Unassociated Document


    EXECUTION
VERSION

    
      
        
          	 
      
	 
      
	
                  SECURITY
      AGREEMENT

                

  

      

    

    Dated as
of November 29, 2010

     

    among

     

    PALM
HARBOR HOMES, INC.,

    AND

    THE OTHER
GRANTORS NAMED HEREIN,


     

    each as a
Grantor

     

    and,
collectively,

    as the
Grantors

     

    and

     

    FLEETWOOD
HOMES, INC.

     

    
      
        
          
            
              
                
                  
                    
                      	
                              
                                as
      Secured Party

                              

                            
	 


                    

                  

                

              

            

          

        

      

    

    


    
      
        
           


        

        
           


          
            

          

        

        
           


        

      

    

     

    TABLE
OF CONTENTS

    (continued)

    


    
      
        
          
            	
                    ARTICLE
      I

                  	
                    DEFINITIONS

                  	
                    2

                  
	 
      	 
      	 
      
	
                    Section
      1.01

                  	
                    Definitions

                  	
                    2

                  
	
                    Section
      1.02

                  	
                    Certain
      Terms

                  	
                    4

                  
	 
      	 
      	 
      
	
                    ARTICLE
      II

                  	
                    Grant
      of Security Interest

                  	
                    4

                  
	 
      	 
      	 
      
	
                    Section
      2.01

                  	
                    Collateral

                  	
                    4

                  
	
                    Section
      2.02

                  	
                    Grant
      of Security Interest in Collateral

                  	
                    5

                  
	 
      	 
      	 
      
	
                    ARTICLE
      III

                  	
                    Representations
      and Warranties

                  	
                    5

                  
	 
      	 
      	 
      
	
                    Section
      3.01

                  	
                    Title;
      No Other Liens

                  	
                    5

                  
	
                    Section
      3.02

                  	
                    Perfection
      and Priority

                  	
                    6

                  
	
                    Section
      3.03

                  	
                    Jurisdiction
      of Organization; Chief Executive Office

                  	
                    6

                  
	
                    Section
      3.04

                  	
                    Locations
      of Books and Records

                  	
                    6

                  
	
                    Section
      3.05

                  	
                    Pledged
      Collateral

                  	
                    6

                  
	
                    Section
      3.06

                  	
                    Instruments
      and Tangible Chattel Paper Formerly Accounts

                  	
                    7

                  
	
                    Section
      3.07

                  	
                    Intellectual
      Property

                  	
                    7

                  
	
                    Section
      3.08

                  	
                    Commercial
      Tort Claims

                  	
                    8

                  
	
                    Section
      3.09

                  	
                    Specific
      Collateral

                  	
                    8

                  
	
                    Section
      3.10

                  	
                    Enforcement

                  	
                    8

                  
	
                    Section
      3.11

                  	
                    Representations
      and Warranties of the Credit Agreement

                  	
                    8

                  
	 
      	 
      	 
      
	
                    ARTICLE
      IV

                  	
                    Covenants

                  	
                    8

                  
	 
      	 
      	 
      
	
                    Section
      4.01

                  	
                    Maintenance
      of Perfected Security Interest; Further Documentation and
      Consents

                  	
                    8

                  
	
                    Section
      4.02

                  	
                    Changes
      in Locations, Name, Etc

                  	
                    9

                  
	
                    Section
      4.03

                  	
                    Pledged
      Collateral

                  	
                    9

                  
	
                    Section
      4.04

                  	
                    Accounts

                  	
                    11

                  
	
                    Section
      4.05

                  	
                    Delivery
      of Instruments and Tangible Chattel Paper and Control of Investment
      Property, Letter-of-Credit Rights and Electronic Chattel
    Paper

                  	
                    11

                  
	
                    Section
      4.06

                  	
                    Intellectual
      Property

                  	
                    12

                  
	
                    Section
      4.07

                  	
                    Notices

                  	
                    13

                  
	
                    Section
      4.08

                  	
                    Notice
      of Commercial Tort Claims

                  	
                    13

                  
	
                    Section
      4.09

                  	
                    Compliance
      with Credit Agreement

                  	
                    13

                  
	 
      	 
      	 
      
	
                    ARTICLE
      V

                  	
                    Remedial
      Provisions

                  	
                    13

                  
	 
      	 
      	 
      
	
                    Section
      5.01

                  	
                    Code
      and Other Remedies

                  	
                    13

                  
	
                    Section
      5.02

                  	
                    Control
      Account and Collections

                  	
                    16

                  
	
                    Section
      5.03

                  	
                    Pledged
      Collateral

                  	
                    17

                  
	
                    Section
      5.04

                  	
                    Registration
      Rights

                  	
                    18

                  
	
                    Section
      5.05

                  	
                    Deficiency

                  	
                    19

                  
	 
      	 
      	 
      
	
                    ARTICLE
      VI

                  	
                    Subordination

                  	
                    19

                  
	 
      	 
      	 
      
	
                    Section
      6.01

                  	
                    Subordination

                  	
                    19

                  
	
                    Section
      6.02

                  	
                    Restrictions
      on Payment and Transfer

                  	
                    20

                  


          

        

      

    


    
      
         


      

      
        -ii-

        
          

        

      

      
         


      

    

     

    
      
        
          
            
              
                
                  
                    
                      	
                              ARTICLE
      VII

                            	
                              The
      Administrative Secured Party

                            	
                              20

                            
	 	 	 
	
                              Section
      7.01

                            	
                              The
      Secured Party’s Appointment as Attorney-in-Fact

                            	
                              20

                            
	
                              Section
      7.02

                            	
                              Authorization
      to File Financing Statements

                            	
                              22

                            
	 	 	 
	
                              ARTICLE
      VIII

                            	
                              Miscellaneous

                            	
                              22

                            
	 	 	 
	
                              Section
      8.01

                            	
                              Reinstatement

                            	
                              22

                            
	
                              Section
      8.02

                            	
                              Independent
      Obligations

                            	
                              22

                            
	
                              Section
      8.03

                            	
                              No
      Waiver by Course of Conduct

                            	
                              22

                            
	
                              Section
      8.04

                            	
                              Amendments
      in Writing

                            	
                              23

                            
	
                              Section
      8.05

                            	
                              Additional
      Grantors; Additional Pledged Collateral

                            	
                              23

                            
	
                              Section
      8.06

                            	
                              Notices

                            	
                              23

                            
	
                              Section
      8.07

                            	
                              Benefit
      of Agreement

                            	
                              24

                            
	
                              Section
      8.08

                            	
                              Cumulative
      Remedies, Etc

                            	
                              24

                            
	
                              Section
      8.09

                            	
                              Amendments,
      Waivers and Consents

                            	
                              25

                            
	
                              Section
      8.10

                            	
                              Waiver

                            	
                              25

                            
	
                              Section
      8.11

                            	
                              Governing
      Law

                            	
                              25

                            
	
                              Section
      8.12

                            	
                              Consent
      to Jurisdiction; Service of Process; Waiver of Jury Trial

                            	
                              25

                            
	
                              Section
      8.13

                            	
                              Interpretation;
      Headings

                            	
                              26

                            
	
                              Section
      8.14

                            	
                              Severability
      of Provisions

                            	
                              26

                            
	
                              Section
      8.15

                            	
                              Counterparts

                            	
                              26

                            
	
                              ANNEXES
      AND SCHEDULES

                            	 
      
	
                              ANNEX
      1

                            	
                              Form
      of Pledge Amendment

                            	 
      
	
                              ANNEX
      2

                            	
                              Form
      of Joinder Agreement

                            	 
      


                    

                  

                

              

            

          

        

      

    

    


    
      
        
          
            	
                    SCHEDULE
      I-A

                  	
                    Grantors

                  
	
                    SCHEDULE
      I-B

                  	
                    Initial
      Limited Pledgors

                  
	
                    SCHEDULE
      I-C

                  	
                    Initial
      Pledged Entities

                  
	
                    SCHEDULE
      II

                  	
                    Commercial
      Tort Claims

                  
	
                    SCHEDULE
      III

                  	
                    Jurisdiction
      of Organization; Chief Executive Offices

                  
	
                    SCHEDULE
      IV

                  	
                    Location
      of Books and Records

                  
	
                    SCHEDULE
      V

                  	
                    Control
      Agreements

                  
	
                    SCHEDULE
      VI

                  	
                    Pledged
      Collateral

                  
	
                    SCHEDULE
      VII

                  	
                    Intellectual
      Property

                  


          

        

      

    


    
      
         


      

      
        
          iii

        

        
          

        

      

      
         


      

    


    This
SECURITY AGREEMENT (this “Agreement”) is made
as of November 29, 2010 by and among Palm Harbor Homes, Inc., a Florida
corporation (as referred to herein, the “PHH”) and each of the
direct and indirect Subsidiaries of PHH set forth on Schedule I-A hereto
(PHH or any such Subsidiary individually being a “Grantor” and
collectively being the “Grantors”) in favor
of Fleetwood Homes, Inc., a Delaware corporation (the “Secured
Party”).

     

    WITNESSETH

     

    WHEREAS,
on November 29, 2010 (the “Petition Date”), the
Grantors each filed a voluntary petition for relief under title 11 of chapter 11
of the United States Code, 11 U.S.C. §§ 101, et. seq. (as amended, the “Bankruptcy Code”)
with the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”);
and

     

    WHEREAS,
from and after the Petition Date, the Grantors continue to operate their
respective businesses as debtors and debtors-in-possession pursuant to sections
1107 and 1108 of the Bankruptcy Code; and

     

    WHEREAS,
each of the Grantors has an immediate need for funds to continue to operate its
respective businesses and the Grantors have not been able to obtain sufficient
credit or to incur sufficient debt from any other source sufficient to continue
their business operations; and

     

    WHEREAS,
pursuant to the Debtor-in-Possession Revolving Credit Agreement dated as of the
date hereof (as the same may be modified from time to time, the “Credit Agreement”)
among each of the Grantors and the Secured Party, the Secured Party has agreed
to provide certain financial accommodations to the Grantors upon the terms and
subject to the conditions set forth therein; and

     

    WHEREAS,
each Grantor will derive substantial direct and indirect benefits from the
financial accommodations provided by the Secured Party under the Credit
Agreement; and

     

    WHEREAS,
it is a condition precedent to the obligation of the Secured Party to provide
such financial accommodations under the Credit Agreement that the Grantors shall
have executed and delivered this Agreement to the Secured Party;
and

     

    NOW,
THEREFORE, in consideration of the premises and the covenants and agreements
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    ARTICLE
I

    DEFINITIONS

     

    Section
1.01          Definitions.

     

    “Additional Pledged Equity
Interests” means any and all interest in (a) any and all additional
interests in any Person owned by any Grantor that is a Pledged Subsidiary
hereafter acquired by such Grantor, including any Additional Pledged Equity
Interests in any such Pledged Subsidiary, any and all of Grantor’s other
additional rights and interests in and to such Pledged Subsidiary and any and
all of Grantor’s rights to and interests in any proceeds and distributions under
or pursuant to any Pledged Collateral Agreements of or with respect to such
Pledged Subsidiary or otherwise, including (i) warrants, options or other rights
entitling such Grantor to acquire any interest in capital stock or other Equity
Interests in such Pledged Subsidiary, (iii) securities, property, interest,
dividends and other payments and distributions issued as an addition to, in
redemption of, in renewal or exchange for, in substitution or upon conversion
of, or otherwise on account of, the Pledged Equity Interests of such Pledged
Subsidiary or such additional capital stock or other equity securities or other
interests in such Pledged Subsidiary, (iii) all rights of such Grantor to
receive moneys in repayment of loans made to such Pledged Subsidiary pursuant to
any Pledged Collateral Agreement or otherwise, (iv) all rights of such Grantor
to receive proceeds of any insurance, indemnity, warranty or guaranty with
respect to the Pledged Equity Interests in such Pledged Subsidiary, (v) all
claims of such Grantor for damages arising out of or for breach of or default or
misrepresentation under any Pledged Collateral Agreement or any documents,
instruments or opinions delivered pursuant thereto, (vi) any right of Grantor to
terminate any Pledged Collateral Agreement, to perform thereunder and to compel
performance and otherwise exercise all remedies thereunder and (vii) all rights
of such Grantor to vote and give appraisals, consents, decisions and directions
and exercise any other similar rights with respect to any lawful action of such
Pledged Subsidiary, and (b) to the extent not included in the foregoing, all
cash and non-cash proceeds and Support Obligations of or with respect to the
Pledged Equity Interests in such Pledged Subsidiary and any such Additional
Pledged Equity Interests, in each case from time to time received or receivable
by, or otherwise paid or distributed to or acquired by, such
Grantor.

     

    “Agreement” means this
Security Agreement, together with all Exhibits and Schedules hereto, as the same
may be amended, supplemented or otherwise modified from time to
time.

     

    “Applicable IP Office”
means the United States Patent and Trademark Office, the United States Copyright
Office or any similar office or agency within or outside the United
States.

     

    “Collateral” has the
meaning specified in Section
2.01(b).

     

    “Control Agreements”
means, with respect to any deposit account, any securities account, commodity
account, securities entitlement or commodity contract, an agreement, in form and
substance satisfactory to the Secured Party, among the Secured Party, the
financial institution or other Person at which such account is maintained or
with which such entitlement or contract is carried and the Grantor maintaining
such account, effective to grant “control” (as defined in the applicable UCC)
over such account to the Secured Party.

     

    “Liabilities” means
all claims, actions, suits, judgments, damages, losses, liability, obligations,
responsibilities, fines, penalties, sanctions, costs, fees, taxes, commissions,
charges, disbursements and expenses, in each case of any kind or nature
(including interest accrued thereon or as a result thereto and fees, charges and
disbursements of financial, legal and other advisors and consultants), whether
joint or several, whether or not indirect, contingent, consequential, actual,
punitive, treble or otherwise.

     

    “Limited Pledgors”
means each of the entities set forth on Schedule I-B, in its
capacity as a Grantor.

     

    “Pledged Certificated Equity
Interests” means all certificated securities and any other Equity
Interests or Equivalent Equity Interests of any Person evidenced by a
certificate, instrument or other similar document (as defined in the UCC), in
each case owned by any Grantor, and any distribution of property made on, in
respect of or in exchange for the foregoing from time to time, including all
Equity Interests and Equivalent Equity Interests listed on Schedule
VI.


    
      
         


      

      
        2

        
          

        

      

      
         


      

    


    “Pledged Collateral”
means, collectively, the Pledged Equity Interests and the Pledged Debt
Instruments.

     

    “Pledged Collateral
Agreement” means any shareholders agreement, operating agreement,
partnership agreement, voting trust, proxy agreement or other agreement or
understanding with respect to any Pledged Collateral.

     

    “Pledged Debt
Instruments” means all right, title and interest of any Grantor in
instruments evidencing any indebtedness for borrowed money owed to such Grantor
or other obligations, and any distribution of property made on, in respect of or
in exchange for the foregoing from time to time, including all indebtedness
described on Schedule
VI, issued by the obligors named therein.

     

    “Pledged Entity” means
each entity set forth on Schedule I-C hereto
and each entity listed as a Subsidiary on a Pledge Amendment (as defined in
Section
8.05).

     

    “Pledged Investment
Property” means any investment property of any Grantor, and any
distribution of property made on, in respect of or in exchange for the foregoing
from time to time, other than any Pledged Equity Interests or Pledged Debt
Instruments.

     

    “Pledged Equity
Interests” means all Additional Pledged Equity Interests, all Pledged
Certificated Equity Interests and all Pledged Uncertificated Equity
Interests.

     

    “Pledged Subsidiary”
means each Subsidiary of a Grantor, the Equity Interests in which is required to
be pledged hereunder, including each Subsidiary of a Grantor listed on Schedule
VI.

     

    “Pledged Uncertificated
Equity Interests” means any Equity Interest or Equivalent Equity Interest
of any Person that is not Pledged Certificated Equity Interest, including all
right, title and interest of any Grantor as a limited or general partner in any
partnership not constituting Pledged Certificated Equity Interests or as a
member of any limited liability company, all right, title and interest of any
Grantor in, to and under any certificate or articles of incorporation, bylaws or
other organizational document of any partnership or limited liability company to
which it is a party, and any distribution of property made on, in respect of or
in exchange for the foregoing from time to time, including in each case those
interests set forth on Schedule VI, to the
extent such interests are not certificated.

     

    “Secured Obligations”
has the meaning set forth in Section
2.02.

     

    “Secured Party” has
the meaning set forth in the Preamble.


    
      
         


      

      
        3

        
          

        

      

      
         


      

    


    Section
1.02          Certain
Terms.

     

    (a)           The
following terms have the meanings given to them in the UCC and terms used herein
without definition that are defined in the UCC have the meanings given to them
in the UCC:  “account”, “account debtor”,
“as-extracted
collateral”, “certificated
security”, “chattel paper”,
“commercial tort
claim”, “commodity contract”,
“deposit
account”, “electronic chattel
paper”, “equipment”, “farm products”,
“fixture”,
“general
intangible”, “goods”, “health-care-insurance
receivable”, “instruments”, “inventory”, “investment property”,
“letter-of-credit
right”, “proceeds”, “record”, “securities account”,
“security” and
“tangible chattel
paper”.

     

    (b)           Initially
capitalized terms used herein without definition are used as defined in the
Credit Agreement including, “Business Day”, “Capital Lease”,
“Closing Date”,
“Collections”,
“Computer
Software”, “Contractual
Obligation”, “Control Account”,
“Copyrights”,
“Credit
Document”, “Default”, “Event of Default”,
“Governmental
Body”, “Intellectual
Property”, “Knowledge”, “Law”, “Lien”, “Marks”, “Note”, “Obligations”, “Patents”, “Permits”, “Person”, “Permitted Lien”,
“Subsidiary”,
“Textron
Agent”, “Textron Facility”,
“Textron
Lenders”, “Support Obligations”,
“UCC” and
“Weekly
Budget”.

     

    ARTICLE
II

    GRANT OF
SECURITY INTEREST

     

    Section
2.01          Collateral.

     

    (a)           For
the purposes of this Agreement, all assets (other than the Equity Interests of
and in Countryplace Acceptance Corporation) of any Grantor (other than a Limited
Pledgor), whether presently existing or owned or hereafter arising or acquired,
of any kind or nature and wherever located, in which a Grantor (other than a
Limited Pledgor) now has or at any time in the future may acquire any right,
title or interests, including all of the following property, is collectively
referred to as the “All Assets
Collateral”:

     

    (i)           all
accounts, chattel paper (including electronic chattel paper), deposit accounts,
documents (as defined in the UCC), equipment, general intangibles, instruments,
inventory, investment property and any Support Obligations related
thereto;

     

    (ii)          the
commercial tort claims described on Schedule II and on
any supplement thereto received by the Secured Party pursuant to Section
4.08;

     

    (iii)         all
property of such Grantor held by the Secured Party, including all property of
every description, in the custody of or in transit to the Secured Party for any
purpose, including safekeeping, collection or pledge, for the account of such
Grantor or as to which such Grantor may have any right or power, including but
not limited to cash;

     

    (iv)         all
other goods (including but not limited to fixtures) and personal property of
such Grantor, whether tangible or intangible and wherever located;

     

    (v)          all
books, records and other documentation pertaining to the other property
described in this Section 2.01;
and


    
      
         


      

      
        4

        
          

        

      

      
         


      

    


    (vi)         to
the extent not otherwise included, all proceeds of the foregoing;

     

    (b)           For
the purposes of this Agreement, all of the following property, whether presently
existing or owned or hereafter arising or acquired and wherever located, by a
Limited Pledgor, or in which a Limited Pledgor now has or at any time in the
future may acquire any right, title or interests is collectively referred to as
the “Limited
Collateral” and, together with the All Assets Collateral, the “Collateral”:

     

    (i)           all
Pledged Equity Interests in each Pledged Entity;

     

    (ii)          all
rights, interests and claims with respect to the Pledged Equity Interests in
each Pledged Entity, including under any and all Pledged Collateral Agreement
with respect to such Pledged Entity;

     

    (iii)         all
books, records and other documentation pertaining to the other property
described in this Section
2.01(b);

     

    (iv)         to
the extent not otherwise included, all proceeds of the foregoing;

     

    Section
2.02          Grant of Security Interest
in Collateral.  Each Grantor, as collateral security for the
prompt and complete payment and performance when due (whether at stated
maturity, by acceleration or otherwise) of the Obligations of such Grantor (the
“Secured
Obligations”), hereby mortgages, pledges and hypothecates to the Secured
Party, and grants to the Secured Party a Lien on and security interest in, all
of its right, title and interest in, to and under the Collateral of such
Grantor.

     

    ARTICLE
III

    REPRESENTATIONS
AND WARRANTIES

     

    To induce
the Secured Party to enter into the Credit Documents, each Grantor hereby,
jointly and severally, represents and warrants to the Secured Party on the date
hereof and on each date that a Weekly Budget is delivered pursuant to the Credit
Agreement, that:

     

    Section
3.01          Title; No Other
Liens.  Except for Permitted Liens (other than those not
permitted to exist on any Collateral), such Grantor has good and marketable
title to all properties and assets, tangible and intangible, owned by it, and
each Grantor has rights in and power to transfer each item of the Collateral
upon which it purports to grant a Lien hereunder free and clear of any and all
Liens other than the Liens created and permitted in favor of the Secured Party
by the Credit Documents and the Permitted Liens.  No Grantor is in
possession of any equipment or other tangible asset that is owned by another
Person.  None of the assets of any Grantor is in the possession or
under the control of any other Person.


    
      
         


      

      
        5

        
          

        

      

      
         


      

    


    Section
3.02          Perfection and
Priority.  The security interest granted pursuant to this
Agreement constitutes a valid and continuing perfected security interest in
favor of the Secured Party in all Collateral.  Such security interest
is prior to all other Liens on the Collateral (except for Permitted
Liens).  Except as set forth in this Section 3.02, all
actions by such Grantor necessary or desirable to protect and perfect the Lien
granted hereunder on the Collateral have been duly taken.  No
authorization, approval or consent is required to obtained from any Governmental
Body or other Person for the grant of the security interest herein, the
perfection thereof or the exercise by the Secured Party of its rights and
remedies hereunder (other than the exercise by the Secured Party of any rights
or remedies with respect to the Initial Limited Pledgors and Subsidiaries which
would result in a change of control requiring prior insurance regulatory
approval from applicable insurance regulatory agencies having jurisdiction over
such Initial Limited Pledgors and Subsidiaries).

     

    Section
3.03          Jurisdiction of
Organization; Chief Executive Office.  Such Grantor’s
jurisdiction of organization, legal name and organizational identification
number, if any, and the location of such Grantor’s chief executive office or
sole place of business, in each case as of the date hereof, is specified on
Schedule III
and such Schedule
III also lists all jurisdictions of incorporation, legal names and
locations of such Grantor’s chief executive office or sole place of business for
the five years preceding the date hereof.

     

    Section
3.04           Locations of Books and
Records.  On the date hereof, such Grantor’s books and records
concerning the Collateral are kept at the locations listed on Schedule
IV.

     

    Section
3.05           Pledged
Collateral.

     

    (a)           The
Pledged Equity Interests pledged by such Grantor hereunder (i) is listed on
Schedule VI and
constitutes that percentage of the issued and outstanding equity of all classes
of each issuer thereof as set forth on Schedule VI, (ii) has
been duly authorized, validly issued and is fully paid and nonassessable (other
than Pledged Equity Interests in limited liability companies and partnerships)
and (iii) constitutes the legal, valid and binding obligation of the obligor
with respect thereto, enforceable in accordance with its terms.

     

    (b)           As
of the Closing Date, all Pledged Collateral (other than Pledged Uncertificated
Equity Interests) and all Pledged Investment Property constituting Collateral
consisting of instruments and certificates has been delivered to the Secured
Party in accordance with Section
4.03(a).

     

    (c)           Upon
the occurrence and during the continuance of an Event of Default, the Secured
Party shall be entitled to exercise all of the rights of the Grantor granting
the security interest in any Pledged Equity Interests constituting Collateral,
and a transferee or assignee of such Pledged Equity Interests shall become a
holder of such Pledged Equity Interests to the same extent as such Grantor and
be entitled to participate in the management of the issuer of such Pledged
Equity Interests and, upon the transfer of the entire interest of such Grantor,
such Grantor shall, by operation of law, cease to be a holder of such Pledged
Equity Interests; provided that Lender shall
not exercise this remedy with respect to the Initial Limited Pledgors and their
direct Subsidiaries to the extent (and only for so long as) the exercise of the
remedy granted in this Section 3.05(c) would
require insurance regulatory approval from any applicable insurance regulatory
agency having jurisdiction over such Initial Limited Pledgor or Subsidiary;
provided further that the Secured
Party shall be entitled to pursue all such regulatory approvals including, by
using the powers granted it in Section
7.01.


    
      
         


      

      
        6

        
          

        

      

      
         


      

    


    (d)           Except
as set forth in Schedule VI and any
certificate or articles of incorporation, bylaws or other organizational
document of any Grantor, there are no (i) Pledged Collateral Agreements which
affect or relate to the voting or giving of written consents with respect to any
of the Pledged Collateral and (ii) restrictions on the transferability of the
Pledged Collateral to Secured Party or with respect to the foreclosure, transfer
or disposition thereof by Secured Party.  Each Pledged Collateral
Agreement contains the entire agreement between the parties thereto with respect
to the subject matter thereof, has not been amended or modified, and is in full
force and effect in accordance with its terms.  To the best Knowledge
of such Grantor, there exists no material violation or material default under
any Pledged Collateral Agreement by such Grantor or the other parties
thereto.  Such Grantor has not knowingly waived or released any of its
material rights under or otherwise consented to a material departure from the
terms and provisions of any Pledged Collateral Agreement.

     

    (e)           No
control agreements exist with respect to any Collateral other than Control
Agreement in favor of the Secured Party and Control Agreements in favor of the
Textron Agent and the Textron Lenders in connection with the Textron
Facility.

     

    Section
3.06          Instruments and Tangible
Chattel Paper Formerly Accounts.  No amount payable to such
Grantor under or in connection with any account constituting Collateral is
evidenced by any instrument or tangible chattel paper that has not been
delivered to the Secured Party, properly endorsed for transfer, to the extent
delivery is required by Section
4.05(a).

     

    Section
3.07          Intellectual
Property.

     

    (a)           Schedule VII sets
forth a true and complete list of the following Intellectual Property
constituting Collateral such Grantor owns, licenses or otherwise has the right
to use:  (i) Intellectual Property that is registered or subject
to applications for registration, (ii) Internet domain names and (iii)
Intellectual Property and material Computer Software, separately identifying
that owned and licensed to such Grantor and including for each of the foregoing
items (A) the owner, (B) the title, (C) the jurisdiction in which such item has
been registered or otherwise arises or in which an application for registration
has been filed, (D) as applicable, the registration or application number and
registration or application date and (E) any licenses and sublicenses held by
any Grantor as licensee pertaining to Intellectual Property of any other Person
or other rights (including franchises) granted by the Grantor with respect
thereto.

     

    (b)           On
the Closing Date, all Intellectual Property constituting Collateral owned by
such Grantor is valid, in full force and effect, subsisting, unexpired and
enforceable, and no Intellectual Property constituting Collateral has been
abandoned.  No breach or default of any material license or sublicense
held by any Grantor as licensee pertaining to Intellectual Property of any other
Person or other right (including franchises) constituting Collateral shall be
caused by any of the following, and none of the following shall limit or impair
the ownership, use, validity or enforceability of, or any rights of such Grantor
in, any Intellectual Property constituting Collateral:  (i) the
consummation of the transactions contemplated by any Credit Document or (ii) any
holding, decision, judgment or order rendered by any Governmental
Body.  There are no pending (or, to the Knowledge of such Grantor,
threatened) actions, investigations, suits, proceedings, audits, claims,
demands, orders or disputes challenging the ownership, use, validity,
enforceability of, or such Grantor’s rights in, any Intellectual Property
constituting Collateral of such Grantor.  To such Grantor’s Knowledge,
no Person has been or is infringing, misappropriating, diluting, violating or
otherwise impairing any Intellectual Property constituting Collateral of such
Grantor.  Such Grantor, and to such Grantor’s Knowledge each other
party thereto, is not in material breach or default of any material license or
sublicense held by any Grantor as licensee pertaining to Intellectual Property
of any other Person or other right (including franchises) constituting
Collateral.


    
      
         


      

      
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    Section
3.08          Commercial Tort
Claims.  The only commercial tort claims of the Grantors
existing on the date hereof (regardless of whether the amount, defendant or
other material facts can be determined and regardless of whether such commercial
tort claim has been asserted, threatened or has otherwise been made known to the
obligee thereof or whether litigation has been commenced for such claims) are
those listed on Schedule
II.

     

    Section
3.09          Specific
Collateral.  None of the Collateral is, or is proceeds or
products of, farm products, as-extracted collateral, health-care-insurance
receivables or timber to be cut.

     

    Section
3.10          Enforcement.  No
Permit, notice to or filing with any Governmental Body or any other Person or
any consent from any Person is required for the exercise by the Secured Party of
its rights (including voting rights) provided for in this Agreement or the
enforcement of remedies in respect of the Collateral pursuant to this Agreement,
including the transfer of any Collateral, except as may be required in
connection with the disposition of any portion of the Pledged Collateral by laws
affecting the offering and sale of securities generally or any approvals that
may be required to be obtained from any bailees or landlords to collect the
Collateral.

     

    Section
3.11          Representations and
Warranties of the Credit Agreement.  The representations and
warranties made by each Grantor in ARTICLE IV of the
Credit Agreement (all of which are hereby incorporated herein by reference) are
true and correct on each of the dates as required by the Credit
Agreement.

     

    ARTICLE
IV

    COVENANTS

     

    Each
Grantor agrees with the Secured Party to the following, as long as any Secured
Obligation remains outstanding:

     

    Section
4.01          Maintenance
of Perfected Security Interest; Further Documentation and Consents.

     

    (a)           Generally.  Such
Grantor shall (i) not use or permit any Collateral to be used unlawfully or in
violation of any provision of any Credit Document, any Related Document, any
requirement of law or any policy of insurance covering the Collateral and (ii)
not enter into any Contractual Obligation or undertaking restricting the right
or ability of such Grantor or the Secured Party to dispose of any Collateral if
such restriction would have a Material Adverse Effect.

     

    (b)           Such
Grantor shall maintain the security interest created by this Agreement as a
perfected security interest having at least the priority described in Section 3.02 and
shall defend such security interest and such priority against the claims and
demands of all Persons (other than holders of Permitted Liens).


    
      
         


      

      
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    (c)           Grantor
shall furnish to the Secured Party from time to time statements and schedules
further identifying and describing the Collateral and such other documents in
connection with the Collateral as the Secured Party may reasonably request, all
in reasonable detail and in form and substance satisfactory to the Secured
Party.

     

    (d)           At
any time and from time to time, upon the written request of the Secured Party,
such Grantor shall, for the purpose of obtaining or preserving the full benefits
of this Agreement and of the rights and powers herein granted, (i) promptly and
duly execute and deliver, and have recorded, such further documents, including
an authorization to file (or, as applicable, the filing) of any financing
statement or amendment under the UCC (or other filings under similar
requirements of law) in effect in any jurisdiction with respect to the security
interest created hereby and (ii) take such further action as the Secured Party
may reasonably request, including (A) using its commercially reasonable efforts
to secure all approvals necessary or appropriate for the assignment to or for
the benefit of the Secured Party of any Contractual Obligation, including any
license or sublicense held by any Grantor as licensee pertaining to Intellectual
Property of any other Person or other right (including franchises), held by such
Grantor and to enforce the security interests granted hereunder and
(B) executing and delivering any Control Agreements with respect to deposit
accounts and securities accounts.

     

    (e)           No
Grantor shall, without the prior written consent of the Secured Party, take any
action or cause any party to take any action to terminate, amend or otherwise
modify any financing statement, or other security filing.

     

    Section
4.02          Changes in Locations, Name,
Etc.  Except upon 30 days’ prior written notice to the Secured
Party and delivery to the Secured Party of all documents reasonably requested by
the Secured Party to maintain the validity, perfection and priority of the
security interests provided for herein, such Grantor shall not do any of the
following:

     

    (i)           change
its jurisdiction of organization or its location, in each case from that
referred to in Section
3.03; or

     

    (ii)           change
its legal name or organizational identification number, if any, or corporation,
limited liability company, partnership or other organizational structure to such
an extent that any financing statement filed in connection with this Agreement
would become misleading.

     

    Section
4.03          Pledged
Collateral.

     

    (a)           Delivery of Pledged
Collateral.  Such Grantor shall (i) deliver to the Secured
Party, in suitable form for transfer and in form and substance satisfactory to
the Secured Party, (A) all Pledged Certificated Equity Interests constituting
Collateral of such Grantor, (B) all Pledged Debt Instruments constituting
Collateral of such Grantor (other than intercompany Pledged Debt Instruments by
a Grantor to another Grantor) and (C) all certificates and instruments
evidencing Pledged Investment Property constituting Collateral of such Grantor
and (ii) maintain all other Pledged Investment Property constituting Collateral
of such Grantor in a securities account that is the subject of an effective
Control Agreement maintained with a securities intermediary approved by the
Secured Party.


    
      
         


      

      
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    (b)           Event of
Default.  During the continuance of an Event of Default, the
Secured Party shall have the right, at any time in its discretion and without
notice to the Grantor, to transfer to or to register in its name or in the name
of its nominees any Pledged Collateral or any Pledged Investment Property
constituting Collateral of such Grantor.

     

    (c)           Exchange and Issuance of
Certificates.  The Secured Party shall have the right, at any
time in its discretion and without notice to the Grantor, to exchange any
certificate or instrument representing or evidencing any Pledged Collateral or
any Pledged Investment Property constituting Collateral for certificates or
instruments of smaller or larger denominations.  Upon the request of
the Secured Party, such Grantor shall cause certificates to be issued in respect
of any Pledged Uncertificated Equity Interests constituting
Collateral.

     

    (d)           Cash Distributions with
respect to Pledged Collateral.  As provided in ARTICLE V, such
Grantor shall be entitled to receive all cash distributions paid in respect of
the Pledged Collateral.

     

    (e)           Voting
Rights.  Except as provided in ARTICLE V, such
Grantor shall be entitled to exercise all voting, consent and corporate,
partnership, limited liability company and similar rights with respect to the
Pledged Collateral; provided, however, that no vote shall
be cast, consent given or right exercised or other action taken by such Grantor
that would impair the Collateral or be inconsistent with or result in any
violation of any provision of any Credit Document.

     

    (f)           Certification of Pledged
Equity Interests.

     

    (i)           Such
Grantor shall comply with all of its obligations under any Pledged Collateral
Agreements to which it is a party and shall enforce all of its rights
thereunder.

     

    (ii)          If
requested by Lender, such Grantor will take all actions necessary to cause each
Pledged Collateral Agreement relating to Collateral consisting of any and all
limited, limited liability and general partnership interests and limited
liability company interests of any type or nature (“Partnership and LLC
Collateral”) to provide specifically at all times that: (A) the
Partnership and LLC Collateral shall be securities and shall be governed by
Article 8 of the applicable UCC; (B) each certificate of membership or
partnership representing the Partnership and LLC Collateral shall bear a legend
to the effect that such membership interest or partnership interest is a
security and is governed by Article 8 of the applicable UCC; and (C) no consent
of any member, manager, partner or other Person shall be a condition to the
admission as a member or partner of any transferee that acquires ownership of
the Partnership and LLC Collateral as a result of the exercise by Secured Party
of any remedy hereunder or under applicable law.


    
      
         


      

      
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    (iii)         Such
Grantor shall not vote to enable or take any other action to amend or terminate,
or waive compliance with any of the terms of, any Pledged Collateral Agreement,
certificate or articles of incorporation, bylaws or other organizational
documents, or otherwise cast any vote or grant or give any consent, waiver or
ratification in respect of the Pledged Collateral, in any way that materially
changes the rights of such Grantor with respect to any such Pledged Collateral
in a manner adverse to the Secured Party or that adversely affects the validity,
perfection or priority of the Secured Party’s security interest
therein.

     

    Section
4.04          Accounts.  Such
Grantor shall not, other than in the ordinary course of business, (i) grant
any extension of the time of payment of any account constituting Collateral,
(ii) compromise or settle any such account for less than the full amount
thereof, (iii) release, wholly or partially, any Person liable for the payment
of any such account, (iv) allow any credit or discount on any such account or
(v) amend, supplement or modify any such account in any manner that could
adversely affect the value thereof.

     

    Section
4.05          Delivery of Instruments and
Tangible Chattel Paper and Control of Investment Property, Letter-of-Credit
Rights and Electronic Chattel Paper.

     

    (a)           If
any amount payable under or in connection with any Collateral owned by such
Grantor shall be or become evidenced by an instrument or tangible chattel paper
other than such instrument delivered in accordance with Section 4.03(a) and
in the possession of the Secured Party, such Grantor shall mark all such
instruments and tangible chattel paper with the following
legend:  “This writing and the obligations evidenced or secured hereby
are subject to the security interest of Fleetwood Homes, Inc., as Lender” and,
at the request of the Secured Party, shall immediately deliver such instrument
or tangible chattel paper to the Secured Party, duly indorsed in a manner
satisfactory to the Secured Party.

     

    (b)           Such
Grantor shall not grant “control” (within the meaning of such term under Article
47-9106 of the UCC) over any investment property constituting Collateral to any
Person.

     

    (c)           If
such Grantor is or becomes the beneficiary of a letter of credit constituting
Collateral that is not a Support Obligation of any Collateral, such Grantor
shall promptly, and in any event within two Business Days after becoming a
beneficiary, notify the Secured Party thereof and enter into a Contractual
Obligation with the Secured Party, the issuer of such letter of credit or any
nominated Person with respect to the letter-of-credit rights under such letter
of credit.  Such Contractual Obligation shall assign such
letter-of-credit rights to the Secured Party and such assignment shall be
sufficient to grant control for the purposes of section 47-9107 of the UCC (or
any similar section under any equivalent UCC).  Such Contractual
Obligation shall also direct all payments thereunder to a Control
Account.  The provisions of the Contractual Obligation shall be in
form and substance reasonably satisfactory to the Secured Party.

     

    (d)           If
any Collateral owned by such Grantor shall be or become evidenced by electronic
chattel paper, such Grantor shall take all steps necessary to grant the Secured
Party control of all such electronic chattel paper for the purposes of section
9-105 of the UCC (or any similar section under any equivalent UCC) and all
“transferable records” as defined in each of the Uniform Electronic Transactions
Act and the Electronic Signatures in Global and National Commerce
Act.


    
      
         


      

      
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    Section
4.06          Intellectual
Property.

     

    (a)           Within
60 days after any change to Schedule VI for such
Grantor, such Grantor shall provide the Secured Party notification thereof and
the short-form intellectual property agreements and assignments and other
documents that the Secured Party reasonably requests with respect
thereto.

     

    (b)           Such
Grantor shall (and shall cause all its licensees to) (i) (A) continue to use
each Mark included in the Intellectual Property constituting Collateral in order
to maintain such Mark in full force and effect with respect to each class of
goods for which such Mark is currently used, free from any claim of abandonment
for non-use, (B) maintain at least the same standards of quality of products and
services offered under such Mark as are currently maintained, (C) use such Mark
with the appropriate notice of registration and all other notices and legends
required by applicable requirements of law, (D) not adopt or use any other Mark
that is confusingly similar or a colorable imitation of such Mark unless the
Secured Party shall obtain a perfected security interest in such other Mark
pursuant to this Agreement and (ii) not do any act or omit to do any act whereby
(A) such Mark (or any goodwill associated therewith) may become destroyed,
invalidated, impaired or harmed in any material way, (B) any material Patent
included in the Intellectual Property constituting Collateral may become
forfeited, misused, unenforceable, abandoned or dedicated to the public, (C) any
portion of the material Copyrights included in the Intellectual Property
constituting Collateral may become invalidated, otherwise impaired or fall into
the public domain or (D) any trade secret that is material Intellectual Property
constituting Collateral may become publicly available or otherwise
unprotectable.

     

    (c)           Such
Grantor shall notify the Secured Party immediately if it knows, or has reason to
know, that any application or registration relating to any Intellectual Property
constituting Collateral may become forfeited, misused, unenforceable, abandoned
or dedicated to the public, or of any adverse determination or development
regarding the validity or enforceability or such Grantor’s ownership of,
interest in, right to use, register, own or maintain any Intellectual Property
constituting Collateral (including the institution of, or any such determination
or development in, any proceeding relating to the foregoing in any Applicable IP
Office).  Such Grantor shall take all actions that are necessary or
reasonably requested by the Secured Party to maintain and pursue each
application (and to obtain the relevant registration or recordation) and to
maintain each registration and recordation included in the Intellectual Property
constituting Collateral.

     

    (d)           In
the event that any Intellectual Property of such Grantor constituting Collateral
is or has been infringed, misappropriated, violated, diluted or otherwise
impaired by a third party, such Grantor shall take such action as it reasonably
deems appropriate under the circumstances in response thereto, including
promptly bringing suit and recovering all damages therefor.


    
      
         


      

      
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    (e)           Each
Grantor shall take all actions, deliver all documents and provide all
information necessary or reasonably requested by the Secured Party to ensure any
Internet domain name constituting Collateral is registered.

     

    Section
4.07          Notices.  Such
Grantor shall promptly notify the Secured Party in writing and with reasonable
detail of its acquisition of any interest hereafter in property constituting
Collateral that is of a type where a security interest or lien must be or may be
registered, recorded or filed under, or notice thereof given under, any federal
statute or regulation.  Such Grantor agrees to notify the Secured
Party of any other event which could reasonably be expected to have a Material
Adverse Effect on the aggregate value of the Collateral or on the Liens created
hereunder or under any other Credit Document.

     

    Section
4.08          Notice of Commercial Tort
Claims.  Such Grantor agrees that, if it shall acquire any
interest in any commercial tort claim (whether from another Person or because
such commercial tort claim shall have come into existence) constituting
Collateral, (i) such Grantor shall, immediately upon such acquisition, deliver
to the Secured Party, in each case in form and substance satisfactory to the
Secured Party, a notice of the existence and nature of such commercial tort
claim and a supplement to Schedule II
containing a specific description of such commercial tort claim, (ii) Section 2.01(a) shall
apply to such commercial tort claim and (iii) such Grantor shall execute and
deliver to the Secured Party, in each case in form and substance satisfactory to
the Secured Party, any document, and take all other action, deemed by the
Secured Party to be reasonably necessary or appropriate for the Secured Party to
obtain a perfected security interest having at least the priority set forth in
Section 3.02 in
all such commercial tort claims.  Any supplement to Schedule II delivered
pursuant to this Section 4.08 shall,
after the receipt thereof by the Secured Party, become part of Schedule II for all
purposes hereunder other than in respect of representations and warranties made
prior to the date of such receipt.

     

    Section
4.09          Compliance with Credit
Agreement.  Such Grantor agrees to comply with all covenants
and other provisions applicable to it under the Credit Agreement (all of which
are hereby incorporated herein by reference) and agrees to the same submission
to jurisdiction as that agreed to by each Grantor in the Credit
Agreement.

     

    ARTICLE
V

    REMEDIAL
PROVISIONS

     

    Section
5.01          Code and Other
Remedies.

     

    (a)           UCC
Remedies.  During the continuance of an Event of Default, the
Secured Party may exercise, in addition to all other rights and remedies granted
to it in this Agreement and in any other instrument or agreement securing,
evidencing or relating to any Secured Obligation, all rights and remedies of a
secured party under the UCC or any other applicable law.


    
      
         


      

      
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    (b)           Disposition of
Collateral.  Without limiting the generality of the foregoing,
the Secured Party may, without demand of performance or other demand,
presentment, protest, advertisement or notice of any kind (except any notice
required by law referred to below) to or upon any Grantor or any other Person
(all and each of which demands, defenses, advertisements and notices are hereby
expressly waived to the maximum extent permitted by the Code and other
applicable law), during the continuance of any Event of Default (personally or
through its agents or attorneys), (i) enter upon the premises where any
Collateral is located, without any obligation to pay rent, through self-help,
without judicial process, without first obtaining a final judgment or giving any
Grantor or any other Person notice or opportunity for a hearing on the Secured
Party’s claim or action, (ii) take possession of, collect, receive, assemble,
process, appropriate, remove and realize upon any Collateral, or any part
thereof, and (iii) sell, lease, license, assign, dispose of, grant option or
options to purchase and deliver any Collateral (enter into Contractual
Obligations to do any of the foregoing), in one or more parcels at public or
private sale or sales, at any exchange, broker’s board or office of the Secured
Party or elsewhere upon such terms and conditions as it may deem advisable and
at such prices as it may deem best, for cash or on credit or for future delivery
without assumption of any credit risk.  The Secured Party shall have
the right, upon any such public sale or sales and, to the extent permitted by
the UCC and other applicable requirements of law, upon any such private sale, to
purchase the whole or any part of the Collateral so sold, free of any right or
equity of redemption of any Grantor, which right or equity is hereby waived and
released.

     

    (c)           Management of the
Collateral.  Each Grantor further agrees, that, during the
continuance of any Event of Default, (i) at the Secured Party’s request, it
shall assemble the Collateral and make it available to the Secured Party at
places that the Secured Party shall reasonably select, whether at such Grantor’s
premises or elsewhere, (ii) without limiting the foregoing, the Secured Party
also has the right to require that each Grantor store and keep any Collateral
pending further action by the Secured Party and, while any such Collateral is so
stored or kept, provide such guards and maintenance services as shall be
necessary to protect the same and to preserve and maintain such Collateral in
good condition, (iii) until the Secured Party is able to dispose of any
Collateral, the Secured Party shall have the right to hold or use such
Collateral to the extent that it deems appropriate for the purpose of preserving
the Collateral or its value or for any other purpose deemed appropriate by the
Secured Party and (iv) the Secured Party may, if it so elects, seek the
appointment of a receiver or keeper to take possession of any Collateral and to
enforce any of the Secured Party’s remedies, with respect to such appointment
without prior notice or hearing as to such appointment.  The Secured
Party shall not have any obligation to any Grantor to maintain or preserve the
rights of any Grantor as against third parties with respect to any Collateral
while such Collateral is in the possession of the Secured Party.

     

    (d)           Application of
Proceeds.  The Secured Party shall apply the cash proceeds of
any action taken by it pursuant to this Section 5.01, after
deducting all reasonable costs and expenses of every kind incurred in connection
therewith or incidental to the care or safekeeping of any Collateral or in any
way relating to the Collateral or the rights of the Secured Party hereunder,
including reasonable attorneys’ fees and disbursements, to the payment in whole
or in part of the Secured Obligations, as set forth in the Credit Agreement, and
only after such application and after the payment by the Secured Party of any
other amount required by any requirement of law, need the Secured Party account
for the surplus, if any, to any Grantor.


    
      
         


      

      
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    (e)           Direct
Obligation.  The Secured Party shall not be required to make
any demand upon, or pursue or exhaust any right or remedy against, any Grantor
or any other Person with respect to the payment of the Secured Obligations or to
pursue or exhaust any right or remedy with respect to any Collateral therefor or
any direct or indirect guaranty thereof.  All of the rights and
remedies of the Secured Party under any Credit Document shall be cumulative, may
be exercised individually or concurrently and not exclusive of any other rights
or remedies provided by any requirement of law.  To the extent it may
lawfully do so, each Grantor absolutely and irrevocably waives and relinquishes
the benefit and advantage of, and covenants not to assert against the Secured
Party, any valuation, stay, appraisement, extension, redemption or similar laws
and any and all rights or defenses it may have as a surety, now or hereafter
existing, arising out of the exercise by them of any rights
hereunder.  If any notice of a proposed sale or other disposition of
any Collateral shall be required by law, such notice shall be deemed reasonable
and proper if given at least ten days before such sale or other
disposition.

     

    (f)           Commercially
Reasonable.  To the extent that applicable requirements of law
impose duties on the Secured Party to exercise remedies in a commercially
reasonable manner, each Grantor acknowledges and agrees that it is not
commercially unreasonable for the Secured Party to do any of the
following:

     

    (i)           fail
to incur significant costs, expenses or other Liabilities reasonably deemed as
such by the Secured Party to prepare any Collateral for disposition or otherwise
to complete raw material or work in process into finished goods or other
finished products for disposition;

     

    (ii)          fail
to obtain Permits, or other consents, for access to any Collateral to dispose of
or for the collection or disposition of any Collateral, or, if not required by
other requirements of law, fail to obtain Permits or other consents for the
collection or disposition of any Collateral;

     

    (iii)         fail
to exercise remedies against account debtors or other Persons obligated on any
Collateral or to remove Liens on any Collateral or to remove any adverse claims
against any Collateral;

     

    (iv)         advertise
dispositions of any Collateral through publications or media of general
circulation, whether or not such Collateral is of a specialized nature or to
contact other Persons, whether or not in the same business as any Grantor, for
expressions of interest in acquiring any such Collateral;

     

    (v)          exercise
collection remedies against account debtors and other Persons obligated on any
Collateral, directly or through the use of collection agencies or other
collection specialists, hire one or more professional auctioneers to assist in
the disposition of any Collateral, whether or not such Collateral is of a
specialized nature or, to the extent deemed appropriate by the Secured Party,
obtain the services of other brokers, investment bankers, consultants and other
professionals to assist the Secured Party in the collection or disposition of
any Collateral, or utilize Internet sites that provide for the auction of assets
of the types included in the Collateral or that have the reasonable capacity of
doing so, or that match buyers and sellers of assets to dispose of any
Collateral;

     

    (vi)         dispose
of assets in wholesale rather than retail markets;


    
      
         


      

      
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    (vii)        disclaim
disposition warranties, such as title, possession or quiet enjoyment;
or

     

    (viii)       purchase
insurance or credit enhancements to insure the Secured Party against risks of
loss, collection or disposition of any Collateral or to provide to the Secured
Party a guaranteed return from the collection or disposition of any
Collateral.

     

    Each
Grantor acknowledges that the purpose of this Section 5.01 is to
provide a non-exhaustive list of actions or omissions that are commercially
reasonable when exercising remedies against any Collateral and that other
actions or omissions by the Secured Party shall not be deemed commercially
unreasonable solely on account of not being indicated in this Section
5.01.  Without limitation upon the foregoing, nothing contained
in this Section
5.01 shall be construed to grant any rights to any Grantor or to impose
any duties on the Secured Party that would not have been granted or imposed by
this Agreement or by applicable requirements of law in the absence of this Section
5.01.

     

    (g)           License.  For
the purpose of enabling the Secured Party to exercise rights and remedies under
this Section
5.01 (including in order to take possession of, collect, receive,
assemble, process, appropriate, remove, realize upon, dispose of or grant
options to purchase any Collateral) at such time as the Secured Party shall be
lawfully entitled to exercise such rights and remedies, each Grantor hereby
grants to the Secured Party an irrevocable, nonexclusive, worldwide license
(exercisable without payment of royalty or other compensation to such Grantor),
including in such license the right to sublicense, use and practice any
Intellectual Property constituting Collateral now owned or hereafter acquired by
such Grantor and 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.

     

    Section
5.02          Control Account and
Collections.

     

    (a)           From
and after the Closing Date, each Grantor shall cause all Collections and any
other payments in respect of the Collateral to be remitted to the Control
Account in accordance with the requirements of the Credit
Agreement.  Until so remitted, such funds shall be held by such
Grantor in trust for the Secured Party, segregated from other funds of such
Grantor.  All proceeds being held by the Secured Party in a Control
Account (or by such Grantor in trust for the Secured Party) shall continue to be
held as collateral security for the Secured Obligations and shall not constitute
payment thereof until released as provided in the Credit
Agreement.  Each Grantor hereby authorizes Secured Party to collect
all payments, checks, drafts and other instruments addressed to such Borrower
and to withdraw and hold in reserve or release such funds pursuant to the terms
of the Credit Agreement and, during the occurrence and continuance of an Event
of Default, to apply such funds against the Secured Obligations.  Each
Grantor acknowledges and agrees that the Secured Party shall have sole and
exclusive control of the Control Account until the Secured Obligations have been
paid in full.


    
      
         


      

      
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    (b)           Each
Grantor shall, upon the Secured Party’s request, deliver to the Secured Party
all original and other documents evidencing, and relating to, the Contractual
Obligations constituting Collateral and transactions that gave rise to any
account constituting Collateral or any payment in respect of general intangibles
constituting Collateral, including all original orders, invoices and shipping
receipts and notify account debtors that such accounts or general intangibles
have been collaterally assigned to the Secured Party and that payments in
respect thereof shall be made directly to the Secured Party.

     

    (c)           The
Secured Party may, without notice, at any time, in its own name or in the name
of others, communicate with account debtors or and any other payors in respect
of general intangibles constituting Collateral or obligors with respect thereto
to verify with them to the Secured Party’s satisfaction the existence, amount
and terms of any such Collateral or direct such account debtors or obligors to
make all payments directly to the Secured Party or as the Secured Party shall
direct.  Upon request of the Secured Party, Grantors shall provide to
the Secured Party signed, undated notices, on such Grantor’s letterhead,
notifying account debtors or obligors of the Grantors that all future payments
shall be made to the Control Account and such account debtors and obligors shall
no longer to make payment to such Grantor, but to make payment directly to the
Secured Party or as the Secured Party shall direct.

     

    (d)           Anything
herein to the contrary notwithstanding, each Grantor shall remain liable under
each account and each payment in respect of general intangibles to observe and
perform all the conditions and obligations to be observed and performed by it
thereunder, all in accordance with the terms of any agreement giving rise
thereto.  The Secured Party shall not have any obligation or liability
under any agreement giving rise to an account or a payment in respect of a
general intangible by reason of or arising out of any Credit Document or the
receipt by the Secured Party of any payment relating thereto, nor shall the
Secured Party be obligated in any manner to perform any obligation of any
Grantor under or pursuant to any agreement giving rise to an account or a
payment in respect of a general intangible, to make any payment, to make any
inquiry as to the nature or the sufficiency of any payment received by it or as
to the sufficiency of any performance by any party thereunder, to present or
file any claim, to take any action to enforce any performance or to collect the
payment of any amounts that may have been assigned to it or to which it may be
entitled at any time or times.

     

    Section
5.03          Pledged
Collateral.

     

    (a)           Voting
Rights.  During the continuance of an Event of Default, upon
notice by the Secured Party to the relevant Grantor or Grantors, the Secured
Party or its nominee may exercise (A) any voting, consent, corporate and other
right pertaining to the Pledged Collateral at any meeting of shareholders,
partners or members, as the case may be, of the relevant issuer or issuers of
such Pledged Collateral or otherwise and (B) any right of conversion, exchange
and subscription and any other right, privilege or option pertaining to the
Pledged Collateral as if it were the absolute owner thereof (including the right
to exchange at its discretion any such Pledged Collateral upon the merger,
amalgamation, consolidation, reorganization, recapitalization or other
fundamental change in the corporate or equivalent structure of any issuer of
Pledged Equity Interests constituting Collateral, the right to deposit and
deliver any such Pledged Collateral with any committee, depositary, transfer
agent, registrar or other designated agency upon such terms and conditions as
the Secured Party may determine), all without liability except to account for
property actually received by it; provided, however, that the Secured
Party shall have no duty to any Grantor to exercise any such right, privilege or
option and shall not be responsible for any failure to do so or delay in so
doing.


    
      
         


      

      
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    (b)           Proxies.  During
the occurrence and continuance of an Event of Default, in order to permit the
Secured Party to exercise the voting and other consensual rights that it may be
entitled to exercise pursuant hereto and to receive all dividends and other
distributions that it may be entitled to receive hereunder, (i) each Grantor
shall promptly execute and deliver (or cause to be executed and delivered) to
the Secured Party all such proxies, dividend payment orders and other
instruments as the Secured Party may from time to time reasonably request and
(ii) without limiting the effect of clause (i) above,
such Grantor hereby revokes all previous proxies with respect to the Pledged
Collateral and grants to the Secured Party an irrevocable proxy to vote all or
any part of the Pledged Collateral and to exercise all other rights, powers,
privileges and remedies to which a holder of such Pledged Collateral would be
entitled (including giving or withholding written consents of shareholders,
partners or members, as the case may be, calling special meetings of
shareholders, partners or members, as the case may be, and voting at such
meetings), which proxy shall be effective, automatically and without the
necessity of any action (including any transfer of any such Pledged Collateral
on the record books of the issuer thereof) by any other Person (including the
issuer of such Pledged Collateral or any officer or agent thereof) during the
continuance of an Event of Default and which proxy shall only terminate upon the
payment in full of the Secured Obligations.

     

    (c)           Authorization of
Grantors.  Each Grantor hereby expressly irrevocably authorizes
and instructs, without any further instructions from such Grantor, each issuer
of any Pledged Collateral pledged hereunder by such Grantor to (i) comply with
any instruction received by it from the Secured Party in writing that states
that an Event of Default is continuing and is otherwise in accordance with the
terms of this Agreement and each Grantor agrees that such issuer shall be fully
protected from Liabilities to such Grantor in so complying and (ii) unless
otherwise expressly permitted hereby, pay any dividend or make any other payment
with respect to such Pledged Collateral directly to the Secured
Party.

     

    (d)           Liability. Anything
herein to the contrary notwithstanding, (i) each Grantor shall remain liable
under any Pledged Collateral Agreement and any other contracts, agreements and
other documents to which it is a party included in the Collateral, to the extent
set forth therein, to perform all of its duties and obligations thereunder to
the same extent as if this Agreement had not been executed, (ii) the exercise by
the Secured Party of any of the rights hereunder shall not release any Grantor
from any of its duties or obligations under any such Pledged Collateral
Agreement or other contracts, agreements and other documents, and (iii) the
Secured Party shall not have any obligation or liability under any such Pledged
Collateral Agreements or other contracts, agreements and other documents by
reason of this Agreement, nor shall the Secured Party be obligated to perform
any of the obligations or duties of any Grantor thereunder or to take any action
to collect or enforce any Pledged Collateral Agreements or other such contract,
agreement or other document.

     

    Section
5.04         Registration
Rights.

     

    (a)           If,
in the opinion of the Secured Party, it is necessary or advisable to dispose of
any portion of the Pledged Collateral by registering such Pledged Collateral
under the provisions of the Securities Act of 1933 (the “Securities Act”),
each relevant Grantor shall cause the issuer thereof to do or cause to be done
all acts as may be, in the opinion of the Secured Party, necessary or advisable
to register such Pledged Collateral or that portion thereof to be disposed of
under the provisions of the Securities Act, all as directed by the Secured Party
in conformity with the requirements of the Securities Act and the rules and
regulations of the Securities and Exchange Commission applicable thereto and in
compliance with the securities or “Blue Sky” laws of any
jurisdiction that the Secured Party shall designate.

     

    
      
        
           


        

        
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    (b)           Each
Grantor recognizes that the Secured Party may be unable to effect a public sale
of any Pledged Collateral by reason of certain prohibitions contained in the
Securities Act and applicable state or foreign securities laws or otherwise or
may determine that a public sale is impracticable, not desirable or not
commercially reasonable and, accordingly, may resort to one or more private
sales thereof to a restricted group of purchasers that shall be obliged to
agree, among other things, to acquire such securities for their own account for
investment and not with a view to the distribution or resale
thereof.  Each Grantor acknowledges and agrees that any such private
sale may result in prices and other terms less favorable than if such sale were
a public sale and, notwithstanding such circumstances, agrees that any such
private sale shall be deemed to have been made in a commercially reasonable
manner.  The Secured Party shall be under no obligation to delay a
sale of any Pledged Collateral for the period of time necessary to permit the
issuer thereof to register such securities for public sale under the Securities
Act or under applicable state securities laws even if such issuer would agree to
do so.

     

    (c)           Each
Grantor agrees to use its commercially reasonable efforts to do or cause to be
done all such other acts as may be necessary to make such sale or sales of any
portion of the Pledged Collateral pursuant to this Section 5.04 valid
and binding and in compliance with all applicable requirements of
law.  Each Grantor further agrees that a breach of any covenant
contained in this Section 5.04 will
cause irreparable injury to the Secured Party, that the Secured Party has no
adequate remedy at law in respect of such breach and, as a consequence, that
each and every covenant contained in this Section 5.04 shall be
specifically enforceable against such Grantor, and such Grantor hereby waives
and agrees not to assert any defense against an action for specific performance
of such covenants except for a defense that no Event of Default has occurred
under the Credit Agreement.

     

    Section
5.05        Deficiency.  The
Grantors, jointly and severally, shall remain liable for any deficiency if the
proceeds of any sale or other disposition of any Collateral are insufficient to
pay the Secured Obligations and the fees and disbursements of any attorney
employed by the Secured Party to collect such deficiency.

     

    ARTICLE
VI

    SUBORDINATION

     

    Section
6.01         Subordination.  Each
Grantor agrees that all payments on account of any indebtedness for borrowed
money owing to such Grantor by any other Grantor (“Intercompany Debt”)
shall be subject, subordinate and junior, in right of payment and exercise of
remedies, to the indefeasible payment and satisfaction in full of all Secured
Obligations, and all Liens (if any) now or hereafter existing in favor of any
Grantor in respect of any Collateral shall be subject, subordinate and junior in
all respects and at all times to the Liens now or hereafter existing of the
Secured Party therein.  The Secured Party shall be deemed to have
acquired the Secured Obligations in reliance upon this ARTICLE
VI.

     

    
      
        
           


        

        
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    Section
6.02         Restrictions on Payment and
Transfer.  Each Grantor agrees (i) not to collect, or to
receive payment upon, by setoff or in any other manner, all or any portion of
the Intercompany Debt owing to it, except as expressly permitted by the Credit
Documents, and (ii) not to sell, assign, transfer, pledge, or grant a Lien on
any such Intercompany Debt.

     

    ARTICLE
VII

    THE
ADMINISTRATIVE SECURED PARTY

     

    Section
7.01         The Secured Party’s
Appointment as Attorney-in-Fact.  (a) Each Grantor hereby
irrevocably constitutes and appoints the Secured Party and its officers,
directors, employees, representatives and agents, with full power of
substitution, during the occurrence and continuance of an Event of Default, as
its true and lawful attorney-in-fact with full irrevocable power and authority
in the place and stead of such Grantor and in the name of such Grantor or in its
own name, for the purpose of carrying out the terms of the Credit Documents, to
take any appropriate action and to execute any document or instrument that may
be necessary or desirable to accomplish the purposes of the Credit Documents,
and, without limiting the generality of the foregoing, each Grantor hereby gives
the Secured Party and its officers, directors, employees, representatives and
agents the power and right, on behalf of such Grantor, without notice to or
assent by such Grantor, to do any of the following when an Event of Default
shall be continuing:

     

    (i)           in
the name of such Grantor, in its own name or otherwise, take possession of and
indorse and collect any check, draft, note, acceptance or other instrument for
the payment of moneys due under any account or general intangible constituting
Collateral or with respect to any other Collateral and file any claim or take
any other action or proceeding in any court of law or equity or otherwise deemed
appropriate by the Secured Party for the purpose of collecting any such moneys
due under any account or general intangible constituting Collateral or with
respect to any other Collateral whenever payable;

     

    (ii)          in
the case of any Intellectual Property constituting Collateral owned by or
licensed to the Grantors, execute, deliver and have recorded any document that
the Secured Party may request to evidence, effect, publicize or record the
Secured Party’s security interest in such Intellectual Property and the goodwill
and general intangibles of such Grantor relating thereto or represented
thereby;

     

    (iii)         pay
or discharge taxes and Liens levied or placed on or threatened against any
Collateral, effect any repair or pay any insurance called for by the terms of
the Credit Agreement (including all or any part of the premiums therefor and the
costs thereof);

     

    (iv)         execute,
in connection with any sale provided for in Sections Section 5.01
or Section
5.04, any document to effect or otherwise necessary or appropriate in
relation to evidence the disposition of any Collateral; or

     

    
      
        
           


        

        
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    (v)          (A)
direct any party liable for any payment under any Collateral to make payment of
any moneys due or to become due thereunder directly to the Secured Party or as
the Secured Party shall direct, (B) ask or demand for, and collect and receive
payment of and receipt for, any moneys, claims and other amounts due or to
become due at any time in respect of or arising out of any Collateral, (C) sign
and indorse any invoice, freight or express bill, bill of lading, storage or
warehouse receipt, draft against debtors, assignment, verification, notice and
other document in connection with any Collateral, (D) commence and prosecute any
suit, action or proceeding at law or in equity in any court of competent
jurisdiction to collect any Collateral and to enforce any other right in respect
of any Collateral, (E) defend any actions, suits, proceedings, audits, claims,
demands, orders or disputes brought against such Grantor with respect to any
Collateral, (F) settle, compromise or adjust any such actions, suits,
proceedings, audits, claims, demands, orders or disputes and, in connection
therewith, give such discharges or releases as the Secured Party may deem
appropriate, (G) assign any Intellectual Property constituting Collateral owned
by the Grantors or any license or sublicense held by any Grantor as licensee
pertaining to Intellectual Property of any other Person or other right
(including franchises)  constituting Collateral of the Grantors
throughout the world on such terms and conditions and in such manner as the
Secured Party shall in its sole discretion determine, including the execution
and filing of any document necessary to effectuate or record such assignment and
(H) generally, dispose of, grant a Lien on, make any Contractual Obligation with
respect to and otherwise deal with, any Collateral as fully and completely as
though the Secured Party were the absolute owner thereof for all purposes and
do, at the Secured Party’s option, at any time or from time to time, all acts
and things that the Secured Party deems necessary to protect, preserve or
realize upon any Collateral and the Secured Party’s security interests therein
and to effect the intent of the Credit Documents, all as fully and effectively
as such Grantor might do.

     

    (b)           If
any Grantor fails to perform or comply with any Contractual Obligation contained
herein, the Secured Party, at its option, but without any obligation so to do,
may perform or comply, or otherwise cause performance or compliance, with such
Contractual Obligation.

     

    (c)           The
expenses of the Secured Party incurred in connection with actions undertaken as
provided in this Section 7.01,
together with interest thereon at a rate set forth in Section 2.09 of the
Credit Agreement, from the date of payment by the Secured Party to the date
reimbursed by the relevant Grantor, shall be payable by such Grantor to the
Secured Party on demand. None of the Secured Party, its respective affiliates,
officers, directors, employees, agents or representatives shall be responsible
to any Grantor for any act or failure to act under any power of attorney or
otherwise, except in respect of damages attributable solely to their own gross
negligence or willful misconduct as finally determined by a court of competent
jurisdiction, nor for any punitive, exemplary, indirect or consequential
damages.

     

    (d)           Each
Grantor hereby ratifies all that said attorneys shall lawfully do or cause to be
done by virtue of this Section
7.01.  All powers, authorizations and agencies contained in
this Agreement are coupled with an interest and are irrevocable until this
Agreement is terminated and the security interests created hereby are
released.

     

    
      
        
           


        

        
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    Section
7.02         Authorization to File
Financing Statements.  Each Grantor authorizes the Secured
Party and its officers, directors, employees, representatives and agents, at any
time and from time to time, to file or record financing statements, amendments
thereto, and other filing or recording documents or instruments with respect to
any Collateral in such form and in such offices as the Secured Party reasonably
determines appropriate to perfect the security interests of the Secured Party
under this Agreement, and such financing statements and amendments may described
the Collateral covered thereby (other than the Limited Collateral, which
description will be specifically drafted) as “all assets of the
debtor”.  A photographic or other reproduction of this Agreement shall
be sufficient as a financing statement or other filing or recording document or
instrument for filing or recording in any jurisdiction.  Such Grantor
also hereby ratifies its authorization for the Secured Party to have filed any
initial financing statement or amendment thereto under the UCC (or other similar
laws) in effect in any jurisdiction if filed prior to the date
hereof.

     

    ARTICLE
VIII

    MISCELLANEOUS

     

    Section
8.01         Reinstatement.  This
Agreement shall remain in full force and effect and continue to be effective
should any petition be filed by or against any Grantor for liquidation or
reorganization, should any Grantor become insolvent or make an assignment for
the benefit of any creditor or creditors or should a receiver or trustee be
appointed for all or any significant part of any Grantor’s
assets.  Moreover, each Grantor agrees that, if any payment made by
any Grantor or other Person and applied to the Secured Obligations is at any
time annulled, avoided, set aside, rescinded, invalidated, declared to be
fraudulent or preferential or otherwise required to be refunded or repaid, or
the proceeds of any Collateral are required to be returned by the Secured Party
to such Grantor, its estate, trustee, receiver or any other party, including any
Grantor, under any bankruptcy law, state or federal law, common law or equitable
cause, then, to the extent of such payment or repayment, any Lien or other
Collateral securing such liability shall be and remain in full force and effect,
as fully as if such payment had never been made.  If, prior to any of
the foregoing, (i) any Lien or other Collateral securing such Grantor’s
liability hereunder shall have been released or terminated by virtue of the
foregoing or (ii) any provision of the Guaranty hereunder shall have been
terminated, cancelled or surrendered, such Lien, other Collateral or provision
shall be reinstated in full force and effect and such prior release,
termination, cancellation or surrender shall not diminish, release, discharge,
impair or otherwise affect the obligations of any such Grantor in respect of any
Lien or other Collateral securing such obligation or the amount of such
payment.

     

    Section
8.02         Independent
Obligations.  The obligations of each Grantor hereunder are
independent of and separate from the Secured Obligations.  If any
Secured Obligation is not paid when due, or upon any Event of Default, the
Secured Party may, at its sole election, proceed directly and at once, without
notice, against any Grantor and any Collateral to collect and recover the full
amount of any Secured Obligation then due, without first proceeding against any
other Grantor or any other Collateral and without first joining any other
Grantor in any proceeding.

     

    Section
8.03         No Waiver by Course of
Conduct.  The Secured Party shall not by any act (except by a
written instrument executed by it), delay, indulgence, omission or otherwise be
deemed to have waived any right or remedy hereunder or to have acquiesced in any
Default or Event of Default.  No failure to exercise, nor any delay in
exercising, on the part of the Secured Party, any right, power or privilege
hereunder shall operate as a waiver thereof.  No single or partial
exercise of any right, power or privilege hereunder shall preclude any other or
further exercise thereof or the exercise of any other right, power or
privilege.  A waiver by the Secured Party of any right or remedy
hereunder on any one occasion shall not be construed as a bar to any right or
remedy that the Secured Party would otherwise have on any future
occasion.

     

    
      
        
           


        

        
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    Section
8.04         Amendments in
Writing.  No amendment or waiver of any provision of this
Agreement and no consent to any departure by any party thereto shall be
effective unless the same shall be in writing and signed (i) in the case of an
amendment, consent or waiver to cure any ambiguity, omission, defect or
inconsistency or granting a new Lien for the benefit of the Secured Party or
extending an existing Lien over additional property, by the Secured Party and
the Grantors or (ii) in the case of any other waiver or consent.

     

    Section
8.05         Additional Grantors;
Additional Pledged Collateral.  

     

    (a)           Joinder
Agreements.  If, after the date hereof, any of the Grantors
create or otherwise acquire any Subsidiary, such Grantor shall promptly cause
such Subsidiary that is not a Grantor to become a Grantor hereunder, such
Subsidiary shall execute and deliver to the Secured Party a Joinder Agreement
substantially in the form of Annex 2 and shall
thereafter for all purposes be a party hereto and have the same rights, benefits
and obligations as a Grantor party hereto on the Closing Date.

     

    (b)           Pledge
Amendments.  To the extent any Grantor or Limited Pledgor
acquires any Pledged Collateral comprising a direct or indirect interest in any
Equity Interests, such Grantor or Limited Pledgor shall deliver a pledge
amendment duly executed by the Grantor in substantially the form of Annex 1 (each, a
“Pledge
Amendment”) with respect to such Pledged Collateral.  Each
Grantor and Limited Pledgor authorizes the Secured Party to attach each Pledge
Amendment to this Agreement.

     

    Section
8.06         Notices.  Any
notice or other communication required or permitted hereunder shall be in
writing and shall be deemed to have been duly given (a) on the day of delivery
if delivered in person, (b) on the day of delivery if delivered by facsimile
upon confirmation of receipt (provided that if
delivery is completed after the close of business, then the next Business Day),
(c) on the first Business Day following the date of dispatch if delivered using
a next-day service by a nationally recognized express courier service, or (d) on
the earlier of confirmed receipt or the fifth Business Day following the date of
mailing if delivered by registered or certified mail, return receipt requested,
postage prepaid.  All notices hereunder shall be delivered as set
forth below, or pursuant to such other instructions as may be designated by
notice given in accordance with this Section 8.06 by the
party to receive such notice:

     

    if to the
Grantors:

     

    c/o Palm
Harbor Homes, Inc.

    15303
Dallas Parkway, Suite 800

    Addison,
Texas  75001-4600

    Attention:  Larry
H. Keener, Chairman, President & CEO

    Facsimile:  (972)
764-9020

    


    
      
        
           


        

        
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    with a
copy (which does not constitute notice) to:

     

    Locke
Lord Bissell & Liddell LLP

    2200 Ross
Avenue, Suite 2200

    Dallas,
Texas 75201

    Attention:  Gina
Betts

    Facsimile:  (214)
756-8515

    


    If to
Secured Party:

    Fleetwood
Homes, Inc.

    c/o Cavco
Industries, Inc.

    1001
North Central Avenue, Suite 800

    Phoenix,
Arizona  85004-1935

    Attention:  James
P. Glew, General Counsel

    Facsimile:  (602)
256-6189

     

    and

    
 

    Robert F.
Jordan

    Third
Avenue Management, LLC

    622 Third
Avenue

    32nd
Floor

    New York,
NY 10017

    Facsimile:  (212)
735-0003

     

    with a
copy (which does not constitute notice) to:

     

    Garth D.
Stevens, Esq.

    Snell
& Wilmer L.L.P.

    One
Arizona Center

    400 East
Van Buren

    Phoenix,
Arizona 85018

    Facsimile:  (602)
382-6070

     

    Section
8.07         Benefit of
Agreement.  This Agreement shall be binding upon and inure to
the benefit of and be enforceable by the respective successors and assigns of
the parties hereto; provided that, except in
connection with an assignment of the Credit Agreement by Grantors expressly
permitted by the terms of the Credit Agreement, the Grantors may not assign or
transfer any of its interests without prior written consent of the Secured
Party.

     

    Section
8.08         Cumulative Remedies,
Etc.  No failure or delay on the part of the Secured Party in
exercising any right, power or privilege hereunder or under any other Credit
Document and no course of dealing between the Secured Party and the Grantors
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right, power or privilege hereunder or under any other Credit Document
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege hereunder or thereunder.  The rights and
remedies provided herein are cumulative and not exclusive of any rights or
remedies which the Secured Party would otherwise have.  No notice to
or demand on the Grantors in any case shall entitle the Grantors to any other or
further notice or demand in similar or other circumstances or constitute a
waiver of the rights of the Secured Party to any other or further action in any
circumstances without notice or demand.

    
 

    
      
        
           


        

        
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    Section
8.09         Amendments, Waivers and
Consents.  No amendment or waiver of any provision of this
Agreement nor consent to any departure by the Grantors therefrom shall in any
event be effective unless the same shall be in writing and signed by the Secured
Party, and then any such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.

     

    Section
8.10         Waiver.  Each
party hereto may (a) extend the time for the performance of any of the
obligations or other acts of the other party hereto, (b) waive any inaccuracies
in the representations and warranties of the other party contained herein or in
any document delivered pursuant hereto, (c) waive compliance with any of the
agreements of the other party contained herein, or (d) waive satisfaction of any
condition to its obligations hereunder.  Any such extension or waiver
shall be valid only if set forth in an instrument in writing signed by the party
to be bound thereby.  No delay on the part of any party in exercising
any right, power or privilege hereunder shall operate as a waiver thereof, nor
shall any waiver on the part of any party of any such right, power or privilege,
nor any single or partial exercise of any such right, power or privilege,
preclude any further exercise thereof or the exercise of any other such right,
power or privilege.  All remedies, rights, undertakings, obligations,
and agreements contained herein shall be cumulative and not mutually
exclusive.

     

    Section
8.11         Governing Law. This
Agreement and all claims with respect thereto shall be governed by and construed
in accordance with the federal bankruptcy law, to the extent applicable, and,
where state law is implicated, the laws of the State of Delaware without regard
to any conflict of laws rules thereof that might indicate the application of the
laws of any other jurisdiction.

     

    Section
8.12         Consent to Jurisdiction;
Service of Process; Waiver of Jury Trial.

     

    The
parties hereto irrevocably and unconditionally consent to submit to the
jurisdiction of the Bankruptcy Court for any litigation arising out of or
relating to this Agreement and the transactions contemplated hereby (and agree
not to commence any litigation relating hereto except in the Bankruptcy
Court).

     

    Any and
all service of process and any other notice in any such claim shall be effective
against any party if given personally or by registered or certified mail, return
receipt requested, or by any other means of mail that requires a signed receipt,
postage prepaid, mailed to such party as herein provided.  Nothing
herein contained shall be deemed to affect the right of any party to serve
process in any manner permitted by Law or to commence legal proceedings or
otherwise proceed against any other party in any other
jurisdiction.

     

    If any
claim is brought by any party hereto to enforce its rights or another party’s
obligations under this Agreement or any other agreement, document or instrument
to be delivered by such party on the Closing Date in connection herewith, the
substantially prevailing party in such claim shall be entitled to recover its
reasonable attorneys’ fees and expenses and other costs incurred in such claim,
in addition to any other relief to which it may be entitled.

     

    
      
        
           


        

        
          25

          
            

          

        

        
           


        

      

    

     

    EACH OF
THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY
JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO
THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY.

     

    Section
8.13         Interpretation;
Headings.  All pronouns and any variations thereof refer to the
masculine, feminine or neuter, singular or plural, as the context may
require.  All terms defined in this Agreement in their singular or
plural forms have correlative meanings when used herein in their plural or
singular forms, respectively.  Unless otherwise expressly provided,
the words “include,” “includes” and “including” do not limit the preceding words
or terms and shall be deemed to be followed by the words “without
limitation.”  All references herein to “Sections” shall be deemed
references to such parts of this Agreement, unless the context shall otherwise
require.  All references herein to “Schedules” and “Exhibits” shall
mean the Schedules and Exhibits attached to this Agreement and forming a part
hereof.  The Section headings in this Agreement are for reference only
and shall not affect the interpretation of this Agreement.  The
parties acknowledge and agree that (a) each party and its counsel reviewed and
negotiated the terms and provisions of this Agreement and have contributed to
its revision, (b) the rule of construction to the effect that any ambiguities
are resolved against the drafting party shall not be employed in the
interpretation of this Agreement, and (c) the terms and provisions of this
Agreement shall be construed fairly as to all parties, regardless of which party
was generally responsible for the preparation of this
Agreement.  Dates and times set forth in this Agreement for the
performance of the parties’ respective obligations hereunder or for the exercise
of their rights hereunder shall be strictly construed, time being of the essence
of this Agreement.  If the date specified or computed under this
Agreement for the performance, delivery, completion or observance of a covenant,
agreement, obligation or notice by any party, or for the occurrence of any event
provided for herein, is a day other than a Business Day, then the date for such
performance, delivery, completion, observance or occurrence shall automatically
be extended to the next Business Day following such date.

     

    Section
8.14         Severability of
Provisions.  If any provision or any portion of any provision
of this Agreement shall be held invalid or unenforceable, the remaining portion
of such provision and the remaining provisions of this Agreement shall not be
affected thereby.  If the application of any provision or any portion
of any provision of this Agreement to any Person or circumstance shall be held
invalid or unenforceable, the application of such provision or portion of such
provision to Persons or circumstances other than those as to which it is held
invalid or unenforceable shall not be affected thereby.

     

    Section
8.15         Counterparts.  This
Agreement may be executed by the parties hereto in separate counterparts, each
of which when so executed and delivered shall be an original, but all such
counterparts together shall constitute one and the same
instrument.  Each counterpart may consist of a number of copies hereof
each signed by less than all, but together signed by all, of the parties
hereto.

     

    [SIGNATURE
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    IN
WITNESS WHEREOF, each of the undersigned has caused this Security Agreement to
be duly executed and delivered as of the date first above written.

     

    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                
                                  
                                    
                                      
                                        
                                          
                                            
                                              
                                                
                                                  
                                                    
                                                      
                                                        
                                                          
                                                            
                                                              
                                                                
                                                                  
                                                                    
                                                                      
                                                                        
                                                                          
                                                                            
                                                                              
                                                                                
                                                                                  
                                                                                    	
                                                                                            Palm Harbor Homes, Inc.,
      a Florida corporation,

                                                                                          
	
                                                                                            as
      a Grantor

                                                                                          
	 
      
	
                                                                                            By:

                                                                                          	
                                                                                            /s/
      Larry H. Keener

                                                                                          
	
                                                                                            Name:

                                                                                          	
                                                                                            Larry
      H. Keener

                                                                                          
	
                                                                                            Title:

                                                                                          	

                                                                                            President
      and Chief Executive Officer

                                                                                          
	 
      
	
                                                                                            Palm Harbor GenPar, LLC,
      a Nevada limited liability company, as a Grantor

                                                                                          
	 
      
	
                                                                                            By:

                                                                                          	
                                                                                            /s/
      Larry H. Keener  

                                                                                          
	
                                                                                            Name:

                                                                                          	
                                                                                            Larry
      H. Keener  

                                                                                          
	
                                                                                            Title:

                                                                                          	
                                                                                            President

                                                                                          
	 
      
	
                                                                                            Palm Harbor Mfg., L.P.,
      a Texas limited partnership, as a Grantor

                                                                                          
	 
      
	
                                                                                            By:

                                                                                          	

                                                                                            /s/
      Larry H. Keener

                                                                                          
	
                                                                                            Name:

                                                                                          	

                                                                                            Larry
      H. Keener

                                                                                          
	
                                                                                            Title:

                                                                                          	

                                                                                            President

                                                                                          
	 
      
	
                                                                                            Palm Harbor Real Estate,
      LLC, a Texas limited liability company, as a
  Grantor

                                                                                          
	 
      
	
                                                                                            By:

                                                                                          	

                                                                                            /s/
      Larry H. Keener

                                                                                          
	
                                                                                            Name:

                                                                                          	

                                                                                            Larry
      H. Keener

                                                                                          
	
                                                                                            Title:

                                                                                          	

                                                                                            President
      of Sole Member

                                                                                          
	 
      
	
                                                                                            Nationwide Homes, Inc.,
      a Delaware corporation, as a Grantor

                                                                                          
	 
      
	
                                                                                            By:

                                                                                          	

                                                                                            /s/
      Larry H. Keener

                                                                                          
	
                                                                                            Name:

                                                                                          	

                                                                                            Larry
      H. Keener

                                                                                          
	
                                                                                            Title:

                                                                                          	

                                                                                            Chairman

                                                                                          


                                                                                  

                                                                                

                                                                              

                                                                            

                                                                          

                                                                        

                                                                      

                                                                    

                                                                  

                                                                

                                                              

                                                            

                                                          

                                                        

                                                      

                                                    

                                                  

                                                

                                              

                                            

                                          

                                        

                                      

                                    

                                  

                                

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

    

     

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                        Palm Harbor Albemarie,
      LLC, a Delaware corporation, as a Grantor

                      
	 
      
	
                        By:

                      	

                        /s/
      Larry H. Keener

                      
	
                        Name:

                      	

                        Larry
      H. Keener

                      
	
                        Title:

                      	

                        President

                      


              

            

          

        

      

    

     

    ACKNOWLEDGED
AND AGREED

    as of the
date first above written:

    
 

    Fleetwood Homes, Inc., a
Delaware

    corporation,
as Secured Party

       

    
      
        
          
            
              	
                      By:

                    	/s/
      Joseph H. Stegmayer
	
                      Name:

                    	Joseph
      H. Stegmayer
	
                      Title:

                    	Vice
      President


            

          

        

      

    

     

    
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