any then-existing licensing arrangements
to the extent that waivers cannot be obtained), and (b) with or without legal
process and with or without prior notice or demand for performance, to take
possession of the Article 9 Collateral and without liability for trespass to
enter any premises where the Article 9 Collateral may be located for the purpose
of taking possession of or removing the Article 9 Collateral and, generally, to
exercise any and all rights afforded to a secured party under the Uniform
Commercial Code or other applicable law. Without limiting the generality of the
foregoing, each Grantor agrees that the Collateral Agent shall have the right,
subject to the mandatory requirements of applicable law, to sell or otherwise
dispose of all or any part of the Collateral at a public or private sale or at
any broker’s board or on any securities exchange, for cash, upon credit or for
future delivery as the Collateral Agent shall deem appropriate. The Collateral
Agent shall be authorized at any such sale of securities (if it deems it
advisable to do so) to restrict the prospective bidders or purchasers to Persons
who will represent and agree that they are purchasing the Collateral for their
own account for investment and not with a view to the distribution or sale
thereof, and upon consummation of any such sale the Collateral Agent shall have
the right to assign, transfer and deliver to the purchaser or purchasers thereof
the Collateral so sold. Each such purchaser at any sale of Collateral shall hold
the property sold absolutely free from any claim or right on the part of any
Grantor, and each Grantor hereby waives (to the extent permitted by law) all
rights of redemption, stay and appraisal that such Grantor now has or may at any
time in the future have under any rule of law or statute now existing or
hereafter enacted.

The Collateral Agent shall give the applicable Grantors 10 days’ written notice
(which each Grantor agrees is reasonable notice within the meaning of
Section 9-611 of the New York UCC or its equivalent in other jurisdictions) of
the Collateral Agent’s intention to make any sale of Collateral. Such notice, in
the case of a public sale, shall state the time and place for such sale and, in
the case of a sale at a broker’s board or on a securities exchange, shall state
the board or exchange at which such sale is to be made and the day on which the
Collateral or portion thereof, will first be offered for sale at such board or
exchange. Any such public sale shall be held at such time or times within
ordinary business hours and at such place or places as the Collateral Agent may
fix and state in the notice (if any) of such sale. At any such sale, the
Collateral, or portion thereof, to be sold may be sold in one lot as an entirety
or in separate parcels, as the Collateral Agent may (in its sole and absolute
discretion) determine. The Collateral Agent shall not be obligated to make any
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to do so, regardless of the fact that notice of sale of such Collateral shall
have been given. The Collateral Agent may, without notice or publication,
adjourn any public or private sale or cause the same to be adjourned from time
to time by announcement at the time and place fixed for sale, and such sale may,
without further notice, be made at the time and place to which the same was so
adjourned. In case any sale of all or any part of the Collateral is made on
credit or for future delivery, the Collateral so sold may be retained by the
Collateral Agent until the sale price is paid by the purchaser or purchasers
thereof, but the Collateral Agent shall not incur any liability in case any such
purchaser or purchasers shall fail to take up and pay for the Collateral so sold
and, in case of any such failure, such Collateral may be sold again upon like
notice. At any public (or, to the extent permitted by law, private) sale made
pursuant to this Agreement, any Secured Party may bid for or purchase, free (to
the extent permitted by law) from any right of redemption, stay, valuation or
appraisal on the part of any Grantor (all said rights being also hereby waived
and released to the extent permitted by law), the Collateral or any part thereof
offered for sale and may make payment on account thereof by using any claim then
due and payable to such Secured Party from any Grantor as a credit against the
purchase price, and such Secured Party may, upon compliance with the terms of
sale, hold, retain and dispose of such property without further accountability
to any Grantor therefor. For purposes hereof, a written agreement to purchase
the Collateral or any portion thereof shall be treated as a sale thereof; the
Collateral Agent shall be free (if such agreement cannot be reasonably
rescinded) to consummate such sale pursuant to such agreement and no Grantor
shall be entitled to the return of the Collateral or any portion thereof subject
thereto, notwithstanding the fact that after the Collateral Agent shall have
entered into such an agreement all Events of Default shall have been remedied
and the Obligations paid in full. As an alternative to exercising the power of
sale herein conferred upon it, the Collateral Agent may proceed by a suit or
suits at law or in equity to foreclose this Agreement and to sell the Collateral
or any portion thereof pursuant to a judgment or decree of a court or courts
having competent jurisdiction or pursuant to a proceeding by a court-appointed
receiver. Any sale pursuant to the provisions of this Section 5.01 shall be
deemed to conform to the commercially reasonable standards as provided in
Section 9-610(b) of the New York UCC or its equivalent in other jurisdictions.

SECTION 5.02.        Application of Proceeds. The Collateral Agent shall apply
the proceeds of any collection or sale of Collateral in accordance with the
terms specified in Section 2.01 of the Intercreditor Agreement. In the event no
Intercreditor Agreement is in effect at any time, the Collateral Agent shall
apply the proceeds of any collection or sale of Collateral, including any
Collateral consisting of cash, as follows:

FIRST, to the payment of all agent’s fees and collateral management fees of the
Collateral Agent and all fees, costs and expenses incurred by the Collateral
Agent in connection with such collection or sale or otherwise in connection with
this Agreement, any other Note Document, any other Revolving Facility Document
or any of the Obligations, including all court costs and the fees and expenses
of its agents and legal counsel, all amounts payable in respect of Indemnified
Liabilities (as defined in the Real Property Collateral Management Agreement) to
the extent such Indemnified Liabilities are matured, payable and owing to the
Collateral Agent and its related Indemnified Parties (as defined in the Real
Property Collateral Management Agreement), the repayment of all advances made by
the Collateral Agent hereunder, under any other Note Document or under any other
Revolving Facility Document on behalf of any Grantor and

 

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any other costs or expenses incurred in connection with the exercise of any
right or remedy hereunder, under any other Note Document or under any other
Revolving Facility Document;

SECOND, to the payment in full of the Revolving Facility Obligations (the
amounts so applied to be distributed among the Secured Parties pro rata in
accordance with the amounts of the Revolving Facility Obligations owed to them
on the date of any such distribution);

THIRD, to the payment in full of the Notes Obligations (the amounts so applied
to be distributed among the Secured Parties pro rata in accordance with the
amounts of the Notes Obligations owed to them on the date of any such
distribution); and

FOURTH, to the Grantors, their successors or assigns, or as a court of competent
jurisdiction may otherwise direct.

The Collateral Agent is hereby authorized to establish and maintain as a blocked
account under the sole dominion and control of the Collateral Agent, a
restricted deposit account designated as “Shea Homes Collateral Account” into
which the Collateral Agent may deposit proceeds of Collateral. All amounts at
any time held in the Collateral Account shall be beneficially owned by Grantors
but shall be held in the name of the Collateral Agent hereunder, as collateral
security for the Obligations upon the terms and conditions set forth herein.
Grantors shall have no right to withdraw, transfer or, except as expressly set
forth herein or in the Intercreditor Agreement, otherwise receive any funds
deposited into the Collateral Account. Cash held by the Collateral Agent in the
Collateral Account shall not be invested by the Collateral Agent but instead
shall be maintained as a cash deposit in the Collateral Account pending
application thereof as elsewhere provided in this Agreement or in the
Intercreditor Agreement. Subject to the Collateral Agent’s rights hereunder, any
interest, if any, earned on deposits of cash in the Collateral Account shall be
deposited directly in, and held in, the Collateral Account.

The Collateral Agent is hereby authorized to establish and maintain accounts at
such banking institutions necessary or appropriate to receive and distribute
proceeds in accordance with this Section 5.02, the Security Documents, the
Revolving Facility Documents and the Notes Documents.

SECTION 5.03.        Grant of License to Use Intellectual Property. For the
purpose of enabling the Collateral Agent to exercise rights and remedies under
this Agreement at such time as the Collateral Agent shall be lawfully entitled
to exercise such rights and remedies, each Grantor hereby grants to the
Collateral Agent an irrevocable, nonexclusive license (exercisable without
payment of royalty or other compensation to the Grantors) to use, license or
sublicense any of the Article 9 Collateral consisting of Intellectual Property
now owned or hereafter acquired by such Grantor, and wherever the same may be
located, and including in such license reasonable access to all media in which
any of the licensed items may be recorded or stored and to all computer software
and programs used for the compilation or printout thereof. The use of such
license by the Collateral Agent may be exercised, at the option of the
Collateral Agent, upon the occurrence and during the continuation of an Event of
Default, provided that any license, sublicense or other transaction entered into
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herewith shall be binding upon the Grantors notwithstanding any subsequent cure
of an Event of Default.

SECTION 5.04.    Securities Act. In view of the position of the Grantors in
relation to the Pledged Collateral, or because of other current or future
circumstances, a question may arise under the Securities Act of 1933, as now or
hereafter in effect, or any similar statute hereafter enacted analogous in
purpose or effect (such Act and any such similar statute as from time to time in
effect being called the “Federal Securities Laws”) with respect to any
disposition of the Pledged Collateral permitted hereunder. Each Grantor
understands that compliance with the Federal Securities Laws might very strictly
limit the course of conduct of the Collateral Agent if the Collateral Agent were
to attempt to dispose of all or any part of the Pledged Collateral, and might
also limit the extent to which or the manner in which any subsequent transferee
of any Pledged Collateral could dispose of the same. Similarly, there may be
other legal restrictions or limitations affecting the Collateral Agent in any
attempt to dispose of all or part of the Pledged Collateral under applicable
Blue Sky or other state securities laws or similar laws analogous in purpose or
effect. Each Grantor recognizes that in light of such restrictions and
limitations the Collateral Agent may, with respect to any sale of the Pledged
Collateral, limit the purchasers to those who will agree, among other things, to
acquire such Pledged Collateral for their own account, for investment, and not
with a view to the distribution or resale thereof. Each Grantor acknowledges and
agrees that in light of such restrictions and limitations, the Collateral Agent,
in its sole and absolute discretion, (a) may proceed to make such a sale whether
or not a registration statement for the purpose of registering such Pledged
Collateral or part thereof shall have been filed under the Federal Securities
Laws and (b) may approach and negotiate with a single potential purchaser to
effect such sale. Each Grantor acknowledges and agrees that any such sale might
result in prices and other terms less favorable to the seller than if such sale
were a public sale without such restrictions. In the event of any such sale, the
Collateral Agent shall incur no responsibility or liability for selling all or
any part of the Pledged Collateral at a price that the Collateral Agent, in its
sole and absolute discretion, may in good faith deem reasonable under the
circumstances, notwithstanding the possibility that a substantially higher price
might have been realized if the sale were deferred until after registration as
aforesaid or if more than a single purchaser were approached. The provisions of
this Section 5.04 will apply notwithstanding the existence of a public or
private market upon which the quotations or sales prices may exceed
substantially the price at which the Collateral Agent sells.

ARTICLE VI

INDEMNITY, SUBROGATION AND SUBORDINATION

SECTION 6.01.        Indemnity and Subrogation. In addition to all such rights
of indemnity and subrogation as the Guarantors may have under applicable law
(but subject to Section 6.03), the Issuers agree that (a) in the event a payment
in respect of any obligation shall be made by any Guarantor under the Indenture
or the Revolving Facility Agreement, the Issuers shall indemnify such Guarantor
for the full amount of such payment and such Guarantor shall be subrogated to
the rights of the Person to whom such payment shall have been made to the extent
of such payment and (b) in the event any assets of any Guarantor shall be sold
pursuant to this Agreement or any other Security Document to satisfy in whole or
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any Secured Party, the Issuers shall indemnify such Guarantor in an amount equal
to the greater of the book value or the fair market value of the assets so sold.

SECTION 6.02.        Contribution and Subrogation. Each Guarantor (a
“Contributing Party”) agrees (subject to Section 6.03) that, in the event a
payment shall be made by any other Guarantor hereunder in respect of any
Obligation or assets of any other Guarantor shall be sold pursuant to any
Security Document to satisfy any Obligation owed to any Secured Party and such
other Guarantor (the “Claiming Party”) shall not have been fully indemnified by
the Issuers as provided in Section 6.01, the Contributing Party shall indemnify
the Claiming Party in an amount equal to the amount of such payment or the
greater of the book value or the fair market value of such assets, as the case
may be, in each case multiplied by a fraction of which the numerator shall be
the net worth of the Contributing Party on the date hereof and the denominator
shall be the aggregate net worth of all the Guarantors on the date hereof (or,
in the case of any Guarantor becoming a party hereto pursuant to Section 7.14,
the date of the supplement hereto executed and delivered by such Guarantor). Any
Contributing Party making any payment to a Claiming Party pursuant to this
Section 6.02 shall (subject to Section 6.03) be subrogated to the rights of such
Claiming Party under Section 6.01 to the extent of such payment.

SECTION 6.03.        Subordination.

(a)        Notwithstanding any provision of this Agreement to the contrary, all
rights of the Guarantors under Sections 6.01 and 6.02 and all other rights of
the Guarantors of indemnity, contribution or subrogation under applicable law or
otherwise shall be fully subordinated to the payment in full in cash of the
Obligations. No failure on the part of the Issuers or any Guarantor to make the
payments required by Sections 6.01 and 6.02 (or any other payments required
under applicable law or otherwise) shall in any respect limit the obligations
and liabilities of any Guarantor with respect to its obligations hereunder, and
each Guarantor shall remain liable for the full amount of the obligations of
such Guarantor hereunder.

(b)        Each Guarantor hereby agrees that all Indebtedness and other monetary
obligations owed by it to, or to it by, any other Guarantor, either of the
Issuers or any other Subsidiary shall be fully subordinated to the payment in
full in cash of the Obligations.

ARTICLE VII

MISCELLANEOUS

SECTION 7.01.        Notices. All communications and notices hereunder shall
(except as otherwise expressly permitted herein) be in writing and given as
provided in Section 13.03 of the Indenture and Section 13.1 of the Revolving
Facility Agreement, as applicable. All communications and notices hereunder to
any Guarantor shall be given to it in care of the Issuers as provided in
Section 13.1 of the Revolving Facility Agreement or, if the Revolving Facility
is no longer in effect, as provided in Section 13.03 of the Indenture. As
expressly agreed to in writing by any party hereto from time to time, notices
and other communications to such party may also be delivered by email to the
email address of a representative of such party provided by such party from time
to time.

 

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SECTION 7.02.        Waivers; Amendment. (a) No failure or delay by the
Collateral Agent or Holder in exercising any right or power hereunder or under
any other Note Document shall operate as a waiver thereof, nor shall any single
or partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. The rights
and remedies of the Collateral Agent, the Holders and the Revolving Facility
Lenders hereunder, under the other Note Documents and under the other Revolving
Facility Documents are cumulative and are not exclusive of any rights or
remedies that they would otherwise have. No waiver of any provision of this
Agreement or consent to any departure by any Grantor therefrom shall in any
event be effective unless the same shall be permitted by paragraph (b) of this
Section 7.02, and then such waiver or consent shall be effective only in the
specific instance and for the purpose for which given. No notice or demand on
any Grantor in any case shall entitle any Grantor to any other or further notice
or demand in similar or other circumstances.

(b)        Neither this Agreement nor any provision hereof may be waived,
amended or modified except pursuant to an agreement or agreements in writing
entered into by the Collateral Agent and the Grantor or Grantors with respect to
which such waiver, amendment or modification is to apply, subject to any consent
required in accordance with Sections 9.01 and 9.02 of the Indenture and
Section 8.4 (or other applicable provisions) of the Revolving Facility
Agreement.

SECTION 7.03.        Collateral Agent’s Fees and Expenses; Indemnification.

(a)        The parties hereto agree that the Collateral Agent shall be entitled
to reimbursement of its fees, expenses and other amounts owed to it under this
Agreement, Sections 7 and 8 of the Real Property Collateral Management Agreement
and Section 2.01(b) of the Intercreditor Agreement.

(b)        Without limitation of its indemnification obligations under the other
Note Documents and the other Revolving Facility Documents, each Grantor jointly
and severally agrees to indemnify the Secured Parties against, and hold each
Secured Party harmless from, any and all losses, claims, damages, liabilities
and related expenses, including the fees, charges and disbursements of any
counsel for any Secured Party, incurred by or asserted against any Secured Party
by any third party or by any Grantor arising out of, in connection with, or as a
result of, the execution, delivery or performance of this Agreement or any
claim, litigation, investigation or proceeding relating to any of the foregoing
agreement or instrument contemplated hereby, or to the Collateral, whether or
not any Secured Party is a party thereto, provided that such indemnity shall
not, as to any Secured Party, be available to the extent that such losses,
claims, damages, liabilities or related expenses are determined by a court of
competent jurisdiction by final judgment to have resulted from the gross
negligence or willful misconduct of such Secured Party.

(c)        Any such amounts payable as provided hereunder shall be additional
Obligations secured hereby and by the other Security Documents. The provisions
of this Section 7.03 shall remain operative and in full force and effect
regardless of the termination of this Agreement or any other Note Document, the
consummation of the transactions contemplated hereby, the repayment of any of
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provision of this Agreement or any other Note Document or any investigation made
by or on behalf of the Collateral Agent or any other Secured Party. All amounts
due under this Section 7.03 shall be payable on written demand therefor.

SECTION 7.04.        Successors and Assigns. Whenever in this Agreement any of
the parties hereto is referred to, such reference shall be deemed to include the
permitted successors and assigns of such party; and all covenants, promises and
agreements by or on behalf of any Grantor or the Collateral Agent that are
contained in this Agreement shall bind and inure to the benefit of their
respective successors and assigns.

SECTION 7.05.        Survival of Agreement. All covenants, agreements,
representations and warranties made by the Grantors in the Note Documents, the
Revolving Facility Documents and in the certificates or other instruments
prepared or delivered in connection with or pursuant to this Agreement, any
other Note Document or any other Revolving Facility Document shall be considered
to have been relied upon by the Holders’ and Revolving Facility Lenders and
shall survive the execution and delivery of the Note Documents, the Revolving
Facility Documents and the issuance of the Notes and Letters of Credit,
regardless of any investigation made by any Holder of Participant or on their
behalf and notwithstanding that the Collateral Agent or any Holder may have had
notice or knowledge of any Default or incorrect representation or warranty at
the time any Notes are issued under the Indenture or any Letters of Credit are
issued under the Revolving Facility Agreement, and shall continue in full force
and effect as long as any Obligation is outstanding and unpaid. This Agreement
shall survive and continue in full force and effect in any Insolvency or
Liquidation Proceeding.

SECTION 7.06.        Counterparts; Effectiveness; Several Agreement. This
Agreement may be executed in counterparts, each of which shall constitute an
original but all of which when taken together shall constitute a single
contract. Delivery of an executed signature page to this Agreement by facsimile
transmission shall be effective as delivery of a manually signed counterpart of
this Agreement. This Agreement shall become effective as to any Grantor when a
counterpart hereof executed on behalf of such Grantor shall have been delivered
to the Collateral Agent and a counterpart hereof shall have been executed on
behalf of the Collateral Agent, and thereafter shall be binding upon such
Grantor and the Collateral Agent and their respective permitted successors and
assigns, and shall inure to the benefit of such Grantor, the Collateral Agent
and the other Secured Parties and their respective successors and assigns,
except that no Grantor shall have the right to assign or transfer its rights or
obligations hereunder or any interest herein or in the Collateral (and any such
assignment or transfer shall be void) except as expressly contemplated by this
Agreement, the Indenture or the Revolving Facility Agreement. This Agreement
shall be construed as a separate agreement with respect to each Grantor and may
be amended, modified, supplemented, waived or released with respect to any
Grantor without the approval of any other Grantor and without affecting the
obligations of any other Grantor hereunder.

SECTION 7.07.        Severability. Any provision of this Agreement held to be
invalid, illegal or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability without affecting the validity, legality and enforceability of
the remaining provisions hereof; and the invalidity of a particular provision in
a particular jurisdiction shall not invalidate such provision in any other
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parties shall endeavor in good-faith negotiations to replace the invalid,
illegal or unenforceable provisions with valid provisions the economic effect of
which comes as close as possible to that of the invalid, illegal or
unenforceable provisions.

SECTION 7.08.        Reserved.

SECTION 7.09.        Governing Law; Jurisdiction; Consent to Service of Process.
(a) This Agreement shall be construed in accordance with and governed by the law
of the State of New York.

(b)        Each of the Grantors hereby irrevocably and unconditionally submits,
for itself and its property, to the exclusive jurisdiction of the Supreme Court
of the State of New York sitting in New York County and of the United States
District Court of the Southern District of New York, and any appellate court
from any thereof, in any action or proceeding arising out of or relating to this
Agreement, any other Note Document, any other Revolving Facility Document or for
recognition or enforcement of any judgment, and each of the parties hereto
hereby irrevocably and unconditionally agrees that all claims in respect of any
such action or proceeding may be heard and determined in such New York State or,
to the extent permitted by law, in such Federal court. Each of the Grantors
hereto agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law. Nothing in this Agreement, any other Note
Document or any other Revolving Facility Document shall affect any right that
the Collateral Agent or any Holder or Participant may otherwise have to bring
any action or proceeding relating to this Agreement, any other Note Document or
any other Revolving Facility Document against any Grantor or their respective
properties in the courts of any jurisdiction.

(c)        Each of the Grantors hereby irrevocably and unconditionally waives,
to the fullest extent it may legally and effectively do so, any objection that
it may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement, any other Note Document
or any other Revolving Facility Document in any court referred to in paragraph
(b) of this Section 7.09. Each of the Grantors hereto hereby irrevocably waives,
to the fullest extent permitted by law, the defense of an inconvenient forum to
the maintenance of such action or proceeding in any such court.

(d)        Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 7.01. Nothing in this
Agreement, any other Note Document or any other Revolving Facility Document will
affect the right of any party to this Agreement to serve process in any other
manner permitted by law.

SECTION 7.10.        WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY 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, ANY OTHER NOTE DOCUMENT, ANY OTHER REVOLVING
FACILITY DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON
CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO
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REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES
THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS
AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS
SECTION 7.10.

SECTION 7.11.        Headings. Article and Section headings and the Table of
Contents used herein are for convenience of reference only, are not part of this
Agreement and shall not affect the construction of, or be taken into
consideration in interpreting, this Agreement.

SECTION 7.12.        Security Interest Absolute. All rights of the Collateral
Agent hereunder, the Security Interest, the grant of a security interest in the
Pledged Collateral and all obligations of each Grantor hereunder shall be
absolute and unconditional irrespective of (a) any lack of validity or
enforceability of the Indenture, any other Note Document, the Revolving Facility
Agreement, any other Revolving Facility Document, any agreement with respect to
any of the Obligations, or any other agreement or instrument relating to any of
the foregoing, (b) any change in the time, manner or place of payment of, or in
any other term of, all or any of the Obligations, or any other amendment or
waiver of or any consent to any departure from the Indenture, any other Note
Document, the Revolving Facility Agreement, any other Revolving Facility
Document or any other agreement or instrument, (c) any exchange, release or
non-perfection of any Lien on other collateral, or any release or amendment or
waiver of or consent under or departure from any guarantee, securing or
guaranteeing all or any of the Obligations or (d) any other circumstance that
might otherwise constitute a defense available to, or a discharge of, any
Grantor in respect of the Obligations or this Agreement.

SECTION 7.13.        Termination or Release.

(a)        This Agreement, the Security Interest and all other security
interests granted hereby shall terminate when (i) all the Obligations have been
paid in full or (ii) upon discharge of the Indenture or defeasance of the Notes
as set forth in Article VIII of the Indenture and the Revolving Facility
Obligations have been paid in full in cash or immediately available funds and
the Revolving Facility Lenders have no further commitment to extend credit under
the Revolving Facility Agreement and the LC Obligations has been reduced to zero
(or cash-collateralized or supported by back-to-back letters of credit in form
and substance and from an issuing bank reasonably satisfactory to the LC Issuer
and the Administrative Agent) and each LC Issuer has no further obligations to
issue Letters of Credit under the Revolving Facility Agreement.

(b)        A Guarantor shall automatically be released from its obligations
hereunder and the Security Interest in the Collateral of such Guarantor shall be
automatically released when such Guarantor’s Guarantee is released in accordance
with the terms of the Indenture and the Revolving Facility Agreement, which
terms shall include, if applicable, the obtaining of the consent of the
requisite Secured Parties as provided for in the Indenture and the Revolving
Facility agreement.

(c)        In connection with any disposition of Collateral to any Person other
than the Company, the Corporate Issuer or any of the Subsidiaries (but excluding
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subject to Section 4.10 of the Indenture and Section 6.24 of the Revolving
Facility Agreement where the recipient is required to become the obligor on the
Notes or a Guarantee) that is permitted by the Indenture and the Revolving
Facility Agreement, the security interest in such Collateral shall be
automatically released.

(d)        With the consent of the requisite Secured Parties in accordance with
Section 9.02 of the Indenture and Section 8.3 of the Revolving Facility
Agreement including consents obtained in connection with a tender offer or
exchange offer for, or purchase of, Notes, the Security Interest in any
Collateral, the release of which is the subject of such consents, shall be
automatically released.

(e)        In connection with any termination or release pursuant to
paragraph (a), (b), (c) or (d) of this Section 7.13, the Collateral Agent shall
execute and deliver to any Grantor, at such Grantor’s expense, all documents
that such Grantor shall reasonably request to evidence such termination or
release. Any execution and delivery of documents pursuant to this Section 7.13
shall be without recourse to or warranty by the Collateral Agent.

SECTION 7.14.        Additional Guarantors. Pursuant to Section 4.22 of the
Indenture and Section 6.24 of the Revolving Facility Agreement, each Person that
becomes a Guarantor under the Indenture or Revolving Facility Agreement after
the Issue Date is required to enter into this Agreement (and other applicable
Security Documents) as a Grantor upon becoming such a Guarantor. Upon execution
and delivery by the Collateral Agent and such an additional Guarantor of an
instrument in the form of Exhibit A hereto, such Guarantor shall become a
Grantor under this Agreement (and the other Security Documents specified
therein) with the same force and effect as if originally named as a Grantor
herein (and in such other Security Documents). The execution and delivery of any
such instrument shall not require the consent of any other Grantor hereunder (or
under any other Security Document). The rights and obligations of each Grantor
hereunder (and under all other Security Documents) shall remain in full force
and effect notwithstanding the addition of any new Grantor as a party to this
Agreement (or to other Security Documents).

SECTION 7.15.        Collateral Agent Appointed Attorney-in-Fact. Each Grantor
hereby appoints the Collateral Agent the attorney-in-fact of such Grantor for
the purpose of carrying out the provisions of this Agreement and taking any
action and executing any instrument that the Collateral Agent may deem necessary
or advisable to accomplish the purposes hereof, which appointment is irrevocable
and coupled with an interest; provided that, unless otherwise provided for
herein, such power of attorney may only be exercised upon the occurrence of an
Event of Default. Without limiting the generality of the foregoing, the
Collateral Agent shall have the right, upon the occurrence and during the
continuance of an Event of Default, with full power of substitution either in
the Collateral Agent’s name or in the name of such Grantor (a) to receive,
endorse, assign and/or deliver any and all notes, acceptances, checks, drafts,
money orders or other evidences of payment relating to the Collateral or any
part thereof; (b) to demand, collect, receive payment of, give receipt for and
give discharges and releases of all or any of the Collateral; (c) to sign the
name of any Grantor on any invoice or bill of lading relating to any of the
Collateral; (d) to send verifications of Accounts to any Account Debtor; (e) to
commence and prosecute any and all suits, actions or proceedings at law or in
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realize on all or any of the Collateral or to enforce any rights in respect of
any Collateral; (f) to settle, compromise, compound, adjust or defend any
actions, suits or proceedings relating to all or any of the Collateral; (g) to
notify, or to require any Grantor to notify, Account Debtors to make payment
directly to the Collateral Agent; and (h) to use, sell, assign, transfer,
pledge, make any agreement with respect to or otherwise deal with all or any of
the Collateral, and to do all other acts and things necessary to carry out the
purposes of this Agreement, as fully and completely as though the Collateral
Agent were the absolute owner of the Collateral for all purposes, provided that
nothing herein contained shall be construed as requiring or obligating the
Collateral Agent to make any commitment or to make any inquiry as to the nature
or sufficiency of any payment received by the Collateral Agent, or to present or
file any claim or notice, or to take any action with respect to the Collateral
or any part thereof or the moneys due or to become due in respect thereof or any
property covered thereby. The Collateral Agent and the other Secured Parties
shall be accountable only for amounts actually received as a result of the
exercise of the powers granted to them herein, and neither they nor their
officers, directors, employees or agents shall be responsible to any Grantor for
any act or failure to act hereunder, except for their own gross negligence or
wilful misconduct. The Collateral Agent shall be deemed to have exercised
reasonable care in the custody and preservation of Collateral in its possession
if such Collateral is accorded treatment substantially equal to that which the
Collateral Agent accords its own property.

SECTION 7.16.        Intercreditor Agreement Govern. Reference is made to the
Intercreditor Agreement. Notwithstanding any other provision contained herein,
this Agreement, the Liens created hereby and the rights, remedies, duties and
obligations provided for herein are subject in all respects to the terms of the
Intercreditor Agreement. In the event of any conflict or inconsistency between
the provisions of this Agreement and the terms of the Intercreditor Agreement,
the terms of the Intercreditor Agreement shall control.

SECTION 7.17.        Joint Obligor/Suretyship Provisions. Each Credit Party
hereby acknowledges and agrees to the following:

(a)        For all purposes of enforcing the remedies provided for in the
Security Documents, each Credit Party (i) hereby irrevocably appoints each of
the other Credit Parties the other as its agent and attorney-in-fact, including
the giving and receiving of notices and other communications in accordance with
the notice provisions of the Security Documents, and (ii) hereby agrees to
indemnify and defend the Secured Parties against, and hold the Secured Parties
harmless from, any and all liabilities, expenses, losses, damages and/or claims
of damage or injury asserted against Secured Parties by any Credit Party or by
any other Person arising from or incurred by reason of reliance by Secured
Parties on any requests or instructions from any Credit Party.

(b)        Each Credit Party acknowledges that the Liens created or granted
pursuant to the Security Documents will secure Obligations of all Credit Parties
under (without limitation) the Note Documents and the Revolving Facility
Documents and, in full recognition of that fact, each Credit Party consents and
agrees that Secured Parties may, at any time and from time to time, without
notice or demand, and without affecting the enforceability or security hereof or
of any other Note Document, Revolving Security Document or Security Document
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this Section 7.17 to “Credit Parties” shall mean each Credit Party and all
Credit Parties, and to “Secured Parties” shall mean each Secured Party and all
Secured Parties):

(1)        agree with one or more Credit Parties to supplement, modify, amend,
extend, renew, accelerate, or otherwise change the time for payment or the terms
of the Obligations or any part thereof, including any increase or decrease of
the rate(s) of interest thereon;

(2)        agree with one or more Credit Parties to supplement, modify, amend or
waive, or enter into or give any agreement, approval or consent with respect to,
the Obligations or any part thereof or any of the Note Documents, the Revolving
Facility Documents or the Security Documents (collectively referred to in this
Section 7.17 as the “Credit Documents”), or any condition, covenant, default,
remedy, right, representation or term thereof or thereunder;

(3)        accept new or additional instruments, documents or agreements in
exchange for or relative to any of the Credit Documents or the Obligations or
any part thereof;

(4)        accept partial payments on the Obligations;

(5)        receive and hold additional security or guaranties for the
Obligations or any part thereof;

(6)        release, reconvey, terminate, waive, abandon, subordinate, exchange,
substitute, transfer and enforce any security for or guaranties of the
Obligations, and apply any security and direct the order or manner of sale
thereof as Secured Parties in their sole and absolute discretion may determine;

(7)        release any obligor, any guarantor, any indemnitor or any other
Person from any personal liability with respect to the Obligations or any part
thereof;

(8)        settle, release on terms satisfactory to Secured Parties or by
operation of applicable laws, or otherwise liquidate or enforce in any manner
any Obligations and any security therefor or guaranty thereof, and consent to
the transfer of any such security and bid and purchase at any sale; and

(9)        consent to the merger, change or any other restructuring or
termination of the legal existence of any Credit Party or any other Person, and
correspondingly restructure the obligations of such Credit Party or other
Person, and any such merger, change, restructuring or termination shall not
affect the liability of any Credit Party or the continuing existence of any lien
or security interest hereunder or under any other Credit Document to which any
Credit Party is a party or the enforceability hereof or thereof with respect to
all or any part of the Obligations.

 

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(c) Upon and during the continuance of any Event of Default, Secured Parties may
enforce this Agreement and the other Credit Documents independently as to each
Credit Party and independently of any other remedy or security that Secured
Parties at any time may have or hold in connection with the Obligations, and in
collecting on the Obligations it shall not be necessary for Secured Parties to
marshal assets in favor of any Credit Party or any other Person or to proceed
upon or against and/or exhaust any other security or remedy before proceeding to
enforce this Agreement and the other Credit Documents. Each Credit Party
expressly waives any right to require Secured Parties, in connection with
Secured Parties’ efforts to obtain repayment of the Obligations, to marshal
assets in favor of any Credit Party or any other Person or to proceed against
any other Person or any Collateral provided by any other Person, and agrees that
Secured Parties may proceed against any Persons and/or Collateral in such order
as they shall determine in their sole and absolute discretion in connection with
Secured Parties’ efforts to obtain repayment of the Obligations. Secured Parties
may file a separate action or actions against each Credit Party to enforce the
Obligations, whether action is brought or prosecuted with respect to any other
security or against any other Person, or whether any other Person is joined in
any such action or actions. Each Credit Party agrees that Secured Parties, each
Credit Party and/or any other Person may deal with each other in connection with
the Obligations or otherwise, or alter any contracts or agreements now or
hereafter existing between any of them, in any manner whatsoever, all without in
any way altering or affecting the security of this Agreement or the other Credit
Documents. The rights of Secured Parties hereunder and under the other Credit
Documents shall be reinstated and revived, and the enforceability of this
Agreement and the other Credit Documents shall continue, with respect to any
amount at any time paid on account of the Obligations which thereafter shall be
required to be restored or returned by Secured Parties as a result of the
bankruptcy, insolvency or reorganization of any Credit Party or any other
Person, or otherwise, all as though such amount had not been paid. The
enforceability of this Agreement and the other Credit Documents at all times
shall remain effective as to each Credit Party even though any or all of the
Obligations, or any other security or guaranty therefor, may be or hereafter may
become invalid or otherwise unenforceable as against any other Credit Party or
any other Person and whether or not any other Credit Party or any other Person
shall have any personal liability with respect thereto. Each Credit Party
expressly waives any and all defenses to the enforcement of its obligations
under the Credit Documents now or hereafter arising or asserted by reason of
(a) any disability or other defense of any other Credit Party or any other
Person with respect to the Obligations, (b) the unenforceability or invalidity
of any security or guaranty for the Obligations or the lack of perfection or
continuing perfection or failure of priority of any security for the
Obligations, (c) the cessation for any cause whatsoever of the liability of any
other Credit Party or any other Person (other than by reason of the full and
final payment and performance of all Obligations), (d) any failure of Secured
Parties to marshal assets in favor of any of Credit Parties or any other Person,
(e) any failure of Secured Parties to give notice of sale or other disposition
of any Collateral for the Obligations to any other Credit Party or to any other
Person or any defect in any notice that may be given to any other Credit Party
or any other Person in connection with any such sale or disposition, (f) any
failure of Secured Parties to comply in any non-material respect with applicable
laws in connection with the sale or other disposition of any Collateral or other
security for the Obligations, (g) any act or omission of Secured Parties or
others that directly or indirectly results in or aids the discharge or release
of any other Credit Party or of any other Person or any security or guaranty for
the Obligations by operation of law or otherwise, (h)

 

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any law which provides that the obligation of a surety or guarantor must neither
be larger in amount nor in other respects more burdensome than that of the
principal or which reduces a surety’s or guarantor’s obligation in proportion to
the principal obligation, (i) any failure of Secured Parties to file or enforce
a claim in any bankruptcy or other proceeding with respect to any other Credit
Party or any other Person, (j) the election by Secured Parties, in any
bankruptcy proceeding of any other Credit Party or any other Person, of the
application or non-application of Section 1111(b)(2) of the United States
Bankruptcy Code, (k) any extension of credit to or the grant of any lien by any
other Credit Party or any other Person under Section 364 of the United States
Bankruptcy Code except to the extent otherwise provided in this Agreement,
(l) any use of cash Collateral under Section 363 of the United States Bankruptcy
Code in any bankruptcy proceeding of any other Credit Party or any other Person,
(m) any agreement or stipulation with respect to the provision of adequate
protection in any bankruptcy proceeding of any other Credit Party or any other
Person, (n) the avoidance of any lien or security interest in favor of Secured
Parties securing the Obligations for any reason, or (o) any bankruptcy,
insolvency, reorganization, arrangement, readjustment of debt, liquidation or
dissolution proceeding commenced by or against any other Credit Party any other
Person, including any discharge of, or bar or stay against collecting, all or
any of the Obligations (or any interest thereon) in or as a result of any such
proceeding.

(d)        Credit Parties represent and warrant to Secured Parties that they
have established adequate means of obtaining from each other, on a continuing
basis, financial and other information pertaining to their respective
businesses, operations and condition (financial and otherwise) and their
respective properties, and each now is and hereafter will be completely familiar
with the businesses, operations and condition (financial and otherwise) of the
others and their respective properties. Each Credit Party hereby expressly
waives and relinquishes any duty on the part of Secured Parties to disclose to
such Credit Party any matter, fact or thing related to the businesses,
operations or condition (financial or otherwise) of any other Credit Party or
any other Credit Party’s properties, whether now known or hereafter known by
Secured Parties during the life of this Agreement. With respect to any of the
obligations of Credit Parties under the Credit Documents, Secured Parties need
not inquire into the powers of any Credit Party or the officers, employees or
other Persons acting or purporting to act on such Credit Party’s behalf.

(e)        Without limiting the foregoing, or anything else contained in this
Agreement, each Credit Party waives all rights and defenses that it may have
because any or all of the Obligations are secured by real property security
provided by any other Credit Party. This means, among other things:

(1)        Secured Parties may collect on the Obligations from one Credit Party
without first foreclosing on any real or personal property Collateral pledged by
any other Credit Party; and

(2)        If Secured Parties foreclose on any real property Collateral pledged
by any Credit Party for the Obligations: (i) the amount of the indebtedness owed
by the other Credit Parties may be reduced only by the price for which that
Collateral is sold at the foreclosure sale, even if the Collateral is worth more
than the sale price; and (ii) Secured Parties may collect from any Credit Party
even if Secured Parties, by foreclosing on the real property

 

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Collateral, have destroyed any right that any Credit Party may have to collect
from the other Credit Parties.

This is an unconditional and irrevocable waiver of any rights and defenses each
Credit Party may have because any or all of the Obligations are secured by real
property given by any other Credit Party. Each Credit Party expressly waives any
right to receive notice of any judicial or nonjudicial foreclosure or sale of
any real property Collateral provided by any other Credit Party to secure the
Obligations, and failure to receive any such notice shall not impair or affect
such Credit Party’s obligations hereunder or the enforceability of this
Agreement or the other Credit Documents or any liens created or granted hereby
or thereby.

(f)        Notwithstanding anything to the contrary elsewhere contained herein
or in any other Credit Document to which any Credit Party is a party, with
respect to the Obligations, until the Obligations are paid and performed in
full, each Credit Party hereby waives with respect to all other Credit Parties
and their respective successors and assigns (including any surety) and any other
Person, any and all rights at law or in equity to subrogation, to reimbursement,
to exoneration, to contribution, to setoff or to any other rights that could
accrue to a surety against a principal, to a guarantor against a maker or
obligor, to an accommodation party against the party accommodated, or to a
holder or transferee against a maker and which each of them may have or
hereafter acquire against any other Credit Party or any other Person in
connection with or as a result of such Credit Party’s execution, delivery and/or
performance of this Agreement or any other Credit Document to which it is a
party. Each Credit Party agrees that it shall not have or assert any such rights
against any other Credit Party or any other Credit Party’s successors and
assigns or any other Person (including any surety), either directly or as an
attempted setoff to any action commenced against such Credit Party by any other
Credit Party (as borrower or in any other capacity) or any other Person until
the Obligations are paid and performed in full. Each Credit Party hereby
acknowledges and agrees that this waiver is intended to benefit Secured Parties
and shall not limit or otherwise affect any Credit Party’s liability under this
Agreement or any other Credit Document to which it is a party, or the
enforceability hereof or thereof.

(g)        Each Credit Party warrants and agrees that each of the waivers and
consents set forth in this Section 7.17 is made with full knowledge of its
significance and consequences, with the understanding that events giving rise to
any defense waived may diminish, destroy or otherwise adversely affect rights
which each otherwise may have against the others, against Secured Parties or
other Persons, or against any Collateral. If any of the waivers or consents
herein are determined to be contrary to any applicable law or public policy,
such waivers and consents shall be effective to the maximum extent permitted by
law.

[Signature Pages Follow]

 

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

 

COLLATERAL AGENT: WELLS FARGO BANK, NATIONAL ASSOCIATION,
solely in its capacity as Collateral Agent

By:

  

/s/ Julius R. Zamora

Name: Julius R. Zamora

Title: Vice President

[Signature Pages to Security Agreement]

 

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ADMINISTRATIVE AGENT:

U.S. BANK NATIONAL ASSOCIATION,

a national banking association,

as Administrative Agent

By:

  

/s/ Adrian Montero

Name:

  

Adrian Montero

Title:

  

Senior Vice President

[Signature Pages to Security Agreement]

 

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COMPANY:

SHEA HOMES LIMITED PARTNERSHIP,

a California limited partnership

By:   

/s/ Andy Parnes

Name: Andy Parnes Title: Chief Financial Officer By:   

/s/ Robert R. O’Dell

Name: Robert R. O’Dell Title: Treasurer

CORPORATE ISSUER:

SHEA HOMES FUNDING CORP.,

a Delaware corporation

By:   

/s/ Andy Parnes

   Name: Andy Parnes    Title: Vice President By:   

/s/ Robert R. O’Dell

   Name: Robert R. O’Dell    Title: Treasurer

[Signature Pages to Security Agreement]

 

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GUARANTORS:       HIGHLANDS RANCH DEVELOPMENT CORPORATION,
a Colorado corporation    By:   

/s/ James G. Shontere

         Name: James G. Shontere          Title: Secretary       By:   

/s/ Robert R. O’Dell

         Name: Robert R. O’Dell          Title: Treasurer       MONTY GREEN
HOLDINGS, LLC,    a Delaware limited liability company    By:    Shea Homes,
Inc.,          a Delaware corporation          Its Sole Member          By:   

/s/ Andy Parnes

            Name:Andy Parnes             Title:Vice President          By:   

/s/ Robert R. O’Dell

            Name: Robert R. O’Dell             Title: Treasurer      
MOUNTAINBROOK VILLAGE COMPANY,    an Arizona corporation       By:   

/s/ Andy Parnes

         Name: Andy Parnes          Title: Vice President       By:   

/s/ Robert R. O’Dell

         Name: Robert R. O’Dell          Title: Treasurer      

[Signature Pages to Security Agreement]

 

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SAND CREEK CATTLE COMPANY,

a Colorado corporation

   By:   

/s/ James G. Shontere

         Name: James G. Shontere          Title: Secretary       By:   

/s/ Robert R. O’Dell

         Name: Robert R. O’Dell          Title: Treasurer      

SERENADE AT NATOMAS, LLC,

  

a California limited liability company

   By:    Shea Homes, Inc.,          a Delaware corporation,          Its sole
Member          By:   

/s/ Andy Parnes

            Name: Andy Parnes             Title: Vice President          By:   

/s/ Robert R. O’Dell

            Name: Robert R. O’Dell             Title: Treasurer      

[Signature Pages to Security Agreement]

 

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SEVILLE GOLF AND COUNTRY CLUB, LLC,

an Arizona limited liability company

   By:    Shea Homes Limited Partnership,         
a California limited partnership,          Its Sole Member and Manager         
By:    J.F. Shea, G.P.,             a Delaware limited partnership,            
Its sole General Partner          By:    JFS Management, L.P.,             a
Delaware limited partnership,                Its sole General Partner         
      By:    J.F. Shea Construction Management, Inc.,                a
California corporation,                  

Its sole General Partner

                  By:   

/s/ Andy Parnes

                     Name: Andy Parnes                      Title: Vice
President                   By:   

/s/ Robert R. O’Dell

                     Name: Robert R. O’Dell                   Title: Treasurer
     

[Signature Pages to Security Agreement]

 

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SHEA BREA DEVELOPMENT, LLC,

a Delaware limited liability company

   By:    Shea Homes Limited Partnership,         
a California limited partnership,          Its Sole Member and Manager         
By:    J.F. Shea, G.P..,             a Delaware limited partnership,            
Its sole General Partner          By:   JFS Management, L.P.,            a
Delaware limited partnership,               Its sole General Partner            
  By:   J.F. Shea Construction Management, Inc.,              a California
corporation,                

Its sole General Partner

                By:   

/s/ Andy Parnes

                   Name: Andy Parnes                    Title: Vice President   
             By:   

/s/ Robert R. O’Dell

                   Name: Robert R. O’Dell                 Title: Treasurer      

[Signature Pages to Security Agreement]

 

S-7

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SHEA CAPITAL II, LLC,

a Delaware limited liability company

   By:   Shea Homes Limited Partnership,        
a California limited partnership,         Its Manager         By:   J.F. Shea,
G.P..,           a Delaware limited partnership,           Its sole General
Partner         By:   JFS Management, L.P.,           a Delaware limited
partnership,             Its sole General Partner             By:   J.F. Shea
Construction Management, Inc.,            a California corporation,            
 

Its sole General Partner

              By:   

/s/ Andy Parnes

                 Name: Andy Parnes                  Title: Vice President      
        By:   

/s/ Robert R. O’Dell

                 Name: Robert R. O’Dell                Title: Treasurer      

 

SHEA COMMUNITIES MARKETING COMPANY, a Delaware corporation By:  

/s/ Andy Parnes

  Name: Andy Parnes   Title: Vice President By:  

/s/ Robert R. O’Dell

  Name: Robert R. O’Dell   Title: Treasurer

[Signature Pages to Security Agreement]

 

S-8

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SHEA FINANCIAL SERVICES, INC.,

a California corporation

By:   

/s/ James G. Shontere

   Name: James G. Shontere    Title: Secretary By:   

/s/ Robert R. O’Dell

   Name: Robert R. O’Dell    Title: Treasurer

SHEA HOMES, INC.,

a Delaware corporation

By:   

/s/ Andy Parnes

   Name: Andy Parnes    Title: Vice President By:   

/s/ Robert R. O’Dell

   Name: Robert R. O’Dell    Title: Treasurer SHEA HOMES AT MONTAGE, LLC, a
California limited liability company By:   

/s/ Andy Parnes

   Name: Andy Parnes    Title: Vice President By:   

/s/ Robert R. O’Dell

   Name: Robert R. O’Dell    Title: Treasurer

[Signature Pages to Security Agreement]

 

S-9

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SHEA HOMES SOUTHWEST, INC.,

an Arizona corporation

   By:   

/s/ Andy Parnes

         Name: Andy Parnes          Title: Vice President       By:   

/s/ Robert R. O’Dell

         Name: Robert R. O’Dell          Title: Treasurer       SHEA HOMES
VANTIS, LLC,    a California limited liability company    By:    Shea Homes,
Inc.,          a Delaware corporation,          Its sole Member          By:   

/s/ Andy Parnes

            Name: Andy Parnes             Title: Vice President          By:   

/s/ Robert R. O’Dell

            Name: Robert R. O’Dell             Title: Treasurer       SHEA
INSURANCE SERVICES, INC.,    a California corporation       By:   

/s/ James G. Shontere

         Name: James G. Shontere          Title: Secretary       By:   

/s/ Robert R. O’Dell

         Name: Robert R. O’Dell          Title: Treasurer      

[Signature Pages to Security Agreement]

 

S-10

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SHEA LA QUINTA LLC,

  

a California limited liability company

   By:    Shea Homes, Inc.,          a Delaware corporation,          Its sole
Member          By:   

/s/ Andy Parnes

            Name: Andy Parnes             Title: Vice President          By:   

/s/ Robert R. O’Dell

            Name: Robert R. O’Dell             Title: Treasurer      

 

SHEA OTAY VILLAGE 11, LLC,

a California limited liability company

   By:    Shea Homes Limited Partnership,         
a California limited partnership,          Its Sole Member          By:    J.F.
Shea, G.P..,             a Delaware limited partnership,             Its sole
General Partner          By:    JFS Management, L.P.,             a Delaware
limited partnership,                Its sole General Partner                By:
   J.F. Shea Construction Management, Inc.,                a California
corporation,                  

Its sole General Partner

                  By:   

/s/ Andy Parnes

                     Name: Andy Parnes                      Title: Vice
President                   By:   

/s/ Robert R. O’Dell

                     Name: Robert R. O’Dell                   Title: Treasurer
     

[Signature Pages to Security Agreement]

 

S-11

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SHEA PROCTOR VALLEY, LLC,

a California limited liability company

   By:    Shea Homes Limited Partnership,         
a California limited partnership,          Its Sole Member          By:    J.F.
Shea, G.P..,             a Delaware limited partnership,             Its sole
General Partner          By:    JFS Management, L.P.,             a Delaware
limited partnership,                Its sole General Partner                By:
   J.F. Shea Construction Management, Inc.,                a California
corporation,                  

Its sole General Partner

                  By:   

/s/ Andy Parnes

                     Name: Andy Parnes                      Title: Vice
President                   By:   

/s/ Robert R. O’Dell

                     Name: Robert R. O’Dell                   Title: Treasurer
     

 

SHEA PROPERTIES OF COLORADO, INC.,    a Colorado corporation    By:   

/s/ James G. Shontere

         Name: James G. Shontere          Title: Secretary       By:   

/s/ Robert R. O’Dell

         Name: Robert R. O’Dell          Title: Treasurer      

[Signature Pages to Security Agreement]

 

S-12

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SHEA TONNER HILLS, LLC,

a Delaware limited liability company

   By:    Shea Homes Limited Partnership,         
a California limited partnership,          Its sole Member and Manager         
By:    J.F. Shea, G.P.,             a Delaware limited partnership,            
Its sole General Partner          By:    JFS Management, L.P.,             a
Delaware limited partnership,                Its sole General Partner         
      By:    J.F. Shea Construction Management, Inc.,                a
California corporation,                  

Its sole General Partner

                  By:   

/s/ Andy Parnes

                     Name: Andy Parnes                      Title: Vice
President                   By:   

/s/ Robert R. O’Dell

                     Name: Robert R. O’Dell                   Title: Treasurer
     

 

SHEA VICTORIA GARDENS, LLC,

a Florida limited liability company

By:

  

/s/ Andy Parnes

  

Name: Andy Parnes

  

Title: Vice President

By:

  

/s/ Robert R. O’Dell

  

Name: Robert R. O’Dell

  

Title: Treasurer

[Signature Pages to Security Agreement]

 

S-13

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SH JUBILEE, LLC, a Delaware limited liability company By:   

/s/ Andy Parnes

   Name: Andy Parnes    Title: Vice President By:   

/s/ Robert R. O’Dell

   Name: Robert R. O’Dell    Title: Treasurer

SH JUBILEE MANAGEMENT, LLC,

a Delaware limited liability company

By:   

/s/ Andy Parnes

   Name: Andy Parnes    Title: Vice President By:   

/s/ Robert R. O’Dell

   Name: Robert R. O’Dell    Title: Treasurer

SHI JV HOLDINGS, LLC,

a Delaware limited liability company

By:   

/s/ Andy Parnes

   Name: Andy Parnes    Title: Vice President By:   

/s/ Robert R. O’Dell

   Name: Robert R. O’Dell    Title: Treasurer

SHLP JV HOLDINGS, LLC,

a Delaware limited liability company

By:   

/s/ Andy Parnes

   Name: Andy Parnes    Title: Vice President By:   

/s/ Robert R. O’Dell

   Name: Robert R. O’Dell    Title: Treasurer

[Signature Pages to Security Agreement]

 

S-14

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TOWER 104 GATHERING, LLC,

a Colorado limited liability company

   By:    Shea Homes Limited Partnership,         
a California limited partnership,          Its Sole Member and Manager         
By:    J.F. Shea, G.P.,             a Delaware limited partnership,            
Its sole General Partner          By:    JFS Management, L.P.,             a
Delaware limited partnership,                Its sole General Partner         
      By:    J.F. Shea Construction Management, Inc.,                a
California corporation,                  

Its sole General Partner

                  By:   

/s/ Andy Parnes

                     Name: Andy Parnes                      Title: Vice
President                   By:   

/s/ Robert R. O’Dell

                     Name: Robert R. O’Dell                   Title: Treasurer
     

[Signature Pages to Security Agreement]

 

S-15

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TOWER 104 OIL, LLC,

a Colorado limited liability company

   By:    Shea Homes Limited Partnership,         
a California limited partnership,          Its Sole Member and Manager         
By:    J.F. Shea, G.P..,             a Delaware limited partnership,            
Its sole General Partner          By:    JFS Management, L.P.,             a
Delaware limited partnership,                Its sole General Partner         
      By:    J.F. Shea Construction Management, Inc.,                a
California corporation,                  

Its sole General Partner

                  By:   

/s/ Andy Parnes

                     Name: Andy Parnes                      Title: Vice
President                   By:   

/s/ Robert R. O’Dell

                     Name: Robert R. O’Dell                   Title: Treasurer
     

[Signature Pages to Security Agreement]

 

S-16

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TRILOGY ANTIOCH, LLC,

a California limited liability company

   By:    SHEA CAPITAL II, LLC,          a Delaware limited liability company,
         Its sole Member          By:    Shea Homes Limited Partnership,      
      a California limited partnership,             Its Manager          By:   
J.F. Shea, G.P..,             a Delaware limited partnership,                Its
sole General Partner                By:    JFS Management, L.P.,               
a Delaware limited partnership,                   Its sole General Partner      
            By:    J.F. Shea Construction Management, Inc.,                   a
California corporation,                   Its sole General Partner            
      By:   

/s/ Andy Parnes

                        Name: Andy Parnes                      Title: Vice
President                   By:   

/s/ Robert R. O’Dell

                        Name: Robert R. O’Dell                   Title:
Treasurer   

[Signature Pages to Security Agreement]

 

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UDC ADVISORY SERVICES, INC., an Illinois corporation By:   

/s/ Andy Parnes

   Name: Andy Parnes    Title: Vice President By:   

/s/ Robert R. O’Dell

   Name: Robert R. O’Dell    Title: Treasurer

UDC HOMES CONSTRUCTION, INC.,

an Arizona corporation

By:   

/s/ Andy Parnes

   Name: Andy Parnes    Title: Vice President By:   

/s/ Robert R. O’Dell

   Name: Robert R. O’Dell    Title: Treasurer

 

VISTANCIA CONSTRUCTION, LLC,       a Delaware limited liability company      

By:

   Shea Homes Southwest, Inc.,          an Arizona corporation,          Its
Manager          By:   

/s/ Andy Parnes

            Name: Andy Parnes             Title: Vice President          By:   

/s/ Robert R. O’Dell

            Name: Robert R. O’Dell             Title: Treasurer      

[Signature Pages to Security Agreement]

 

S-18

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VISTANCIA MARKETING, LLC,       a Delaware limited liability company      

By:

   Shea Homes Southwest, Inc.,          an Arizona corporation,          Its
Manager          By:   

/s/ Andy Parnes

            Name: Andy Parnes             Title: Vice President          By:   

/s/ Robert R. O’Dell

            Name: Robert R. O’Dell             Title: Treasurer      

 

SHEA HOMES HOUSTON, LLC,       a Delaware limited liability company      

By:

   Shea Homes, Inc.,          a Delaware corporation          Its Sole Member   
   By:   

/s/ Andy Parnes

            Name: Andy Parnes             Title: Vice President          By:   

/s/ Robert R. O’Dell

            Name: Robert R. O’Dell             Title: Treasurer      

[Signature Pages to Security Agreement]

 

S-19

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SHEA HOMES ACTIVE ADULT, LLC,       a Delaware limited liability company      

By:

   Shea Homes, Inc.,          a Delaware corporation          Its Sole Member   
   By:   

/s/ Andy Parnes

            Name: Andy Parnes             Title: Vice President          By:   

/s/ Robert R. O’Dell

            Name: Robert R. O’Dell             Title: Treasurer      

 

SH AA DEVELOPMENT, LLC,       a Delaware limited liability company      

By:

   Shea Homes, Inc.,          a Delaware corporation          Its Sole Member   
   By:   

/s/ Andy Parnes

            Name: Andy Parnes             Title: Vice President          By:   

/s/ Robert R. O’Dell

            Name: Robert R. O’Dell             Title: Treasurer      

 

SHALC GC, INC.,       a Delaware corporation      

By:

  

/s/ Andy Parnes

         Name: Andy Parnes          Title: Executive Vice President       By:   

/s/ Robert R. O’Dell

         Name: Robert R. O’Dell          Title: Treasurer      

[Signature Pages to Security Agreement]

 

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SCHEDULE I

GUARANTORS

Highlands Ranch Development Corporation, a Colorado corporation

Monty Green Holdings, LLC, a Delaware limited liability company

Mountainbrook Village Company, an Arizona corporation

Sand Creek Cattle Company, a Colorado corporation

Serenade at Natomas, LLC, a California limited liability company

Seville Golf and Country Club, LLC, an Arizona limited liability company

SH Jubilee, LLC, a Delaware limited liability company

SH Jubilee Management, LLC, a Delaware limited liability company

SH AA Development, LLC, a Delaware limited liability company

SHALC GC, Inc., a Delaware corporation

Shea Brea Development, LLC, a Delaware limited liability company

Shea Capital II, LLC, a Delaware limited liability company

Shea Communities Marketing Company, a Delaware corporation

Shea Financial Services, Inc., a California corporation

Shea Homes Active Adult, LLC, a Delaware limited liability company

Shea Homes at Montage, LLC, a California limited liability company

Shea Homes Houston, LLC, a Delaware limited liability company

Shea Homes, Inc., a Delaware corporation

Shea Homes Southwest, Inc., an Arizona corporation

Shea Homes Vantis, LLC, a California limited liability company

Shea Insurance Services, Inc., a California corporation

Shea La Quinta LLC, a California limited liability company

Shea Otay Village 11, LLC, a California limited liability company

Shea Proctor Valley, LLC, a California limited liability company

Shea Properties of Colorado, Inc., a Colorado corporation

Shea Tonner Hills, LLC, a Delaware limited liability company

Shea Victoria Gardens, LLC, a Florida limited liability company

SHI JV Holdings, LLC, a Delaware limited liability company

SHLP JV Holdings, LLC, a Delaware limited liability company

Tower 104 Gathering, LLC, a Colorado limited liability company

Tower 104 Oil, LLC, a Colorado limited liability company

Trilogy Antioch, LLC, a California limited liability company

UDC Advisory Services, Inc., an Illinois corporation

UDC Homes Construction, Inc., an Arizona corporation

Vistancia Construction, LLC, a Delaware limited liability company

Vistancia Marketing, LLC, a Delaware limited liability company

SCHEDULE I

 

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SCHEDULE II

PLEDGED EQUITY INTERESTS

 

Pledgor

  

Issuer

  

No. of Shares

  

Certificate No.

 

Shea Homes Limited Partnership

   Shea Homes Funding Corp.    1,000 shares of common stock      1   

Shea Homes Limited Partnership

   Highlands Ranch Development Corporation    1,000 shares of common stock     
2   

Shea Homes, Inc.

   Monty Green Holdings, LLC    100% of Membership interests      1   

Shea Homes, Inc.

   Mountainbrook Village Company    1 share of common stock      2   

Shea Homes Limited Partnership

   Sand Creek Cattle Company    1,000 shares of common stock      2   

Shea Homes, Inc.

   Scottsdale Reserve Homes, Inc.    100 shares of common stock      1   

Shea Homes, Inc.

   Serenade at Natomas, LLC    100% of Membership interests      1   

Shea Homes Limited Partnership

   Seville Golf and Country Club, LLC    100% of Membership interests      1   

Shea Homes, Inc.

   SH Cascades, LLC    100% of Membership interests      1   

Shea Homes, Inc.

   SH Jubilee, LLC    100% of Membership interests      1   

SH Jubilee, LLC

   SH Jubilee Management, LLC    100% of Membership interests      1   

Shea Homes, Inc.

   SHAA Development, LLC    100% of Membership interests      1   

Shea Homes, Inc.

   SHALC GC, Inc.    100 shares of common stock      1   

Shea Homes Limited Partnership

   Shea Brea Development, LLC    100% of Membership interests      1   

Shea Homes, Inc.

   Shea Capital II, LLC    3.5% of Membership interests      1   

Shea Homes Limited Partnership

   Shea Capital II, LLC    96.5% of Membership interests      2   

Shea Homes, Inc.

   Shea Communities Marketing Company    1,000 shares of common stock      2   

Shea Homes, Inc.

   Shea Financial Services, Inc.    100,000 shares of common stock      2   

Shea Homes Limited Partnership

   Shea Homes, Inc.    1,000 shares common      5   

Shea Homes, Inc.

   Shea Homes Active Adult, LLC    100% of Membership interests      1   

Shea Homes, Inc.

   Shea Homes Houston LLC    100% of Membership interests      1   

Shea Homes, Inc.

   Shea Homes Southwest, Inc.    100 shares common      12   

Shea Homes, Inc.

   Shea Homes Vantis, LLC    100% of Membership interests      1   

SCHEDULE II

 

-1-

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

Shea Homes, Inc.

   Shea Insurance Services, Inc.    100 shares common      2   

Shea Homes, Inc.

   Shea La Quinta LLC    100% of Membership interests      1   

Shea Homes Limited Partnership

   Shea Otay Village 11, LLC    100% of Membership interests      1   

Shea Homes Limited Partnership

   Shea Proctor Valley, LLC    100% of Membership interests      1   

Shea Homes Limited Partnership

   Shea Properties of Colorado, Inc.    1,000 shares of common stock      4   

Shea Homes Limited Partnership

   Shea Tonner Hills, LLC    100% of Membership interests      1   

Shea Capital II, LLC

   Shea Victoria Gardens, LLC    100% of Membership interests      1   

Shea Homes, Inc.

   SH Vistancia West Associates, LLC    100% of Membership interests      1   

Shea Homes, Inc.

   SHI JV Holdings, LLC    100% of Membership interests      1    Shea Homes
Limited Partnership   

SHLP JV Holdings, LLC

   100% of Membership interests      1   

Shea Homes Limited Partnership

   SHPA2 Development, LLC    100% of Membership interests      1   

Shea Capital II, LLC

   Trilogy Antioch, LLC    100% of Membership interests      1   

Shea Homes Limited Partnership

   Tower 104 Gathering, LLC    100% of Membership interests      1   

Shea Homes Limited Partnership

   Tower 104 Oil, LLC    100% of Membership interests      1   

Shea Homes, Inc.

   UDC Homes Construction, Inc.    1 share of common stock      2   

Shea Homes, Inc.

   UDC Advisory Services, Inc.    2,000 shares of common stock      4   

DEBT SECURITIES

Global Intercompany Note

Promissory Note due May 10, 2019, dated as of May 10, 2011, by J.F. Shea. Co.,
Inc. to Shea Homes, Inc.

SCHEDULE II

 

-2-

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

SCHEDULE III

INTELLECTUAL PROPERTY

U.S. COPYRIGHTS OWNED BY SHEA HOMES LIMITED PARTNERSHIP

U.S. Copyright Registrations

 

Title

  

Reg. No.

    

Author

Boulevard Arch (not yet constructed)

     VAu000956980       Shea Homes Limited Partnership

Boulevard Arch (drawings)

     VAu000956981       Shea Homes Limited Partnership

Boulevard Structural

     VAu000956799       Shea Homes Limited Partnership

Boulevard Yellow Set Structural

     VAu000956798       Shea Homes Limited Partnership

Lou’s Village (not yet constructed)

     VAu000956979       Shea Homes Limited Partnership

Mondrian Arch (not yet constructed)

     VAu000957022       Shea Homes Limited Partnership

Mondrian Arch (drawings)

     VAu000957026       Shea Homes Limited Partnership

The Terraces at Escala

     VAu000956823       Shea Homes Limited Partnership

Mondrian Civil Eng City Submittal

     VAu000956801       Shea Homes Limited Partnership

Mondrian Final Map City Submittal

     VAu000956800       Shea Homes Limited Partnership

Mondrian Joint Trench City Submittal

     VAu000957034       Shea Homes Limited Partnership

Mondrian Joint Trench Gas Plans City Submittal

     VAu000957039       Shea Homes Limited Partnership

Mondrian Joint Trench MOD 04-04-07 City Submittal

     VAu000957040       Shea Homes Limited Partnership

Mondrian Landscape City Submittal

     VAu000957033       Shea Homes Limited Partnership

Mondrian Struct City Submittal

     VAu000954528       Shea Homes Limited Partnership

Mondrian Struct Revision 2-12-07 City Submittal

     VAu000954526       Shea Homes Limited Partnership

Mondrian Vapor Mitigation City Submittal

     VAu000954525       Shea Homes Limited Partnership

The Terraces at Escala (not yet constructed)

     VAu000956823       Shea Homes Limited Partnership

Pending U.S. Copyright Applications for Registration

None.

SCHEDULE III

 

-1-

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

U.S. COPYRIGHTS OWNED BY SHEA HOMES, INC.

U.S. Copyright Registrations

 

Title

  

Reg. No.

    

Author

Casita Collection Model Gallery Guide

     TX0006004332       Shea Homes, Inc.

Escalante Collection Model Gallery Guide

     TX0006004334       Shea Homes, Inc.

Hacienda Collection Model Gallery Guide

     TX0006004335       Shea Homes, Inc.

Plan 4072-Designs A, B and C

     VA0001787593       Shea Homes, Inc.

Trilogy 10

     TX0006542502       Shea Homes, Inc.

Trilogy at Glen Ivy

     TX0005997494       Shea Homes, Inc.

Trilogy at Glen Ivy: Descanso Collection: Model Gallery Guide

     TX0005997493       Shea Homes, Inc.

Trilogy at Glen Ivy: Escalante Collection: Model Gallery Guide

     TX0005997495       Shea Homes, Inc.

Trilogy at Glen Ivy: Santiago Collection: Model Gallery Guide

     TX0005997496       Shea Homes, Inc.

Trilogy at La Quinta

     TX0006118102       Shea Homes, Inc.

Trilogy at La Quinta: Coral Collection Model Gallery Guide

     TX0006118104       Shea Homes, Inc.

Trilogy at La Quinta: Mariposa Collection Model Gallery Guide

     TX0006118103       Shea Homes, Inc.

Trilogy at La Quinta: Santa Rosa Collection Model Gallery Guide

     TX0006094090       Shea Homes, Inc.

Trilogy at Power Ranch

     TX0006004333       Shea Homes, Inc.

Trilogy at Redmond Ridge

     TX0006004261       Shea Homes, Inc.

Trilogy at Redmond Ridge: Forest Collection Model Gallery Guide

     TX0006003136       Shea Homes, Inc.

Trilogy at Redmond Ridge: Estate Collection Model Gallery Guide

     TX0006004262       Shea Homes, Inc.

Trilogy at Redmond Ridge: Island Collection Model Gallery Guide

     TX0006004263       Shea Homes, Inc.

Trilogy at Redmond Ridge: Port Collection Model Gallery Guide

     TX0006004264       Shea Homes, Inc.

Trilogy at Rio Vista

     TX0006010246       Shea Homes, Inc.

Trilogy at Rio Vista: Monterey Collection Model Gallery Guide

     TX0006010245       Shea Homes, Inc.

Trilogy at Rio Vista: Peninsula Collection Model Gallery Guide

     TX0006010244       Shea Homes, Inc.

Trilogy at Rio Vista: Sonoma Collection Model Gallery Guide

     TX0006010243       Shea Homes, Inc.

SCHEDULE III

 

-2-

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

Title

  

Reg. No.

    

Author

Trilogy at Vistancia

     TX0005958784      

Shea Homes, Inc.

Trilogy at Vistancia: Natura Collection Model Gallery Guide

     TX0005958782       Shea Homes, Inc.

Trilogy at Vistancia: Veritas Collection Model Gallery Guide

     TX0005958783       Shea Homes, Inc.

Trilogy at Vistancia: Vita Collection Model Gallery Guide

     TX0005958781       Shea Homes, Inc.

Trilogy Where Dreams Take Flight

     TX0005997497       Shea Homes, Inc.

Pending U.S. Copyright Applications for Registration

None.

SCHEDULE III

 

-3-

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

EXCLUSIVE LICENSES

 

I.

Licenses/Sublicenses of Grantors as Licensor/Sublicensor on Date Hereof

 

  A.

Copyrights

None

 

  B.

Patents

None

 

  C.

Trademarks

None.

 

  D.

Others

None.

 

II.

Licenses/Sublicenses of Grantors as Licensee/Sublicensee on Date Hereof

 

  A.

Copyrights

None

 

  B.

Patents

None.

 

  C.

Trademarks

None.

 

  D.

Others

None.

SCHEDULE III

 

-4-

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

PATENTS OWNED BY GRANTORS

NONE.

SCHEDULE III

 

-5-

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

TRADEMARK/TRADE NAMES OWNED BY SHEA HOMES LIMITED PARTNERSHIP

U.S. Trademark Registrations

 

Mark

  

Reg. Date

  

Reg. No.

HELLO FUTURE

  

Filing Date 6/3/2009

Reg. Date 1/18/2011

   Serial No. 77/751,574

Reg. No. 3,908,727

MY SEVILLE LIFE

  

Filing Date 10/19/2006

Reg. Date 1/22/2008

   Serial No. 77/025,436

Reg. No. 3,371,435

SEVILLE

  

Filing Date 3/20/2001

Reg. Date 6/18/2002

   Serial No. 76/227,636

Reg. No. 2,583,752

THE CONFIDENCE BUILDER

  

Filing Date 7/2/1999

Reg. Date 1/2/2001

   Serial No. 75/742,259

Reg. No. 2,417,100

U.S. Trademark Applications

None.

State Trademark Registrations

 

State

  

Mark

  

Registration Date

  

Registration No.

COLORADO

  

9TH AVENUE COLORADO BLVD.

LOGO [g6820399th.jpg]

   25-APR-2005    20051168363

COLORADO

  

9TH AVENUE COLORADO BLVD.

LOGO [g6820399th.jpg]

   25-APR-2005    20051168364

COLORADO

   A NEW HOMETOWN FOR THE AGE-OLD PURSUIT OF HAPPINESS    29-MAY-2002   
20021143559

COLORADO

   A NEW HOMETOWN FOR THE AGE-OLD PURSUIT OF HAPPINESS    29-MAY-2002   
20021143560

COLORADO

   BACK COUNTRY    15-JUL-2003    20031226848

COLORADO

   BACK COUNTRY    15-JUL-2003    20031226851

COLORADO

   BACK COUNTRY WILD AT HEART    15-JUL-2003    20031226852

COLORADO

   BACK COUNTRY WILD AT HEART    15-JUL-2003    20031226849

SCHEDULE III

 

-6-

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

State

  

Mark

  

Registration Date

  

Registration No.

COLORADO

   BACK NINE    11-APR-2006    20061155017

COLORADO

   BACK NINE    11-APR-2006    20061155021

COLORADO

   BACK NINE AT REUNION    11-APR-2006    20061155018

COLORADO

   BACK NINE AT REUNION    11-APR-2006    20061155024

COLORADO

  

BACKCOUNTRY – WILD AT

HEART –A SHEAHOMES COMMUNITY

LOGO [g682039snap0004.jpg]

   28-FEB-2005    20051088985

COLORADO

  

BACKCOUNTRY - WILD AT HEART

LOGO [g682039snap0004.jpg]

   28-FEB-2005    20051088988

COLORADO

   BACKCOUNTRY - WILD AT HEART    28-FEB-2005    20051088987

COLORADO

  

BACKCOUNTRY –WILD AT

HEART –A SHEAHOMES COMMUNITY

LOGO [g682039snap0004.jpg]

   28-FEB-2005    20051088986

COLORADO

   BRIDGEWATER    23-AUG-2006    20061347025

COLORADO

   BRIDGEWATER    23-AUG-2006    20061347026

COLORADO

  

BRIDGEWATER A NEW ERIE TRADITION

LOGO [g682039snap0007.jpg]

   23-AUG-2006    20061347027

COLORADO

  

BRIDGEWATER A NEW ERIE TRADITION

LOGO [g682039snap0007.jpg]

   23-AUG-2006    20061347028

COLORADO

   BUILT TO LAST    13-OCT-2005    20051380940

COLORADO

   BUILT TO LAST    13-OCT-2005    20051380941

SCHEDULE III

 

-7-

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

State

  

Mark

  

Registration Date

  

Registration No.

COLORADO

   CENTENNIAL OFFICE PARK    21-AUG-1985    19851029146

COLORADO

   CENTENNIAL OFFICE PARK    21-AUG-1985    19851029147

COLORADO

  

Design Only

LOGO [g682039snap0009.jpg]

   10-OCT-2000    20001196629

COLORADO

  

Design Only

LOGO [g682039snap0009.jpg]

   10-OCT-2000    20001196630

COLORADO

   DESIGN ONLY    19-MAY-1982    19851021490

COLORADO

   DESIGN ONLY    19-MAY-1982    19851021491

COLORADO

   EAGLE RIDGE ESTATES    24-JUL-1995    19951092989

COLORADO

   EAGLE’S KEEP    24-JUL-1995    19951092985

COLORADO

   FIRELIGHT    01-FEB-2001    20011023669

COLORADO

   FIRELIGHT    01-FEB-2001    20011023670

COLORADO

  

FIRELIGHT

LOGO [g682039snap0010.jpg]

   01-FEB-2001    20011023673

COLORADO

  

FIRELIGHT

LOGO [g682039snap0010.jpg]

   01-FEB-2001    20011023674

COLORADO

   FIRELIGHT AT HIGHLANDS RANCH    01-FEB-2001    20011023671

COLORADO

   FIRELIGHT AT HIGHLANDS RANCH    01-FEB-2001    20011023672

COLORADO

   GALLERY AT THE BACK NINE    11-APR-2006    20061155019

COLORADO

   GALLERY AT THE BACK NINE    11-APR-2006    20061155023

COLORADO

   GREAT STREETS. GREAT PLACE. GREAT NEIGHBORHOOD.    25-APR-2005    20051168365

SCHEDULE III

 

-8-

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

State

  

Mark

  

Registration Date

  

Registration No.

 

COLORADO

   GREAT STREETS. GREAT PLACE. GREAT NEIGHBORHOOD.    25-APR-2005     
20051168366   

COLORADO

   HIGHLAND WALK    30-JUN-2003      20031209910   

COLORADO

   HIGHLAND WALK    30-JUN-2003      20031209911   

COLORADO

   HIGHLANDS RANCH    28-AUG-1985      19851029210   

COLORADO

   HIGHLANDS RANCH    28-AUG-1985      19851029212   

COLORADO

   HIGHLANDS RANCH    07-MAY-1982      19851021429   

COLORADO

   HIGHLANDS RANCH    18-MAY-1982      19851021488   

COLORADO

   HIGHLANDS RANCH    18-MAY-1982      19851021489   

COLORADO

   HIGHLANDS RANCH COMMERCE CENTER    21-OCT-2003      20031333272   

COLORADO

   HIGHLANDS RANCH COMMERCE CENTER    21-OCT-2003      20031333273   

COLORADO

   HIGHLANDS RANCH GATEWAY CENTER    05-SEP-1996      19961116566   

COLORADO

   HIGHLANDS RANCH GATEWAY CENTER    05-SEP-1996      19961116566   

COLORADO

  

HIGHLANDS RANCH TOWN CENTER

LOGO [g682039snap0011.jpg]

   11-FEB-2005      20051066367   

COLORADO

  

HIGHLNDS RANCH TOWN CENTER

LOGO [g682039snap0011.jpg]

   11-FEB-2005      20051066366   

COLORADO

   HILLTOP    20-APR-1992      19921040735   

COLORADO

   HR THE HOMES AT HIGHLANDS RANCH GOLF CLUB    17-MAY-1999      19991093891   

COLORADO

   NEW SUBURBANISM    05-NOV-2001      20011212196   

COLORADO

   NEW SUBURBANISM    05-NOV-2001      20011212195   

COLORADO

   REUNION    09-APR-2001      20011073224   

COLORADO

   REUNION    09-APR-2001      20011073225   

COLORADO

   REUNION —A NEW HOMETOWN FOR THE AGE-OLD PURSUIT OF HAPPINESS    01-APR-2002
     20021081908   

COLORADO

   REUNION —A NEW HOMETOWN FOR THE AGE-OLD PURSUIT OF HAPPINESS    01-APR-2002
     20021081909   

SCHEDULE III

 

-9-

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

State

  

Mark

  

Registration Date

  

Registration No.

COLORADO

   REUNION A NEW HOMETOWN FOR THE AGE OLD PURSUIT OF HAPPINESS NEIGHBORHOOD
PARKS OPEN SPACE    01-APR-2002    20021081916

COLORADO

   REUNION A NEW HOMETOWN FOR THE AGE OLD PURSUIT OF HAPPINESS NEIGHBORHOOD
PARKS OPEN SPACE    01-APR-2002    20021081917

COLORADO

   REUNION BUSINESS CENTER    12-APR-2001    20011075824

COLORADO

   REUNION BUSINESS CENTER    12-APR-2001    20011075824

COLORADO

   REUNION BUSINESS CENTER    12-APR-2001    20011075825

COLORADO

   REUNION BUSINESS PARK    12-APR-2001    20011075699

COLORADO

   REUNION BUSINESS PARK    12-APR-2001    20011075700

COLORADO

  

REUNION COLORADO

LOGO [g682039snap0012.jpg]

   01-APR-2002    20021081922

COLORADO

   REUNION COLORADO    01-APR-2002    20021081923

COLORADO

   REUNION COLORADO — A NEW HOMETOWN FOR THE AGE-OLD PURSUIT OF HAPPINESS   
01-APR-2002    20021081906

COLORADO

   REUNION COLORADO — A NEW HOMETOWN FOR THE AGE-OLD PURSUIT OF HAPPINESS — LIVE
WORK PLAY    01-APR-2002    20021081910

COLORADO

   REUNION COLORADO — A NEW HOMETOWN FOR THE AGE-OLD PURSUIT OF HAPPINESS — LIVE
WORK PLAY    01-APR-2002    20021081911

COLORADO

   REUNION COLORADO — A NEW HOMETOWN FOR THE AGE-OLD PURSUIT OF HAPPINESS   
01-APR-2002    20021081907

SCHEDULE III

 

-10-

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

State

  

Mark

  

Registration Date

  

Registration No.

COLORADO

  

REUNION COLORADO A NEW HOMETOWN FOR THE AGE OLD PURSUIT OF HAPPINESS LIVE WORK
PLAY

LOGO [g682039snap0013.jpg]

   01-APR-2002    20021081914

COLORADO

   REUNION COLORADO A NEW HOMETOWN FOR THE AGE OLD PURSUIT OF HAPPINESS LIVE
WORK PLAY    01-APR-2002    20021081915

COLORADO

   REUNION COLORADO A NEW HOMETOWN FOR THE AGE OLD PURSUIT OF HAPPINESS   
01-APR-2002    20021081918

COLORADO

   REUNION COLORADO A NEW HOMETOWN FOR THE AGE OLD PURSUIT OF HAPPINESS   
01-APR-2002    20021081919

COLORADO

  

REUNION COLORADO A NEW HOMETOWN FOR THE AGE OLD PURSUIT OF HAPPINESS EXPLORE
RELAX

LOGO [g682039snap0014.jpg]

   01-APR-2002    20021081920

COLORADO

   REUNION COLORADO A NEW HOMETOWN FOR THE AGE OLD PURSUIT OF HAPPINESS EXPLORE
RELAX    01-APR-2002    20021081921

SCHEDULE III

 

-11-

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

State

  

Mark

  

Registration Date

  

Registration No.

COLORADO

  

REUNION COLORADO A NEW HOMETOWN FOR THE AGEOLD PURSUIT OF
HAPPINESS NEIGHBORHOOD PARKS OPEN SPACE

LOGO [g682039snap0015.jpg]

   06-APR-2002    20021088820

COLORADO

   REUNION COLORADO HOMEOWNERS ASSOCIATION HOA A NEW HOMETOWN FOR THE AGE-OLD
PURSUIT OF HAPPINESS    13-DEC-2002    20021345516

COLORADO

   REUNION EAST    12-APR-2001    20011075696

COLORADO

   REUNION GENERAL STORE    28-FEB-2005    20051088991

COLORADO

   REUNION GENERAL STORE    28-FEB-2005    20051088992

COLORADO

   REUNION HEIGHTS    09-APR-2001    20011073295

COLORADO

   REUNION HEIGHTS    09-APR-2001    20011073296

COLORADO

   REUNION NORTH    12-APR-2001    20011075691

COLORADO

   REUNION NORTH    12-APR-2001    20011075692

COLORADO

   REUNION PARK    09-APR-2001    20011073297

COLORADO

   REUNION PARK    09-APR-2001    20011073298

COLORADO

   REUNION PERK    28-FEB-2005    20051088989

COLORADO

   REUNION PERK    28-FEB-2005    20051088990

COLORADO

   REUNION PLACE    02-JUL-2001    20011131222

COLORADO

   REUNION PLACE    02-JUL-2001    20011131221

COLORADO

   REUNION REUNION    11-JUN-2002    20021158038

COLORADO

   REUNION REUNION    11-JUN-2002    20021158039

COLORADO

   REUNION RIDGE    09-APR-2001    20011073293

COLORADO

   REUNION RIDGE    09-APR-2001    20011073294

COLORADO

   REUNION SOUTH    12-APR-2001    20011075693

COLORADO

   REUNION SOUTH    12-APR-2001    20011075694

COLORADO

   REUNION WEST    12-APR-2001    20011075698

COLORADO

   RIDGELINE TECHNOLOGY CENTER    29-MAR-2010    20101184903

COLORADO

   RIDGELINE TECHNOLOGY CENTER    26-APR-2010    20101235884

COLORADO

   SOUTHLAWN    31-JUL-2003    20031245595

COLORADO

   SOUTHLAWN    31-JUL-2003    20031245596

SCHEDULE III

 

-12-

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

State

  

Mark

  

Registration Date

  

Registration No.

COLORADO

   SOUTHLAWN AT REUNION    31-JUL-2003    20031245597

COLORADO

   SOUTHLAWN AT REUNION    31-JUL-2003    20031245598

COLORADO

   SOUTHRIDGE AT HIGHLANDS RANCH    03-AUG-2005    20051295125

COLORADO

  

SOUTHRIDGE AT HIGHLANDS RANCH

LOGO [g682039g67q39.jpg]

   03-AUG-2005    20051295126

COLORADO

   SOUTHRIDGE AT HIGHLANDS RANCH    20-JUL-2005    20051277991

COLORADO

   SUMMIT CREST    24-JUL-1995    19951092987

COLORADO

  

T

LOGO [g682039snap0019.jpg]

   26-APR-2005    20051169464

COLORADO

  

T

LOGO [g682039snap0019.jpg]

   30-MAR-2005    20051134553

COLORADO

   THE GALLERY AT THE BACK NINE    11-APR-2006    20061155020

COLORADO

   THE GALLERY AT THE BACK NINE    11-APR-2006    20061155022

COLORADO

   THE NEW TOWN OF HIGHLANDS RANCH    19-MAY-1982    19851021493

COLORADO

   THE PRIDE OF COLORADO    05-MAY-1986    19851030743

COLORADO

   THE PRIDE OF COLORADO    20-MAY-1986    19851030832

COLORADO

   THE PRIDE OF COLORADO    21-MAY-1986    19851030833

COLORADO

   THE PURSUIT OF HAPPINESS – REUNION    01-APR-2002    20021081904

COLORADO

   THE PURSUIT OF HAPPINESS –REUNION    01-APR-2002    20021081905

COLORADO

  

THE PURSUIT OF HAPPINESS REUNION OLD NEW

LOGO [g682039snap0021.jpg]

   01-APR-2002    20021081912

SCHEDULE III

 

-13-

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

State

  

Mark

  

Registration Date

  

Registration No.

COLORADO

   THE PURSUIT OF HAPPINESS REUNION OLD NEW    01-APR-2002    20021081913

COLORADO

   TRAILMARK    29-DEC-1998    19981230631

COLORADO

  

TRAILMARK AT CHATFIELD

LOGO [g682039snap0024.jpg]

   17-MAY-1999    19991093886

COLORADO

  

TRAILMARK AT CHATFIELD

LOGO [g682039snap0024.jpg]

   17-MAY-1999    19991093887

COLORADO

   TRAILMARK AT CHATFIELD    29-DEC-1998    19981230632

COLORADO

   TRESANA    25-APR-2005    20051167615

COLORADO

  

TRESANA

LOGO [g682039snap0025.jpg]

   25-APR-2005    20051167616

COLORADO

   TRESANA    30-MAR-2005    20051134551

COLORADO

   TRESANA    30-MAR-2005    20051134552

COLORADO

   TRESANA – COLORADO LIFE, ITALIAN STYLE    25-APR-2005    20051167613

COLORADO

   TRESANA – COLORADO LIFE, ITALIAN STYLE    30-MAR-2005    20051134549

COLORADO

   TRESANA LIVING    25-APR-2005    20051167614

COLORADO

   TRESANA LIVING    30-MAR-2005    20051134550

COLORADO

   WEATHERSTONE AT HIGHLANDS RANCH    14-OCT-1996    19961133648

COLORADO

   WESTCLIFF ESTATES    24-JUL-1995    19951092984

COLORADO

   WILD AT HEART BACK COUNTRY    15-JUL-2003    20031226853

COLORADO

   WILD AT HEART BACK COUNTRY    15-JUL-2003    20031226850

COLORADO

   WILDCAT MOUNTAIN RESERVE    20-APR-1992    19921040722

COLORADO

   WILDCAT SHOPPING CENTER    31-OCT-2000    20001212208

SCHEDULE III

 

-14-

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

State

  

Mark

  

Registration Date

  

Registration No.

COLORADO

  

WILDCAT SHOPPING CENTER

LOGO [g682039snap0027.jpg]

   31-OCT-2000    20001212209

TRADEMARK/TRADE NAMES OWNED BY SHEA HOMES SOUTHWEST, INC.

State Trademark Registrations

 

State

  

Mark

    

Registration Date

    

Registration No.

 

ARIZONA

     TRILOGY GOLF CLUB AT VISTANCIA         25-FEB-2004         313877   

Non-U.S. Trademark Registrations

None.

Non-U.S. Trademark Applications

None.

Trade Names

None.

SCHEDULE III

 

-15-

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

TRADEMARK/TRADE NAMES OWNED BY SHEA HOMES, INC.

U.S. Trademark Registrations

 

Mark

  

Reg. Date

  

Reg. No.

ACCOLADE

  

Filing Date 1/31/2001

Reg. Date 12/27/2005

  

Serial No. 76/202,719

Reg. No. 3,036,091

CRESCENDO

  

Filing Date 1/31/2001

Reg. Date 5/16/2006

  

Serial No. 76/202,718

Reg. No. 3,093,495

ENCANTERRA

LOGO [g682039snap0032.jpg]

  

Filing Date 6/18/2007

Reg. Date 5/19/2009

Filing Date 10/18/2007

Reg. Date 11/10/2009

  

Serial No. 77/208,948

Reg. No. 3,623,598

Serial No. 77/307,942

Reg. No. 3,709,303

           

FIVE SIDED ARCHITECTURE

   Filing Date 4/4/2007    Serial No. 77/148,956    Reg. Date 4/13/2010    Reg.
No. 3,775,102

MEMBERSHIP HAS ITS PRIVILEGES

  

Filing Date 9/13/2001

Reg. Date 2/3/2004

  

Serial No. 76/312,692

Reg. No. 2,811,224

SUPERIOLOGY

  

Filing Date 6/25/2008

Reg. Date 2/10/2009

  

Serial No. 77/507,801

Reg. No. 3,572,106

TRILOGY

LOGO [g682039snap0033.jpg]

  

Filing Date 1/6/2000

Reg. Date 6/12/2001

Filing Date 8/9/2002

Reg. Date 6/3/2003

  

Serial No. 75/888,886

Reg. No. 2,459,403

Serial No. 76/439,125

Reg. No. 2,721,224

     

U.S. Trademark Applications

None.

State Trademark Registrations

None.

Non-U.S. Trademark Registrations

None.

Non-U.S. Trademark Applications

None.

Trade Names

None.

SCHEDULE III

 

-16-

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

SCHEDULE IV

COMMERCIAL TORT CLAIMS

None.

 

 

SCHEDULE IV

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

EXHIBIT A

FORM OF SUPPLEMENT TO SECURITY AGREEMENT

THIS SUPPLEMENT NO.              TO SECURITY AGREEMENT dated as of
[            ] (this “Supplement”), is attached to and made a part of the
Amended and Restated Security Agreement dated as of February __, 2014 (the
“Security Agreement”), among Shea Homes Limited Partnership, a California
limited partnership (the “Company”), Shea Homes Funding Corp., a Delaware
corporation (the “Corporate Issuer”, and together with the Company, the
“Issuers”), each Guarantor listed on Schedule I thereto together with any
additional Guarantors added by Supplement (each such Guarantor individually a
“Guarantor” and, collectively, the “Guarantors”; the Guarantors, the Company and
the Corporate Issuer being collectively referred to herein as the “Grantors”),
U.S. Bank National Association, a national banking association as
“Administrative Agent” under the Revolving Facility Agreement (in such capacity,
“Administrative Agent”) and Wells Fargo Bank, National Association, as
“Collateral Agent” under the Intercreditor Agreement (in such capacity, the
“Collateral Agent”).

A. Reference is made to: (i) the Indenture dated as of May 10, 2011 (as amended,
supplemented or otherwise modified from time to time, the “Indenture”), by and
among the Issuers, the Guarantors from time to time a party thereto and Wells
Fargo Bank, National Association, as Trustee (the “Trustee”); (ii) the Credit
Agreement dated as of February __, 2014 (as amended, supplemented or otherwise
modified from time to time, the “Revolving Facility Agreement”) by and among the
Company, Administrative Agent and the “Lenders” from time to time a party
thereto (the “Revolving Facility Lenders”); (iii) the Guaranty dated as of
February __, 2014 (as amended, supplemented or otherwise modified from time to
time, the “Revolving Facility Guaranty”) made by the Guarantors from time to
time a party thereto in favor of Administrative Agent and the Revolving Facility
Lenders; (iv) the Amended and Restated Intercreditor Agreement dated as of
February __, 2014 (as amended, supplemented or otherwise modified from time to
time, the “Intercreditor Agreement”), by and among the Administrative Agent, the
Collateral Agent, the Company, the Corporate Issuer, the Trustee and the other
parties from time to time a party thereto; and (v) the Amended and Restated Real
Property Collateral Management Agreement dated as of February __, 2014 (as
amended, supplemented or otherwise modified from time to time, the “Real
Property Collateral Management Agreement”) by and among the Collateral Agent,
the Company, the Corporate Issuer, and the other Grantors from time to time a
party thereto.

B.        Capitalized terms used herein and not otherwise defined herein shall
have the meanings assigned to such terms in the Intercreditor Agreement, the
Indenture, the Revolving Facility Agreement and the Security Agreement, as
applicable.

C.        The Grantors have entered into the Security Agreement, the Real
Property Collateral Management Agreement and other Security Documents in
consideration of the

 

EXHIBIT A

-1-

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

Secured Parties extending to the Credit Parties credit facilities now or
hereafter existing pursuant to the Note Documents and the Revolving Facility
Documents. Section 4.22 of the Indenture and Section 6.24 of the Revolving
Facility Agreement provide that additional Subsidiaries of the Company may
become Guarantors under the Indenture and the Revolving Facility Guaranty in the
manner provided therein, and such Guarantors are also required to become a party
to the Security Agreement, the Real Property Collateral Management Agreement and
any other Security Documents to which Guarantors are required to be a party, by
the execution and delivery of an instrument in the form of this Supplement. The
undersigned Subsidiary (the “New Guarantor”) is executing this Supplement in
accordance with the requirements of the Indenture, the Revolving Facility
Agreement and the Security Agreement in consideration of the Secured Parties
extending to the Credit Parties credit facilities now or hereafter existing
pursuant to the Note Documents and the Revolving Facility Documents.

Accordingly, the Collateral Agent and the New Guarantor agree as follows:

SECTION 1.    In accordance with Section 7.14 of the Security Agreement, the New
Guarantor by its signature below, becomes a Grantor under the Security
Agreement, the Real Property Collateral Management Agreement, and [insert name
and date of any other Security Document to which Guarantor needs to be added]
(collectively, the “Assumed Documents”), with the same force and effect as if
originally named in the Assumed Documents as a Grantor and Guarantor, and the
New Guarantor hereby (a) assumes and agrees to all the terms and provisions of
the Assumed Documents applicable to it as a Grantor and Guarantor thereunder and
(b) represents and warrants that the representations and warranties made by it
as a Grantor and Guarantor thereunder are true and correct on and as of the date
hereof. In furtherance of the foregoing, the New Guarantor, as security for the
payment and performance in full of the Obligations, does hereby create and grant
to the Collateral Agent, its successors and assigns, for the benefit of the
Secured Parties, their successors and assigns, a security interest in and lien
on all the New Guarantor’s right, title and interest in and to the Collateral
(as defined in the Security Agreement) of the New Guarantor. Each reference to a
“Guarantor” or “Grantor” in the Assumed Documents shall be deemed to include the
New Guarantor. The Assumed Documents are hereby incorporated herein by
reference.

SECTION 2.    The New Guarantor represents and warrants to the Collateral Agent
and the other Secured Parties that this Supplement has been duly authorized,
executed and delivered by it and constitutes its legal, valid and binding
obligation, enforceable against it in accordance with its terms.

SECTION 3.    This Supplement may be executed in counterparts (and by different
parties hereto on different counterparts), each of which shall constitute an
original, but all of which when taken together shall constitute a single
contract. This Supplement shall become effective when the Collateral Agent shall
have received a counterpart of this Supplement that bears the signature of the
New Guarantor and the Collateral Agent has executed a counterpart hereof.
Delivery of an executed signature page to this Supplement by facsimile
transmission shall be effective as delivery of a manually signed counterpart of
this Supplement.

SECTION 4.    The New Guarantor hereby represents and warrants that (a) set
forth on Schedule I attached hereto is a schedule with the true and correct
legal name of the New

 

EXHIBIT A

-2-

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

Guarantor, its jurisdiction of formation and the location of its chief executive
office, (b) set forth on Schedule II attached hereto is a true and correct
schedule of all the Pledged Securities of the New Guarantor and (c) set forth on
Schedule III attached hereto is a true and correct schedule of Intellectual
Property consisting of Copyrights, Patents and Trademarks of the New Guarantor.

SECTION 5.    Except as expressly supplemented hereby, the Security Agreement
shall remain in full force and effect.

SECTION 6.    THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK.

SECTION 7.    In case any one or more of the provisions contained in this
Supplement should be held invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein and in the Security Agreement shall not in any way be affected or
impaired thereby (it being understood that the invalidity of a particular
provision in a particular jurisdiction shall not in and of itself affect the
validity of such provision in any other jurisdiction). The parties hereto shall
endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.

SECTION 8.    All communications and notices hereunder shall be in writing and
given as provided in Section 7.01 of the Security Agreement.

SECTION 9.    The New Guarantor agrees to reimburse the Collateral Agent for its
reasonable out-of-pocket expenses in connection with this Supplement, including
the reasonable fees, other charges and disbursements of counsel for the
Collateral Agent.

IN WITNESS WHEREOF, the New Guarantor and the Collateral Agent have duly
executed this Supplement to the Security Agreement as of the day and year first
above written.

 

           [Name Of New Guarantor]   By        

 

    

Name:

    

Title:

    

Legal Name:

    

Jurisdiction of Formation:

    

Location of Chief Executive office:

 

EXHIBIT A

-3-

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

WELLS FARGO BANK, NATIONAL ASSOCIATION,

solely in its capacity as Collateral Agent

 

By

 

 

   

Name:

   

Title:

 

EXHIBIT A

-4-

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

SCHEDULE I

NEW GUARANTOR INFORMATION

 

Name

   Jurisdiction of Formation    Chief Executive Office

 

EXHIBIT A

-5-

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

SCHEDULE II

PLEDGED EQUITY INTERESTS

 

Issuer

   Number of
Certificate    Registered
Owner    Number and
Class of
Equity Interests    Percentage
of Equity
Interests

PLEDGED DEBT SECURITIES

 

Issuer

 

Principal
Amount

   Date of Note    Maturity Date

 

EXHIBIT A

-6-

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

SCHEDULE III

INTELLECTUAL PROPERTY

 

EXHIBIT A

-7-

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

EXHIBIT B

PERFECTION CERTIFICATE

[delivered separately.]

 

EXHIBIT B