**Exhibit 10.2**

 

AMENDED AND RESTATED CREDIT AGREEMENT

DATED AS OF AUGUST 10, 2007,

AMONG

KIMBALL HILL, INC.,

THE GUARANTORS FROM TIME TO TIME PARTIESHERETO,

THE LENDERS FROM TIME TO TIME PARTIES HERETO,

HARRIS N.A.,AS ADMINISTRATIVE AGENT,

BANK OF AMERICA, N.A.,AS SYNDICATION AGENT,

KEYBANK NATIONAL ASSOCIATION,AS CO-DOCUMENTATION AGENT,

WACHOVIA BANK, NATIONAL ASSOCIATION,AS CO-DOCUMENTATION AGENT,

BMO CAPITAL MARKETS,AS CO-LEAD ARRANGER AND JOINT BOOK RUNNER,

AND

BANC OF AMERICA SECURITIES, LLC,AS CO-LEAD ARRANGER AND JOINT BOOK RUNNER

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 $500,000,000 REVOLVING CREDITFACILITY

 

 

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| SECTION 1.      THE  CREDIT FACILITIES             |   | 1                                                                    |   |
|------------------------------------------------------------------------|--------|----------------------------------------------------------------------|--------|
| Section 1.1                                                            |   | Revolving Credit  Commitments                                        |   | 1 |   |
| Section 1.2                                                            |   | Letters of  Credit                                                   |   | 2 |   |
| Section 1.3                                                            |   | Applicable  Interest Rates                                           |   | 4 |   |
| Section 1.4                                                            |   | Minimum  Borrowing Amounts; Maximum Eurodollar Loans                 |   | 6 |   |
| Section 1.5                                                            |   | Manner of  Borrowing Loans and Designating Applicable Interest Rates |   | 6 |   |
| Section 1.6                                                            |   | Interest Periods                                                     |   | 8 |   |
| Section 1.7                                                            |   | Maturity of  Revolving Loans and Swing Loans                         |   | 9 |   |
| Section 1.8                                                            |   | Prepayments                                                          |   | 9 |   |
| Section 1.9                                                            |   | Default Rate                                                         |   | 11 |   |
| Section 1.10                                                           |   | The Notes                                                            |   | 11 |   |
| Section 1.11                                                           |   | Funding  Indemnity                                                   |   | 12 |   |
| Section 1.12                                                           |   | Revolving Credit  Commitment Terminations                            |   | 12 |   |
| Section 1.13                                                           |   | Increase in  Aggregate Revolving Credit Commitment                   |   | 13 |   |
| Section 1.14                                                           |   | Substitution of  Lenders                                             |   | 14 |   |
| Section 1.15                                                           |   | Swing Loans                                                          |   | 14 |   |
| SECTION 2.       FEES                              |   | 15                                                                   |   |
| Section 2.1                                                            |   | Fees                                                                 |   | 16 |   |
| SECTION 3.       PLACE AND APPLICATION OF PAYMENTS |   | 16                                                                   |   |
| Section 3.1                                                            |   | Place and  Application of Payments                                   |   | 16 |   |
| Section 3.2                                                            |   | Account Debit                                                        |   | 18 |   |
| SECTION 4.       GUARANTIES                        |   | 18                                                                   |   |
| Section 4.1                                                            |   | Guaranties                                                           |   | 18 |   |
| Section 4.2                                                            |   | Further  Assurances                                                  |   | 18 |   |
| Section 4.3                                                            |   | Collateral                                                           |   | 18 |   |
| Section 4.4                                                            |   | Mortgages of  Existing Borrowing Base Property                       |   | 19 |   |
| Section 4.5                                                            |   | Additional  Borrowing Base Property                                  |   | 19 |   |
| Section 4.6                                                            |   | Mortgage Tax  Arrangements                                           |   | 21 |   |
| Section 4.7                                                            |   | Appraisals                                                           |   | 21 |   |
| Section 4.8                                                            |   | Release of  Collateral                                               |   | 22 |   |
| Section 4.9                                                            |   | Further  Assurances                                                  |   | 23 |   |

 

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| SECTION 5.       DEFINITIONS;  INTERPRETATION   |   | 24                                                  |   |
|---------------------------------------------------------------------|--------|-----------------------------------------------------|--------|
| Section 5.1                                                         |   | Definitions                                         |   | 24 |   |
| Section 5.2                                                         |   | Interpretation                                      |   | 41 |   |
| Section 5.3                                                         |   | Change in  Accounting Principles                    |   | 41 |   |
| SECTION 6.       REPRESENTATIONS AND WARRANTIES |   | 41                                                  |   |
| Section 6.1                                                         |   | Organization and  Qualification                     |   | 41 |   |
| Section 6.2                                                         |   | Subsidiaries                                        |   | 41 |   |
| Section 6.3                                                         |   | Authority and  Validity of Obligations              |   | 42 |   |
| Section 6.4                                                         |   | Use of Proceeds;  Margin Stock                      |   | 42 |   |
| Section 6.5                                                         |   | Financial  Reports                                  |   | 43 |   |
| Section 6.6                                                         |   | No Material  Adverse Change                         |   | 43 |   |
| Section 6.7                                                         |   | Full Disclosure                                     |   | 43 |   |
| Section 6.8                                                         |   | Trademarks,  Franchises, and Licenses               |   | 43 |   |
| Section 6.9                                                         |   | Governmental  Authority and Licensing               |   | 44 |   |
| Section 6.10                                                        |   | Good Title                                          |   | 44 |   |
| Section 6.11                                                        |   | Litigation and  Other Controversies                 |   | 44 |   |
| Section 6.12                                                        |   | Taxes                                               |   | 44 |   |
| Section 6.13                                                        |   | Approvals                                           |   | 44 |   |
| Section 6.14                                                        |   | Affiliate  Transactions                             |   | 45 |   |
| Section 6.15                                                        |   | Investment  Company; Public Utility Holding Company |   | 45 |   |
| Section 6.16                                                        |   | ERISA                                               |   | 45 |   |
| Section 6.17                                                        |   | Compliance with  Laws                               |   | 45 |   |
| Section 6.18                                                        |   | Other Agreements                                    |   | 46 |   |
| Section 6.19                                                        |   | Solvency                                            |   | 46 |   |
| Section 6.20                                                        |   | No Broker Fees                                      |   | 46 |   |
| Section 6.21                                                        |   | No Default                                          |   | 46 |   |
| SECTION 7.       CONDITIONS PRECEDENT           |   | 46                                                  |   |
| Section 7.1                                                         |   | All Credit  Events                                  |   | 47 |   |
| Section 7.2                                                         |   | Initial Credit  Event                               |   | 47 |   |
| SECTION 8.       COVENANTS                      |   | 48                                                  |   |
| Section 8.1                                                         |   | Maintenance of  Business                            |   | 48 |   |
| Section 8.2                                                         |   | Maintenance of  Properties                          |   | 49 |   |
| Section 8.3                                                         |   | Taxes and  Assessments                              |   | 49 |   |

 

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| Section 8.4                                                         |   | Insurance                                                                      |   | 49 |   |
|---------------------------------------------------------------------|--------|--------------------------------------------------------------------------------|--------|----|--------|
| Section 8.5                                                         |   | Financial  Reports                                                             |   | 50 |   |
| Section 8.6                                                         |   | Inspection                                                                     |   | 53 |   |
| Section 8.7                                                         |   | Borrowings and  Guaranties                                                     |   | 53 |   |
| Section 8.8                                                         |   | Liens                                                                          |   | 54 |   |
| Section 8.9                                                         |   | Investments,  Acquisitions, Loans and Advances                                 |   | 56 |   |
| Section 8.10                                                        |   | Mergers,  Consolidations and Sales                                             |   | 58 |   |
| Section 8.11                                                        |   | Maintenance of  Subsidiaries                                                   |   | 59 |   |
| Section 8.12                                                        |   | Dividends and  Certain Other Restricted Payments                               |   | 60 |   |
| Section 8.13                                                        |   | ERISA                                                                          |   | 60 |   |
| Section 8.14                                                        |   | Compliance with  Laws                                                          |   | 60 |   |
| Section 8.15                                                        |   | Burdensome  Contracts With Affiliates                                          |   | 61 |   |
| Section 8.16                                                        |   | No Changes in  Fiscal Year                                                     |   | 61 |   |
| Section 8.17                                                        |   | Formation of  Subsidiaries                                                     |   | 61 |   |
| Section 8.18                                                        |   | Change in the  Nature of Business                                              |   | 61 |   |
| Section 8.19                                                        |   | Use of Proceeds                                                                |   | 61 |   |
| Section 8.20                                                        |   | No Restrictions                                                                |   | 62 |   |
| Section 8.21                                                        |   | Subordinated  Debt                                                             |   | 63 |   |
| Section 8.22                                                        |   | Financial  Covenants                                                           |   | 63 |   |
| Section 8.23                                                        |   | Inventory  Restrictions                                                        |   | 64 |   |
| SECTION 9.       EVENTS OF DEFAULT AND REMEDIES |   | 64                                                                             |   |
| Section 9.1                                                         |   | Events of  Default                                                             |   | 64 |   |
| Section 9.2                                                         |   | Non-Bankruptcy  Defaults                                                       |   | 66 |   |
| Section 9.3                                                         |   | Bankruptcy  Defaults                                                           |   | 67 |   |
| Section 9.4                                                         |   | Collateral for  Undrawn Letters of Credit                                      |   | 67 |   |
| Section 9.5                                                         |   | Additional  Remedies with Respect to Collateral                                |   | 68 |   |
| Section 9.6                                                         |   | Notice of  Default                                                             |   | 68 |   |
| Section 9.7                                                         |   | Expenses                                                                       |   | 68 |   |
| SECTION 10.       CHANGE IN CIRCUMSTANCES       |   | 69                                                                             |   |
| Section 10.1                                                        |   | Change of Law                                                                  |   | 69 |   |
| Section 10.2                                                        |   | Unavailability  of Deposits or Inability to Ascertain, or Inadequacy of, LIBOR |   | 69 |   |
| Section 10.3                                                        |   | Increased Cost  and Reduced Return                                             |   | 69 |   |

 

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| Section 10.4                                                   |   | Lending Offices                                                                  |   | 71 |   |
|----------------------------------------------------------------|--------|----------------------------------------------------------------------------------|--------|----|--------|
| Section 10.5                                                   |   | Discretion of  Lender as to Manner of Funding                                    |   | 71 |   |
| SECTION 11.       THE ADMINISTRATIVE AGENT |   | 72                                                                               |   |
| Section 11.1                                                   |   | Appointment and  Authorization of Administrative Agent                           |   | 72 |   |
| Section 11.2                                                   |   | Administrative  Agent and its Affiliates                                         |   | 72 |   |
| Section 11.3                                                   |   | Action by  Administrative Agent                                                  |   | 72 |   |
| Section 11.4                                                   |   | Consultation  with Experts                                                       |   | 73 |   |
| Section 11.5                                                   |   | Liability of  Administrative Agent; Credit Decision                              |   | 73 |   |
| Section 11.6                                                   |   | Indemnity                                                                        |   | 73 |   |
| Section 11.7                                                   |   | Resignation of  Administrative Agent and Successor Administrative Agent          |   | 74 |   |
| Section 11.8                                                   |   | L/C Issuer                                                                       |   | 74 |   |
| Section 11.9                                                   |   | Hedging  Liability and Funds Transfer and Deposit Account Liability Arrangements |   | 74 |   |
| Section 11.10                                                  |   | Designation of  Additional Agents                                                |   | 75 |   |
| Section 11.11                                                  |   | Rights with  Respect to Collateral                                               |   | 75 |   |
| SECTION 12.       THE GUARANTEES           |   | 75                                                                               |   |
| Section 12.1                                                   |   | The Guarantees                                                                   |   | 75 |   |
| Section 12.2                                                   |   | Guarantee  Unconditional                                                         |   | 76 |   |
| Section 12.3                                                   |   | Discharge Only  upon Payment in Full; Reinstatement in Certain Circumstances     |   | 76 |   |
| Section 12.4                                                   |   | Subrogation                                                                      |   | 77 |   |
| Section 12.5                                                   |   | Waivers                                                                          |   | 77 |   |
| Section 12.6                                                   |   | Limit on  Recovery                                                               |   | 77 |   |
| Section 12.7                                                   |   | Stay of  Acceleration                                                            |   | 77 |   |
| Section 12.8                                                   |   | Benefit to Guarantors                                                            |   | 78 |   |
| Section 12.9                                                   |   | Guarantor  Covenants                                                             |   | 78 |   |
| SECTION 13.       MISCELLANEOUS            |   | 78                                                                               |   |
| Section 13.1                                                   |   | Withholding  Taxes                                                               |   | 78 |   |
| Section 13.2                                                   |   | No Waiver,  Cumulative Remedies                                                  |   | 80 |   |
| Section 13.3                                                   |   | Non-Business  Days                                                               |   | 80 |   |
| Section 13.4                                                   |   | Documentary  Taxes                                                               |   | 80 |   |
| Section 13.5                                                   |   | Survival of  Representations                                                     |   | 80 |   |

 

 

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| Section 13.6  |   | Survival of  Indemnities                          |   | 80 |   |
|---------------|--------|---------------------------------------------------|--------|----|--------|
| Section 13.7  |   | Sharing of  Set-Off                               |   | 81 |   |
| Section 13.8  |   | Notices                                           |   | 81 |   |
| Section 13.9  |   | Counterparts                                      |   | 82 |   |
| Section 13.10 |   | Successors and  Assigns                           |   | 82 |   |
| Section 13.11 |   | Participants                                      |   | 82 |   |
| Section 13.12 |   | Assignments                                       |   | 82 |   |
| Section 13.13 |   | Amendments                                        |   | 83 |   |
| Section 13.14 |   | Headings                                          |   | 84 |   |
| Section 13.15 |   | Costs and  Expenses; Indemnification              |   | 84 |   |
| Section 13.16 |   | Set-off                                           |   | 85 |   |
| Section 13.17 |   | Entire Agreement                                  |   | 85 |   |
| Section 13.18 |   | Governing Law                                     |   | 85 |   |
| Section 13.19 |   | Severability of  Provisions                       |   | 85 |   |
| Section 13.20 |   | Excess Interest                                   |   | 86 |   |
| Section 13.21 |   | Construction                                      |   | 86 |   |
| Section 13.22 |   | Lender’s  Obligations Several                |   | 86 |   |
| Section 13.23 |   | Submission to  Jurisdiction; Waiver of Jury Trial |   | 86 |   |
| Section 13.24 |   | USA Patriot Act                                   |   | 87 |   |
| Section 13.25 |   | Confidentiality                                   |   | 87 |   |

 

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**AMENDED AND RESTATED CREDIT AGREEMENT**

This Amended and Restated Credit Agreement is enteredinto as of August 10, 2007, by and among (a) KIMBALL HILL, INC., an Illinoiscorporation (the “*Borrower*”), (b) the Guarantors(as defined in Section 4.1 hereof) from time to time party to this Agreement,(c) the several financial institutions from time to time party to thisAgreement, as Lenders, (d) HARRIS N.A., as Administrative Agent, (e) BANK OFAMERICA, N.A., as Syndication Agent, (f) KEYBANK NATIONAL ASSOCIATION, asCo-Documentation Agent, (g) WACHOVIA BANK, NATIONAL ASSOCIATION, asCo-Documentation Agent, (h) BMO CAPITAL MARKETS FINANCING, INC., as Co-LeadArranger and Joint Book Runner, and (i) BANC OF AMERICA SECURITIES, LLC, asCo-Lead Arranger and Joint Book Runner, all as provided herein.  All capitalized terms used herein withoutdefinition shall have the same meanings herein as such terms are defined inSection 5.1 hereof.

**PRELIMINARY STATEMENT**

The Borrower, the Guarantors, the Lenders, theAdministrative Agent, and certain other parties are party to that certainCredit Agreement, dated December 21, 2005, as amended by that certain FirstModification of Credit Agreement, dated December 15, 2006 (collectively, the “*Prior Credit Agreement*”).

The parties hereto now desire to amend and restate thePrior Credit Agreement in its entirety.

NOW,THEREFORE, in consideration of the mutual agreements contained herein,and other good and valuable consideration, the receipt and sufficiency of whichare hereby acknowledged, the parties hereto hereby agree as follows:

This Agreement, as executed by the Borrower, theGuarantors, the Administrative Agent and the Required Lenders, amends andrestates in its entirety the Prior Credit Agreement.  Upon satisfaction of the conditions precedentto effectiveness set forth herein, the “Notes” given by the Borrower under thePrior Credit Agreement shall be deemed to be and shall be replaced by the Notesgiven under this Agreement.  Alloutstanding “Loans,” “Letters of Credit” and “Obligations” under the PriorCredit Agreement shall now be deemed to be outstanding under this Agreement,without any novation or loss of priority with respect to any “Obligations”under the Prior Credit Agreement.  Byexecution of this Agreement, the Borrower and the Guarantors acknowledge andrepresent that as of the date hereof, the outstanding principal of theRevolving Loans is $332,759,319.76, the pre-existing Letters of Credit are asshown on Schedule 1.2 attached hereto, and neither the Borrower nor theGuarantors have any defenses, claims, counterclaims, or rights of set-off withrespect to the Obligations, Hedging Liability or Funds Transfer and DepositAccount Liability.  In addition, thisAgreement is intended to be and the indebtedness hereunder is and is intendedto remain “Senior Indebtedness” as defined in the Trust Indenture.

SECTION1.           THE CREDIT FACILITIES.

*Section1.1            Revolving CreditCommitments*.  Subjectto the terms and conditions hereof, each Lender, by its acceptance hereof,severally agrees to make a loan or loans

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(individually a “*Revolving Loan*”and collectively the “*Revolving Loans*”)in U.S. Dollars to the Borrower from time to time on a revolving basis up tothe amount of such Lender’s Revolving Credit Commitment, subject to anyincreases or reductions thereof pursuant to the terms hereof, before theRevolving Credit Termination Date.  Thesum of the aggregate principal amount of Revolving Loans, Swing Loans, and L/CObligations at any time outstanding shall not exceed the lesser of (a) theRevolving Credit Commitments in effect at such time and (b) the Borrowing Baseas determined based on the most recent Borrowing Base Certificate.  Each Borrowing of Revolving Loans shall bemade ratably by the Lenders in proportion to their respective RevolverPercentages.  As provided in Section1.5(a) hereof, the Borrower may elect that each Borrowing of Revolving Loans beeither Base Rate Loans or Eurodollar Loans. Revolving Loans may be repaid and the principal amount thereofreborrowed before the Revolving Credit Termination Date, subject to the termsand conditions hereof.

*Section1.2            Letters of Credit*.  (a)  *General Terms*. Subject to the terms and conditions hereof, as part of the RevolvingCredit, the L/C Issuer shall issue standby and commercial letters of credit(each a “*Letter of Credit*”) for the account ofthe Borrower or one or more of its Wholly-owned Subsidiaries in an aggregateundrawn face amount up to the L/C Sublimit. Prior to the Closing Date, Harris N.A. issued (under the Prior CreditAgreement and otherwise) for the account of the Borrower and certain of itsWholly-owned Subsidiaries the letters of credit listed on Schedule 1.2 attachedhereto, which pre-existing letters of credit shall be deemed to be “*Letters of Credit*” hereunder and shall be included indetermining future Letter of Credit availability under the L/C Sublimit.  Each Letter of Credit has been or shall beissued by the L/C Issuer, but each Lender shall be obligated to reimburse theL/C Issuer for such Lender’s Revolver Percentage of the amount of each drawingthereunder and, accordingly, each Letter of Credit shall constitute usage ofthe Revolving Credit Commitment of each Lender pro rata in an amount equal toits Revolver Percentage of the L/C Obligations then outstanding.

(b)           *Applications*.  At any time before the Revolving CreditTermination Date, the L/C Issuer shall, at the request of the Borrower, issueone or more Letters of Credit in U.S. Dollars, in a form reasonablysatisfactory to the L/C Issuer, with expiration dates no later than 12 monthsfrom the date of issuance (subject to rights of renewal for periods of up to 12months each), provided no Letter of Credit by renewal or otherwise may have anexpiration date later than 30 days prior to the Revolving Credit TerminationDate, in an aggregate face amount as set forth above, upon the receipt of anapplication duly executed by the Borrower and, if such Letter of Credit is forthe account of one of its Wholly-owned Subsidiaries, such Wholly-ownedSubsidiary for the relevant Letter of Credit in the form then customarilyprescribed by the L/C Issuer for the Letter of Credit requested (each an “*Application*”). Notwithstanding anything contained in any Application to thecontrary:  (i) the Borrower shall payfees in connection with each Letter of Credit as set forth in Section 2.1hereof, (ii) except as otherwise provided in Section 1.8 hereof, before theoccurrence of an Event of Default, the L/C Issuer will not call for the fundingby the Borrower of any amount under a Letter of Credit before being presentedwith a drawing thereunder, and (iii) if the L/C Issuer is not timely reimbursedfor the amount of any drawing under a Letter of Credit on the date such drawingis paid, the Borrower’s obligation to reimburse the L/C Issuer for the amountof such drawing shall, subject to the provisions of Section 1.2(c) hereof, beconverted to a Borrowing of a Base Rate Loan bearing interest from and afterthe date such drawing is paid.  If theL/C Issuer issues any Letter of Credit with an expiration date that isautomatically extended unless the L/C Issuer gives notice that the 

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expiration date will notso extend beyond its then scheduled expiration date, unless the RequiredLenders instruct the L/C Issuer otherwise, the L/C Issuer will give such noticeof non-renewal before the time necessary to prevent such automatic extension ifbefore such required notice date:  (i)the expiration date of such Letter of Credit if so extended would be later than30 days prior to the Revolving Credit Termination Date, (ii) the RevolvingCredit Commitments have been terminated, or (iii) a Default or an Event ofDefault exists and the Administrative Agent, in its discretion or at therequest of the Required Lenders, has given the L/C Issuer instructions not toso permit the extension of the expiration date of such Letter of Credit.  The L/C Issuer agrees to issue amendments tothe Letter(s) of Credit increasing the amount, or extending the expirationdate, thereof at the request of the Borrower subject to the conditions ofSection 7 hereof and the other terms of this Section 1.2.

(c)           *The ReimbursementObligations*.  Subject toSection 1.2(b) hereof, the obligation of the Borrower to reimburse the L/CIssuer for all drawings under a Letter of Credit (a “*ReimbursementObligation*”) shall be governed by the Application related to suchLetter of Credit, except that reimbursement shall be made by no later than12:00 Noon (Chicago time) on the date when each drawing is to be paid if theBorrower has been informed of such drawing by the L/C Issuer on or before 11:30a.m. (Chicago time) on the date when such drawing is to be paid or, if noticeof such drawing is given to the Borrower after 11:30 a.m. (Chicago time) on thedate when such drawing is to be paid, by the end of such day, in immediatelyavailable funds at the Administrative Agent’s principal office in Chicago,Illinois or such other office as the Administrative Agent may designate inwriting to the Borrower (who shall thereafter cause to be distributed to theL/C Issuer such amount(s) in like funds). Notwithstanding the foregoing, unless the Borrower shall have notifiedthe Administrative Agent to the contrary, each drawing upon a Letter of Creditshall automatically be deemed to be a request for a Borrowing of a Base RateLoan pursuant to the terms of Section 1.2(d) hereof, and the Borrower shallthereafter be responsible for the repayment of such amount pursuant to theprovisions of Section 1.8 hereof.

(d)           *The ParticipatingInterests*.  Each Lender (otherthan the Lender acting as L/C Issuer in issuing the relevant Letter of Credit),by its acceptance hereof, severally agrees to purchase from the L/C Issuer, andthe L/C Issuer hereby agrees to sell to each such Lender (a “*Participating Lender*”), an undivided percentageparticipating interest (a “*Participating Interest*”),to the extent of its Revolver Percentage, in each Letter of Credit issued by,and each Reimbursement Obligation owed to, the L/C Issuer.  Unless the Borrower shall have paid theReimbursement Obligation by 12:00 Noon (Chicago time) on the date the relateddrawing is to be paid, as set forth in Section 1.2(c) above, or if the L/CIssuer is required at any time to return to the Borrower or to a trustee, receiver,liquidator, custodian or other Person any portion of any payment of anyReimbursement Obligation, each Participating Lender shall, not later than theBusiness Day it receives a certificate in the form of Exhibit A attached heretofrom the L/C Issuer (with a copy to the Administrative Agent) to such effect,if such certificate is received before 1:00 p.m. (Chicago time), or not laterthan 1:00 p.m. (Chicago time) the following Business Day, if such certificateis received after such time, pay to the Administrative Agent for the account ofthe L/C Issuer an amount equal to such Participating Lender’s RevolverPercentage of such unpaid or recaptured Reimbursement Obligation together withinterest on such amount accrued from the date the related payment was made bythe L/C Issuer to the date of such payment by such Participating Lender at arate per annum equal to:  (i) from thedate 

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the related payment was made by the L/C Issuer to thedate 2 Business Days after payment by such Participating Lender is due hereunder,the Federal Funds Rate for each such day and (ii) from the date 2 Business Daysafter the date such payment is due from such Participating Lender to the datesuch payment is made by such Participating Lender, the Base Rate in effect foreach such day.  Thereafter, all amountsadvanced by the Participating Lenders, including the L/C Issuer’s RevolverPercentage of the drawn amount under the Letter of Credit, shall be deemed tobe a Borrowing as a Base Rate Loan and shall bear interest and be repaid inaccordance with the terms of this Agreement. The several obligations of the Participating Lenders to the L/C Issuerunder this Section 1.2 shall be absolute, irrevocable, and unconditional underany and all circumstances whatsoever and shall not be subject to any set-off,counterclaim or defense to payment which any Participating Lender may have orhave had against the Borrower, the L/C Issuer, the Administrative Agent, anyLender or any other Person whatsoever. Without limiting the generality of the foregoing, such obligations shallnot be affected by any Default or Event of Default or by any reduction ortermination of any Revolving Credit Commitment of any Lender, and each paymentby a Participating Lender under this Section 1.2 shall be made without anyoffset, abatement, withholding or reduction whatsoever.

(e)           *Indemnification*.  The Participating Lenders shall, to theextent of their respective Revolver Percentages, indemnify the L/C Issuer (tothe extent not reimbursed by the Borrower) against any cost, expense (includingreasonable counsel fees and disbursements), claim, demand, action, loss orliability (except such as result from the L/C Issuer’s gross negligence orwillful misconduct) that the L/C Issuer may suffer or incur in connection withany Letter of Credit issued by it.  Theobligations of the Participating Lenders under this Section 1.2(e) and allother parts of this Section 1.2 shall survive termination of this Agreement andof all Applications, Letters of Credit, and all drafts and other documentspresented in connection with drawings thereunder.

(f)            *Manner of Requesting aLetter of Credit*.  TheBorrower shall provide at least 3 Business Days’ advance written notice to theAdministrative Agent of each request for the issuance of a Letter of Credit,such notice in each case to be accompanied by an Application for such Letter ofCredit properly completed and executed by the Borrower and, in the case of anextension or an increase in the amount of a Letter of Credit, a written requesttherefor, in a form acceptable to the Administrative Agent and the L/C Issuer,in each case, together with the fees called for by this Agreement.  The Administrative Agent shall promptlynotify the L/C Issuer of the Administrative Agent’s receipt of each such noticeand the L/C Issuer shall promptly notify the Administrative Agent and theLenders of the issuance of the Letter of Credit so requested.

*Section1.3            Applicable Interest Rates*.  (a)  *Base Rate Loans*.  EachBase Rate Loan made or maintained by a Lender shall bear interest during eachInterest Period it is outstanding (computed on the basis of a year of 360 daysand the actual days elapsed) on the unpaid principal amount thereof from thedate such Loan is advanced or continued, or created by conversion from aEurodollar Loan, until maturity (whether by acceleration or otherwise) at arate per annum equal to the sum of the Applicable Margin plus the Base Ratefrom time to time in effect, payable on the tenth day of each calendar month inarrears for the prior Interest Period, and at maturity (whether by accelerationor otherwise).

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“*Base Rate*”means for any day the greater of:  (i)the rate of interest announced or otherwise established by the AdministrativeAgent from time to time as its prime commercial rate as in effect on such day,with any change in the Base Rate resulting from a change in said primecommercial rate to be effective as of the date of the relevant change in saidprime commercial rate (it being acknowledged and agreed that such rate may notbe the Administrative Agent’s best or lowest rate) and (ii) the sum of (x) therate determined by the Administrative Agent to be the average (rounded upward,if necessary, to the next higher 1/100 of 1%) of the rates per annum quoted tothe Administrative Agent at approximately 10:00 a.m. (Chicago time) (or as soonthereafter as is practicable) on such day (or, if such day is not a BusinessDay, on the immediately preceding Business Day) by two or more Federal fundsbrokers selected by the Administrative Agent for sale to the AdministrativeAgent at face value of Federal funds in the secondary market in an amount equalor comparable to the principal amount owed to the Administrative Agent forwhich such rate is being determined, *plus* (y) 1/2 of1%.

(b)           *Eurodollar Loans*.  Each Eurodollar Loan made or maintained by aLender shall bear interest during each Interest Period it is outstanding(computed on the basis of a year of 360 days and actual days elapsed) on theunpaid principal amount thereof from the date such Loan is advanced orcontinued, or created by conversion from a Base Rate Loan, until maturity(whether by acceleration or otherwise) at a rate per annum equal to the sum ofthe Applicable Margin plus the Adjusted LIBOR applicable for such Interest Period,payable on the last day of the Interest Period and at maturity (whether byacceleration or otherwise), and, if the applicable Interest Period is longerthan three months, on each day occurring every three months after thecommencement of such Interest Period.

“*Adjusted LIBOR*”means, for any Borrowing of Eurodollar Loans, a rate per annum determined inaccordance with the following formula:

| Adjusted LIBOR |   | =      | LIBOR                              |
|----------------|--------|--------|------------------------------------|
|           |   |   | 1 - Eurodollar  Reserve Percentage |

 

“*Eurodollar ReservePercentage*” means, for any Borrowing of Eurodollar Loans, the dailyaverage for the applicable Interest Period of the maximum rate, expressed as adecimal, at which reserves (including, without limitation, any supplemental,marginal, and emergency reserves) are imposed during such Interest Period bythe Board of Governors of the Federal Reserve System (or any successor) on “*eurocurrency liabilities*”, as defined in such Board’sRegulation D (or in respect of any other category of liabilities that includesdeposits by reference to which the interest rate on Eurodollar Loans isdetermined or any category of extensions of credit or other assets that includeloans by non-United States offices of any Lender to United States residents),subject to any amendments of such reserve requirement by such Board or itssuccessor, taking into account any transitional adjustments thereto.  For purposes of this definition, theEurodollar Loans shall be deemed to be “*eurocurrency liabilities*”as defined in Regulation D without benefit or credit for any prorations,exemptions or offsets under Regulation D.

“*LIBOR*” means,for an Interest Period for a Borrowing of Eurodollar Loans, (a) the LIBOR IndexRate for such Interest Period, if such rate is available, and (b) if the LIBORIndex Rate cannot be determined, the arithmetic average of the rates ofinterest per annum (rounded 

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upwards, if necessary, to the nearest 1/100 of 1%) atwhich deposits in U.S. Dollars in immediately available funds are offered tothe Administrative Agent at 11:00 a.m. (London, England time) 2 Business Daysbefore the beginning of such Interest Period by 3 or more major banks in theinterbank eurodollar market selected by the Administrative Agent for deliveryon the first day of and for a period equal to such Interest Period and in anamount equal or comparable to the principal amount of the Eurodollar Loanscheduled to be made by the Administrative Agent as part of such Borrowing.

“*LIBOR Index Rate*”means, for any Interest Period, the rate per annum (rounded upwards, ifnecessary, to the nearest 1/100 of 1%) for deposits in U.S. Dollars for aperiod equal to such Interest Period, which appears on the Telerate Page 3750as of 11:00 a.m. (London, England time) on the day 2 Business Days before thecommencement of such Interest Period.

“*Telerate Page 3750*”means the display designated as “*Page 3750*” onthe Telerate Service (or such other page as may replace Page 3750 on thatservice or such other service as may be nominated by the British Bankers’Association as the information vendor for the purpose of displaying BritishBankers’ Association Interest Settlement Rates for U.S. Dollar deposits).

(c)           *Rate Determinations*.  The Administrative Agent shall determine eachinterest rate applicable to the Loans and the Reimbursement Obligationshereunder, and its determination thereof shall be conclusive and binding exceptin the case of manifest error.

*Section1.4            Minimum Borrowing Amounts;Maximum Eurodollar Loans*. Each Borrowing of Base Rate Loans advanced under a Credit shall be in anamount not less than $250,000.  EachBorrowing of Eurodollar Loans advanced, continued or converted under a Creditshall be in an amount equal to $1,000,000 or such greater amount which is anintegral multiple of $500,000.  Withoutthe Administrative Agent’s consent, there shall not be more than 6 Borrowingsof Eurodollar Loans outstanding hereunder.

*Section1.5            Manner of Borrowing Loansand Designating Applicable Interest Rates*.  (a)  *Notice to the Administrative Agent*.  The Borrower shall give notice to theAdministrative Agent by no later than 10:00 a.m. (Chicago time):  (i) at least 3 Business Days before the dateon which the Borrower requests the Lenders to advance a Borrowing of EurodollarLoans and (ii) on the date the Borrower requests the Lenders to advance aBorrowing of Base Rate Loans.  The Loansincluded in each Borrowing shall bear interest initially at the type of ratespecified in such notice of a new Borrowing. Thereafter, subject to the terms and conditions hereof, the Borrower mayfrom time to time elect to change or continue the type of interest rate borneby each Borrowing or, subject to Section 1.4’s minimum amount requirement foreach outstanding Borrowing, a portion thereof, as follows:  (A) if such Borrowing is of Eurodollar Loans,on the last day of the Interest Period applicable thereto, the Borrower maycontinue part or all of such Borrowing as Eurodollar Loans or convert part orall of such Borrowing into Base Rate Loans or (B) if such Borrowing is of BaseRate Loans, on any Business Day, the Borrower may convert all or part of suchBorrowing into Eurodollar Loans for an Interest Period or Interest Periodsspecified by the Borrower.  The Borrowershall give all such notices requesting the advance, continuation or conversionof a Borrowing to the Administrative Agent by telephone or telecopy (whichnotice shall be irrevocable once given and, if by telephone, shall be promptlyconfirmed in writing), substantially in the form attached hereto as Exhibit B(Notice of Borrowing) or 

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Exhibit C (Notice of Continuation/Conversion), asapplicable, or in such other form acceptable to the Administrative Agent.  Notice of the continuation of a Borrowing ofEurodollar Loans for an additional Interest Period or of the conversion of partor all of a Borrowing of Base Rate Loans into Eurodollar Loans must be given byno later than 10:00 a.m. (Chicago time) at least 3 Business Days before thedate of the requested continuation or conversion.  All such notices concerning the advance,continuation or conversion of a Borrowing shall specify the date of therequested advance, continuation or conversion of a Borrowing (which shall be aBusiness Day), the amount of the requested Borrowing to be advanced, continuedor converted, the type of Loans to comprise such new, continued or convertedBorrowing and, if such Borrowing is to be comprised of Eurodollar Loans, theInterest Period applicable thereto.  TheBorrower agrees that the Administrative Agent may rely on any such telephonicor telecopy notice given by any person the Administrative Agent in good faithbelieves is an Authorized Representative without the necessity of independentinvestigation, and in the event any such notice by telephone conflicts with anywritten confirmation such telephonic notice shall govern if the AdministrativeAgent has acted in reliance thereon.

(b)           *Notice to the Lenders*.  The Administrative Agent shall give prompttelephonic or telecopy notice to each Lender of any notice from the Borrower receivedpursuant to Section 1.5(a) above and, if such notice requests the Lenders tomake Eurodollar Loans, the Administrative Agent shall give notice to theBorrower and each Lender by like means of the interest rate applicable theretopromptly after the Administrative Agent has made such determination.

(c)           *Borrower’s Failure toNotify; Automatic Continuations and Conversions*.  Any outstanding Borrowing of Base Rate Loansshall automatically be continued for an additional Interest Period on the lastday of its then current Interest Period unless the Borrower has notified theAdministrative Agent within the period required by Section 1.5(a) that theBorrower intends to convert such Borrowing, subject to Section 7.1 hereof, intoa Borrowing of Eurodollar Loans or such Borrowing is prepaid in accordance withSection 1.8(a).  If the Borrower fails togive notice pursuant to Section 1.5(a) above of the continuation or conversionof any outstanding principal amount of a Borrowing of Eurodollar Loans beforethe last day of its then current Interest Period within the period required bySection 1.5(a) or, whether or not such notice has been given, one or more ofthe conditions set forth in Section 7.1 for the continuation or conversion of aBorrowing of Eurodollar Loans would not be satisfied, and such Borrowing is notprepaid in accordance with Section 1.8(a), such Borrowing shall automaticallybe converted into a Borrowing of Base Rate Loans.  In the event the Borrower fails to givenotice pursuant to Section 1.5(a) above of a Borrowing equal to the amount of aReimbursement Obligation and has not notified the Administrative Agent by 12:00noon (Chicago time) on the day such Reimbursement Obligation becomes due thatit intends to repay such Reimbursement Obligation through funds not borrowedunder this Agreement, the Borrower shall be deemed to have requested aBorrowing of Base Rate Loans under the Revolving Credit (or, at the option ofthe Administrative Agent, under the Swing Line) on such day in the amount ofthe Reimbursement Obligation then due, which Borrowing shall be applied to paythe Reimbursement Obligation then due.

(d)           *Disbursement of Loans*.  Not later than 1:00 p.m. (Chicago time) onthe date of any requested advance of a new Borrowing, subject to Section 7hereof, each Lender shall make 

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available its Loancomprising part of such Borrowing in funds immediately available at theprincipal office of the Administrative Agent in Chicago, Illinois.  The Administrative Agent shall make theproceeds of each new Borrowing available to the Borrower at the AdministrativeAgent’s principal office in Chicago, Illinois, by depositing such proceeds tothe credit of the Borrower’s operating account maintained with theAdministrative Agent or as the Borrower and the Administrative Agent mayotherwise agree.

(e)           *Administrative AgentReliance on Lender Funding*. Unless the Administrative Agent shall have been notified by a Lenderprior to (or, in the case of a Borrowing of Base Rate Loans, by 1:00 p.m.(Chicago time) on) the date on which such Lender is scheduled to make paymentto the Administrative Agent of the proceeds of a Loan (which notice shall beeffective upon receipt) that such Lender does not intend to make such payment,the Administrative Agent may assume that such Lender has made such payment whendue and the Administrative Agent may in reliance upon such assumption (butshall not be required to) make available to the Borrower the proceeds of theLoan to be made by such Lender and, if any Lender has not in fact made suchpayment to the Administrative Agent, such Lender shall, on demand, pay to theAdministrative Agent the amount made available to the Borrower attributable tosuch Lender together with interest thereon in respect of each day during theperiod commencing on the date such amount was made available to the Borrowerand ending on (but excluding) the date such Lender pays such amount to theAdministrative Agent at a rate per annum equal to:  (i) from the date the related advance wasmade by the Administrative Agent to the date 2 Business Days after payment bysuch Lender is due hereunder, the Federal Funds Rate for each such day and (ii)from the date 2 Business Days after the date such payment is due from suchLender to the date such payment is made by such Lender, the Base Rate in effectfor each such day.  If such amount is notreceived from such Lender by the Administrative Agent immediately upon demand,the Borrower will, on demand, repay to the Administrative Agent the proceeds ofthe Loan attributable to such Lender with interest thereon at a rate per annumequal to the interest rate applicable to the relevant Loan, but without suchpayment being considered a payment or prepayment of a Loan under Section 1.11hereof so that the Borrower will have no liability under such Section withrespect to such payment.

*Section1.6            Interest Periods*.  As provided in Section 1.5(a) and 1.15hereof, at the time of each request to advance, continue or create byconversion a Borrowing of Eurodollar Loans or Swing Loans, the Borrower shallselect an Interest Period applicable to such Loans from among the availableoptions.  The term “*InterestPeriod*” means the period commencing on the date a Borrowing of Loansis advanced, continued or created by conversion and ending:  (a) in the case of Base Rate Loans, on thelast day of the calendar month in which such Borrowing is advanced, continuedor created by conversion (or on the last day of the following calendar month ifsuch Loan is advanced, continued or created by conversion on the last day of acalendar month), (b) in the case of a Eurodollar Loan, 1, 2, 3 or 6 monthsthereafter, and (c) in the case of a Swing Loan, on the date 1 to 5 daysthereafter as mutually agreed to by the Borrower and the Administrative Agent; *provided, however*, that:

(i)            any Interest Period for a Borrowingof Revolving Loans or Swing Loans consisting of Base Rate Loans that otherwisewould end after the Revolving Credit Termination Date shall end on theRevolving Credit Termination Date;

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(ii)           no Interest Period with respect toany portion of the Revolving Loans or Swing Loans shall extend beyond theRevolving Credit Termination Date;

(iii)          whenever the last day of any InterestPeriod would otherwise be a day that is not a Business Day, the last day ofsuch Interest Period shall be extended to the next succeeding Business Day, *provided* that, if such extension would cause the last day ofan Interest Period for a Borrowing of Eurodollar Loans to occur in thefollowing calendar month, the last day of such Interest Period shall be theimmediately preceding Business Day; and

(iv)          for purposes of determining anInterest Period for a Borrowing of Eurodollar Loans, a month means a periodstarting on one day in a calendar month and ending on the numericallycorresponding day in the next calendar month; *provided,however*, that if there is no numerically corresponding day in themonth in which such an Interest Period is to end or if such an Interest Periodbegins on the last Business Day of a calendar month, then such Interest Periodshall end on the last Business Day of the calendar month in which such InterestPeriod is to end.

*Section1.7            Maturity of Revolving Loansand Swing Loans*.  EachRevolving Loan and Swing Loan (subject to the provisions of Section 1.15hereof), both for principal and interest not sooner paid, shall mature andbecome due and payable by the Borrower on the Revolving Credit TerminationDate.

*Section1.8            Prepayments*.  (a)  *Optional*.  TheBorrower may prepay in whole or in part (but, if in part, then:  (i) if such Borrowing is of Base Rate Loans,in an amount not less than $250,000, (ii) if such Borrowing is of EurodollarLoans, in an amount not less than $500,000, and (iii) in each case, in an amountsuch that the minimum amount required for a Borrowing pursuant to Section 1.4and 1.15 hereof remains outstanding) any Borrowing of Eurodollar Loans at anytime upon 3 Business Days prior notice by the Borrower to the AdministrativeAgent or, in the case of a Borrowing of Base Rate Loans, notice delivered bythe Borrower to the Administrative Agent no later than 10:00 a.m. (Chicagotime) on the date of prepayment (or, in any case, such shorter period of timethen agreed to by the Administrative Agent), such prepayment to be made by thepayment of the principal amount to be prepaid and, in the case of anyEurodollar Loans or Swing Loans, accrued interest thereon to the date fixed forprepayment plus any amounts due the Lenders under Section 1.11 hereof.

(b)           *Mandatory*.  (i)  Ifthe Borrower or any of its Wholly-owned Subsidiaries shall at any time or fromtime to time make or agree to make a Disposition or shall suffer an Event ofLoss with respect to any Property, then the Borrower shall promptly notify theAdministrative Agent of such proposed Disposition or Event of Loss (includingthe amount of the estimated Net Cash Proceeds to be received by the Borrower orsuch Subsidiary in respect thereof) and, promptly upon receipt by the Borroweror such Subsidiary of the Net Cash Proceeds of such Disposition or Event ofLoss, the Borrower shall prepay the Obligations in an aggregate amount equal to100% of the amount of all such Net Cash Proceeds; *provided*that this subsection shall not require any such prepayment with respect to NetCash Proceeds received on account of 

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Dispositions during anyfiscal year of the Borrower not exceeding $5,000,000 in the aggregate so longas no Default or Event of Default then exists. The Borrower shall also make such prepayments as may be required underSection 4.8 hereof.  The amount of eachsuch prepayment shall be applied first to the outstanding Swing Loans untilpaid in full and then to the Revolving Credit. If the Administrative Agent or the Required Lenders so request, allproceeds of such Disposition or Event of Loss shall be deposited with theAdministrative Agent (or its agent) and held by it in the CollateralAccount.  So long as no Default or Eventof Default exists, the Administrative Agent is authorized to disburse amountsrepresenting such proceeds from the Collateral Account to or at the Borrower’sdirection for application to or reimbursement for the costs of replacing,rebuilding or restoring such Property.

(ii)           If after the Closing Date theBorrower shall incur any additional Subordinated Debt or the Borrower or anyWholly-owned Subsidiary shall issue new equity securities (whether common orpreferred stock or otherwise), other than equity securities issued inconnection with the exercise of employee or director stock options, theBorrower shall promptly notify the Administrative Agent of the estimated NetCash Proceeds of such incurrence or issuance to be received by or for theaccount of the Borrower or such Wholly-owned Subsidiary in respectthereof.  Promptly upon receipt by theBorrower or such Wholly-owned Subsidiary of Net Cash Proceeds of such issuance,the Borrower shall apply 100% of the amount of such Net Cash Proceeds first tothe prepayment of the outstanding Swing Loans, until paid in full, second tothe prepayment of the Revolving Loans, until paid in full, and then to theprefunding of all L/C Obligations.  TheBorrower acknowledges that its performance hereunder shall not limit the rightsand remedies of the Lenders for any breach of Section 8.11 (Maintenance ofSubsidiaries) or Section 9.1(j) (Change of Control) hereof or any other termsof the Loan Documents.

(iii)          The Borrower shall, on each date theRevolving Credit Commitments are reduced pursuant to Section 1.12 hereof,prepay the Revolving Loans, Swing Loans, and, if necessary, prefund the L/CObligations by the amount, if any, necessary to reduce the sum of the aggregateprincipal amount of Revolving Loans, Swing Loans, and L/C Obligations thenoutstanding to the amount to which the Revolving Credit Commitments have beenso reduced.

(iv)          If at any time the sum of the unpaidprincipal balance of the Revolving Loans, Swing Loans, and the L/C Obligationsthen outstanding shall be in excess of the Borrowing Base as then determined onthe basis of the most recent Borrowing Base Certificate, the Borrower shallimmediately and without notice or demand pay over the amount of the excess tothe Administrative Agent for the account of the Lenders as and for a mandatoryprepayment on such Obligations, with each such prepayment first to be appliedto the Revolving Loans and Swing Loans until payment in full thereof with anyremaining balance to be held by the Administrative Agent in the CollateralAccount as security for the Obligations owing with respect to the Letters ofCredit.

(v)           Prepayments of Loans under thisSection 1.8(b) or Section 4.8 hereof shall be applied first to Swing Loans,until payment in full thereof, second to all other Borrowings of Base RateLoans until payment in full thereof, and third to Borrowings of EurodollarLoans in the order in which their Interest Periods expire.  Each prepayment of Loans under this Section1.8(b) shall be made by the payment of the principal amount to be prepaid and,in the case of any Eurodollar Loans or Swing Loans, accrued interest thereon tothe date of prepayment together 

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with any amounts due the Lenders under Section 1.11hereof.  Each prefunding of L/CObligations shall be made in accordance with Section 9.4 hereof.

(c)           Any amount of Revolving Loans andSwing Loans paid or prepaid before the Revolving Credit Termination Date may,subject to the terms and conditions of this Agreement, be borrowed, repaid andborrowed again.

*Section1.9            Default Rate*.  Notwithstanding anything to the contrarycontained herein, while any Event of Default exists or after acceleration, theBorrower shall pay interest (after as well as before entry of judgment thereonto the extent permitted by law) on the principal amount of all Loans andReimbursement Obligations, and Letter of Credit fees at a rate per annum equalto:

(a)           for any Base Rate Loan or any SwingLoan, the sum of 2.0% plus the Applicable Margin plus the Base Rate from timeto time in effect;

(b)           for any Eurodollar Loan, the sum of2.0% plus the rate of interest in effect thereon at the time of such defaultuntil the end of the Interest Period applicable thereto and, thereafter, at arate per annum equal to the sum of 2.0% plus the Applicable Margin for BaseRate Loans plus the Base Rate from time to time in effect;

(c)           for any Reimbursement Obligation thatis not converted to a Borrowing of a Base Rate Loan under Section 1.2 hereof,the sum of 2.0% plus the amounts due under Section 1.2 with respect to suchReimbursement Obligation; and

(d)           for any Letter of Credit, the sum of2.0% plus the letter of credit fee due under Section 2.1 with respect to suchLetter of Credit;

*provided, however*, that in theabsence of acceleration, any adjustments pursuant to this Section shall be madeat the election of the Administrative Agent, acting at the request or with theconsent of the Required Lenders, with written notice to the Borrower.  While any Event of Default exists or afteracceleration, interest shall be paid on demand of the Administrative Agent atthe request or with the consent of the Required Lenders.

*Section1.10         The Notes*.

(a)           The Revolving Loans made to theBorrower by a Lender shall be evidenced by a single promissory note of theBorrower issued to such Lender in the form of Exhibit D-1 attached hereto.  Each such promissory note is hereinafterreferred to as a “*Revolving Note*” and collectivelysuch promissory notes are referred to as the “*RevolvingNotes*.”

(b)           The Swing Loans made to the Borrowerby the Administrative Agent shall be evidenced by a single promissory note ofthe Borrower issued to the Administrative Agent in the form of Exhibit D-2attached hereto.  Such promissory note ishereinafter referred to as the “*Swing Note*.”

(c)           Each Lender shall record on its booksand records or on a schedule to its appropriate Note the amount of each Loanadvanced, continued or converted by it, all payments 

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of principal and interestand the principal balance from time to time outstanding thereon, the type ofsuch Loan, and, for any Eurodollar Loan or Swing Loan, the Interest Period andthe interest rate applicable thereto. The record thereof, whether shown on such books and records of a Lenderor on a schedule to the relevant Note, shall, absent manifest error, be *prima facie* evidence as to all such matters; *provided, however*, that the failure of any Lender to recordany of the foregoing or any error in any such record shall not limit orotherwise affect the obligation of the Borrower to repay all Loans made to ithereunder together with accrued interest thereon.  At the request of any Lender and upon suchLender tendering to the Borrower the appropriate Note to be replaced, theBorrower shall furnish a new Note to such Lender to replace any outstandingNote.

*Section1.11         Funding Indemnity*.  If any Lender shall incur any loss, cost orexpense (including, without limitation, any loss (calculated as yield lossesfor funds incurring interest at lower rates in the interbank Eurodollarmarket), cost or expense incurred by reason of the liquidation or re-employmentof deposits or other funds acquired by such Lender to fund or maintain anyEurodollar Loan or Swing Loan or the relending or reinvesting of such depositsor amounts paid or prepaid to such Lender) as a result of:

(a)           any payment, prepayment or conversionof a Eurodollar Loan or Swing Loan on a date other than the last day of itsInterest Period,

(b)           any failure (because of a failure tomeet the conditions of Section 7 or otherwise) by the Borrower to borrow orcontinue a Eurodollar Loan or Swing Loan, or to convert a Base Rate Loan into aEurodollar Loan or Swing Loan on the date specified in a notice given pursuantto Section 1.5(a) or 1.15 hereof,

(c)           any failure by the Borrower to makeany payment of principal on any Eurodollar Loan or Swing Loan when due (whetherby acceleration or otherwise), or

(d)           any acceleration of the maturity of aEurodollar Loan or Swing Loan as a result of the occurrence of any Event ofDefault hereunder,

then, upon the demand of such Lender, the Borrowershall pay to such Lender such amount as will reimburse such Lender for such loss,cost or expense.  If any Lender makessuch a claim for compensation, it shall provide to the Borrower, with a copy tothe Administrative Agent, a certificate setting forth the amount of such loss,cost or expense in reasonable detail (including an explanation of the basis forand the computation of such loss, cost or expense) and the amounts shown onsuch certificate shall be deemed *prima facie*correct absent manifest error.

*Section1.12         Revolving Credit CommitmentTerminations*.  (a)  *Optional Revolving CreditTerminations*.  The Borrowershall have the right at any time and from time to time, upon 5 Business Daysprior written notice to the Administrative Agent (or such shorter period oftime agreed to by the Administrative Agent), to terminate the Revolving CreditCommitments without premium or penalty and in whole or in part, any partialtermination to be (i) in an amount not less than $5,000,000 or an integralmultiple of $5,000,000 in excess thereof and (ii) allocated ratably among theLenders in proportion to their respective Revolver Percentages, *provided* that the Revolving Credit Commitments may not bereduced to an amount less than the sum of the 

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aggregate principal amount of Revolving Loans, SwingLoans, and L/C Obligations then outstanding. Any termination of the Revolving Credit Commitments shall reduce the L/CSublimit by a percentage amount equal to the percentage reduction in theaggregate Revolving Credit Commitments. Any termination of the Revolving Credit Commitments below the Swing LineSublimit then in effect shall reduce the Swing Line Sublimit by a likeamount.  The Administrative Agent shallgive prompt notice to each Lender of any such termination of the RevolvingCredit Commitments.

(b)           *Revolving CreditCommitment Reinstatement*.  Anytermination of the Revolving Credit Commitments pursuant to this Section 1.12may not be reinstated, except as provided in Section 1.13.

*Section 1.13         Increasein Aggregate Revolving Credit Commitment*.

The Borrower may, at any time and from time to time,request, by notice to the Administrative Agent, the Administrative Agent’sapproval, such approval not to be unreasonably withheld, of an increase in theaggregate Revolving Credit Commitments (a *“Facility Increase”*)within the limitations hereafter described, which request shall set forth theamount of each such requested Facility Increase.  Within twenty (20) days of such request, theAdministrative Agent shall advise the Borrower of its approval or disapprovalof such request, and failure to so advise the Borrower shall constitutedisapproval.  If the Administrative Agentapproves any such Facility Increase, then the aggregate Revolving CreditCommitments may be increased (up to the amount of such approved FacilityIncrease, in the aggregate) by having one or more New Lenders increase theamount of their then existing Revolving Credit Commitments or become Lenders,subject to and in accordance with this Section 1.13.  Any Facility Increase shall be subject to thefollowing limitations and conditions: (a) any increase in the aggregate Revolving Credit Commitments shall notbe less than $50,000,000; any increase in any Revolving Credit Commitment andany new Revolving Credit Commitment shall (unless otherwise agreed to by theBorrower and the Administrative Agent) not be less than $5,000,000 and shall bein integral multiples of $1,000,000 if in excess thereof; (b) no FacilityIncrease pursuant to this Section 1.13 shall increase the aggregate RevolvingCredit Commitments to an amount in excess of $700,000,000; (c) the Borrower andeach New Lender shall have executed and delivered a commitment and acceptance(the *“Commitment and Acceptance”*)substantially in the form of Exhibit I attached hereto, and the AdministrativeAgent shall have accepted and executed the same; (d) the Borrower shall haveexecuted and delivered to the Administrative Agent such Note or Notes as theAdministrative Agent shall require to reflect such Facility Increase; (e) theBorrower shall have delivered to the Administrative Agent opinions of counsel(substantially similar to the form of opinions provided for in Section 7,modified to apply to the Facility Increase and each Note and Commitment andAcceptance executed and delivered in connection therewith); (f) the Guarantorsshall have consented in writing to the Facility Increase and shall have agreedthat their guaranties contained in this Agreement or elsewhere continue in fullforce and effect; (g) the Borrower and each New Lender shall otherwise haveexecuted and delivered such other instruments and documents as theAdministrative Agent shall have reasonably requested in connection with suchFacility Increase and (h) each New Lender shall have paid to the other Lendersan amount sufficient such that the percentage of all outstanding Loans as heldby all Lenders shall equal each Lender’s Revolver Percentage following theFacility Increase.  The form andsubstance of the documents required under clauses (c) through

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(g) above shall be fully acceptable to theAdministrative Agent.  The AdministrativeAgent shall provide written notice to all of the Lenders hereunder of anyFacility Increase.

*Section1.14         Substitution of Lenders*.  In the event (a) the Borrower receives aclaim from any Lender for compensation under Section 10.3 or 13.1 hereof, (b)the Borrower receives notice from any Lender of any illegality pursuant toSection 10.1 hereof, (c) any Lender is in default in any material respect withrespect to its obligations under the Loan Documents, or (d) a Lender fails toconsent to an amendment or waiver requested under Section 13.13 hereof at atime when the Required Lenders have approved such amendment or waiver (any suchLender referred to in clause (a), (b), (c), or (d) above being hereinafterreferred to as an “*Affected Lender*”),the Borrower may, in addition to any other rights the Borrower may havehereunder or under applicable law, require, at the Affected Lender’s expense,any such Affected Lender to assign, at par plus accrued interest and fees,without recourse, all of its interest, rights, and obligations hereunder(including all of its Revolving Credit Commitments and the Loans andparticipation interests in Letters of Credit and other amounts at any timeowing to it hereunder and the other Loan Documents) to a commercial bank orother financial institution specified by the Borrower, *provided*that (i) such assignment shall not conflict with or violate any law, rule orregulation or order of any court or other governmental authority, (ii) theBorrower shall have received the written consent of the Administrative Agent,which consent shall not be unreasonably withheld, to such assignment, (iii) theBorrower shall have paid to the Affected Lender all monies (together withamounts due such Affected Lender under Section 1.11 hereof as if the Loansowing to it were prepaid rather than assigned) other than such principal owingto it hereunder, and (iv) the assignment is entered into in accordance with theother requirements of Section 13.12 hereof (provided any assignment fees andreimbursable expenses due thereunder shall be paid by the Borrower).

*Section1.15         Swing Loans*.  (a)  *Generally*.  Subject tothe terms and conditions hereof, as part of the Revolving Credit, theAdministrative Agent agrees to make loans in U.S. Dollars to the Borrower underthe Swing Line (individually a “*Swing Loan*” andcollectively the “*Swing Loans*”) which shall not inthe aggregate at any time outstanding exceed the Swing Line Sublimit.  The Swing Loans may be availed of theBorrower from time to time and borrowings thereunder may be repaid and usedagain during the period ending on the Revolving Credit Termination Date; *provided* that each Swing Loan must be repaid on the last dayof the Interest Period applicable thereto. Each Swing Loan shall be in a minimum amount of $500,000 or such greateramount which is an integral multiple of $100,000.

(b)           *Interest on Swing Loans*.  Each Swing Loan shall bear interest untilmaturity (whether by acceleration or otherwise) at a rate per annum equal tothe sum of the Base Rate plus the Applicable Margin for Base Rate Loans underthe Revolving Credit as from time to time in effect (computed on the basis of ayear of 360 days for the actual number of days elapsed).  Interest on each Swing Loan shall be due andpayable on the last day of its Interest Period and at maturity (whether byacceleration or otherwise).

(c)           *Requests for Swing Loans*.  The Borrower shall give the AdministrativeAgent prior notice (which may be written or oral, provided that all suchwritten notices shall be substantially in the form of Exhibit B (Notice ofBorrowing) and all oral notices shall be promptly confirmed in writing) nolater than 12:00 Noon (Chicago time) on the date upon 

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which the Borrowerrequests that any Swing Loan be made, of the amount and date of such SwingLoan, and the Interest Period requested therefor.  Such Swing Loan shall bear interest at therate per annum determined by adding the Applicable Margin for Base Rate Loansunder the Revolving Credit to the Base Rate as from time to time ineffect.  Subject to the terms andconditions hereof, the proceeds of such Swing Loan shall be made available tothe Borrower on the date so requested at the offices of the AdministrativeAgent in Chicago, Illinois, by depositing such proceeds to the credit of theBorrower’s operating account maintained with the Administrative Agent or as theBorrower and the Administrative Agent may otherwise agree.  Anything contained in the foregoing to thecontrary notwithstanding, (i) the obligation of the Administrative Agent tomake Swing Loans shall be subject to all of the terms and conditions of thisAgreement and (ii) the Administrative Agent shall not be obligated to make morethan one Swing Loan during any one week.

(d)           *Refunding Loans*.  In its sole and absolute discretion, theAdministrative Agent may at any time, on behalf of the Borrower (which herebyirrevocably authorizes the Administrative Agent to act on its behalf for suchpurpose) and with notice to the Borrower, request each Lender to make a RevolvingLoan in the form of a Base Rate Loan in an amount equal to such Lender’sRevolver Percentage of the amount of the Swing Loans outstanding on the datesuch notice is given.  Unless an Event ofDefault described in Section 9.1(l) or 9.1(m) exists with respect to theBorrower, regardless of the existence of any other Event of Default, eachLender shall make the proceeds of its requested Revolving Loan available to theAdministrative Agent, in immediately available funds, at the AdministrativeAgent’s principal office in Chicago, Illinois, before 12:00 Noon (Chicago time)on the Business Day following the day such notice is given.  The proceeds of such Borrowing of RevolvingLoans shall be immediately applied to repay the outstanding Swing Loans.

(e)           *Participations*.  If any Lender refuses or otherwise fails tomake a Revolving Loan when requested by the Administrative Agent pursuant toSection 1.15(d) above (because an Event of Default described in Section 9.1(l)or 9.1(m) exists with respect to the Borrower or otherwise), such Lender will,by the time and in the manner such Revolving Loan was to have been funded tothe Administrative Agent, purchase from the Administrative Agent an undividedparticipating interest in the outstanding Swing Loans in an amount equal to itsRevolver Percentage of the aggregate principal amount of Swing Loans that wereto have been repaid with such Revolving Loans. Each Lender that so purchases a participation in a Swing Loan shallthereafter be entitled to receive its Revolver Percentage of each payment ofprincipal received on the Swing Loan and of interest received thereon accruingfrom the date such Lender funded to the Administrative Agent its participationin such Loan.  The several obligations ofthe Lenders under this Section shall be absolute, irrevocable and unconditionalunder any and all circumstances whatsoever and shall not be subject to anyset-off, counterclaim or defense to payment which any Lender may have or havehad against the Borrower, any other Lender or any other Person whatsoever.  Without limiting the generality of theforegoing, such obligations shall not be affected by any Default or Event ofDefault or by any reduction or termination of the Revolving Credit Commitmentsof any Lender, and each payment made by a Lender under this Section shall bemade without any offset, abatement, withholding or reduction whatsoever.

SECTION2.           FEES.

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*Section2.1            Fees*.  (a)  *Revolving Credit Commitment Fee*.  The Borrower shall pay to the AdministrativeAgent for the ratable account of the Lenders in accordance with their RevolverPercentages a commitment fee at the rate per annum equal to the ApplicableMargin (computed on the basis of a year of 360 days and the actual number ofdays elapsed) on the average daily Unused Revolving Credit Commitments.  Such commitment fee shall be payablequarterly in arrears within 10 days following the last day of each March, June,September, and December in each year (commencing on the first such date occurringafter the date hereof) and on the Revolving Credit Termination Date, unless theRevolving Credit Commitments are terminated in whole on an earlier date, inwhich event the commitment fee for the period to the date of such terminationin whole shall be paid on the date of such termination.

(b)           *Letter of Credit Fees*.  On the date of issuance or extension, orincrease in the amount, of any Letter of Credit pursuant to Section 1.2 hereof,the Borrower shall pay to the L/C Issuer for its own account a fronting feeequal to 0.125% of the face amount of (or of the increase in the face amountof) such Letter of Credit.  Quarterly inarrears, within 10 days following the last day of each March, June, September,and December, commencing on the first such date occurring after the datehereof, the Borrower shall pay to the Administrative Agent, for the ratablebenefit of the Lenders in accordance with their Revolver Percentages, a letterof credit fee at a rate per annum equal to 1.50% (computed on the basis of ayear of 360 days and the actual number of days elapsed) applied to the dailyaverage face amount of Letters of Credit outstanding during such quarter.  In addition, the Borrower shall pay to theL/C Issuer for its own account the L/C Issuer’s standard issuance, drawing,negotiation, amendment, assignment, and other administrative fees for eachLetter of Credit as established by the L/C Issuer from time to time.

(c)           *Administrative Agent Fees*.  The Borrower shall pay to the AdministrativeAgent, for its own use and benefit, and to BMO Capital Markets Financing, Inc.,the fees agreed to in the fee letters executed by the Borrower, dated [July __,2007], or as otherwise agreed to in writing among such parties.

(d)           *Amendment and RestatementFee.*  Upon the Closing Date,the Borrower shall pay to the Administrative Agent a fee equal to 0.15% of theRevolving Credit Commitments of the Lenders executing this Agreement, and theAdministrative Agent shall promptly distribute such fee to the Lendersexecuting this Agreement in proportion to their respective Revolving CreditCommitments.

SECTION3.           PLACE AND APPLICATION OFPAYMENTS.

*Section3.1            Place and Application ofPayments*.  All paymentsof principal of and interest on the Loans and the Reimbursement Obligations,and of all other Obligations payable by the Borrower under this Agreement andthe other Loan Documents, shall be made by the Borrower to the AdministrativeAgent by no later than 12:00 Noon (Chicago time) on the due date thereof at theoffice of the Administrative Agent in Chicago, Illinois (or such other locationas the Administrative Agent may designate to the Borrower) for the benefit ofthe Lender or Lenders entitled thereto. Any payments received after such time shall be deemed to have beenreceived by the Administrative Agent on the next Business Day.  All such payments shall be made in U.S.Dollars, in immediately available funds at the place of payment, in each case 

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without set-off or counterclaim.  The Administrative Agent will promptlythereafter cause to be distributed like funds relating to the payment ofprincipal or interest on Loans and on Reimbursement Obligations in which theLenders have purchased Participating Interests ratably to the Lenders and likefunds relating to the payment of any other amount payable to any Lender to suchLender, in each case to be applied in accordance with the terms of thisAgreement.  If the Administrative Agentcauses amounts to be distributed to the Lenders in reliance upon the assumptionthat the Borrower will make a scheduled payment and such scheduled payment isnot so made, each Lender shall, on demand, repay to the Administrative Agentthe amount distributed to such Lender together with interest thereon in respectof each day during the period commencing on the date such amount wasdistributed to such Lender and ending on (but excluding) the date such Lenderrepays such amount to the Administrative Agent, at a rate per annum equalto:  (i) from the date the distributionwas made to the date 2 Business Days after payment by such Lender is due hereunder,the Federal Funds Rate for each such day and (ii) from the date 2 Business Daysafter the date such payment is due from such Lender to the date such payment ismade by such Lender, the Base Rate in effect for each such day.

Anything contained herein to the contrarynotwithstanding (including, without limitation, Section 1.8(b) hereof), allpayments and collections received in respect of the Obligations by theAdministrative Agent or any of the Lenders after acceleration or the finalmaturity of the Obligations or termination of the Revolving Credit Commitmentsas a result of an Event of Default (including collections received as a resultof any foreclosure or deed in lieu thereof with respect to any Collateral)shall be remitted to the Administrative Agent and distributed as follows:

(a)           first, to the payment of anyoutstanding costs and expenses reasonably incurred by the Administrative Agent,in protecting, preserving or enforcing rights under the Loan Documents(including any and all costs incurred by the Administrative Agent in obtainingany title insurance policies, environmental reports or Appraisals with respectto the Collateral in accordance with the terms of this Agreement), and in anyevent including all costs and expenses of a character which the Borrower hasagreed to pay the Administrative Agent under Section 13.15 hereof (such fundsto be retained by the Administrative Agent for its own account unless it haspreviously been reimbursed for such costs and expenses by the Lenders, in whichevent such amounts shall be remitted to the Lenders to reimburse them forpayments theretofore made to the Administrative Agent);

(b)           second, to the payment of anyoutstanding interest and fees due under the Loan Documents to be allocated prorata in accordance with the aggregate unpaid amounts owing to each holderthereof;

(c)           third, to the payment of principal onthe Notes, unpaid Reimbursement Obligations, together with amounts to be heldby the Administrative Agent as collateral security for any outstanding L/CObligations pursuant to Section 9.4 hereof (until the Administrative Agent isholding an amount of cash equal to the then outstanding amount of all such L/CObligations), and Hedging Liability, the aggregate amount paid to, or held ascollateral security for, the Lenders and, in the case of 

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Hedging Liability, theirAffiliates, to be allocated pro rata in accordance with the aggregate unpaidamounts owing to each holder thereof;

(d)           fourth, to the payment of all otherunpaid Obligations and all other indebtedness, obligations, and liabilities ofthe Borrower and its Subsidiaries evidenced by the Loan Documents (including,without limitation, Funds Transfer and Deposit Account Liability) to beallocated pro rata in accordance with the aggregate unpaid amounts owing toeach holder thereof; and

(e)           finally, to the Borrower or whoeverelse may be lawfully entitled thereto.

*Section3.2            Account Debit*.  The Borrower and the Guarantors herebyirrevocably authorize the Administrative Agent and each Lender to charge any ofthe Borrower’s or the Guarantors’ deposit accounts maintained with theAdministrative Agent or such Lender for the amounts from time to time necessaryto pay any then due Obligations; *provided* thatthe Borrower and the Guarantors acknowledge and agree that the AdministrativeAgent and the Lenders shall not be under an obligation to do so and theAdministrative Agent and the Lenders shall not incur any liability to theBorrower, any Guarantor or any other Person for the Administrative Agent’s or theLender’s failure to do so.  TheAdministrative Agent shall provide the Borrower with written notice on the dateof any such charge and the amount thereof.

SECTION4.           GUARANTIES.

*Section4.1            Guaranties*.  The payment and performance of theObligations, Hedging Liability, and Funds Transfer and Deposit AccountLiability shall at all times be guaranteed by each Wholly-owned Subsidiary ofthe Borrower (but specifically excluding KH Financial, L.P.) that is engaged inthe acquisition and development of Real Property and the construction ofHousing Units thereon (individually a “*Guarantor*” andcollectively the “*Guarantors*”) pursuant to Section12 hereof or pursuant to one or more guaranty agreements in form and substanceacceptable to the Administrative Agent, as the same may be amended, modified orsupplemented from time to time (individually a “*Guaranty*”and collectively the “*Guaranties*”).  The payment and performance of theObligations, Hedging Liability, and Funds Transfer and Deposit AccountLiability shall at all times also be guaranteed by the SPS Guarantors to theextent specified in and pursuant to any SPS Guaranty.

*Section4.2            Further Assurances*.  In the event the Borrower or any Guarantorforms or acquires any other entity after the date hereof, that is to be aWholly-owned Subsidiary engaged in the acquisition and development of RealProperty and the construction of Housing Units thereon, then the Borrower shallpromptly upon such formation or acquisition cause such newly formed or acquiredentity to execute a Guaranty, and the Borrower shall also deliver to theAdministrative Agent, or cause such entity to deliver to the AdministrativeAgent, at the Borrower’s cost and expense, such other instruments, documents,certificates, and opinions reasonably required by the Administrative Agent inconnection therewith.

*Section4.3            Collateral*.  The Obligations, Hedging Liability, and FundsTransfer and Deposit Account Liability shall be secured by valid, perfected,and enforceable Liens on all 

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right, title, and interest of the Borrower, eachGuarantor and each SPS Guarantor in all of their accounts held by any of theLenders, general tangibles and intangibles related to the Borrowing BaseProperties (as described in the Collateral Documents), and all Borrowing BaseProperty (subject to Sections 4.4 and 4.5 below), whether now owned orhereafter acquired or arising, and all proceeds thereof.  The Borrower acknowledges and agrees that theLiens on the Collateral shall be granted to the Administrative Agent for the benefitof the holders of the Obligations, the Hedging Liability, and the FundsTransfer and Deposit Account Liability and shall be valid and perfected firstpriority Liens subject, however, to Liens permitted by Section 8.8 (a), (b),(f), and (n) hereof, in each case pursuant to one or more Collateral Documentsfrom such Persons, each in form and substance reasonably satisfactory to theAdministrative Agent.  All costs incurredby the Administrative Agent in perfecting Liens or recording Mortgages,including all documentary stamp taxes and mortgage taxes, shall be reimbursedby the Borrower within 30 days of demand therefor.

*Section4.4            Mortgages of ExistingBorrowing Base Property.* On or before September 29, 2007, the Borrower, the Guarantors and theSPS Guarantors shall execute and deliver to the Administrative Agent Mortgageswith respect to each parcel of the Borrowing Base Property existing as of theClosing Date, except to the extent such Borrowing Base Property has beentransferred to non-Affiliate third-parties in compliance with thisAgreement.  The Borrower shall also, atits sole cost and expense, deliver to the Administrative Agent, a title searchperformed by a Title Insurance Company, with an effective date not earlier thanJuly 20, 2007, in form reasonably acceptable to the Administrative Agent,demonstrating to the Administrative Agent’s reasonable satisfaction that theMortgages will create a first-in-priority Lien in favor of the AdministrativeAgent with respect to such Borrowing Base Property, subject, however, to Lienspermitted by Section 8.8 (a), (b), (f) and (n) hereof.  The Borrower shall pay all costs of recordingthe Mortgages required or delivered under this Section 4.4, including any andall documentary stamp taxes or mortgage taxes payable in connection therewithand all reasonable attorney fees and costs incurred by the Administrative Agentin connection therewith, all within 30 days of demand from the AdministrativeAgent; provided the Administrative Agent may require the immediate advance offunds necessary to pay mortgage taxes. From and after the Closing Date, the Borrower, the Guarantors and theSPS Guarantors shall reasonably cooperate with the Administrative Agent anddiligently pursue the completion, execution, and recording of the Mortgagescontemplated by this Section.

*Section4.5            Additional Borrowing BaseProperty.*

(a)           *Requirements for theAddition of Borrowing Base Property.* Following the Closing Date, the Borrower and the Guarantors from time totime may acquire or designate Property for inclusion in the Borrowing BaseProperty, which Property or portions thereof shall be included in the BorrowingBase Property provided the Property or a portion thereof satisfies therequirements for a category of Borrowing Base Property and provided thefollowing requirements are satisfied:

(i)            No Default or Event of Default shallthen exist or result from such acquisition or designation;

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(ii)           Immediately following suchacquisition or designation, the aggregate amount of the unpaid principalbalance of the Loans and the L/C Obligations shall be less than the BorrowingBase;

(iii)          The Property shall be located withinor constitute an Approved Project, as contemplated by Section 4.5(b) below;

(iv)          The Property shall be Eligible Land(either upon designation or promptly following acquisition) and shall besubject to a first-in-priority Mortgage in favor of the Administrative Agent,as confirmed by a title search performed by a Title Insurance Company with aneffective date sufficiently recent as would customarily allow such TitleInsurance Company to insure such title in the subject area (it being understoodand agreed that the execution of a Mortgage with respect to such Property bythe subject Guarantor and delivery of such Mortgage to the Administrative Agentor a Title Insurance Company for recording shall be sufficient to satisfy theforegoing requirements that a Property be “subject” to a Mortgage);

(v)           The Property shall be intended forthe development and construction of Housing Units; and

(vi)          The Project Budget for the applicableProperty shall have been approved by the Administrative Agent in its reasonablediscretion in accordance with the provisions of this Section 4.5.

(b)           *Approved Projects*.  As contemplated by Section 4.5(a)(iii) above,no additional Property may be included in the Borrowing Base Property unlesssuch Property is located within or constitutes an Approved Project, being aProject that is either a Pre-Approved Project or a Project that has otherwisebeen approved by the Required Lenders. The foregoing requirement of this Section 4.5 shall not apply toProperty included as Borrowing Base Property as of the Closing Date.  A Project shall be a Pre-Approved Project ifit meets the following requirements:

(i)            The Project must be located within aBuilding Region; and

(ii)           The Project parameters relative tothe proposed number of Housing Units or lots therefor, acquisition and developmentcosts, and projected base price for Housing Units shall not exceed theparameters set forth on Schedule 4.5 attached hereto with respect to thesubject Building Region.

(c)           *Costs for Mortgages onAdditional Borrowing Base Property.* The Borrower shall pay all costs of recording the Mortgages required ordelivered under this Section 4.5, including any and all documentary stamp taxesor mortgage taxes payable in connection therewith and all reasonable attorneyfees and costs incurred by the Administrative Agent in connection therewith,all within 30 days of demand from the Administrative Agent.

(d)           *Confirmation by theAdministrative Agent.*  Within10 days following receipt by the Administrative Agent of all materials andinformation required with respect to any proposed Borrowing Base Property asspecified in this Section 4.5 the Administrative Agent shall utilizecommercially reasonable efforts to review the subject Property and obtain theapproval or 

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disapproval of theRequired Lenders (as necessary), and shall notify the Borrower as to whetherthe subject Property may be included in the Borrowing Base Property inaccordance with the provisions of this Section 4.5.  In the event that the Administrative Agentprovides notice that it rejects such Property, such notice shall specify thebasis for such rejection, and the Borrower shall be permitted to resubmit suchProperty with modifications for re-consideration by the Administrative Agent(and the Required Lenders, as necessary).

(e)           *SPS Guarantors.*  Following the Closing Date, Property of theSPS Guarantors may be included in the Borrowing Base Property to the extentsuch Property was included in the calculation of the “Borrowing Base” under thePrior Credit Agreement, provided the subject SPS Guarantor has executed aMortgage with respect thereto and the Administrative Agent has received allother instruments and documentation that would be necessary with respect toProperty owned by a Guarantor.  SuchProperty need not be located within an Approved Project.

*Section4.6           *MortgageTax Arrangements.  In the event that aProperty encumbered or to be encumbered by a Mortgage is located in a MortgageTax State, the Administrative Agent, in its reasonable discretion, shallutilize commercially reasonable and prudent practices, following consultationwith counsel and Borrower, to avoid the unnecessary payment of taxesattributable to such Mortgage.  Suchpractices may include (a) a limitation on recovery under a given Mortgage orgroup of Mortgages to an amount related to the portion of the Borrowing Basesattributable to Borrowing Base Property located or to be located in suchMortgage Tax State, or (b) an allocation of indebtedness among variousStates.  In this regard, theAdministrative Agent may, in its reasonable discretion, require theestablishment of escrows or the procurement of bonds to address any potentialtax liability associated with such practices. Borrower and each of the Guarantors do hereby agree to and shallindemnify and hold harmless the Administrative Agent from any and all costs,claims, and liabilities arising from or attributable to any practices employedby the Administrative Agent in an effort to reduce any tax payable in aMortgage Tax State.  Nothing contained inthis Section 4.6 shall be construed to reduce the liability of Borrower or anyGuarantor hereunder in any way or to act as a novation in any respect, althoughthe recovery of the Administrative Agent under particular Mortgages may belimited to some extent.

*Section4.7           *Appraisals.

(a)           *Appraisal of SubsequentBorrowing Base Property*. Prior to the inclusion of Property in the Borrowing Base Property afterthe Closing Date pursuant to Section 4.5 hereof, the Administrative Agent shallhave received Appraisals of such proposed Borrowing Base Property to determinethe Appraised Value thereof.  SuchAppraisals shall be ordered by the Administrative Agent promptly upon theBorrower’s request and reviewed and approved by the Administrative Agent inaccordance with Section 4.5 hereof.  TheBorrower shall pay to the Administrative Agent, within 30 days of demand fromthe Administrative Agent, all costs of all such Appraisals.

(b)           *Appraisals of ExistingBorrowing Base Property*. Within 120 days following the Closing Date, the Borrower, theGuarantors, the SPS Guarantors and the Administrative Agent shall reasonablycooperate and utilize commercially reasonable efforts to obtain Appraisals of 

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all Borrowing BaseProperty, as existing as of the Closing Date (and remaining at the time of determination).  The expense of such Appraisals performedunder this Section shall be at the cost of the Borrower and paid within 30 daysof demand from the Administrative Agent.

(c)           *Subsequent Appraisals*.  The Administrative Agent may also from timeto time, for the purpose of determining the current Appraised Value of anyBorrowing Base Property with respect to which an Appraisal has previously beenobtained under this Section 4.7, obtain interim Appraisals updating andrevising prior Appraisals with respect to such Borrowing Base Property or suchportion thereof as the Administrative Agent shall determine (i) upon theoccurrence of an Event of Default, (ii) at any time, at the AdministrativeAgent’s discretion, with respect to a particular parcel of Borrowing BaseProperty, upon the occurrence of a material adverse change as reasonablydetermined by the Administrative Agent, or (iii) at any time that theregulatory requirements of any Lender generally applicable to real estate loansof the category made under this Agreement shall require additional Appraisals,as reasonably interpreted by the Administrative Agent, unless the Appraisalsare required due to the failure by any Lender to comply with applicableregulatory requirements (other than regulatory requirements relating toAppraisals concerning this Agreement or the Borrowing Base Property), in whichcase such Appraisals shall be at the cost of such Lender.  The expense of such Appraisals and updatesperformed pursuant to this Section shall be at the cost of the Borrower andshall be paid within 30 days of demand from the Administrative Agent.

(d)           *Appraisal Variations*.  The Borrower acknowledges that theAdministrative Agent may make changes or adjustments to the value set forth inany Appraisal as may be required by the appraisal department of theAdministrative Agent in the exercise of its good faith business judgment, andthat the Administrative Agent is not bound by the value set forth in anyAppraisal performed pursuant to this Agreement and does not make anyrepresentations or warranties with respect to any such Appraisal.  The Borrower further agrees that theAdministrative Agent and the Lenders shall have no liability as a result of orin connection with any such Appraisal for statements contained in suchAppraisal, including without limitation, the accuracy and completeness ofinformation, estimates, conclusions and opinions contained in such Appraisal,or variance of such Appraisal from the value of such property that is thesubject of such Appraisal as given by the local tax assessor’s office, or theBorrower’s idea of the value of such property.

*Section4.8            Release of Collateral*.  Subject to the below terms and provisions,the Administrative Agent or its duly authorized attorney-in-fact shall releaseProperty from the Lien of the Mortgages or other Collateral Documents (providedthat such release shall not affect or diminish the Borrower’s or the Guarantors’obligations under the Indemnity Agreement) under the following circumstances:

(a)           *Releases for Closings ofHousing Unit Contracts.*  TheAdministrative Agent shall release Borrowing Base Property from the lien orsecurity title of the Mortgages once each month in connection with closingsunder Housing Unit Contracts without any corresponding repayment of the Loans;provided, however, in the event the Borrower, any Guarantor or any SPSGuarantor transfers Borrowing Base Property corresponding to more than 10% ofthe Borrowing Base in any given calendar month, the Borrower shall either (i)make a principal payment on the Loans in an amount equal to any excess of theoutstanding Loans and L/C 

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Obligations over theBorrowing Base (after giving effect to the foregoing releases), or (ii)demonstrate to the Administrative Agent, by submittal of a new Borrowing BaseCertificate delivered contemporaneously with any request for a release ofBorrowing Base Property corresponding to more than 10% of the Borrowing Base,that the outstanding Loans and L/C Obligations do not and will not exceed theBorrowing Base after giving effect to such releases.  The Borrower shall submit to theAdministrative Agent a request for releases under this Section on or before thefifteenth day of each month and all releases allowed under this Section 4.8shall be processed and delivered by the Administrative Agent on or before thelast day of each month.  Notwithstandingthe occurrence of a Default or an Event of Default, the Administrative Agentmay continue to release Borrowing Base Property from the Lien of the Mortgagespursuant to this Section, provided that the above conditions are met andprovided that the value of any remaining Borrowing Base Property will not bematerially diminished thereby.  TheAdministrative Agent shall reasonably cooperate with the Borrower and the Guarantorsin providing commercially reasonable standing instructions to Title InsuranceCompanies utilized by the Borrower, any Guarantors or any SPS Guarantors forthe sale of Housing Units pursuant to Housing Unit Contracts, such that suchtitle insurance companies may insure over the Lien of a given Mortgage untilsuch time as the release contemplated by this Section is processed anddelivered; provided, however, the Administrative Agent shall not be required toprovide any indemnification or hold harmless agreements in this regard.

(b)           *Miscellaneous Releases.*  The Administrative Agent shall release anyProperty in connection with a Disposition subject to compliance by the Borrowerwith the requirements of Section 1.8, if applicable.  The Administrative Agent shall release anyProperty without consideration to be transferred (i) pursuant to Lot Exchanges,(ii) pursuant to a corrective deed, (iii) for use as greenbelt, (iv) to ahomeowners association in the normal course of business, (v) for dedication ofpublic rights-of-way for roads or utilities, or (vi) in order to satisfy arequirement of a governmental or quasi-governmental authority, includingpursuant to annexation and development agreements or similar items or suchother requirement as is customarily imposed upon or otherwise incurred bycommercial homebuilders in the ordinary course of business (subject to theprovisions of Section 1.8).  TheAdministrative Agent shall also, subordinate the Mortgages to reasonable andcustomary subdivision declarations, utility easements, and similar instrumentsappropriate for the development of any Property.  The Administrative Agent shall also, in itsreasonable discretion, and provided no Default or Event of Default then exists,release its Lien upon (I) any Collateral that is Real Property but notBorrowing Base Property or (II) Collateral not constituting Real Propertyfollowing a request from the Borrower if such non-Real Property Collateral isobsolete, unnecessary to the business of the Borrower or its Subsidiaries, oris being replaced by other Collateral of reasonably equivalent value.  The costs and expenses incurred in connectionwith any releases of the Collateral shall be paid by the Borrower within 30days of demand by the Administrative Agent. Except as provided in this Section 4.8, no releases of Collateral shallbe allowed without the prior written approval of the Required Lenders.

*Section4.9            Further Assurances*.  The Borrower agrees that it shall, and shallcause each Guarantor and SPS Guarantor to, from time to time at the request ofthe Administrative Agent or the Required Lenders, execute and deliver suchdocuments and do such acts and things as the Administrative Agent or theRequired Lenders may reasonably request in order to provide for or perfect orprotect such Liens on the Collateral.  Inthe event the Borrower or any Guarantor 

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forms or acquires any other Subsidiary after the datehereof, except as otherwise provided in Sections 4.1 and 4.2 above, theBorrower shall promptly upon such formation or acquisition cause such newlyformed or acquired Subsidiary to execute a Guaranty and such CollateralDocuments as the Administrative Agent may then reasonably require, and theBorrower shall also deliver to the Administrative Agent, or cause such Subsidiaryto deliver to the Administrative Agent, at the Borrower’s cost and expense,such other instruments, documents, certificates, and opinions reasonablyrequired by the Administrative Agent in connection therewith.

SECTION 5.           DEFINITIONS; INTERPRETATION.

*Section5.1            Definitions*.  The following terms when used herein shallhave the following meanings:

“*Act*” is definedin Section 13.24 hereof.

“*Adjusted LIBOR*”is defined in Section 1.3(b) hereof.

*“Adjusted Tangible Net Worth”*means the sum of (a) the Tangible Net Worth (b) all minority interests, asdetermined in accordance with GAAP, of any Person, other than the Borrower or aWholly-owned Subsidiary, in any Partial Subsidiary (excluding interestsattributable to assets not yet owned by a Partial Subsidiary), and (c) 50% ofthe outstanding principal of the Subordinated Debt; provided that the amountcontributed pursuant to clause (b) shall not exceed $50,000,000, and the amountcontributed pursuant to clause (c) above shall not exceed $100,000,000.

“*Administrative Agent*”means Harris N.A. and any successor pursuant to Section 11.7 hereof.

*“Administrative Costs”* meanscosts incurred by the Borrower or its Subsidiaries in connection with (a) themarketing and selling of Eligible Land and (b) the administration, managementand operation of the Borrower’s or its Subsidiaries’ businesses, which costsare not directly attributable to zoning, permitting, design, site improvement,construction upon or other similar development activity with respect to a givenparcel or lot of Eligible Land.

“*Affected Lender*”is defined in Section 1.14 hereof.

“*Affiliate*”means any Person directly or indirectly controlling or controlled by, or underdirect or indirect common control with, another Person.  A Person shall be deemed to control anotherPerson for purposes of this definition if such Person possesses, directly orindirectly, the power to direct, or cause the direction of, the management andpolicies of the other Person, whether through the ownership of votingsecurities, common directors, trustees or officers, by contract or otherwise; *provided that*, in any event for purposes of this definition,any Person that owns, directly or indirectly, 10% or more of the securitieshaving the ordinary voting power for the election of directors or governingbody of a corporation or 10% or more of the partnership or other ownershipinterest of any other Person (other than as a limited partner of such otherPerson) will be deemed to control such corporation or other Person.

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“*Agreement*”means this Amended and Restated Credit Agreement, as the same may be amended,modified, restated or supplemented from time to time pursuant to the termshereof.

“*Applicable Margin*”means, with respect to Loans, Reimbursement Obligations, and the commitmentfees payable under Section 2.1 hereof, until the first Pricing Date, the ratesper annum shown opposite Level I below, and thereafter, subject to the belowparagraph of this definition, from one Pricing Date to the next the ApplicableMargin means the rates per annum determined in accordance with the followingschedule:
| **Level** | ** ** | **Margin Leverage  Ratio For Such Pricing  Date** | ** ** | **Applicable Margin for  Base Rate Loans   Under Revolving Credit  and Reimbursement  Obligations  Shall be:** | ** ** | **Applicable Margin  For Eurodollar  Loans Under  Revolving Credit  Shall Be:** | ** ** | **Applicable Margin  for Commitment Fee Shall  be:** | ** ** |
|-----------|------------|-----------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------|------------|
| IV        |       | Greater than or  equal to 2.25 to 1.0                                 |       | 0.00                                                                                                                                                        | %          | 2.25                                                                                                     | %          | 0.30                                                                     | %          |
| III       |       | Less than 2.25  to 1.0, but greater than or equal to 2.00 to 1.0      |       | 0.00                                                                                                                                                        | %          | 2.00                                                                                                     | %          | 0.25                                                                     | %          |
| II        |       | Less than 2.00  to 1.0, but greater than or equal to 1.75 to 1.0      |       | 0.00                                                                                                                                                        | %          | 1.75                                                                                                     | %          | 0.20                                                                     | %          |
| I         |       | Less than 1.75 to 1.0                                                 |       | 0.00                                                                                                                                                        | %          | 1.50                                                                                                     | %          | 0.20                                                                     | %          |

 

For purposes hereof, the term “*Pricing Date*”means, for any fiscal quarter of the Borrower ending on or after September 30,2007, the date on which the Administrative Agent is in receipt of the Borrower’smost recent financial statements for the fiscal quarter then ended, pursuant toSection 8.5 hereof.  The ApplicableMargin shall be established based on the Margin Leverage Ratio for the mostrecently completed fiscal quarter and the Applicable Margin established on aPricing Date shall remain in effect until the next Pricing Date.  If the Borrower has not delivered itsfinancial statements by the date such financial statements are required to bedelivered under Section 8.5 hereof, until such financial statements and auditreport are delivered, the Applicable Margin, in the discretion of theAdministrative Agent, shall be the highest Applicable Margin (*i.e.*, Level IV shall apply). If the Borrower subsequently delivers such financial statements beforethe next Pricing Date, the Applicable Margin established by such late deliveredfinancial statements shall take effect from the date of delivery until the nextPricing Date.  In addition, theApplicable Margin (for Loans and Reimbursement Obligations) calculated pursuantto the above provisions shall be increased, absent contrary direction from theRequired Lenders, by an additional per annum interest rate amount equal to (a)0.375% if at any time the Liquidity is less than $100,000,000 but more than$75,000,000, or (b) 0.875% if at any time the Liquidity is equal to or lessthan $75,000,000; provided, however, the foregoing increases to the ApplicableMargin shall only be effective until such time as the Borrower demonstrates tothe reasonable satisfaction of the Administrative Agent that the Liquidity hasincreased above the aforementioned amounts. Such increases shall be based upon the Liquidity Certificates or anyother information the Administrative Agent may otherwise possess.  In all other circumstances, the ApplicableMargin established by such financial statements shall be in effect from thePricing Date that occurs immediately after the end of the fiscal quartercovered by such financial statements until the next Pricing Date.  Each determination of the Applicable Marginmade by

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the Administrative Agent in accordance with theforegoing shall be conclusive and binding on the Borrower and the Lenders ifreasonably determined.

“*Application*” isdefined in Section 1.2(b) hereof.

*“Appraisal”* means an appraisal orevaluation of the Fair Market Value (for residential development as defined byFIRREA) of Real Property prepared by an appraiser selected by theAdministrative Agent, such appraisal to be in form and substance satisfactoryto the Administrative Agent and to conform to and comply with FIRREA.

*“Appraised Value”* means the FairMarket Value determined by the most recent Appraisal obtained pursuant toSection 4.7 hereof, subject, however, to (a) any changes or adjustments theretoas may be reflected or referenced in the subject Appraisal to account for thesale of property over time and (b) such other changes or adjustments to thevalue determined by the Appraisal as may be made by the Administrative Agent inits reasonable discretion consistent with its standard underwriting practices.

*“Approved Project”* means aProject which has been approved for inclusion within the Borrowing BaseProperty pursuant to Section 4.5 hereof.

“*Authorized Representative*”means those persons shown on the list of officers provided by the Borrowerpursuant to Section 7.2 hereof or on any update of any such list provided bythe Borrower to the Administrative Agent, or any further or different officersof the Borrower so named by any Authorized Representative of the Borrower in awritten notice to the Administrative Agent.

“*Base Rate*” isdefined in Section 1.3(a) hereof.

“*Base Rate Loan*”means a Loan bearing interest at a rate specified in Section 1.3(a) hereof.

“*Borrower*” isdefined in the introductory paragraph of this Agreement.

“*Borrowing*”means the total of Loans of a single type advanced, continued for an additionalInterest Period, or converted from a different type into such type by theLenders under a Credit on a single date and, in the case of Eurodollar Loans,for a single Interest Period.  Borrowingsof Loans are made and maintained ratably from each of the Lenders according totheir Revolver Percentages.  A Borrowingis “*advanced*” on the day Lenders advancefunds comprising such Borrowing to the Borrower, is “*continued*”on the date a new Interest Period for the same type of Loans commences for suchBorrowing, and is “*converted*” whensuch Borrowing is changed from one type of Loans to the other, all as determinedpursuant to Section 1.5 hereof. Borrowings of Swing Loans are made by the Administrative Agent inaccordance with the procedures set forth in Section 1.15 hereof.

“*Borrowing Base*”means, as of the date of determination, the sum of the following amounts:  (a) the lesser of (i) 90% of the Housing UnitBook Value of all Housing Units Under Contract or (ii) 85% of the Housing UnitAppraised Value for all Housing Units Under Contract, (b) 80% of the lesser of(i) the Housing Unit Book Value for all Speculative Housing Units or (ii)

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the Appraised Value for all Speculative Housing Units,(c) 70% of the lesser of (i) the Finished Lot Book Value for all Finished Lotsor (ii) the Appraised Value for all Finished Lots, (d) 60% of the lesser of (i)the Finished Lot Book Value for all Lots Under Development or (ii) theAppraised Value for all Lots Under Development, and (e) 50% of the lesser of(i) the Eligible Land Book Value for all Entitled Land or (ii) the AppraisedValue for all Entitled Land; provided that (i) the Borrowing Base shall becomputed only as against and on so much of such Borrowing Base Property (whichshall be Borrowing Base Property that is not subject to any Lien other than asallowed under Section 8.8(a), (b), (f), (n), or (o)) as is included on theBorrowing Base Certificates furnished from time to time by the Borrowerpursuant to this Agreement and, if required by the Administrative Agentpursuant to any of the terms hereof, as verified by such other evidencereasonably required to be furnished to the Administrative Agent pursuanthereto; (ii) on any date of determination, the aggregate amounts derived fromthe above clauses (c), (d) and (e) shall not contribute an amount to theBorrowing Base greater than 50% of the aggregate Revolving Credit Commitmentsthen in effect; (iii) on any date of determination, the amount derived from theabove clause (e) shall not contribute an amount to the Borrowing Base greaterthan 25% of the aggregate Revolving Credit Commitments then in effect, (iv) thesum of all amounts included in the Borrowing Base attributable to Propertyowned by the Special Project Subsidiaries shall not exceed (A) $40,000,000 atany one time prior to or on December 31, 2007, (B) $30,000,000 at any one timeafter December 31, 2007 until December 31, 2008, and (C) $0 at any time afterDecember 31, 2008; and (v) the Borrowing Base as calculated at any time shallbe reduced by an amount equal to the outstanding principal balance of anyIndebtedness for Borrowed Money allowed under Section 8.7(g) hereof.

“*Borrowing Base Certificate*”means the certificate in the form of Exhibit E attached hereto, or in suchother form acceptable to the Administrative Agent, to be delivered to theAdministrative Agent pursuant to Sections 7.2 and 8.5 hereof.

*“Borrowing Base Property”* meansall Property of the Borrower, any Guarantor or any Special Project Subsidiaryas of a given date properly classified under this Agreement as Entitled Land,Lots Under Development, Finished Lots, Speculative Housing Units, or HousingUnits Under Contract and designated by the Borrower as Property that shall beincluded in Borrowing Base Property as reflected in the Borrowing BaseCertificates furnished from time to time by the Borrower pursuant to thisAgreement.

*“Borrowing Capacity”*means forany given month,**the difference between (a) thelesser of (i) the Borrowing Base and (ii) the aggregate Revolving CreditCommitments and (b) the sum of the outstanding principal of the Loans and allL/C Obligations.

*“Builder Leverage Ratio”* meansthe ratio of Builder Liabilities to Adjusted Tangible Net Worth.

*“Builder Liabilities”* meansIndebtedness for Borrowed Money of the Borrower and its Subsidiaries, less, tothe extent included in such amount, all purchase money indebtedness or obligationsin respect of assets that have not been acquired by the Borrower or any of itsSubsidiaries as of the date of determination.

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*“Building Region”* means thefollowing areas or regions in which the Borrower and its Subsidiaries conductbusiness: (a) Florida, (b) Texas, (c) the Midwest (being the generalmetropolitan areas of Chicago, Illinois; Cleveland, Ohio; and Milwaukee,Wisconsin), (d) Nevada, (e) the Pacific Coast (being the general metropolitanareas of Sacramento, California; Stockton, California; Portland, Oregon andVancouver, Washington), and (f) such other regions as designated by theAdministrative Agent pursuant to Section 8.18.

“*Business Day*”means any day (other than a Saturday or Sunday) on which banks are notauthorized or required to close in Chicago, Illinois and, if the applicableBusiness Day relates to the advance or continuation of, or conversion into, orpayment of a Eurodollar Loan, on which banks are dealing in U.S. Dollardeposits in the interbank eurodollar market in London, England and Nassau,Bahamas.

“*Capital Lease*”means any lease of Property which in accordance with GAAP is required to becapitalized on the balance sheet of the lessee.

“*Capitalized LeaseObligation*” means, for any Person, the amount of the liability shownon the balance sheet of such Person in respect of a Capital Lease determined inaccordance with GAAP.

“*CERCLA*” meansthe Comprehensive Environmental Response, Compensation, and Liability Act of1980, as amended by the Superfund Amendments and Reauthorization Act of 1986,42 U.S.C. §§9601 *et seq*., and any futureamendments.

“*Change of Control*”means (a) any transfer of any class of stock in the Borrower that individuallyor in the aggregate with other transfers, whether voluntary or involuntary,results in the Permitted Holders not owning at least 51% of the outstandingVoting Stock in the Borrower, or (b) following any offering of new equitysecurities by the Borrower (whether common or preferred stock or otherwise),other than equity securities issued in connection with the exercise of employeeor director stock options, during any period of two consecutive years,individuals who at the beginning of such period constituted the board ofdirectors of the Borrower (together with any new directors whose election tosuch board of directors or whose nomination for election by the stockholders ofthe Borrower was approved by a vote of the majority of the directors of theBorrower then still in office who were either directors at the beginning ofsuch period or whose election or nomination for election was previously soapproved) cease for any reason to constitute a majority of the board ofdirectors of the Borrower.

“*Closing Date*”means the date of this Agreement or such later Business Day upon which eachcondition described in Section 7.2 shall be satisfied or waived in a manneracceptable to the Administrative Agent in its discretion.

“*Code*” means theInternal Revenue Code of 1986, as amended, and any successor statute thereto.

*“Collateral”* means allproperties, rights, interests, and privileges from time to time subject to theLiens granted to the Administrative Agent, or any security trustee therefor, bythe Collateral Documents.

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“*Collateral Account*”is defined in Section 9.4 hereof.

*“Collateral Documents”* means theMortgages, and all other mortgages, deeds of trust, security agreements, pledgeagreements, assignments, financing statements and other documents as shall fromtime to time secure or relate to the Obligations, the Hedging Liability, andthe Funds Transfer and Deposit Account Liability or any part thereof.

*“Commitment and Acceptance”* isdefined in Section 1.13.

“*Controlled Group*”means all members of a controlled group of corporations and all trades orbusinesses (whether or not incorporated) under common control which, togetherwith the Borrower, are treated as a single employer under Section 414 of theCode.

“*Credit*” meansany of the Revolving Credit or the Swing Line.

“*Credit Event*”means the advancing of any Loan, the continuation of or conversion into aEurodollar Loan, or the issuance of, or extension of the expiration date orincrease in the amount of, any Letter of Credit.

“*Default*” meansany event or condition the occurrence of which would, with the passage of timeor the giving of notice, or both, constitute an Event of Default.

“*Disposition*”means the sale, lease, conveyance or other disposition of Property, other thansales or other dispositions expressly permitted under Section 8.10(a) through(g) hereof.

“*EBITDA*” means,with reference to any period, Net Income for such period *plus*the sum of all amounts deducted in arriving at such Net Income amount inrespect of (a) Interest Expense for such period, (b) federal, state, and localincome taxes for such period, (c) depreciation of fixed assets and amortizationof intangible assets for such period and (d) any non-recurring, non-cash itemsfor such period.

*“Eligible Land”* means RealProperty owned by the Borrower, a Wholly-owned Subsidiary or a Special ProjectSubsidiary in fee simple, which is subject to a valid Mortgage (provided thatReal Property owned by the Borrower, any Guarantor or any Special ProjectSubsidiary as of the Closing Date need not be subject to a Mortgage beforeSeptember 29, 2007 to be classified as Eligible Land) but not subject to anyother Lien (other than as allowed under Section 8.8(a), (b), (f), (n) and (o)),and which, subject to non-material and customary conditions imposed by theapplicable governmental authority, is (i) zoned by the appropriate governmentalauthority to allow for the construction and use of Housing Units, (ii) properlyand legally subdivided for residential development or with respect to which theBorrower, a Wholly-owned Subsidiary or a Special Project Subsidiary hasobtained all necessary approvals for subdivision into residential lots, and(iii) not subject to any governmental moratoriums regarding the construction ofHousing Units or the connection to necessary infrastructure or utilities.

*“Eligible Land Book Value”* meansthe acquisition cost of a parcel or lot of Eligible Land, including closingcosts incurred in connection with such acquisition, less, to the extent aparticular Property is owned by a Special Project Subsidiary, the MinorityInterest Percentage of such costs.

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*“Entitled Land”* means EligibleLand which is not also a Lot Under Development, Finished Lot, SpeculativeHousing Unit or Housing Unit Under Contract; provided that Eligible Land shallnot be included in the calculation of the Borrowing Base as Entitled Land atany time following the date that is 12 months after the first date on whichsuch Eligible Land was first classified as Entitled Land.

“*Environmental Claim*”means any investigation, notice, violation, demand, allegation, action, suit,injunction, judgment, order, consent decree, penalty, fine, lien, proceeding orclaim (whether administrative, judicial or private in nature) arising (a)pursuant to, or in connection with an actual or alleged violation of, anyEnvironmental Law, (b) in connection with any Hazardous Material, (c) from anyabatement, removal, remedial, corrective or response action in connection witha Hazardous Material, Environmental Law or order of a governmental authority or(d) from any actual or alleged damage, injury, threat or harm to health,safety, natural resources or the environment.

“*Environmental Law*”means any current or future Legal Requirement pertaining to (a) the protectionof health, safety and the indoor or outdoor environment, (b) the conservation,management or use of natural resources and wildlife, (c) the protection or useof surface water, groundwater or wetlands, (d) the management, manufacture,possession, presence, use, generation, transportation, treatment, storage,disposal, Release, threatened Release, abatement, removal, remediation orhandling of, or exposure to, any Hazardous Material or (e) pollution (includingany Release to air, land, surface water or groundwater), and any amendment,rule, regulation, order or directive issued thereunder.

“*ERISA*” meansthe Employee Retirement Income Security Act of 1974, as amended, or anysuccessor statute thereto.

“*Eurodollar Loan*”means a Loan bearing interest at the rate specified in Section 1.3(b) hereof.

“*Eurodollar ReservePercentage*” is defined in Section 1.3(b) hereof.

“*Event of Default*”means any event or condition identified as such in Section 9.1 hereof.

“*Event of Loss*”means, with respect to any Property, any of the following:  (a) any loss, destruction or damage of suchProperty or (b) any condemnation, seizure, or taking, by exercise of the powerof eminent domain or otherwise, of such Property, or confiscation of suchProperty or the requisition of the use of such Property by any governmentalbody having authority to exercise such rights.

“*Excess Interest*”is defined in Section 13.20 hereof.

*“Facility Increase”* is defined inSection 1.13.

*“Fair Market Value”* means theprice a willing buyer would pay to a willing seller in an arm’s lengthtransaction with neither party being under a compulsion to act.

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“*Federal Funds Rate*”means the fluctuating interest rate per annum described in part (x) of clause(ii) of the definition of Base Rate appearing in Section 1.3(a) hereof.

*“Finished Lot Book Value”* meansthe Eligible Land Book Value with respect to a given parcel or lot of EligibleLand plus the Lot Costs allocable to such Eligible Land, but excludingAdministrative Costs, and further excluding, to the extent a particularProperty is owned by a Special Project Subsidiary, the Minority InterestPercentage of such Lot Costs.

*“FIRREA”* means Title XI of theFinancial Institutions Reform, Recovery, and Enforcement Act of 1989 (12 U.S.C.3331 et seq.), as amended from time to time.

*“Finished Lots”* mean EligibleLand that has been properly and legally subdivided for residential developmentand with respect to which a building permit from the applicable governmentalauthority has been or could be obtained; provided such Eligible Land does notalso qualify as a Speculative Housing Unit or a Housing Unit Under Contract.

“*Funds Transfer and DepositAccount Liability*” means the liability of the Borrower or any of itsSubsidiaries owing to any of the Lenders, or any Affiliates of such Lenders,arising  under or with respect to thisAgreement and (a) the execution or processing of electronic transfers of fundsby automatic clearing house transfer, wire transfer or otherwise to or fromdeposit accounts of the Borrower and/or any of its Subsidiaries now orhereafter maintained with any of the Lenders or their Affiliates, (b) theacceptance for deposit or the honoring for payment of any check, draft or otheritem with respect to any such deposit accounts, and (c) any other deposit,disbursement, and cash management services afforded to the Borrower or any ofits Subsidiaries by any of such Lenders or their Affiliates.

“*GAAP*” meansgenerally accepted accounting principles set forth from time to time in theopinions and pronouncements of the Accounting Principles Board and the AmericanInstitute of Certified Public Accountants and statements and pronouncements ofthe Financial Accounting Standards Board (or agencies with similar functions ofcomparable stature and authority within the U.S. accounting profession), whichare applicable to the circumstances as of the date of determination.

*“Global Land”* means all RealProperty owned by the Borrower or any Subsidiary for current or futuredevelopment or for the future construction of Housing Units, excluding anysubdivided portions thereof upon which construction of a Housing Unit hascommenced.

*“Global Land Value”* means the sumof all costs incurred by the Borrower or any Subsidiary with respect to theacquisition and development of Global Land, excluding any marketing, corporate,general, or administrative expenses.

“*Guarantor*” and “*Guarantors*” each is defined in Section 4.1 hereof.

“*Guaranty*” and “*Guaranties*” each is defined in Section 4.1 hereof.

“*Hazardous Material*”means any substance, chemical, compound, product, solid, gas, liquid, waste,byproduct, pollutant, contaminant or material which is hazardous or toxic, andincludes, without limitation, (a) toxic mold, toxic fungus, asbestos,polychlorinated biphenyls

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and petroleum (including crude oil or any fractionthereof) and (b) any material classified or regulated as “hazardous” or “toxic”or words of like import pursuant to an Environmental Law.

“*Hazardous MaterialActivity*” means any activity, event or occurrence involving aHazardous Material, including, without limitation, the manufacture, possession,presence, use, generation, transportation, treatment, storage, disposal,Release, threatened Release, abatement, removal, remediation, handling of orcorrective or response action to any Hazardous Material.

“*Hedging Liability*”means the liability of the Borrower or any of its Subsidiaries to any of theLenders, or any Affiliates of such Lenders, in respect of any interest rate,foreign currency, and/or commodity swap, exchange, cap, collar, floor, forward,future or option agreement, or any other similar interest rate, currency orcommodity hedging arrangement, as the Borrower or such Subsidiary, as the casemay be, may from time to time enter into with any one or more of the Lendersparty to this Agreement or their Affiliates in connection with any Indebtednessfor Borrowed Money arising under or in connection with this Agreement.

*“Housing Unit”* means asingle-family dwelling, whether such dwelling is detached or attached(including condominiums and town houses but excluding mobile and manufacturedhomes), which dwelling is either under construction or completed and is (or,upon completion of construction thereof, will be) available for sale.

*“Housing Unit Appraised Value”*means, with respect to each Housing Unit Under Contract, the lesser of (a) theAppraised Value of such Housing Unit Under Contract, if any, or (b) thecontract sale price under the subject Housing Unit Contract.

*“Housing Unit Book Value”* meansthe Finished Lot Book Value with respect to a given parcel or lot of EligibleLand, plus all costs incurred by the Borrower, the Wholly-owned Subsidiaries orthe Special Project Subsidiaries in connection with the construction of aHousing Unit thereon, but excluding Administrative Costs, and furtherexcluding, to the extent a particular Property is owned by a Special ProjectSubsidiary, the Minority Interest Percentage of such costs.

*“Housing Unit Closing”* means aclosing of the sale of a Housing Unit, together with the Real Property uponwhich such Housing Unit is located, by the Borrower, a Wholly-owned Subsidiaryor a Special Project Subsidiary pursuant to a Housing Unit Contract.

*“Housing Unit Contract”* means a bonafide contract of sale for a Housing Unit, together with the RealProperty upon which such Housing Unit is located, in a form customarilyemployed by the Borrower, a Wholly-owned Subsidiary, or a Special ProjectSubsidiary and reasonably satisfactory to the Administrative Agent, enteredinto not more than 15 months prior to the date of determination with a Personwho is not an Affiliate of the Borrower or any of its Subsidiaries, under whichcontract no defaults then exist and not less than $1,000 of the purchase pricehas been paid as a deposit; provided, however, that in the caseof any Housing Unit the purchase of which is to be financed in whole or in partby a loan insured by the Federal Housing Administration or guaranteed by theVeterans Administration, the required minimum down payment shall be the amount(if any) required under the rules of the relevant agency.

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*“Housing Unit Under Contract”*means Eligible Land that otherwise qualifies as a Finished Lot, together withthe Housing Unit located or to be located thereon, with respect to whichconstruction has commenced beyond the foundation and with respect to which aHousing Unit Contract is in full force and effect but with respect to which noHousing Unit Closing has occurred.

*“Impairment Amount”* means, as ofthe date of determination, the lesser of (a) the cumulative amount of allabandonments and impairments occurring since March 31, 2007, as contemplated byGAAP, to the extent such amounts have actually then reduced the calculation ofNet Worth hereunder or (b) $40,000,000.

“*Indebtedness for BorrowedMoney*” means for any Person (without duplication) (a) allindebtedness created, assumed or incurred in any manner by such Personrepresenting money borrowed (including by the issuance of debt securities), (b)all indebtedness (as determined in accordance with GAAP) for the deferredpurchase price of property or services (other than trade accounts payablearising in the ordinary course of business), (c) all indebtedness secured byany Lien upon Property of such Person, whether or not such Person has assumedor become liable for the payment of such indebtedness, (d) all CapitalizedLease Obligations of such Person, (e) all obligations of such Person on or withrespect to letters of credit, bankers’ acceptances and other extensions ofcredit whether or not representing obligations for borrowed money, and (f) allindebtedness in respect of any interest rate, foreign currency, and/orcommodity swap, exchange, cap, collar, floor, forward, future or optionagreement, or any other similar interest rate, currency or commodity hedgingarrangement.

*“Indemnity Agreement”* means thatcertain Environmental Indemnity Agreement of even date herewith as executed bythe Borrower and the Guarantors, in favor of the Administrative Agent, asamended, modified, restated, or supplemented from time to time after theClosing Date.

“*Interest Expense*”means, with reference to any period, the sum of all interest charges (includingimputed interest charges with respect to Capitalized Lease Obligations and allamortization of debt discount and expense) of the Borrower, the Wholly-ownedSubsidiaries and the Special Project Subsidiaries for such period determined ona consolidated basis in accordance with GAAP.

*“Interest Incurred”* means, forany period, the total interest paid or accrued by the Borrower, theWholly-owned Subsidiaries and the Special Project Subsidiaries (including theinterest component of any Capital Lease) as calculated in accordance with GAAP,*minus*, to the extent included in theforegoing amount, amortization of any financing fees and costs.

“*Interest Period*”is defined in Section 1.6 hereof.

*“Joint Venture”* means any Person(other than an individual or a Subsidiary of the Borrower) in which theBorrower or any of its Subsidiaries invests or acquires an equity or beneficialinterest.

“*L/C Issuer*”means the Administrative Agent, or any other Lender requested by the Borrowerand approved by the Administrative Agent in its sole discretion as an issuerwith 

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respect to any Letter of Credit, and includes HarrisN.A. with respect to the Letters of Credit listed on Schedule 1.2 attachedhereto.

“*L/C Obligations*”means the aggregate undrawn face amounts of all outstanding Letters of Creditand all unpaid Reimbursement Obligations.

“*L/C Sublimit*”means $100,000,000, as reduced pursuant to the terms hereof.

“*Legal Requirement*”means any treaty, convention, statute, law, regulation, ordinance, license,permit, governmental approval, injunction, judgment, order, consent decree orother requirement of any governmental authority, whether federal, state, orlocal.

“*Lenders*” meansand includes Harris N.A. and the other financial institutions from time to timeparty to this Agreement (as set forth on Schedule 1 as of the date hereof orhereafter amended), including each New Lender and each assignee Lender pursuantto Section 13.12 hereof.

“*Lending Office*”is defined in Section 10.4 hereof.

“*Letter of Credit*”is defined in Section 1.2(a) hereof.

*“Leverage Ratio”* means the ratioof Total Liabilities to Adjusted Tangible Net Worth.

“*LIBOR*” isdefined in Section 1.3(b) hereof.

“*LIBOR Index Rate*”is defined in Section 1.3(b) hereof.

“*Lien*” means anymortgage, lien, security interest, pledge, charge or encumbrance of any kind inrespect of any Property, including the interests of a vendor or lessor underany conditional sale, Capital Lease or other title retention arrangement.

*“Liquidity”* means, at the time ofdetermination, the sum of (a) Borrowing Capacity, (b) all unencumberedimmediately available funds of the Borrower and its Wholly-Owned Subsidiaries,(c) all funds that would (subject to the provisions of Section 8.7 of thisAgreement) be immediately available to be borrowed by the Borrower or aGuarantor under available lines of credit (other than this Agreement) and (d)all amounts then payable to the Borrower or any Wholly-Owned Subsidiary fromany Housing Unit Closings that have occurred.

*“Liquidity Certificate”* means thecertificate in the form of Exhibit J attached hereto, to be delivered to theAdministrative Agent pursuant to Section 8.5 hereof.

“*Loan*” means anyRevolving Loan or Swing Loan whether outstanding as a Base Rate Loan orEurodollar Loan or otherwise, each of which is a “type” of Loan hereunder.

“*Loan Documents*”means this Agreement, the Notes, the Applications, the Guaranties, theCollateral Documents and each other instrument or document to be deliveredhereunder or thereunder or otherwise in connection herewith.

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*“Lot Costs”* means the actualcosts incurred by the Borrower, the Wholly-owned Subsidiaries or the SpecialProject Subsidiaries in connection with the zoning, permitting, design, siteengineering, site improvement and other similar development activity withrespect to the subject Eligible Land, excluding costs related to theconstruction of Housing Units.

*“Lot Exchanges”* means theexchange of parcels of Real Property by the Borrower or a Subsidiary to a thirdparty purchaser in exchange, in whole or in part, for a lot or lots previouslypurchased by the third party purchaser from the Borrower or a Subsidiary.

*“Lot Under Development”* meansEligible Land upon which the Borrower, a Wholly-owned Subsidiary or the SpecialProject Subsidiary has commenced, or intends to commence within 6 months of thedate of original determination, grading and the installation of infrastructure;provided, such Eligible Land does not also qualify as a Finished Lot,Speculative Housing Unit or Housing Unit Under Contract; and provided furtherthat if grading and the installation of infrastructure has not commenced withinthe above referenced 6 month period, such Eligible Land shall cease to qualifyas a Lot Under Development, but may then qualify as Entitled Land, subject tothe qualification criteria therefor; provided that grading and the installationof infrastructure must actually commence upon any such disqualified Propertybefore it may again qualify as a Lot Under Development.

*“Margin Leverage Ratio”* means theratio of Total Liabilities to the sum of (a) Adjusted Tangible Net Worth, less(b) to the extent added to the calculation of Tangible Net Worth, theImpairment Amount.

“*Material Adverse Effect*”means (a) a material adverse change in, or material adverse effect upon, theoperations, business, condition (financial or otherwise) or prospects of theBorrower or its Subsidiaries, taken individually (as to the Borrower and itsSignificant Subsidiaries) or as a whole, (b) a material impairment of theability of the Borrower or any of its Significant Subsidiaries to perform itsobligations under any Loan Document or (c) a material adverse effect upon thelegality, validity, binding effect or enforceability against the Borrower orany of its Subsidiaries of any Loan Document or the rights and remedies of theAdministrative Agent and the Lenders thereunder.

“*Maximum Rate*”is defined in Section 13.20 hereof.

*“Minority Interest Percentage”*means with respect to a given Special Project Subsidiary, the sum of allpercentage ownership interests in such entity as owned by all Persons that arenot a Borrower or a Wholly-owned Subsidiary.

“*Moody’s*” meansMoody’s Investors Service, Inc.

*“Mortgages”* means, collectively,each Mortgage and Security Agreement with Assignments of Rents and each Deed ofTrust and Security Agreement with Assignment of Rents between the Borrower, therelevant Guarantor or the relevant Special Project Subsidiary and theAdministrative Agent delivered to the Administrative Agent or a Title InsuranceCompany for public recording pursuant to Sections 4.4 or 4.5 hereof, as thesame may be amended, modified, supplemented or restated from time to time.

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“*Mortgage Tax State*”means, as of the Closing Date, the State of Florida, and thereafter any Statewithin, including or constituting a Building Region, which State imposes amortgage tax, intangible recording tax, or documentary stamp tax in connectionwith the recording of any mortgage, deed to secure debt, or deed of trust.

“*Net Cash Proceeds*”means, as applicable, (a) with respect to any Disposition by a Person, cash andcash equivalent proceeds received by or for such Person’s account, net of (i)reasonable direct costs relating to such Disposition and (ii) sale, use orother transactional taxes paid or payable by such Person as a direct result ofsuch Disposition, (b) with respect to any Event of Loss of a Person, cash andcash equivalent proceeds received by or for such Person’s account (whether as aresult of payments made under any applicable insurance policy therefor or inconnection with condemnation proceedings or otherwise), net of reasonabledirect costs incurred in connection with the collection of such proceeds,awards or other payments, and (c) with respect to any offering of debt orequity securities of a Person cash and cash equivalent proceeds received by orfor such Person’s account, net of reasonable legal, underwriting, and otherfees and expenses incurred as a direct result thereof.

“*Net Income*”means, with reference to any period, the net income (or net loss) of theBorrower and its Subsidiaries for such period computed on a consolidated basisin accordance with GAAP; *provided* thatthere shall be excluded from Net Income (a) the net income (or net loss) of anyPerson accrued prior to the date it becomes a Subsidiary of, or has merged intoor consolidated with, the Borrower or another of its Subsidiaries, and (b) thenet income (or net loss) of any Person (other than a Wholly-owned Subsidiary)in which the Borrower or a Wholly-owned Subsidiary has an equity interest,except to the extent of the amount of dividends or other distributions actuallypaid to the Borrower or a Wholly-owned Subsidiary during such period.

“*Net Worth*”means all shareholders’ equity in the Borrower and its Subsidiaries, determinedon a consolidated basis in accordance with GAAP, such calculation to (a)include preferred stock, (b) include capital stock, (c) include additionalpaid-in capital and retained earnings, (d) exclude interests attributable tooption or land bank arrangements that would be required to be included on theBorrower’s balance sheet solely due to Interpretation Number 46, as issued bythe Financial Accounting Standards Board in January 2003, and (e) excludeminority interests of any other Person in any Partial Subsidiary.

*“New Lender”* means a Lender thateither (a) becomes a new Lender pursuant to Section 1.13 by making a newRevolving Credit Commitment or (b) increases its existing Revolving CreditCommitment pursuant to Section 1.13.

“*Notes*” meansand includes the Revolving Notes and the Swing Note.

“*Obligations*”means all obligations of the Borrower to pay principal and interest on theLoans, all Reimbursement Obligations owing under the Applications, all fees andcharges payable hereunder or under the other Loan Documents, and all otherpayment obligations of the Borrower or any of its Subsidiaries arising under orin relation to any Loan Document, in each case whether now existing orhereafter arising, due or to become due, direct or indirect, absolute or contingent,and howsoever evidenced, held or acquired.

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*“Outside Stockholders”* means anyPerson owning an interest in the Borrower or its Subsidiaries, which Person isnot (a) a Permitted Holder or (b) an officer or director of the Borrower.

*“Partial Subsidiary”* means anySubsidiary of the Borrower that is not a Wholly-owned Subsidiary.

“*Participating Interest*”is defined in Section 1.2(d) hereof.

“*Participating Lender*”is defined in Section 1.2(d) hereof.

“*PBGC*” means thePension Benefit Guaranty Corporation or any Person succeeding to any or all ofits functions under ERISA.

*“Permitted Holders”* means (a)David K. Hill, Diane G. Hill, their immediate family members (as defined by theNew York Stock Exchange’s listing requirements) or the respective spouses andformer spouses (including widows and widowers), heirs or lineal descendants ofany of the foregoing; (b) an estate, trust (including a revocable trust,declaration of trust or a voting trust), guardianship, other legalrepresentative relationship or custodianship for the primary benefit of one ormore individuals described in clause (a) above or controlled by one or moreindividuals described in clause (a) above; (c) a corporation, partnership,limited liability company, foundation, charitable organization or other entityif a majority of the voting power and, if applicable, a majority of the valueof the equity ownership of such corporation, partnership, limited liabilitycompany, foundation, charitable organization or other entity is directly orindirectly owned by or for the primary benefit of one or more individuals orentities described in clauses (a) or (b) above; and (d) a corporation,partnership, limited liability company, foundation, charitable organization orother entity controlled directly or indirectly by one or more individuals orentities described in clauses (a), (b) or (c) above.

“*Person*” meansan individual, partnership, corporation, limited liability company,association, trust, unincorporated organization or any other entity ororganization, including a government or agency or political subdivisionthereof.

“*Plan*” means anyemployee pension benefit plan covered by Title IV of ERISA or subject to theminimum funding standards under Section 412 of the Code that either (a) ismaintained by a member of the Controlled Group for employees of a member of theControlled Group or (b) is maintained pursuant to a collective bargainingagreement or any other arrangement under which more than one employer makescontributions and to which a member of the Controlled Group is then making oraccruing an obligation to make contributions or has within the preceding fiveplan years made contributions.

*“Pre-Approved Project”* means aProject meeting the requirements of Section 4.5(b) hereof.

“*Premises*” meansthe Real Property owned or leased by the Borrower or any of its Subsidiaries**.**

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*“Prior Credit Agreement”* meansthat certain Credit Agreement among the Borrower, certain of the Guarantors,the Administrative Agent, the Lenders, and certain other parties, as amended bythat certain First Modification of Credit Agreement, dated December 15, 2006,all as defined in the Preliminary Statement hereto.

*“Project”* means one or moreparcels of Real Property intended for the development and construction of oneor more Housing Units in a distinct residential development.

*“Project Budget”* means a budgetdelivered to the Administrative Agent with respect to prospective BorrowingBase Property pursuant to Section 4.5 hereof, containing such informationspecified in Schedule 4.5 hereof and otherwise being in such form as theAdministrative Agent shall reasonably request.

“*Property*”means, as to any Person, all types of real, personal, tangible, intangible ormixed property owned by such Person whether or not included in the most recentbalance sheet of such Person and its subsidiaries under GAAP.

“*RCRA*” means theSolid Waste Disposal Act, as amended by the Resource Conservation and RecoveryAct of 1976 and Hazardous and Solid Waste Amendments of 1984, 42 U.S.C. §§6901 *et seq*., and any future amendments.

*“Real Property”* means realproperty, together with all of the tenements, hereditaments, easements,rights-of-way, rights, privileges and appurtenances thereunto belonging or inany way pertaining thereto and all horizontal improvements thereon.

“*Reimbursement Obligation*”is defined in Section 1.2(c) hereof.

“*Release*” meansany spilling, leaking, pumping, pouring, emitting, emptying, discharging,injecting, escaping, leaching, migration, dumping, or disposing into the indooror outdoor environment, including, without limitation, the abandonment ordiscarding of barrels, drums, containers, tanks or other receptacles containingor previously containing any Hazardous Material.

“*Required Lenders*”means, as of the date of determination thereof, Lenders whose outstanding Loansand interests in Letters of Credit and Unused Revolving Credit Commitmentsconstitute more than 50% of the sum of the total outstanding Loans, interestsin Letters of Credit, and Unused Revolving Credit Commitments of the Lenders.

“*Revolver Percentage*”means, for each Lender, the percentage of the Revolving Credit Commitmentsrepresented by such Lender’s Revolving Credit Commitment or, if the RevolvingCredit Commitments have been terminated, the percentage held by such Lender(including through participation interests in Reimbursement Obligations) of theaggregate principal amount of all Revolving Loans and L/C Obligations thenoutstanding.

“*Revolving Credit*”means the credit facility for making Revolving Loans and issuing Letters ofCredit described in Sections 1.1 and 1.2 hereof.

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“*Revolving CreditCommitment*” means, as to any Lender, the obligation of such Lenderto make Revolving Loans and to participate in Swing Loans and Letters of Creditissued for the account of the Borrower or any of its Wholly-owned Subsidiarieshereunder in an aggregate principal or face amount at any one time outstandingnot to exceed the amount set forth opposite such Lender’s name on Schedule 1attached hereto and made a part hereof, as the same may be increased, reducedor modified at any time or from time to time pursuant to the terms hereof.  The Borrower and the Lenders acknowledge andagree that the Revolving Credit Commitments of the Lenders aggregate$500,000,000 on the date hereof.

“*Revolving CreditTermination Date*” means December 21, 2009, or such earlier date onwhich the Revolving Credit Commitments are terminated in whole pursuant toSection 1.12, 9.2 or 9.3 hereof.

“*Revolving Loan*”is defined in Section 1.1 hereof and, as so defined, includes a Base Rate Loanor a Eurodollar Loan, each of which is a “*type*” ofRevolving Loan hereunder.

“*Revolving Note*”is defined in Section 1.10 hereof.

“*S&P*” meansStandard & Poor’s Ratings Services Group, a division of The McGraw-HillCompanies, Inc.

*“Significant Subsidiary”* meansany Subsidiary of the Borrower having total assets, as calculated in accordancewith GAAP, of $20,000,000 or more.

*“Special Project Subsidiaries”*means (a) Terramina LLC, (b) Wynndam, LLC, (c) Regency Oaks LP, and (d) SunridgePark LP.

*“Speculative Housing Unit”* meansEligible Land that otherwise qualifies as a Finished Lot, together with theHousing Unit located or to be located thereon, with respect to whichconstruction has commenced and with respect to which no Housing Unit Contractexists.

*“SPS Guarantor”* means a SpecialProject Subsidiary that owns Borrowing Base Property.

“*SPS Guaranty*”means any guaranty agreement in favor of the Administrative Agent with respectto the Obligations, Hedging Liability, and Funds Transfer and Deposit AccountLiability in form and substance reasonably acceptable to the AdministrativeAgent, as the same may be amended, modified or supplemented from time to time,executed by any of the Special Project Subsidiaries.

“*Subordinated Debt*”means Indebtedness for Borrowed Money which is subordinated in right of paymentto the prior payment of the Obligations, Hedging Liability and Funds Transferand Deposit Account Liability pursuant to subordination provisions andinstruments approved in writing by the Administrative Agent and the RequiredLenders and is otherwise pursuant to documentation that is, which is in anamount that is, and which contains interest rates, payment terms, maturities,amortization schedules, covenants, defaults, remedies and other material termsthat are in form and substance, in each case satisfactory to the AdministrativeAgent and the Required Lenders, it being acknowledged and agreed that theIndebtedness for Borrowed Money 

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incurred by the Borrower as of the date hereof pursuantto the Trust Indenture qualifies as Subordinated Debt.

“*Subsidiary*”means, as to any particular parent corporation, limited liability company,partnership, limited partnership, association or other business entity, anyother business entity more than 50% of the outstanding Voting Stock of which isat the time directly or indirectly owned by such parent entity or by any one ormore other entities which are themselves subsidiaries of such parententity.  Unless otherwise expressly notedherein, the term “*Subsidiary*” means a Subsidiary ofthe Borrower or of any of its direct or indirect Subsidiaries.

“*Swing Line*”means the credit facility for making one or more Swing Loans described inSection 1.15 hereof.

“*Swing Line Sublimit*”means $10,000,000, as reduced pursuant to the terms hereof.

“*Swing Loan*” and“*Swing Loans*” each is defined in Section1.15 hereof.

“*Swing Note*” isdefined in Section 1.10 hereof.

*“Tangible Net Worth”*means thesum of (a) the Net Worth, less (b) to the extent included in the calculation ofNet Worth, the sum of (i) the value of all assets properly classified asintangible assets under GAAP and (ii) all amounts representing any write-up inthe book value of any assets occurring since September 30, 2006, plus (c) tothe extent deducted in the calculation of Net Worth, the Impairment Amount.

*“Title Insurance Company”*means anational title insurance company or such other title insurance company as isreasonably acceptable to the Administrative Agent.

*“Total Liabilities”* means thetotal liabilities of the Borrower and its Subsidiaries, determined on aconsolidated basis in accordance with GAAP (excluding liabilities attributableto option or land bank arrangements that would be required to be included onthe Borrower’s balance sheet solely due to Interpretation Number 46, as issuedby the Financial Accounting Standards Board in January 2003).

*“Trust Indenture”* means thatcertain Indenture, dated December 19, 2005, executed by the Borrower, certainof the Guarantors, and U.S. Bank National Association.

“*Unfunded VestedLiabilities*” means, for any Plan at any time, the amount (if any) bywhich the present value of all vested nonforfeitable accrued benefits undersuch Plan exceeds the fair market value of all Plan assets allocable to suchbenefits, all determined as of the then most recent valuation date for suchPlan, but only to the extent that such excess represents a potential liabilityof a member of the Controlled Group to the PBGC or the Plan under Title IV ofERISA.

“*Unused Revolving CreditCommitments*” means, at any time, the difference between theRevolving Credit Commitments then in effect and the aggregate outstandingprincipal amount of Revolving Loans and L/C Obligations**.**

“*U.S. Dollars*”and “*$*” each means the lawful currency of theUnited States of America.

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“*Voting Stock*”of any Person means capital stock or other equity interests of any class orclasses (however designated) having ordinary power for the election ofdirectors or other similar governing body of such Person (including the generalpartner or managing member of such Person, if applicable), other than stock orother equity interests having such power only by reason of the happening of acontingency.

“*Welfare Plan*”means a “welfare plan” as defined in Section 3(1) of ERISA.

“*Wholly-owned Subsidiary*”means a Subsidiary of which all of the issued and outstanding shares of capitalstock (other than directors’ qualifying shares as required by law) or otherequity interests are owned by the Borrower and/or one or more Wholly-ownedSubsidiaries within the meaning of this definition.

*Section5.2            Interpretation*.  The foregoing definitions are equallyapplicable to both the singular and plural forms of the terms defined.  The words “*hereof*”,“*herein*”, and “*hereunder*”and words of like import when used in this Agreement shall refer to thisAgreement as a whole and not to any particular provision of thisAgreement.  All references to time of dayherein are references to Chicago, Illinois, time unless otherwise specifically provided.  Where the character or amount of any asset orliability or item of income or expense is required to be determined or anyconsolidation or other accounting computation is required to be made for thepurposes of this Agreement, it shall be done in accordance with GAAP exceptwhere such principles are inconsistent with the specific provisions of thisAgreement.

*Section5.3            Change in AccountingPrinciples*.  If, afterthe date of this Agreement, there shall occur any change in GAAP from thoseused in the preparation of the financial statements referred to in Section 6.5hereof and such change shall result in a change in the method of calculation ofany financial covenant, standard or term found in this Agreement, either theBorrower or the Required Lenders may by notice to the Lenders and the Borrower,respectively, require that the Lenders and the Borrower negotiate in good faithto amend such covenants, standards, and terms so as equitably to reflect suchchange in accounting principles, with the desired result being that thecriteria for evaluating the financial condition of the Borrower and itsSubsidiaries shall be the same as if such change had not been made.  No delay by the Borrower or the RequiredLenders in requiring such negotiation shall limit their right to so requiresuch a negotiation at any time after such a change in accountingprinciples.  Until any such covenant,standard, or term is amended in accordance with this Section 5.3, financialcovenants shall be computed and determined in accordance with GAAP in effectprior to such change in accounting principles. Without limiting the generality of the foregoing, the Borrower shallneither be deemed to be in compliance with any financial covenant hereunder norout of compliance with any financial covenant hereunder if such state ofcompliance or noncompliance, as the case may be, would not exist but for theoccurrence of a change in accounting principles after the date hereof.

SECTION6.           REPRESENTATIONS AND WARRANTIES.

The Borrower represents and warrants to theAdministrative Agent and the Lenders as follows:

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*Section6.1            Organization andQualification*.  TheBorrower is duly organized, validly existing, and in good standing as acorporation under the laws of the State of Illinois, has full and adequatepower to own its Property and conduct its business as now conducted, and,except as could not reasonably be expected to have a Material Adverse Effect,is duly licensed or qualified and in good standing in each jurisdiction inwhich the nature of the business conducted by it or the nature of the Propertyowned or leased by it requires such licensing or qualifying**.**

*Section6.2            Subsidiaries*.  Each Subsidiary is duly organized, validlyexisting, and in good standing under the laws of the jurisdiction in which itis organized, has full and adequate power to own its Property and conduct itsbusiness as now conducted, and, except as could not reasonably be expected tohave a Material Adverse Effect, is duly licensed or qualified and in goodstanding in each jurisdiction in which the nature of the business conducted byit or the nature of the Property owned or leased by it requires such licensingor qualifying.  Schedule 6.2 heretoidentifies each Subsidiary, the jurisdiction of its organization, the percentageof issued and outstanding shares of each class of its capital stock or otherequity interests owned by the Borrower and the other Subsidiaries and, if suchpercentage is not 100% (excluding directors’ qualifying shares as required bylaw), a description of each class of its authorized capital stock and otherequity interests and the number of shares of each class issued andoutstanding.  All of the outstandingshares of capital stock and other equity interests of each Subsidiary arevalidly issued and outstanding and fully paid and nonassessable and all suchshares and other equity interests indicated on Schedule 6.2 as owned by theBorrower or another Subsidiary are owned, beneficially and of record, by theBorrower or such Subsidiary free and clear of all Liens.  Except as specified on Schedule 6.2, thereare no outstanding commitments or other obligations of any Wholly-ownedSubsidiary or Special Project Subsidiary to issue, and no options, warrants orother rights of any Person to acquire, any shares of any class of capital stockor other equity interests of any Wholly-owned Subsidiary or Special ProjectSubsidiary.

*Section6.3            Authority and Validity ofObligations*.  TheBorrower has full right and authority to enter into this Agreement and theother Loan Documents executed by it, to make the borrowings herein providedfor, to issue its Notes in evidence thereof, and to perform all of itsobligations hereunder and under the other Loan Documents executed by it.  Each Subsidiary has full right and authorityto enter into the Loan Documents executed by it, to guarantee the Obligations,Hedging Liability, and Funds Transfer and Deposit Account Liability, and toperform all of its obligations under the Loan Documents executed by it.  The Loan Documents delivered by the Borrowerand its Subsidiaries have been duly authorized, executed, and delivered by suchPersons and constitute valid and binding obligations of the Borrower and itsSubsidiaries enforceable against them in accordance with their terms, except asenforceability may be limited by bankruptcy, insolvency, fraudulent conveyanceor similar laws affecting creditors’ rights generally and general principles ofequity (regardless of whether the application of such principles is consideredin a proceeding in equity or at law); and this Agreement and the other LoanDocuments do not, nor does the performance or observance by the Borrower or anySubsidiary of any of the matters and things herein or therein provided for, (a)contravene or constitute a default under any provision of law or any judgment,injunction, order or decree binding upon the Borrower or any Subsidiary or anyprovision of the organizational documents (*e.g*., charter,certificate or articles of incorporation and by laws, certificate or articlesof association and operating agreement, partnership agreement, or other similarorganizational documents) of the Borrower or any Subsidiary, (b) contravene orconstitute a default under any 

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covenant, indenture or agreement of or affecting theBorrower or any Subsidiary or any of their Property, in each case where suchcontravention or default, individually or in the aggregate, could reasonably beexpected to have a Material Adverse Effect, or (c) except as expressly providedherein, result in the creation or imposition of any Lien on any Property of theBorrower or any Subsidiary.

*Section6.4            Use of Proceeds; MarginStock*.  The Borrowershall use the proceeds of the Revolving Credit to refinance existingindebtedness and to provide funding for its general operations consistent withSection 8.18, including without limitation the acquisition of Real Property forresidential development, residential development, and the construction ofHousing Units.  Neither the Borrower norany Subsidiary is engaged in the business of extending credit for the purposeof purchasing or carrying margin stock (within the meaning of Regulation U ofthe Board of Governors of the Federal Reserve System), and no part of theproceeds of any Loan or any other extension of credit made hereunder will beused to purchase or carry any such margin stock or to extend credit to othersfor the purpose of purchasing or carrying any such margin stock.  Margin stock constitutes no portion of theassets of the Borrower and its Subsidiaries which are subject to any limitationon sale, pledge or other restriction hereunder.

*Section6.5            Financial Reports*.  The consolidated balance sheet of theBorrower and its Subsidiaries as at September 30, 2006, and as at March 31,2007, and the related consolidated statements of income, retained earnings andcash flows of the Borrower and its Subsidiaries for the fiscal year andquarter, respectively, then ended, and accompanying notes thereto, whichfinancial statements are accompanied by the audit report of Deloitte &Touche LLP (as to the September 30, 2006 statements), heretofore furnished tothe Administrative Agent and the Lenders, fairly present in all materialrespects the consolidated financial condition of the Borrower and itsSubsidiaries as at said date and the consolidated results of their operationsand cash flows for the periods then ended in conformity with GAAP applied on aconsistent basis.  Neither the Borrowernor any of its Subsidiaries has contingent liabilities which are material to itother than as indicated or disclosed on such financial statements, or, withrespect to future periods, on the financial statements furnished pursuant toSection 8.5 hereof.

*Section6.6            No Material Adverse Change*.  Since March 31, 2007, there has been nochange in the condition (financial or otherwise) or business prospects of theBorrower or any Subsidiary except those occurring in the ordinary course ofbusiness, none of which individually or in the aggregate could reasonably beexpected to have a Material Adverse Effect.

*Section6.7            Full Disclosure*.  The statements and information furnished inwriting to the Administrative Agent and the Lenders in connection with thenegotiation of this Agreement  and theother Loan Documents and the commitments by the Lenders to provide all or partof the financing contemplated hereby do not contain any untrue statements of amaterial fact or omit a material fact necessary to make the material statementscontained herein or therein not misleading, the Administrative Agent and theLenders acknowledging that as to any projections furnished in writing to theAdministrative Agent and the Lenders, the Borrower only represents that thesame were prepared on the basis of information and estimates the Borrowerbelieved to be reasonable at the time made. Notwithstanding anything contained herein to the contrary, it is herebyacknowledged and agreed by the Administrative Agent and each Lender that (a)any financial or business projections furnished to the Administrative Agent orany Lender by the 

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Borrower or any of its Subsidiaries are subject tosignificant uncertainties and contingencies, which may be beyond the Borrower’sor its Subsidiaries’ control, (b) no assurance is given by the Borrower or itsSubsidiaries that the results forecast in such projections will be realized,and (c) the actual results may differ from the forecast results set forth insuch projections and such differences may be material.

*Section6.8            Trademarks, Franchises, andLicenses*.  Except ascould not reasonably be expected to have a Material Adverse Effect, theBorrower and its Subsidiaries own, possess, or have the right to use allnecessary patents, licenses, franchises, trademarks, trade names, trade styles,copyrights, trade secrets, know how, and confidential commercial andproprietary information to conduct their businesses as now conducted, withoutknown conflict with any patent, license, franchise, trademark, trade name,trade style, copyright or other proprietary right of any other Person.

*Section6.9            Governmental Authority andLicensing*.  The Borrowerand its Subsidiaries have received or made all necessary filings orapplications for all licenses, permits, and approvals of all federal, state,and local governmental authorities, if any, necessary to conduct theirbusinesses, in each case where the failure to obtain or maintain the same couldreasonably be expected to have a Material Adverse Effect.  No investigation or proceeding which, ifadversely determined, could reasonably be expected to result in revocation ordenial of any material license, permit or approval is pending or, to theknowledge of the Borrower, threatened.

*Section6.10         Good Title*.  The Borrower and its Subsidiaries have goodand marketable title (or valid leasehold interests) to their assets asreflected on the most recent consolidated balance sheet of the Borrower and itsSubsidiaries furnished to the Administrative Agent and the Lenders (except forsales of assets as permitted under Section 8.10), subject to no Liens otherthan such thereof as are permitted by Section 8.8 hereof.  Each Parcel of the Borrowing Base Property,as of October 1, 2007, will be subject to a valid, first-in-priority Mortgage,and the Borrower, the Guarantors, and the SPS Guarantors have valid,indefeasible title to all Borrowing Base Property, subject to no Liens otherthan as permitted under Section 8.8 (a), (b), (f), (n) and (o) (it beingunderstood and agreed that the execution of a Mortgage with respect to suchProperty by the subject Guarantor or SPS Guarantor and delivery of suchMortgage to the Administrative Agent or a Title Insurance Company for recordingshall be sufficient to satisfy the foregoing requirement that a Property be “subject”to a Mortgage).

*Section6.11         Litigation and OtherControversies*.  Thereis no litigation or governmental or arbitration proceeding or labor controversypending, nor to the knowledge of the Borrower threatened, against the Borroweror any Subsidiary or any of their Property which if adversely determined,individually or in the aggregate, could reasonably be expected to have aMaterial Adverse Effect.

*Section6.12         Taxes*.  Except as could not reasonably be expected tohave a Material Adverse Effect, all tax returns required to be filed by theBorrower or any Subsidiary in any jurisdiction have, in fact, been filed, andall taxes, assessments, fees, and other governmental charges upon the Borroweror any Subsidiary or upon any of its Property, income or franchises, which areshown to be due and payable in such returns, have been paid, except such taxes,

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assessments, fees and governmental charges, if any, asare being contested in good faith and by appropriate proceedings which preventenforcement of the matter under contest and as to which adequate reservesestablished in accordance with GAAP have been provided.  The Borrower does not know of any proposedadditional tax assessment against it or its Subsidiaries for which adequateprovisions in accordance with GAAP have not been made on their accounts.  Adequate provisions in accordance with GAAPfor taxes on the books of the Borrower and each Subsidiary have been made forall open years, and for its current fiscal period.

*Section6.13         Approvals*.  No material authorization, consent, licenseor exemption from, or filing or registration with, any court or governmental department,agency or instrumentality, nor any approval or consent of any other Person, isor will be necessary to the valid execution, delivery or performance by theBorrower or any Subsidiary of any Loan Document**,**exceptfor such approvals which have been obtained prior to the date of this Agreementand remain in full force and effect.

*Section6.14         Affiliate Transactions*.  Neither the Borrower nor any Subsidiary is aparty to any contracts or agreements with any of its Affiliates on terms andconditions which are materially less favorable to the Borrower or suchSubsidiary than would be usual and customary in similar contracts or agreementsbetween Persons not affiliated with each other.

*Section6.15         Investment Company; PublicUtility Holding Company*. Neither the Borrower nor any Subsidiary is an “investment company” or acompany “controlled” by an “investment company” within the meaning of theInvestment Company Act of 1940, as amended, or a “public utility holdingcompany” within the meaning of the Public Utility Holding Company Act of 1935,as amended.

*Section6.16         ERISA*.  The Borrower and each other member of itsControlled Group have fulfilled in all material respects their obligationsunder the minimum funding standards of and are in compliance in all materialrespects with ERISA and the Code to the extent applicable to them and have notincurred any material liability to the PBGC or a Plan under Title IV of ERISAother than a liability to the PBGC for premiums under Section 4007 of ERISA.  Neither the Borrower nor any Subsidiary hasany material contingent liabilities with respect to any post retirementbenefits under a Welfare Plan, other than liability for continuation coveragedescribed in article 6 of Title I of ERISA.

*Section6.17         Compliance with Laws*.  (a) The Borrower and its Subsidiaries are in compliance with therequirements of all existing (as of the date this representation is made orlater deemed made) federal, state and local laws, rules and regulationsapplicable to or pertaining to their Property or business operations(including, without limitation, all applicable zoning ordinances and buildingcodes, the Occupational Safety and Health Act of 1970, the Americans withDisabilities Act of 1990, and laws and regulations establishing quality criteriaand standards for air, water, land and toxic or hazardous wastes andsubstances), where any such non-compliance, individually or in the aggregate,could reasonably be expected to have a Material Adverse Effect.

(b)           Without limiting the representationsand warranties set forth in Section 6.17(a) above, except for such matters,individually or in the aggregate, which could not reasonably be

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expected to result in aMaterial Adverse Effect, the Borrower represents and warrants that:  (i) the Borrower and its Subsidiaries, andeach of the Premises, comply in all material respects with all applicableEnvironmental Laws; (ii) the Borrower and its Subsidiaries have obtained allgovernmental approvals required for their operations and each of the Premises byany applicable Environmental Law; (iii) the Borrower and its Subsidiaries havenot, and the Borrower has no knowledge of any other Person who has, caused anyRelease, threatened Release or disposal of any Hazardous Material at, on,about, or off any of the Premises in any material quantity and, to theknowledge of the Borrower, none of the Premises are adversely affected by anyRelease, threatened Release or disposal of a Hazardous Material originating oremanating from any other property; (iv) except as disclosed in writing to andapproved by the Administrative Agent, none of the Premises contain or havecontained any:  (1) underground storagetank, (2) material amounts of asbestos containing building material, (3) landfillsor dumps, (4) hazardous waste management facility as defined pursuant to RCRAor any comparable state law, or (5) site on or nominated for the NationalPriority List promulgated pursuant to CERCLA or any state remedial prioritylist promulgated or published pursuant to any comparable state law; (v) otherthan as customarily utilized in the homebuilding business, the Borrower and itsSubsidiaries have not used a material quantity of any Hazardous Material andhave conducted no Hazardous Material Activity at any of the Premises; (vi) the Borrowerand its Subsidiaries have no material liability for response or correctiveaction, natural resource damage or other harm pursuant to CERCLA, RCRA or anycomparable state law; (vii) the Borrower and its Subsidiaries are not subjectto, have no notice or knowledge of and are not required to give any notice ofany Environmental Claim involving the Borrower or any Subsidiary or any of thePremises, and there are no conditions or occurrences at any of the Premiseswhich could reasonably be anticipated to form the basis for an EnvironmentalClaim against the Borrower or any Subsidiary or such Premises; (viii) none ofthe Premises are subject to any, and the Borrower has no knowledge of anyimminent restriction on the ownership, occupancy, use or transferability of thePremises in connection with any (1) Environmental Law or (2) Release,threatened Release or disposal of a Hazardous Material; and (ix) there are noconditions or circumstances at any of the Premises which pose an unreasonablerisk to the environment or the health or safety of Persons.

*Section6.18         Other Agreements*.  Neither the Borrower nor any Subsidiary is indefault under the terms of any covenant, indenture or agreement of or affectingsuch Person or any of its Property, which default if uncured could reasonablybe expected to have a Material Adverse Effect.

*Section6.19         Solvency*.  The Borrower and its Subsidiaries aresolvent, able to pay their debts as they become due, and have sufficientcapital to carry on their business and all businesses in which they are aboutto engage.

*Section6.20         No Broker Fees*.  No broker’s or finder’s fee or commissionwill be payable with respect to the transaction contemplated by this Agreement,and the Borrower hereby agrees to indemnify the Administrative Agent and theLenders against, and agree that it will hold the Administrative Agent and theLenders harmless from, any claim, demand, or liability for any such broker’s orfinder’s fees alleged to have been incurred in connection herewith and anyexpenses (including reasonable attorneys’ fees) arising in connection with anysuch claim, demand, or liability.

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*Section6.21         No Default*.  No Default or Event of Default has occurredand is continuing, and no default by the Borrower or its Subsidiaries existswith respect to any other Indebtedness for Borrowed Money, except for defaultswith respect to Indebtedness for Borrowed Money, the principal amount of whichis less than $3,000,000, provided such defaults, individually or in theaggregate, could not reasonably be expected to result in a Material AdverseEffect.

SECTION7.           CONDITIONS PRECEDENT.

The obligation of each Lender to advance, continue orconvert any Loan (other than the continuation of, or conversion into, a BaseRate Loan) or of the L/C Issuer to issue, extend the expiration date (includingby not giving notice of non-renewal) of or increase the amount of any Letter ofCredit under this Agreement, shall be subject to the following conditionsprecedent:

*Section7.1            All Credit Events*.  At the time of each Credit Event hereunder:

(a)           each of the representations andwarranties set forth herein and in the other Loan Documents shall be and remaintrue and correct as of said time, except to the extent the same expresslyrelate to an earlier date;

(b)           no Default or Event of Default shallhave occurred and be continuing or would occur as a result of such CreditEvent;

(c)           in the case of a Borrowing theAdministrative Agent shall have received the notice required by Section 1.5hereof, in the case of the issuance of any Letter of Credit the L/C Issuershall have received a duly completed Application for such Letter of Credittogether with any fees called for by Section 2.1 hereof, and, in the case of anextension or increase in the amount of a Letter of Credit, a written requesttherefor in a form acceptable to the L/C Issuer together with fees called forby Section 2.1 hereof; and

(d)           such Credit Event shall not violateany order, judgment or decree of any court or other authority or any provisionof law or regulation applicable to the Administrative Agent, the L/C Issuer, orany Lender (including, without limitation, Regulation U of the Board ofGovernors of the Federal Reserve System) as then in effect.

Each request for a Borrowing hereunder and eachrequest for the issuance of, increase in the amount of, or extension of theexpiration date of, a Letter of Credit shall be deemed to be a representationand warranty by the Borrower on the date of such Credit Event as to the mattersspecified in subsections (a) through (d) of this Section.

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*Section 7.2            InitialCredit Event*.  Beforeor concurrently with the initial Credit Event:

(a)           theAdministrative Agent shall have received for each Lender this Agreement dulyexecuted by the Borrower and its Subsidiaries, as Guarantors, and the Lenders;

(b)           the Administrative Agent shall havereceived for each Lender such Lender’s duly executed Note(s) of the Borrowerdated the date hereof and otherwise in compliance with the provisions ofSection 1.10 hereof;

(c)           the Administrative Agent shall havereceived for each Lender copies of the Borrower’s and each Wholly-ownedSubsidiary’s articles of incorporation and bylaws (or comparable organizationaldocuments) and any amendments thereto, certified in each instance by itsSecretary or Assistant Secretary;

(d)           the Administrative Agent shall havereceived for each Lender copies of resolutions of the Borrower’s and eachWholly-owned Subsidiary’s Board of Directors (or similar governing body)authorizing the execution, delivery and performance of this Agreement and theother Loan Documents to which it is a party and the consummation of thetransactions contemplated hereby and thereby, together with specimen signaturesof the persons authorized to execute such documents on the Borrower’s and eachWholly-owned Subsidiary’s behalf, all certified in each instance by itsSecretary or Assistant Secretary;

(e)           the Administrative Agent shall havereceived for each Lender copies of the certificates of good standing for theBorrower and each Wholly-owned Subsidiary (dated no earlier than 30 days priorto the date hereof) from the office of the secretary of the state of itsincorporation or organization and of each state in which it is qualified to dobusiness as a foreign corporation or organization;

(f)            the Administrative Agent shall havereceived for each Lender a list of the Borrower’s Authorized Representatives;

(g)           the Administrative Agent shall havereceived for itself and for the Lenders the initial fees called for by Section2.1 hereof;

(h)           the capital and organizationalstructure of the Borrower and its Subsidiaries shall be satisfactory to theAdministrative Agent;

(i)            the Administrative Agent shall havereceived such evaluations and certifications as it may reasonably require(including a Borrowing Base Certificate containing calculations of theBorrowing Base) in order to satisfy itself as to the financial condition of theBorrower and its Subsidiaries, and the lack of material contingent liabilitiesof the Borrower and its Subsidiaries;

(j)            the Administrative Agent shall havereceived the favorable written opinion of counsel to the Borrower and eachWholly-owned Subsidiary, in form and substance satisfactory to theAdministrative Agent; and

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(k)           the Administrative Agent shall havereceived for the account of the Lenders such other agreements, instruments,documents, certificates, and opinions as the Administrative Agent mayreasonably request.

SECTION8.           COVENANTS.

The Borrower agrees that, so long as any Credit isavailable to or in use by the Borrower hereunder, except to the extentcompliance in any case or cases is waived in writing pursuant to the terms ofSection 13.13 hereof:

*Section8.1            Maintenance of Business*.  Except as otherwise provided in Sections8.10(b) and 8.11 hereof, the Borrower shall, and shall cause each of itsSubsidiaries to, preserve and maintain its existence, and shall not, and shallnot allow any of its Subsidiaries to, materially amend or modify any of itsrespective formation or organizational documents without the prior writtenconsent of the Administrative Agent, such consent not to be unreasonablywithheld.  The Borrower shall, and shallcause each Subsidiary to, preserve and keep in force and effect all licenses,permits, franchises, approvals, patents, trademarks, trade names, trade styles,copyrights, and other proprietary rights necessary to the proper conduct of itsbusiness****where the failure to do so couldreasonably be expected to have a Material Adverse Effect.

*Section8.2            Maintenance of Properties*.  The Borrower shall, and shall cause each ofits Subsidiaries to, maintain, preserve, and keep its property and equipment ingood repair, working order and condition (ordinary wear and tear excepted)consistent with commercially reasonable standards for its business.

*Section8.3            Taxes and Assessments*.  The Borrower shall duly pay and discharge,and shall cause each Subsidiary to duly pay and discharge, all taxes, rates,assessments, fees, and governmental charges upon or against it or its Property,in each case before the same become delinquent and before penalties accruethereon, unless and to the extent that the same are being contested in goodfaith and by appropriate proceedings which prevent foreclosure upon suchProperty or enforcement of the matter under contest and provided adequatereserves are provided therefor.

*Section8.4            Insurance*.  The Borrower shall, and shall cause each ofits Subsidiaries to, at their expense, maintain the following insurance withgood and responsible insurance companies reasonably satisfactory to theAdministrative Agent:

(a)           *Builders’ Risk.*  The Borrower will insure, or cause to beinsured, the improvements upon the Borrowing Base Property and all materialsand supplies delivered to the Borrowing Base Property for use in connectionwith construction of improvements and all equipment to be used for that purposeunder insurance policies in builders’ risk form with standard non-contributorymortgagee clauses providing that any loss is to be adjusted with, and anyrecovery payable to, the Administrative Agent as its interest may appear.  Upon termination or invalidity, said builder’srisk policy shall be replaced with all-perils property insurance reasonablyacceptable to the Administrative Agent. All such policies shall be in such amounts, contain such overages andinsure against such risks as shall be reasonably satisfactory to theAdministrative Agent.  All of theforegoing insurance may provide for reasonable deductibility 

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from coverage.  The Borrower shall exhibit to theAdministrative Agent from time to time upon request (and, in addition thereto,without request no less frequently than quarterly) evidence of the abovecoverage.

(b)           *Other Insurance.*  The Borrower shall, and shall cause each ofits Subsidiaries to, maintain such other insurance in such amounts and coveringsuch risks as is usually carried by companies engaged in the same or a similarbusiness and similarly situated (including flood risks if any of theimprovements owned by such entities are in an area designated as having specialflood hazards and the area in which the improvements are located isparticipating in the National Flood Insurance Program), which insurance mayprovide for reasonable deductibility from coverage.

(c)           *Policy Provisions.*  All insurance maintained by the Borrower andits Subsidiaries shall be maintained with good and responsible insurancecompanies, shall provide that no cancellation thereof shall be effective untilat least thirty (30) days after receipt by the Administrative Agent of writtennotice thereof, shall be maintained under policies containing loss payableclauses to the Administrative Agent as its interest may appear and, ifapplicable, naming the Administrative Agent as an additional insured on suchpolicy, on behalf of the Lenders, and shall be reasonably satisfactory to theAdministrative Agent in all other respects.

(d)           *Renewal Policies.*  The Borrower will deliver to theAdministrative Agent an original certificate of any policy required under theprovisions of this Section 8.4 (or, if coverage is provided under a masterpolicy, a photocopy of such policy and an assigned certificate of insurance)and will cause renewal certificates to be delivered to the Administrative Agentat least fifteen (15) days prior to the expiration of any such policies.

(e)           *Adjustment of Loss*.  The Borrower, the Guarantors and the SPSGuarantors hereby authorize the Administrative Agent, at the AdministrativeAgent’s option, to adjust and compromise any losses under any insuranceafforded; provided the Borrower shall have the right, absent the existence ofan Event of Default, to adjust and compromise the losses as aforesaid in thecase of losses not exceeding $1,000,000.

(f)            *Additional Policies.*  Neither the Borrower nor its Subsidiariesshall take out or maintain separate insurance concurrent in kind or form orcontributing in the event of loss with any insurance required hereinabove.

*Section8.5            Financial Reports*.  The Borrower shall, and shall cause eachSubsidiary to, maintain a standard system of accounting in accordance with GAAPand shall furnish to the Administrative Agent (for subsequent delivery to theLenders) such information respecting the business and financial condition ofthe Borrower and each of its Subsidiaries as the Administrative Agent may reasonablyrequest; and without any request (unless otherwise specified), shall furnish tothe Administrative Agent (for subsequent delivery to the Lenders):

(a)           as soon as available, and in anyevent within 15 days after the last day of each calendar month, a BorrowingBase Certificate showing the computation of the Borrowing Base and BorrowingCapacity in reasonable detail as of the close of business on the last day ofthe subject month, together with such supporting 

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documentation as theAdministrative Agent may reasonably request and together with a summary reportof accounts receivable and accounts payable aging (with any supportingdocumentation that the Administrative Agent may reasonably request), allprepared by the Borrower and certified by its chief financial officer oranother officer of the Borrower acceptable to the Administrative Agent, allbeing in form acceptable to the Administrative Agent;

(b)           as soon as available, and in anyevent within 15 days after the last day of each calendar month, a LiquidityCertificate showing (i) the computation of the Liquidity in reasonable detailas of close of business on the last day of the subject month, together withsuch supporting documentation as the Administrative Agent may reasonablyrequest, (ii) a forecast of the Liquidity in reasonable detail for the 13calendar week period following the last day of the subject month, and (iii) acomparison of the Liquidity forecast submitted pursuant to clause (ii) abovewith the Liquidity forecast given during the previous calendar month, allprepared by the Borrower and certified by its chief financial officer oranother officer of the Borrower acceptable to the Administrative Agent, allbeing in form acceptable to the Administrative Agent;

(c)           as soon as available, and in anyevent within 45 days after the last day of each fiscal quarter of each fiscalyear of the Borrower, a report detailing sales of Property by the Borrower andits Subsidiaries and the progress of construction and pace of sales within eachBuilding Region, and, if requested by the Administrative Agent, a reportdetailing the volume of prospective buyers visiting or making inquiry withrespect to such Property, certified by the chief financial officer or anotherofficer of the Borrower acceptable to the Administrative Agent, all being inform and scope acceptable to the Administrative Agent;

(d)           as soon as available, and in anyevent within 45 days after the last day of each fiscal quarter of each fiscalyear of the Borrower, a copy of the consolidated  balance sheet of the Borrower and itsSubsidiaries as of the last day of such fiscal quarter and the consolidatedstatements of income, retained earnings, and cash flows of the Borrower and itsSubsidiaries for the fiscal quarter and for the fiscal year-to-date period thenended, each in reasonable detail showing in comparative form the figures forthe corresponding date and period in the previous fiscal year, prepared by theBorrower in accordance with GAAP, certified to by its chief financial officer oranother officer of the Borrower acceptable to the Administrative Agent, allbeing in form and scope acceptable to the Administrative Agent;

(e)           as soon as available, and in anyevent within 90 days after the last day of each fiscal year of the Borrower, acopy of the consolidated balance sheet of the Borrower and its Subsidiaries asof the last day of the fiscal year then ended and the consolidated statementsof income, retained earnings, and cash flows of the Borrower and itsSubsidiaries for the fiscal year then ended, and accompanying notes thereto,each in reasonable detail, all in form and scope acceptable to theAdministrative Agent, showing in comparative form the figures for the previousfiscal year, accompanied by an independent auditor’s report from Deloitte &Touche LLP, or another firm of 

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independent publicaccountants of recognized standing, selected by the Borrower and reasonablysatisfactory to the Administrative Agent, to the effect that the consolidatedfinancial statements have been prepared in accordance with GAAP and presentfairly in accordance with GAAP the consolidated financial condition of theBorrower and its Subsidiaries as of the close of such fiscal year and theresults of their operations and cash flows for the fiscal year then ended andthat an examination of such accounts in connection with such financialstatements has been made in accordance with GAAP and, accordingly, suchexamination included such tests of the accounting records and such otherauditing procedures as were considered necessary in the circumstances;

(f)            within the period provided insubsection (e) above, the written statement of the accountants who certifiedthe audit report thereby required that in the course of their audit they haveobtained no knowledge of any Default or Event of Default with respect toSections 8.7(b), (g) or (h), 8.9(j), 8.22 or 8.23 hereof, or, if suchaccountants have obtained knowledge of any such Default or Event of Default,they shall disclose in such statement the nature and period of the existencethereof;

(g)           promptly after receipt thereof, anyadditional written reports, management letters or other detailed informationcontained in writing concerning material weakness or going concern of theBorrower or any of its Subsidiaries given to it by its independent publicaccountants;

(h)           promptly after the sending or filingthereof, copies of each financial statement, report, notice or proxy statementsent by the Borrower or any Subsidiary of the Borrower to any OutsideStockholders;

(i)            as soon as available, and in anyevent within 60 days after the end of each fiscal year of the Borrower, a copyof the Borrower’s and its Subsidiaries’ consolidated business plan for the thencurrent fiscal year, such business plan to show the Borrower’s and itsSubsidiaries’ projected consolidated revenues, expenses and balance sheet on aquarter-by-quarter basis, such business plan to be in reasonable detailprepared by the Borrower and in form satisfactory to the Administrative Agent(which shall include a summary of all assumptions made in preparing suchbusiness plan);

(j)            promptly upon the occurrencethereof, notice of any Change of Control;

(k)           promptly after knowledge thereofshall have come to the attention of any responsible officer of the Borrower,written notice of (i) any threatened (in writing) or pending litigation orgovernmental or arbitration proceeding or labor controversy against theBorrower or any of its Subsidiaries or any of their Property, pursuant to whichan amount in excess of $1,000,000 is claimed, or with respect to any group ofsimilar or related claims, an amount in excess of $5,000,000 in the aggregateis claimed, (ii) the occurrence of any other event that could reasonably beexpected to have a Material Adverse Effect, or (iii) the occurrence of anyDefault or Event of Default hereunder;

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(l)            promptly upon the request of theAdministrative Agent, copies of all federal or state income tax returns andamendments as filed;

(m)          with each of the financial statementsfurnished to the Administrative Agent pursuant to subsection (d)****above, a written certificate in the form attached hereto asExhibit F signed by the chief financial officer of the Borrower or anotherofficer of the Borrower acceptable to the Administrative Agent to the effectthat to the best of such officer’s knowledge and belief no Default or Event ofDefault has occurred during the period covered by such statements or, if anysuch Default or Event of Default has occurred during such period, setting fortha description of such Default or Event of Default and specifying the action, ifany, taken by the Borrower or any Subsidiary to remedy the same (suchcertificate shall also set forth the amounts, calculations, and valuessupporting such statements in respect of Sections 8.7(b), 8.7(g), 8.7(h),8.9(j),****8.22 and 8.23 hereof); and

(n)           copies of all certificates andreports given to the holders of or trustees for the Subordinated Debt,contemporaneously with the transmission thereof, except to the extent suchmaterials are duplicative of materials otherwise delivered to the AdministrativeAgent hereunder.

*Section8.6            Inspection*.  The Borrower shall, and shall cause each ofits Subsidiaries to, permit the Administrative Agent, each Lender, and each oftheir duly authorized representatives and agents to visit and inspect any ofits Property, corporate books, and financial records, to examine and makecopies of its books of accounts and other financial records, and to discuss itsaffairs, finances, and accounts with, and to be advised as to the same by, itsofficers, employees and independent public accountants (and by this provisionthe Borrower hereby authorizes such accountants to discuss with theAdministrative Agent and such Lenders the finances and affairs of the Borrowerand its Subsidiaries) at such reasonable times and intervals as theAdministrative Agent or any such Lender may designate and, so long as noDefault or Event of Default exists, with reasonable prior notice to theBorrower.  All costs and expenses of theabove visits, inspections and examinations shall be the responsibility of theLenders; provided that the Borrower shall reimburse the Lenders or theAdministrative Agent, as the case may be for any of the above visits,inspections, and examinations that either (a) occur during the continuance ofany Default or Event of Default or (b) disclose the existence of any Default orEvent of Default or a material variance from any report submitted by theBorrower to the Administrative Agent.

*Section8.7            Borrowings and Guaranties*.  The Borrower shall not, nor shall it permitany of its Subsidiaries to, issue, incur, assume, create or have outstandingany Indebtedness for Borrowed Money, or be or become liable as endorser,guarantor, surety or otherwise for any Indebtedness for Borrowed Money of anyother Person, or otherwise agree to provide funds for payment of theobligations of another, or supply funds thereto or invest therein (except asallowed under Section 8.9 hereof) or otherwise assure a creditor of anotheragainst loss, or apply for or become liable to the issuer of a letter of creditwhich supports an obligation of another, or subordinate any claim or demand itmay have to the claim or demand of any other Person; *provided,however*, that the foregoing shall not restrict nor operate toprevent:

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(a)           the Obligations, Hedging Liability,Funds Transfer and Deposit Account Liability and obligations under theIndemnity Agreement of the Borrower and its Subsidiaries owing to theAdministrative Agent and the Lenders (and their Affiliates);

(b)           indebtedness of the Borrower and itsSubsidiaries secured by Property of the Borrower or its Subsidiaries (whichindebtedness shall not be secured by the Property identified in the most recentBorrowing Base Certificate) and any related guarantees, but only to the extentsuch specific indebtedness existed as of the Closing Date, such principalindebtedness in the aggregate at any one time outstanding not to exceed 25% ofthe Tangible Net Worth;

(c)           endorsement of items for deposit orcollection of commercial paper received in the ordinary course of business;

(d)           intercompany advances from time totime owing by any Subsidiary of the Borrower to the Borrower or anotherSubsidiary of the Borrower or by the Borrower to a Subsidiary of the Borrowerin the ordinary course of business to finance working capital and businessoperation needs; provided that all advances made by the Borrower or aWholly-owned Subsidiary to a Special Project Subsidiary shall be made pursuantto a budget for such Special Project Subsidiary, which budget shall be subjectto the reasonable approval of the Administrative Agent; and provided furtherthat all advances made by the Borrower or a Wholly-owned Subsidiary to aSpecial Project Subsidiary shall hereafter be evidenced by a written promissorynote in form and upon terms reasonably acceptable to the Administrative Agent;

(e)           Subordinated Debt in a principalamount not to exceed $203,000,000 in the aggregate on the Closing Date or$300,000,000 thereafter (subject to the requirements of Section 1.8 hereof), asreduced by permitted payments thereon;

(f)            indebtedness of the Borrower or itsSubsidiaries with respect to contracts executed in the ordinary course ofbusiness for the acquisition of Real Property (excluding purchase moneyfinancing) or the procurement of services consistent with Section 8.18 hereof;and

(g)           indebtedness of the Borrower or itsSubsidiaries not contemplated by the other clauses of this Section 8.7, in anamount not to exceed $15,000,000 at any one time outstanding; provided suchindebtedness shall not at any time be secured by any Property of the Borroweror its Subsidiaries;

(h)           indebtedness in the form of aguarantee of (including any indemnity or other undertaking with respect to) theindebtedness or other obligations of any Joint Venture; provided all such guarantiesshall not exceed in the aggregate 35% of the Adjusted Tangible Net Worth; and

(i)            indemnification, adjustment ofpurchase price or similar obligations, including title insurance, of theBorrower or any Subsidiary, in each case incurred in connection with theacquisition of disposition of any Property of the Borrower or any 

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Subsidiary (other thanguarantees of indebtedness incurred by any Person acquiring all or any portionof such assets for the purpose of financing such acquisition); provided, however,that such indebtedness is not reflected on the balance sheet of the Borrower orany Subsidiary and provided further that, contingent obligations referred to ina footnote to financial statements, and not otherwise reflected on the balancesheet will not be deemed to be reflected on such balance sheet for purposeshereof.

*Section8.8            Liens*.  The Borrower shall not, nor shall it permitany of its Subsidiaries to, create, incur or permit to exist any Lien of anykind on any Property owned by any such Person; provided, however, that theforegoing shall not apply to nor operate to prevent:

(a)           Liens arising by statute inconnection with worker’s compensation, unemployment insurance, old agebenefits, social security obligations, taxes, assessments, statutoryobligations or other similar charges (other than Liens arising under ERISA),good faith cash deposits in connection with tenders, contracts or leases towhich the Borrower or any of its Subsidiaries is a party or other cash depositsrequired to be made in the ordinary course of business, provided in each casethat the obligation is not for borrowed money and that the obligation securedis not overdue or, if overdue, is being contested in good faith by appropriateproceedings which prevent enforcement of the matter under contest and adequatereserves have been established therefor;

(b)           mechanics’, workmen’s, materialmen’s,landlords’, carriers’ or other similar Liens arising in the ordinary course ofbusiness with respect to obligations which are not due or which are beingcontested in good faith by appropriate proceedings which prevent enforcement ofthe matter under contest;

(c)           judgment liens and judicialattachment liens not constituting an Event of Default under Section 9.1(h)hereof and the pledge of assets (excluding Property identified in the mostrecent Borrowing Base Certificate) for the purpose of securing an appeal, stayor discharge in the course of any legal proceeding, *provided*that the aggregate amount of such judgment liens and attachments andliabilities of the Borrower and its Subsidiaries secured by a pledge of assetspermitted under this subsection, including interest and penalties thereon, ifany, shall not be in excess of $3,000,000 at any one time outstanding;

(d)           Liens existing on the Closing Datewith respect to Property of the Borrower or any Subsidiary of the Borrowercreated solely for the purpose of securing indebtedness permitted by Section8.7(b) hereof, representing or incurred to finance the purchase price ordevelopment of such Property, provided that no such Lien shall extend to orcover any Borrowing Base Property identified in the most recent Borrowing BaseCertificate or any other Property of the Borrower or its Subsidiaries otherthan the Property that is the subject of such acquisition or development;

(e)           any interest or title of a lessorunder any operating lease;

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(f)            easements, rights-of-way, licenses,restrictions, zoning restrictions, and other similar encumbrances against RealProperty incurred in the ordinary course of business which do not materiallydetract from the value of the Real Property subject thereto or materiallyinterfere with development thereof, the construction of Housing Units thereonor the ordinary conduct of the business of the Borrower or any of itsSubsidiaries;

(g)           Liens upon specific items ofinventory or other goods and proceeds of any Person securing such Person’sobligations in respect of bankers’ acceptances issued or created for theaccount of such Person to facilitate the purchase, shipment or storage of suchinventory or other goods;

(h)           Liens encumbering deposits made tosecure obligations arising from statutory, regulatory, contractual or warrantyrequirements of the Borrower or any Subsidiary, including rights of offset andsetoff;

(i)            bankers’ Liens, rights of setoff andother similar Liens existing solely with respect to cash and cash equivalentson deposit in one or more accounts maintained by the Borrower or anySubsidiary, in each case granted in the ordinary course of business in favor ofthe bank or banks with which such accounts are maintained, securing amountsowing to such bank with respect to cash management and operating accountarrangements, including those involving pooled accounts and nettingarrangements; provided that in no case shall any such Liens secure (eitherdirectly or indirectly) the repayment of any indebtedness;

(j)            leases or subleases (or any Liensrelated thereto) granted to others that do not materially interfere with theordinary course of business of the Borrower or any Subsidiary; provided that nosuch leases or subleases pertain to Property identified on the most recentBorrowing Base Certificate;

(k)           Liens arising from filing UniformCommercial Code financing statements regarding leases or subleases; providedthat no such leases or subleases pertain to Property identified on the mostrecent Borrowing Base Certificate;

(l)            Liens in favor of the Borrower or aWholly-owned Subsidiary, other than KH Financial, L.P.;

(m)          Liens on mortgage loans and related assetssecuring Indebtedness for Borrowed Money and indebtedness under purchase andsale agreements and repurchase agreements permitted to be incurred under thisAgreement;

(n)           any right of first refusal, right offirst offer, option, contract or other agreement to sell Property; providedsuch Liens shall be allowed with respect to Property identified on the mostrecent Borrowing Base Certificate only to the extent related to Housing UnitContracts; and

(o)           Liens created pursuant to the LoanDocuments.

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*Section8.9            Investments, Acquisitions,Loans and Advances*. The Borrower shall not, nor shall it permit any of its Subsidiaries to,directly or indirectly, make, retain or have outstanding any investments(whether through purchase of stock or obligations or otherwise) in, or loans oradvances to (other than for travel advances and other similar cash advancesmade to employees in the ordinary course of business), any other Person, oracquire all or any substantial part of the assets or business of any other Personor division thereof; provided, however, that the foregoing shall not apply tonor operate to prevent:

(a)           investments in direct obligations ofthe United States of America or of any agency or instrumentality thereof whoseobligations constitute full faith and credit obligations of the United Statesof America, *provided* that any such obligations shallmature within one year of the date of issuance thereof;

(b)           investments in commercial paper ratedat least P-1 by Moody’s and at least A-1 by S&P maturing within one year ofthe date of issuance thereof;

(c)           investments in certificates ofdeposit issued by any Lender or by any United States commercial bank havingcapital and surplus of not less than $100,000,000 which have a maturity of oneyear or less;

(d)           investments in repurchase obligationswith a term of not more than 7 days for underlying securities of the typesdescribed in subsection (a) above entered into with any bank meeting thequalifications specified in subsection (c) above, provided all such agreementsrequire physical delivery of the securities securing such repurchase agreement,except those delivered through the Federal Reserve Book Entry System;

(e)           investments in money market fundsthat invest solely, and which are restricted by their respective charters toinvest solely, in investments of the type described in the immediatelypreceding subsections (a), (b), (c), and (d) above;

(f)            the Borrower’s or its Subsidiaries’investments from time to time in their Subsidiaries; provided that neither theBorrower nor any of its Subsidiaries may invest any further funds in anySpecial Project Subsidiary after the Closing Date, except as may be donepursuant to Section 8.7(d) and 8.9(i);

(g)           investments in Real Estate andimprovements thereon for the purposes of residential development andconstruction;

(h)           investments in equipment or otherassets reasonably necessary for the ordinary conduct of the business of theBorrower and its Subsidiaries;

(i)            intercompany advances made from timeto time by the Borrower or its Subsidiaries to another Subsidiary or by aSubsidiary to the Borrower in the ordinary course of business to financeworking capital or other business operation needs; provided that all advancesmade by the Borrower or a Wholly-owned Subsidiary to a Special ProjectSubsidiary shall be made pursuant to a budget for such Special ProjectSubsidiary, which budget shall be subject to the reasonable approval of the 

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Administrative Agent; andprovided further that all advances made by the Borrower or a Wholly-ownedSubsidiary to a Special Project Subsidiary shall hereafter be evidenced by awritten promissory note in form and upon terms reasonably acceptable to theAdministrative Agent;

(j)            investments in Joint Ventures havinga business or purpose of residential development or construction, or businessesthat are reasonably related thereto or reasonable extensions thereof(including, without limitation, residential or mixed-use land acquisition anddevelopment, mortgage financing, insurance brokerage, home alarm, pest control,and title insurance), which investments are non-recourse to the Borrower andits investing Subsidiaries (except as evidenced by a written guaranty,indemnity or undertaking as allowed under Section 8.7(h) hereof), whichinvestments shall not exceed in the aggregate 25% of the Tangible Net Worth;

(k)           loans and advances to directors,employees and officers of the Borrower and its Subsidiaries for bona fidebusiness purposes or to purchase the Voting Stock of the Borrower not in excessof $2.0 million at any one time outstanding;

(l)            receivables owing to the Borrower orany Subsidiary if created or acquired in the ordinary course of business andpayable or dischargeable in accordance with customary trade terms; provided,however, that such trade terms may include such concessionary trade terms asthe Borrower or any such Subsidiary deems reasonable under the circumstances;

(m)          investments in mortgage loans andrelated assets originated by KH Financial, L.P. in the ordinary course of its mortgagelending business;

(n)           lease, utility and other similardeposits in the ordinary course of business;

(o)           investments (including indebtednessobligations) received in connection with the bankruptcy or reorganization ofsuppliers and customers and in settlement of delinquent obligations of, another disputes with, customers and suppliers arising in the ordinary course ofbusiness;

(p)           transfers of assets by the Borrowerto a Subsidiary, or by a Subsidiary to another Subsidiary; provided that anytransfers to a Special Project Subsidiary shall be deemed to be an investmentcontemplated by Section 8.9(j) hereof;

(q)           securities acquired in connectionwith the satisfaction or enforcement of indebtedness or claims due or owing oras security for any such indebtedness or claim; and

(r)            interests in interest rate hedgingagreements entered into with respect to Indebtedness for Borrowed Moneypermitted under Section 8.7 hereof and not for speculative purposes; providedany such agreements shall not be in a notional amount greater than the subjectIndebtedness for Borrowed Money.

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In determining the amount of investments,acquisitions, loans, and advances permitted under this Section, investments andacquisitions shall always be taken at the original cost thereof (regardless ofany subsequent appreciation or depreciation therein), and loans and advancesshall be taken at the principal amount thereof then remaining unpaid.

*Section8.10         Mergers, Consolidations andSales*.  The Borrowershall not, nor shall it permit any Subsidiary to, be a party to any merger orconsolidation, or sell, transfer, lease or otherwise dispose of all or any partof its Property, including any disposition of Property as part of a sale andleaseback transaction, or in any event sell or discount (with or withoutrecourse) any of its notes or accounts receivable; provided, however, that solong as no Default or Event of Default exists**,**thisSection shall not apply to nor operate to prevent:

(a)           the sale of Property in the ordinarycourse of business to non-Affiliated third parties pursuant to Housing UnitContracts or the conveyance of Real Property upon which no Housing Unit is tobe constructed to third parties in connection with residential infrastructureor amenity development and completion, all subject to the provisions ofSections 1.8 and 4.8;

(b)           the merger of any Subsidiary of theBorrower with and into the Borrower or any other Subsidiary of the Borrower,provided that, in the case of any merger involving the Borrower, the Borroweris the corporation surviving the merger;

(c)           the sale or transfer of Property bythe Borrower or any Subsidiary to any Subsidiary, other than a Special ProjectSubsidiary;

(d)           the sale or transfer of Voting Stockby any Subsidiary of the Borrower to the Borrower or any Wholly-ownedSubsidiary;

(e)           the sale, transfer or otherdisposition of any tangible personal property that, in the reasonable businessjudgment of the Borrower or its Subsidiaries, has become obsolete or worn out,and which is disposed of in the ordinary course of business;

(f)            the sale, transfer, lease or otherdisposition by the Borrower or its Subsidiaries of Property as part of a saleand leaseback transaction, provided that (i) the aggregate book value of allProperty conveyed during any fiscal year pursuant to such transactions does notexceed the sum of (A) for transactions concerning any Property (including modelHousing Units), $5,000,000, plus (B) for transactions concerning Propertydesignated as model Housing Units for display to prospective third-partypurchasers, an additional $25,000,000, (ii) such transactions, if concerningProperty designated as model Housing Units, are consummated with entitiesreasonably acceptable to the Administrative Agent, and (iii) the terms of suchtransactions, if concerning Property designated as model Housing Units, (A) donot require the Borrower or its Subsidiaries to repurchase the subject Propertyand (B) are otherwise reasonably acceptable to the Administrative Agent;

(g)           the sale or transfer of Real Propertyto third parties pursuant to land banking arrangements provided sucharrangements are non-recourse to the Borrower 

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and its Subsidiaries, andprovided the aggregate book value of assets transferred pursuant to sucharrangements shall not exceed $10,000,000 during any fiscal year of theBorrower; and

(h)           Dispositions of Property, subject tothe requirements of Sections 1.8(b) and 4.8; provided such Dispositions areconducted in compliance with Section 8.18.

*Section8.11         Maintenance of Subsidiaries*.  The Borrower shall not assign, sell ortransfer, nor shall it permit any of its Subsidiaries to issue, assign, sell ortransfer, any shares of capital stock or other equity interests of aSubsidiary; provided, however, that the foregoing shall not operate to preventany transaction permitted by Section 8.10(b) or (h) above or to prevent therepurchase or acquisition by a Partial Subsidiary or the Borrower of anyinterest owned by another Person in such Partial Subsidiary.  Except as allowed under Section 8.10(b) or(h), all Wholly-owned Subsidiaries whether now existing or hereafter acquiredor formed shall be and remain Wholly-owned Subsidiaries.  Notwithstanding anything to the contrary inthis Section 8.11, the Borrower or its Subsidiaries shall be permitted todissolve any Subsidiary if all or substantially all of such Subsidiaries’Property or other assets have been sold or transferred as permitted in thisAgreement.

*Section8.12         Dividends and Certain OtherRestricted Payments***. **The Borrower and its Subsidiariesmay make distributions and declare or pay dividends to the shareholders of theBorrower and may directly or indirectly purchase, redeem, or otherwise acquireor retire any of its capital stock or other equity interests; provided theforegoing (a) does not occur at any time that a Default or Event of Defaultexists, (b) result in any Default or Event of Default, or (c) without limitingthe generality of the foregoing clause (b), result in any Change of Control orany violation of Section 8.22(a).

*Section8.13         ERISA*.  The Borrower shall, and shall cause eachSubsidiary to, promptly pay and discharge all obligations and liabilitiesarising under ERISA of a character which if unpaid or unperformed couldreasonably be expected to result in the imposition of a Lien against any of itsProperty.  The Borrower shall, and shallcause each Subsidiary to, promptly notify the Administrative Agent and eachLender of:  (a) the occurrence of anyreportable event (as defined in ERISA) with respect to a Plan, (b) receipt ofany notice from the PBGC of its intention to seek termination of any Plan orappointment of a trustee therefor, (c) its intention to terminate or withdrawfrom any Plan, and (d) the occurrence of any event with respect to any Planwhich would result in the incurrence by the Borrower or any Subsidiary of anymaterial liability, fine or penalty, or any material increase in the contingentliability of the Borrower or any Subsidiary with respect to any post-retirementWelfare Plan benefit.

*Section8.14         Compliance with Laws*.  (a) The Borrower shall, and shall cause each Subsidiary to, comply in allrespects with the requirements of all federal, state, and local laws, rules,regulations, ordinances and orders applicable to or pertaining to its Property orbusiness operations, including, without limitation, the construction of HousingUnits and the development of Real Property in compliance with all applicablezoning ordinances and building codes, where any such non-compliance,individually or in the aggregate, could reasonably be expected to have aMaterial Adverse Effect.

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(b)           Without limiting the agreements setforth in Section 8.14(a) above, the Borrower shall, and shall cause eachSubsidiary to, at all times, do the following to the extent the failure to doso, individually or in the aggregate, could reasonably be expected to have aMaterial Adverse Effect:  (i) comply inall material respects with, and maintain each of the Premises in compliance inall material respects with, all applicable Environmental Laws; (ii) obtain andmaintain in full force and effect all material governmental approvals requiredby any applicable Environmental Law for operations at each of the Premises;(iii) cure any material violation by it or at any of the Premises of applicableEnvironmental Laws; (iv) not allow the presence or operation at any of thePremises of any (1) landfill or dump or (2) hazardous waste management facilityor solid waste disposal facility as defined pursuant to RCRA or any comparablestate law; (vi) not manufacture, use, generate, transport, treat, store,release, dispose or handle any Hazardous Material at any of the Premises exceptin the ordinary course of its business in compliance with Environmental Lawsand in *de minimis* amounts; (vii) within 10 BusinessDays notify the Administrative Agent in writing of and provide any reasonablyrequested documents upon learning of any of the following in connection withthe Borrower or any Subsidiary or any of the Premises: (1) any materialliability for response or corrective action, natural resource damage or otherharm pursuant to CERCLA, RCRA or any comparable state law; (2) any materialEnvironmental Claim; (3) any material violation of an Environmental Law ormaterial Release, threatened Release or disposal of a Hazardous Material; (4)any restriction on the ownership, occupancy, use or transferability arisingpursuant to any (x) Release, threatened Release or disposal of a HazardousMaterial or (y) Environmental Law; or (5) any environmental, natural resource,health or safety condition, which could reasonably be expected to have aMaterial Adverse Effect; (viii) conduct at its expense any investigation,study, sampling, testing, abatement, cleanup, removal, remediation or otherresponse action necessary to remove, remediate, clean up or abate any materialRelease, threatened Release or disposal of a Hazardous Material as required byany applicable Environmental Law, (ix) abide by and observe any restrictions onthe use of the Premises imposed by any governmental authority as set forth in adeed or other instrument affecting the Borrower’s or any Subsidiary’s interesttherein; (x) promptly provide or otherwise make available to the AdministrativeAgent any reasonably requested environmental record concerning the Premiseswhich the Borrower or any Subsidiary possesses or can reasonably obtain; and(xi) perform, satisfy, and implement any operation or maintenance actionsrequired by any governmental authority or Environmental Law, or included in anyno further action letter or covenant not to sue issued by any governmentalauthority under any Environmental Law.

*Section8.15         Burdensome Contracts WithAffiliates*.  TheBorrower shall not, nor shall it permit any of its Subsidiaries to, enter intoany contract, agreement or business arrangement with any of its Affiliates onterms and conditions which are less favorable to the Borrower or suchSubsidiary than would be usual and customary in similar contracts, agreementsor business arrangements between Persons not affiliated with each other.

*Section8.16         No Changes in Fiscal Year*.  The fiscal year of the Borrower and itsSubsidiaries ends on September 30 of each year; and the Borrower shall not, norshall it permit any Subsidiary to, change its fiscal year from its presentbasis, unless the Administrative Agent shall have approved such change, suchapproval not to be unreasonably withheld.

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*Section8.17         Formation of Subsidiaries*.  Promptly upon the formation or acquisition ofany Wholly-owned Subsidiary, the Borrower shall provide the AdministrativeAgent notice thereof and timely comply with the requirements of Section 4hereof (at which time Schedule 6.2 shall be deemed amended to include referenceto such Subsidiary).

*Section8.18         Change in the Nature ofBusiness*.  The Borrowershall not, nor shall it permit any of its Subsidiaries to, engage in anybusiness or activity if as a result the general nature or conduct of thebusiness of the Borrower or any Subsidiary would be changed in any materialrespect from the general nature or conduct of the business engaged in by it asof the Closing Date.  Notwithstanding theforegoing, the Borrower and its Subsidiaries may conduct residentialdevelopment and home building activities in areas outside of the currentBuilding Regions; provided the Borrower gives the Administrative Agent priorwritten notice of such activity, in which event the Administrative Agent, inits reasonable discretion, may designate a new Building Region or include suchnew area within an existing Building Region.

*Section8.19         Use of Proceeds*.  The Borrower shall use the credit extendedunder this Agreement solely for the purposes set forth in, or otherwisepermitted by, Section 6.4 hereof.

*Section8.20         No Restrictions*.  Except as provided herein or in the otherLoan Documents, the Borrower shall not, nor shall it permit any of itsSubsidiaries to, directly or indirectly create or otherwise cause or suffer toexist or become effective any consensual encumbrance or restriction of any kindon the ability of the Borrower or any of its Subsidiaries to:  (a) pay dividends or make any otherdistribution on any Subsidiary’s capital stock or other equity interests ownedby the Borrower or any other Subsidiary, (b) pay any indebtedness owed to theBorrower or any other Subsidiary, (c) make loans or advances to the Borrower orany other Subsidiary, (d) transfer any of its Property to the Borrower or anyother Subsidiary, (e) encumber any of its Property with Liens or (f) guaranteethe Obligations and/or grant Liens on its assets to the Administrative Agent;provided, however, that so long as no Default or Event of Default exists, thisSection shall not apply to nor operate to prevent:

(a)           encumbrances or restrictions existingunder or by reason of applicable law or required by any regulatory authorityhaving jurisdiction over the Borrower or its Subsidiaries;

(b)           encumbrances or restrictions existingunder this Agreement or as contemplated in the Trust Indenture;

(c)           non-assignment provisions of anycontract or any lease entered into in the ordinary course of business;

(d)           encumbrances or restrictions existingunder agreements existing on the date of this Agreement as in effect on thatdate;

(e)           restrictions on additional Liens andthe transfer of assets subject to any Lien permitted under this Agreement asimposed by the holder of such Liens;

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(f)            restrictions on the transfer ofassets imposed under any agreement to sell such assets permitted under thisAgreement to any Person pending the closing of such sale;

(g)           any instrument governing indebtednessor any other agreement of any acquired Person, which encumbrance or restrictionis not applicable to any Person, or the assets of any Person, other than thePerson or the assets so acquired;

(h)           customary provisions in leases, partnershipagreements, limited liability company organizational governance documents,joint venture agreements and other similar agreements entered into in theordinary course of business that restrict (i) the transfer of leaseholdinterests or ownership interest in such partnership, limited liability company,joint venture or similar Person, (ii) in the case of a Partial Subsidiary, thetransfer or distribution of assets of such Subsidiary or the creation of Lienson the Property of such entity, or (iii) other related-party transactions;

(i)            customary encumbrances orrestrictions imposed under any indebtedness (or refinancings thereof) of aSubsidiary incurred pursuant to Section 8.7 hereof; and

(j)            restrictions on cash or otherdeposits or net worth imposed by suppliers or landlords under contracts enteredinto in the ordinary course of business.

*Section8.21         Subordinated Debt*.  The Borrower shall not, nor shall it permitany of its Subsidiaries to, (a) without the prior written consent of theRequired Lenders, such consent not to be unreasonably withheld, amend or modifyany of the terms or conditions relating to Subordinated Debt, (b) without theprior written consent of the Required Lenders, such consent not to beunreasonably withheld, make any voluntary prepayment of Subordinated Debt,effect any voluntary redemption thereof, or effect any defeasance thereof, or(c) make any payment on account of Subordinated Debt which is prohibited underthe terms of any instrument or agreement subordinating the same to theObligations.  Notwithstanding theforegoing, the Borrower may agree to a decrease in the interest rate applicablethereto or to a deferral of repayment of any of the principal of or interest onthe Subordinated Debt beyond the current due dates therefor.

*Section8.22         Financial Covenants*.  (a)  *Tangible Net Worth*. The Borrower shall, as of the end of each fiscal quarter of theBorrower, maintain a Tangible Net Worth in an amount not less than the sum of(i) $302,000,000 and (ii) 50% of the positive Net Income as earned subsequentto March 31, 2007.

(b)           *Leverage Ratio*.  The Borrower shall not, at the end of anyfiscal quarter of the Borrower, permit the Leverage Ratio to exceed the ratiosset forth in the below table as corresponding to the fiscal quarters of theBorrower specified therein:

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| Fiscal Quarter Ending                          | ** ** | **Maximum Leverage  Ratio** | ** ** |
|----------------------------------------------------------|------------|----------------------------------|------------|
| September 30,  2007 through and until September 30, 2008 |       | 1.75 to 1.00                     |       |
| December 31, 2008 and  thereafter                        |       | 2.50 to 1.00                     |       |

 

(c)           *Builder**Leverage Ratio*.  TheBorrower shall not, at the end of any fiscal quarter of the Borrower, permitthe Builder Leverage Ratio to exceed 1.50 to 1.00.

(d)           *Interest CoverageRatio. *The Borrower shallnot, at the end of any fiscal quarter of the Borrower ending on or after March31, 2009, permit the ratio of EBITDA to Interest Incurred, as calculated overthe preceding 4 fiscal quarters of the Borrower, to be less than 2.25 to 1.00.

(e)           *Global Land Value toAdjusted Tangible Net Worth Ratio.* The Borrower shall not, at the end of any fiscal quarter of theBorrower, permit the ratio of Global Land Value to Adjusted Tangible Net Worthto be greater than 1.50 to 1.00.

(f)            *Minimum EBITDA*.  The Borrower shall, as of the end of eachfiscal quarter of the Borrower, maintain EBITDA, as calculated over thepreceding 4 fiscal quarters of the Borrower, of not less than $25,000,000.

(g)           *Minimum Liquidity*.  The Borrower shall not, at any time, permitthe Liquidity to be less than $50,000,000.

*Section8.23         Inventory Restrictions*.  The Borrower shall not at any time allow (a)the number of Speculative Housing Units (including Housing Units held forexhibition to prospective buyers), as owned by the Borrower and itsSubsidiaries in the aggregate, to exceed 30% of the total number of HousingUnits actually sold and transferred by the Borrower and its Subsidiariespursuant to Housing Unit Contracts during the preceding 12 calendar months thenended, or (b) the number of Speculative Housing Units (including Housing Unitsheld for exhibition to prospective buyers), as owned by the Borrower and itsSubsidiaries in any Building Region other than Nevada, to exceed 35% of thetotal number of Housing Units actually sold and transferred by the Borrower andits Subsidiaries pursuant to Housing Unit Contracts within such Building Regionduring the preceding 12 calendar months then ended.  On and after September 1, 2007, the Borrowershall not at any time allow the number of Speculative Housing Units (includingHousing Units held for exhibition to prospective buyers), as owned by theBorrower and its Subsidiaries in the Nevada Building Region, to exceed 35% ofthe total number of Housing Units actually sold and transferred by the Borrowerand its Subsidiaries pursuant to Housing Unit Contracts within such BuildingRegion during the preceding 12 calendar months then ended.  In the event the Borrower or any of itsSubsidiaries begins to conduct business in a new Building Region, theAdministrative Agent and the Borrower shall reasonably agree upon the number ofSpeculative Housing Units that may be constructed or held at any one timeduring the first 12 calendar months in which the Borrower or its Subsidiariesconduct activities in such Building Region.

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SECTION9.           EVENTS OF DEFAULT AND REMEDIES.

*Section9.1            Events of Default*.  Any one or more of the following shallconstitute an “*Event of Default*” hereunder:

(a)           any default in the payment when dueof all or any part of the principal of or interest on any Note, anyReimbursement Obligation (to the extent such Reimbursement Obligation is notfunded by a Borrowing of a Base Rate Loan), or any fee or other Obligationpayable hereunder or under any other Loan Document, which default continues fora period of 5 days following the Borrower’s receipt of written notice of suchdefault from the Administrative Agent; provided, however, that no such noticeand cure period shall be applicable with respect to amounts owed upon theRevolving Credit Termination Date, and in the event that the Borrower shallhave received 2 notices of a default of similar nature in any trailing 12 monthperiod, the Borrower shall not be entitled to any notice or grace period or theopportunity to cure such default, and any similar default shall immediatelyconstitute an Event of Default;

(b)           any default in the observance orperformance of any covenant set forth in Sections 4.4, 8.6, 8.7, 8.9, 8.10,8.11, 8.12, 8.16, 8.17, 8.20, 8.21, 8.22, or 8.23 hereof or any covenantcontained herein requiring the Borrower or its Subsidiaries to notify theAdministrative Agent of a particular occurrence;

(c)           any default in the observance orperformance of any covenant set forth in Section 8.5, which default continuesfor a period of 5 days following the Borrower’s receipt of written notice ofsuch default from the Administrative Agent; provided, however, in the eventthat the Borrower shall have received 2 notices of a default of similar naturein any trailing 12 month period, the Borrower shall not be entitled to anynotice or grace period or the opportunity to cure such default, and any similardefault shall immediately constitute an Event of Default;

(d)           any default in the observance orperformance of any other provision hereof or of any other Loan Document whichis not remedied within 30 days after the earlier of (i) the date on which suchfailure shall first become known to any officer of the Borrower or (ii) writtennotice thereof is given to the Borrower by the Administrative Agent;

(e)           any representation or warranty madeherein or in any other Loan Document or in any certificate furnished to theAdministrative Agent or the Lenders pursuant hereto or thereto or in connectionwith any transaction contemplated hereby or thereby proves untrue in any materialrespect as of the date of the issuance or making or deemed making thereof;

(f)            any event occurs or condition exists(other than those described in subsections (a) through (d) above) which isspecified as an event of default under any of the other Loan Documents, or anyof the Loan Documents shall for any reason not be or shall cease to be in fullforce and effect or is declared to be null and void, or any 

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Subsidiary of theBorrower takes any action for the purpose of terminating, repudiating orrescinding any Loan Document executed by it or any of its obligationsthereunder;

(g)           any default shall occur under anyIndebtedness for Borrowed Money issued, assumed or guaranteed by the Borroweror any Subsidiary aggregating in excess of $3,000,000, or under any indenture,agreement or other instrument under which the same may be issued, and suchdefault shall continue for a period of time sufficient to permit theacceleration of the maturity of any such Indebtedness for Borrowed Money(whether or not such maturity is in fact accelerated), or any such Indebtednessfor Borrowed Money shall not be paid when due (whether by demand, lapse oftime, acceleration or otherwise);

(h)           any judgment or judgments, writ orwrits or warrant or warrants of attachment, or any similar process orprocesses, shall be entered or filed against the Borrower or any Subsidiary, oragainst any of its Property, in an aggregate amount in excess of $3,000,000(except to the extent fully covered by insurance pursuant to which the insurerhas accepted liability therefor in writing), and which remains undischarged,unvacated, unbonded or unstayed for a period of 30 days;

(i)            the Borrower or any Subsidiary, orany member of its Controlled Group, shall fail to pay when due an amount oramounts aggregating in excess of $1,000,000 which it shall have become liableto pay to the PBGC or to a Plan under Title IV of ERISA; or notice of intent toterminate a Plan or Plans having aggregate Unfunded Vested Liabilities inexcess of $1,000,000 (collectively, a “*Material Plan*”)shall be filed under Title IV of ERISA by the Borrower or any Subsidiary, orany other member of its Controlled Group, any plan administrator or anycombination of the foregoing; or the PBGC shall institute proceedings underTitle IV of ERISA to terminate or to cause a trustee to be appointed toadminister any Material Plan or a proceeding shall be instituted by a fiduciaryof any Material Plan against the Borrower or any Subsidiary, or any member ofits Controlled Group, to enforce Section 515 or 4219(c)(5) of ERISA and suchproceeding shall not have been dismissed within 30 days thereafter; or acondition shall exist by reason of which the PBGC would be entitled to obtain adecree adjudicating that any Material Plan must be terminated;

(j)            any Change of Control shall occur;

(k)           David K. Hill shall no longer holdone of the following positions: (i) Chairman, or (ii) Chief Executive Officer,and Borrower shall have failed to appoint or establish a successor to David K.Hill who is reasonably acceptable to Administrative Agent, within ninety (90)days after the date David K. Hill no longer holds any one of such positions;

(l)            the Borrower or any Subsidiary ofthe Borrower shall (i) have entered involuntarily against it an order forrelief under the United States Bankruptcy Code, as amended, (ii) not pay, oradmit in writing its inability to pay, its debts generally as they become due,(iii) make an assignment for the benefit of creditors, (iv) apply for, seek,consent to or acquiesce in, the appointment of a receiver, custodian, trustee,examiner, 

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liquidator or similarofficial for it or any substantial part of its Property, (v) institute anyproceeding seeking to have entered against it an order for relief under theUnited States Bankruptcy Code, as amended, to adjudicate it insolvent, orseeking dissolution, winding up, liquidation, reorganization, arrangement,adjustment or composition of it or its debts under any law relating tobankruptcy, insolvency or reorganization or relief of debtors or fail to filean answer or other pleading denying the material allegations of any suchproceeding filed against it, (vi) take any action in furtherance of any matterdescribed in parts (i) through (v) above, or (vii) fail to contest in goodfaith any appointment or proceeding described in Section 9.1(m) hereof; or

(m)          a custodian, receiver, trustee,examiner, liquidator or similar official shall be appointed for the Borrower orany Subsidiary, or any substantial part of any of its Property, or a proceedingdescribed in Section 9.1(l)(v) shall be instituted against the Borrower or anySubsidiary, and such appointment continues undischarged or such proceedingcontinues undismissed or unstayed for a period of 60 days.

*Section9.2            Non-Bankruptcy Defaults*.  When any Event of Default other than thosedescribed in subsection (l) or (m) of Section 9.1 hereof has occurred and iscontinuing, the Administrative Agent shall, by written notice to the Borrower:(a) if so directed by the Required Lenders, terminate the remaining RevolvingCredit Commitments and all other obligations of the Lenders hereunder on thedate stated in such notice (which may be the date thereof); (b) in itsdiscretion or if so directed by the Required Lenders, declare the principal ofand the accrued interest on all outstanding Notes to be forthwith due andpayable and thereupon all outstanding Notes, including both principal andinterest thereon, shall be and become immediately due and payable together withall other amounts payable under the Loan Documents without further demand,presentment, protest or notice of any kind; (c) in its discretion, or if sodirected by the Required Lenders, proceed to protect and enforce the rights andremedies under the Loan Documents, whether by suit in equity, action at law,judicial or non-judicial foreclosure as against the Collateral, seeking theappointment of a receiver, or other appropriate proceedings; and (d) in itsdiscretion or if so directed by the Required Lenders, demand that the Borrowerimmediately pay to the Administrative Agent the full amount then available fordrawing under each or any Letter of Credit, and the Borrower agrees toimmediately make such payment and acknowledges and agrees that the Lenderswould not have an adequate remedy at law for failure by the Borrower to honorany such demand and that the Administrative Agent, for the benefit of theLenders, shall have the right to require the Borrower to specifically performsuch undertaking whether or not any drawings or other demands for payment havebeen made under any Letter of Credit. The Administrative Agent, after giving notice to the Borrower pursuantto Section 9.1 or this Section 9.2, shall also promptly send a copy of suchnotice to the other Lenders, but the failure to do so shall not impair or annulthe effect of such notice.

*Section9.3            Bankruptcy Defaults*.  When any Event of Default described insubsections (l) or (m) of Section 9.1 hereof has occurred and is continuing,then all outstanding Notes shall immediately become due and payable togetherwith all other amounts payable under the Loan Documents without presentment,demand, protest or notice of any kind; the obligation of the Lenders to extendfurther credit pursuant to any of the terms hereof shall immediately terminate;and the Borrower shall immediately pay to the Administrative Agent the fullamount then available for drawing under all outstanding Letters of Credit, theBorrower acknowledging and 

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agreeing that the Lenders would not have an adequateremedy at law for failure by the Borrower to honor any such demand and that theLenders, and the Administrative Agent on their behalf, shall have the right torequire the Borrower to specifically perform such undertaking whether or notany draws or other demands for payment have been made under any of the Lettersof Credit.  In addition, in itsdiscretion, or if so directed by the Required Lenders, the Administrative Agentmay proceed to protect and enforce the rights and remedies under the LoanDocuments, whether by suit in equity, action at law, judicial or non-judicialforeclosure as against the Collateral, seeking the appointment of a receiver,or other appropriate proceedings.

*Section9.4            Collateral for UndrawnLetters of Credit*. (a)  If the prepayment of theamount available for drawing under any or all outstanding Letters of Credit isrequired under Section 1.8(b) or under Section 9.2 or 9.3 above, the Borrowershall forthwith pay the amount required to be so prepaid, to be held by theAdministrative Agent as provided in subsection (b) below.

(b)           All amounts prepaid pursuant tosubsection (a) above shall be held by the Administrative Agent in one or moreseparate collateral accounts (each such account, and the credit balances,properties, and any investments from time to time held therein, and anysubstitutions for such account, any certificate of deposit or other instrumentevidencing any of the foregoing and all proceeds of and earnings on any of theforegoing being collectively called the “*Collateral Account*”)as security for, and for application by the Administrative Agent (to the extentavailable) to, the reimbursement of any payment under any Letter of Credit thenor thereafter made by the Administrative Agent, and to the payment of theunpaid balance of all other Obligations (and to all Hedging Liability and FundsTransfer and Deposit Account Liability). The Collateral Account shall be held in the name of and subject to theexclusive dominion and control of the Administrative Agent for the benefit ofthe Administrative Agent, the Lenders, and the L/C Issuer.  If and when requested by the Borrower, theAdministrative Agent shall invest funds held in the Collateral Account fromtime to time in direct obligations of, or obligations the principal of andinterest on which are unconditionally guaranteed by, the United States ofAmerica with a remaining maturity of one year or less, *provide*dthat the Administrative Agent is irrevocably authorized to sell investmentsheld in the Collateral Account when and as required to make payments out of theCollateral Account for application to amounts due and owing from the Borrowerto the L/C Issuer, the Administrative Agent or the Lenders; *provided, however*, that (i) if the Borrower shall have madepayment of all obligations referred to in subsection (a) above required underSection 1.8(b) hereof, at the request of the Borrower the Administrative Agentshall release to the Borrower amounts held in the Collateral Account so long asat the time of the release and after giving effect thereto no Default or Eventof Default exists, and (ii) if the Borrower shall have made payment of allobligations referred to in subsection (a) above required under Section 9.2 or9.3 hereof, so long as no Letters of Credit, Revolving Credit Commitments, Loansor other Obligations**,**HedgingLiability, or Funds Transfer and Deposit Account Liability remain outstanding,at the request of the Borrower the Administrative Agent shall release to theBorrower any remaining amounts held in the Collateral Account.

*Section9.5            Additional Remedies withRespect to Collateral.* The Borrower acknowledges and agrees that the Lenders have attempted toaccommodate the Borrower by not requiring title insurance or environmentalreviews with respect to the Borrowing Base Property.  

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Upon the occurrence of any Event of Default hereunder,whether or not the Loans have been accelerated, the Administrative Agent, inits discretion or at the direction of the Required Lenders, may obtain titleinsurance policies and environmental reports with respect to all Borrowing BaseProperty, all at the expense of the Borrower.

*Section9.6            Notice of Default*.  The Administrative Agent shall give notice tothe Borrower under Section 9.1(a), (c) or (d) hereof, as the case may be, atany time in its discretion or promptly upon being requested to do so by theRequired Lenders and shall thereupon notify all the Lenders thereof.

*Section9.7            Expenses*.  The Borrower agrees to pay to theAdministrative Agent and each Lender, and any other holder of any Note outstandinghereunder, all costs and expenses reasonably incurred or paid by theAdministrative Agent and such Lender or any such holder, including reasonableattorneys’ fees and court costs, in connection with any Default or Event ofDefault hereunder or in connection with the enforcement of any of the LoanDocuments (including all such costs and expenses incurred in connection withany proceeding under the United States Bankruptcy Code involving the Borroweror any Subsidiary as a debtor thereunder).

SECTION10.         CHANGE IN CIRCUMSTANCES.

*Section10.1         Change of Law*.  Notwithstanding any other provisions of thisAgreement or any Note, if at any time any change in applicable law orregulation or in the interpretation thereof makes it unlawful for any Lender tomake or continue to maintain any Eurodollar Loans or to perform its obligationsas contemplated hereby, such Lender shall promptly give notice thereof to theBorrower and such Lender’s obligations to make or maintain Eurodollar Loansunder this Agreement shall be suspended until it is no longer unlawful for suchLender to make or maintain Eurodollar Loans. The Borrower shall prepay on demand the outstanding principal amount ofany such affected Eurodollar Loans, together with all interest accrued thereonand all other amounts then due and payable to such Lender under this Agreement;*provided, however*, subject to all of theterms and conditions of this Agreement, the Borrower may then elect to borrowthe principal amount of the affected Eurodollar Loans from such Lender by meansof Base Rate Loans from such Lender, which Base Rate Loans shall not be maderatably by the Lenders but only from such affected Lender.

*Section10.2         Unavailability of Deposits orInability to Ascertain, or Inadequacy of, LIBOR*.  If on or prior to the first day of anyInterest Period for any Borrowing of Eurodollar Loans:

(a)           the Administrative Agent determinesthat deposits in U.S. Dollars (in the applicable amounts) are not being offeredto it in the interbank eurodollar market for such Interest Period, or that byreason of circumstances affecting the interbank eurodollar market adequate andreasonable means do not exist for ascertaining the applicable LIBOR, or

(b)           the Required Lenders advise theAdministrative Agent that (i) LIBOR as determined by the Administrative Agentwill not adequately and fairly reflect the 

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cost to such Lenders offunding their Eurodollar Loans for such Interest Period or (ii) that the makingor funding of Eurodollar Loans become impracticable,

then the Administrative Agent shall forthwith givenotice thereof to the Borrower and the Lenders, whereupon until theAdministrative Agent notifies the Borrower that the circumstances giving riseto such suspension no longer exist, the obligations of the Lenders to make EurodollarLoans shall be suspended.

*Section10.3         Increased Cost and ReducedReturn*.  (a)  If, on or after the date hereof, the adoptionof any applicable law, rule or regulation, or any change therein, or any changein the interpretation or administration thereof by any governmental authority,central bank or comparable agency charged with the interpretation oradministration thereof, or compliance by any Lender (or its Lending Office)with any request or directive (whether or not having the force of law) of anysuch authority, central bank or comparable agency:

(i)            shall subject any Lender (or itsLending Office) to any tax, duty or other charge with respect to its EurodollarLoans, its Notes, its Letter(s) of Credit, or its participation in any thereof,any Reimbursement Obligations owed to it or its obligation to make EurodollarLoans, issue a Letter of Credit, or to participate therein, or shall change thebasis of taxation of payments to any Lender (or its Lending Office) of theprincipal of or interest on its Eurodollar Loans, Letter(s) of Credit, orparticipations therein or any other amounts due under this Agreement or anyother Loan Document in respect of its Eurodollar Loans, Letter(s) of Credit,any participation therein, any Reimbursement Obligations owed to it, or itsobligation to make Eurodollar Loans, or issue a Letter of Credit, or acquireparticipations therein (except for changes in the rate of tax on the overallnet income or equivalent of such Lender or its Lending Office imposed by the jurisdictionin which such Lender’s principal executive office or Lending Office islocated); or

(ii)           shall impose, modify or deemapplicable any reserve, special deposit or similar requirement (including,without limitation, any such requirement imposed by the Board of Governors ofthe Federal Reserve System, but excluding with respect to any Eurodollar Loansany such requirement included in an applicable Eurodollar Reserve Percentage)against assets of, deposits with or for the account of, or credit extended by,any Lender (or its Lending Office) or shall impose on any Lender (or itsLending Office) or on the interbank market any other condition affecting itsEurodollar Loans, its Notes, its Letter(s) of Credit, or its participation inany thereof, any Reimbursement Obligation owed to it, or its obligation to makeEurodollar Loans, or to issue a Letter of Credit, or to participate therein;

and the result of any of the foregoing is to increasethe cost to such Lender (or its Lending Office) of making or maintaining anyEurodollar Loan, issuing or maintaining a Letter of Credit, or participatingtherein, or to reduce the amount of any sum received or receivable by suchLender (or its Lending Office) under this Agreement or under any other LoanDocument with respect thereto, by an amount deemed by such Lender to bematerial, then, within 15 days after demand by such Lender (with a copy to theAdministrative Agent), the Borrower shall be obligated to pay to such Lendersuch additional amount or amounts as will compensate such 

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Lender for such increased cost or reduction; providedthat the Borrower shall not be required to compensate a Lender pursuant to thisSection for any increased costs or reductions incurred more than 60 days priorto the date such Lender notifies the Borrower of the change in law giving riseto such increased costs or reductions and of such Lender’s intention to claimcompensation therefore.

(b)           If, after the date hereof, any Lenderor the Administrative Agent shall have determined that the adoption of anyapplicable law, rule or regulation regarding capital adequacy, or any changetherein, or any change in the interpretation or administration thereof by anygovernmental authority, central bank or comparable agency charged with theinterpretation or administration thereof, or compliance by any Lender (or itsLending Office) or any corporation controlling such Lender with any request ordirective regarding capital adequacy (whether or not having the force of law)of any such authority, central bank or comparable agency, has had the effect ofreducing the rate of return on such Lender’s or such corporation’s capital as aconsequence of its obligations hereunder to a level below that which suchLender or such corporation could have achieved but for such adoption, change orcompliance (taking into consideration such Lender’s or such corporation’spolicies with respect to capital adequacy) by an amount deemed by such Lenderto be material, then from time to time, within 15 days after demand by suchLender (with a copy to the Administrative Agent), the Borrower shall pay tosuch Lender such additional amount or amounts as will compensate such Lenderfor such reduction; provided that the Borrower shall not be required tocompensate a Lender pursuant to this Section for any reduced returns more than60 days prior to the date such Lender notifies the Borrower of the change inlaw giving rise to such reduced returns and of such Lender’s intention to claimcompensation therefore.

(c)           A certificate of a Lender claimingcompensation under this Section 10.3 and setting forth the additional amount oramounts to be paid to it hereunder shall be conclusive if reasonablydetermined.  In determining such amount,such Lender may use any reasonable averaging and attribution methods.

(d)           Failure or delay on the part of anyLender to demand compensation pursuant to this Section shall not constitute awaiver of such Lender’s right to demand such compensation; provided that theBorrower shall not be required to compensate a Lender pursuant to this Sectionfor any increased costs or reductions incurred more than 60 days prior to thedate that such Lender, as the case may be, notifies the Borrower of therelevant change giving rise to such increased cots or reductions and of such Lender’sintention to claim compensation therefore; provided further that, if the changegiving rise to such increased costs or reductions is retroactive, then the60-day period referred to above shall be extended to include the period ofretroactive effect thereof.

(e)           If any Lender requests compensationor gives a notice pursuant to this Section 10.3, then such Lender shall usereasonable efforts to designate a different Lending Office for funding orbooking its Loans hereunder or to assign its rights and obligations hereunderto another of its offices, branches or affiliates, if, in the judgment of suchLender, such designation or assignment (i) would eliminate or reduce amountspayable pursuant to this Section 10.3 in the future or eliminate the need forthe notice pursuant to this Section 10.3, as applicable, and (ii) would notsubject such Lender to any unreimbursed cost or expense and would not 

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otherwise bedisadvantageous to such Lender.  TheBorrower hereby agrees to pay all reasonable costs and expenses incurred by anyLender in connection with any such designation or assignment.

*Section10.4         Lending Offices*.  Each Lender may, at its option, elect to makeits Loans hereunder at the branch, office or affiliate specified on theappropriate signature page hereof (each a “*Lending Office*”)for each type of Loan available hereunder or at such other of its branches,offices or affiliates as it may from time to time elect and designate in awritten notice to the Borrower and the Administrative Agent.  To the extent reasonably possible, a Lendershall designate an alternative branch or funding office with respect to itsEurodollar Loans to reduce any liability of the Borrower to such Lender underSection 10.3 hereof or to avoid the unavailability of Eurodollar Loans underSection 10.2 hereof, so long as such designation is not otherwisedisadvantageous to the Lender.

*Section10.5         Discretion of Lender as toManner of Funding*. Notwithstanding any other provision of this Agreement, each Lender shallbe entitled to fund and maintain its funding of all or any part of its Loans inany manner it sees fit, it being understood, however, that for the purposes ofthis Agreement all determinations hereunder with respect to Eurodollar Loansshall be made as if each Lender had actually funded and maintained eachEurodollar Loan through the purchase of deposits in the interbank eurodollarmarket having a maturity corresponding to such Loan’s Interest Period, andbearing an interest rate equal to LIBOR for such Interest Period.

SECTION11.         THE ADMINISTRATIVE AGENT.

*Section11.1         Appointment and Authorizationof Administrative Agent*. Each Lender hereby appoints Harris N.A. as the Administrative Agentunder the Loan Documents and hereby authorizes the Administrative Agent to takesuch action as Administrative Agent on its behalf and to exercise such powersunder the Loan Documents as are delegated to the Administrative Agent by theterms thereof, together with such powers as are reasonably incidental thereto.  The Lenders expressly agree that theAdministrative Agent is not acting as a fiduciary of the Lenders in respect ofthe Loan Documents, the Borrower or otherwise, and nothing herein or in any ofthe other Loan Documents shall result in any duties or obligations on the AdministrativeAgent or any of the Lenders except as expressly set forth herein.

*Section11.2         Administrative Agent and itsAffiliates*.  TheAdministrative Agent shall have the same rights and powers under this Agreementand the other Loan Documents as any other Lender and may exercise or refrainfrom exercising such rights and power as though it were not the AdministrativeAgent, and the Administrative Agent and its affiliates may accept depositsfrom, lend money to, and generally engage in any kind of business with theBorrower or any Affiliate of the Borrower as if it were not the AdministrativeAgent under the Loan Documents.  The term“*Lender*” as used herein and in all otherLoan Documents, unless the context otherwise clearly requires, includes theAdministrative Agent in its individual capacity as a Lender.  References in Section 1 hereof to theAdministrative Agent’s Loans, or to the amount owing to the AdministrativeAgent for which an interest rate is being determined, refer to theAdministrative Agent in its individual capacity as a Lender.

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*Section11.3         Action by AdministrativeAgent*.  If theAdministrative Agent receives from the Borrower a written notice of an Event ofDefault pursuant to Section 8.5 hereof, the Administrative Agent shall promptlygive each of the Lenders written notice thereof.  The obligations of the Administrative Agentunder the Loan Documents are only those expressly set forth therein.  Without limiting the generality of theforegoing, the Administrative Agent shall not be required to take any actionhereunder with respect to any Default or Event of Default, except as expresslyprovided in Sections 9.2 and 9.6.  Unlessand until the Required Lenders give such direction, the Administrative Agent may(but shall not be obligated to) take or refrain from taking such actions as itdeems appropriate and in the best interest of all the Lenders.  In no event, however, shall theAdministrative Agent be required to take any action in violation of applicablelaw or of any provision of any Loan Document, and the Administrative Agentshall in all cases be fully justified in failing or refusing to act hereunderor under any other Loan Document unless it first receives any furtherassurances of its indemnification from the Lenders that it may require,including prepayment of any related expenses and any other protection itrequires against any and all costs, expense, and liability which may beincurred by it by reason of taking or continuing to take any such action.  The Administrative Agent shall be entitled toassume that no Default or Event of Default exists unless notified in writing tothe contrary by a Lender or the Borrower. In all cases in which the Loan Documents do not require theAdministrative Agent to take specific action, the Administrative Agent shall befully justified in using its discretion in failing to take or in taking anyaction thereunder.  Any instructions ofthe Required Lenders, or of any other group of Lenders called for under thespecific provisions of the Loan Documents, shall be binding upon all theLenders and the holders of the Obligations.

*Section11.4         Consultation with Experts*.  The Administrative Agent may consult withlegal counsel, independent public accountants, and other experts selected by itand shall not be liable for any action taken or omitted to be taken by it ingood faith in accordance with the advice of such counsel, accountants orexperts.

*Section11.5         Liability of AdministrativeAgent; Credit Decision*. Neither the Administrative Agent nor any of its directors, officers,agents or employees shall be liable for any action taken or not taken by it inconnection with the Loan Documents:  (i)with the consent or at the request of the Required Lenders or (ii) in theabsence of its own gross negligence or willful misconduct.  Neither the Administrative Agent nor any ofits directors, officers, agents or employees shall be responsible for or haveany duty to ascertain, inquire into or verify: (i) any statement, warranty or representation made in connection with thisAgreement, any other Loan Document or any Credit Event; (ii) the performance orobservance of any of the covenants or agreements of the Borrower or anySubsidiary contained herein or in any other Loan Document; (iii) thesatisfaction of any condition specified in Section 7 hereof, except receipt ofitems required to be delivered to the Administrative Agent; or (iv) thevalidity, effectiveness, genuineness, enforceability, perfection, value, worthor collectibility hereof or of any other Loan Document or of any otherdocuments or writing furnished in connection with any Loan Document; and theAdministrative Agent makes no representation of any kind or character withrespect to any such matter mentioned in this sentence.  The Administrative Agent may execute any ofits duties under any of the Loan Documents by or through employees, agents, andattorneys in fact and shall not be answerable to the Lenders, the Borrower, orany other Person for the default or misconduct of any such agents orattorneys-in-fact selected with reasonable care.  The Administrative Agent shall not incur anyliability by acting in reliance upon any 

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notice, consent, certificate, other document orstatement (whether written or oral) believed by it to be genuine or to be sentby the proper party or parties.  Inparticular and without limiting any of the foregoing, the Administrative Agentshall have no responsibility for confirming the accuracy of any compliancecertificate or other document or instrument received by it under the Loan Documents.  The Administrative Agent may treat the payeeof any Note as the holder thereof until written notice of transfer shall havebeen filed with the Administrative Agent signed by such payee in formsatisfactory to the Administrative Agent. Each Lender acknowledges that it has independently and without relianceon the Administrative Agent or any other Lender, and based upon suchinformation, investigations and inquiries as it deems appropriate, made its owncredit analysis and decision to extend credit to the Borrower in the manner setforth in the Loan Documents.  It shall bethe responsibility of each Lender to keep itself informed as to thecreditworthiness of the Borrower and its Subsidiaries, and the AdministrativeAgent shall have no liability to any Lender with respect thereto.

*Section11.6         Indemnity*.  The Lenders shall ratably, in accordance withtheir respective Revolver Percentages, indemnify and hold the AdministrativeAgent, and its directors, officers, employees, agents, and representatives harmlessfrom and against any liabilities, losses, costs or expenses suffered orincurred by it under any Loan Document or in connection with the transactionscontemplated thereby, regardless of when asserted or arising, except to theextent they are promptly reimbursed for the same by the Borrower and except tothe extent that any event giving rise to a claim was caused by the grossnegligence or willful misconduct of the party seeking to be indemnified.  The obligations of the Lenders under thisSection shall survive termination of this Agreement.  The Administrative Agent shall be entitled tooffset amounts received for the account of a Lender under this Agreementagainst unpaid amounts due from such Lender to the Administrative Agenthereunder (whether as fundings of participations, indemnities or otherwise),but shall not be entitled to offset against amounts owed to the AdministrativeAgent by any Lender arising outside of this Agreement and the other LoanDocuments.

*Section11.7         Resignation of AdministrativeAgent and Successor Administrative Agent*.  The Administrative Agent may resign at anytime by giving written notice thereof to the Lenders and the Borrower.  Upon any such resignation of theAdministrative Agent, the Required Lenders shall have the right to appoint asuccessor Administrative Agent.  If nosuccessor Administrative Agent shall have been so appointed by the RequiredLenders, and shall have accepted such appointment, within 30 days after theretiring Administrative Agent’s giving of notice of resignation then theretiring Administrative Agent may, on behalf of the Lenders, appoint asuccessor Administrative Agent, which may be any Lender hereunder or anycommercial bank organized under the laws of the United States of America or ofany State thereof and having a combined capital and surplus of at least$200,000,000.  Upon the acceptance of itsappointment as the Administrative Agent hereunder, such successorAdministrative Agent shall thereupon succeed to and become vested with all therights and duties of the retiring Administrative Agent under the LoanDocuments, and the retiring Administrative Agent shall be discharged from itsduties and obligations thereunder.  Afterany retiring Administrative Agent’s resignation hereunder as AdministrativeAgent, the provisions of this Section 11 and all protective provisions of theother Loan Documents shall inure to its benefit as to any actions taken oromitted to be taken by it while it was Administrative Agent, but no successorAdministrative Agent shall in any event be liable or responsible for anyactions of its 

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predecessor.  Ifthe Administrative Agent resigns and no successor is appointed, the rights andobligations of such Administrative Agent shall be automatically assumed by theRequired Lenders and the Borrower shall be directed to make all payments dueeach Lender hereunder directly to such.

*Section11.8         L/C Issuer*.  The L/C Issuer shall act on behalf of theLenders with respect to any Letters of Credit issued by it and the documentsassociated therewith.  The L/C Issuershall have all of the benefits and immunities (i) provided to theAdministrative Agent in this Section 11 with respect to any acts taken oromissions suffered by the L/C Issuer in connection with Letters of Creditissued by it or proposed to be issued by it and the Applications pertaining tosuch Letters of Credit as fully as if the term “Administrative Agent”, as usedin this Section 11, included the L/C Issuer with respect to such acts oromissions and (ii) as additionally provided in this Agreement with respect tosuch L/C Issuer.

*Section11.9         Hedging Liability and FundsTransfer and Deposit Account Liability Arrangements*.  By virtue of a Lender’s execution of thisAgreement or an assignment agreement pursuant to Section 13.12 hereof, as thecase may be, any Affiliate of such Lender with whom the Borrower or anySubsidiary has entered into an agreement creating Hedging Liability or FundsTransfer and Deposit Account Liability shall be deemed a Lender party heretofor purposes of any reference in a Loan Document to the parties for whom theAdministrative Agent is acting, it being understood and agreed that the rightsand benefits of such Affiliate under the Loan Documents consist exclusively ofsuch Affiliate’s right to share in payments and collections out of theGuaranties as more fully set forth in Section 4.1 hereof.  In connection with any such distribution ofpayments and collections, the Administrative Agent shall be entitled to assumeno amounts are due to any Lender or its Affiliate with respect to HedgingLiability or Funds Transfer and Deposit Account Liability unless such Lenderhas notified the Administrative Agent in writing of the amount of any suchliability owed to it or its Affiliate prior to such distribution.

*Section11.10       Designation of AdditionalAgents*.  TheAdministrative Agent shall have the continuing right, for purposes hereof, atany time and from time to time to designate one or more of the Lenders (and/orits or their Affiliates) as “syndication agents,” “documentation agents,” “arrangers,”or other designations for purposes hereto, but such designation shall have nosubstantive effect, and such Lenders and their Affiliates shall have noadditional powers, duties or responsibilities as a result thereof.

*Section11.11       Rights with Respect toCollateral*.  TheAdministrative Agent shall have the sole right to exercise any and all remedieswith respect to the Collateral as agent for itself and all other Lendershereunder, and no other Lender shall have any rights with respect to theCollateral except as expressly provided hereunder.

SECTION12.         THE GUARANTEES.

*Section12.1         The Guarantees*.  To induce the Lenders to provide the creditsdescribed herein and in consideration of benefits expected to accrue to theBorrower by reason of the Revolving Credit Commitments and for other good andvaluable consideration, receipt of which is hereby acknowledged, eachSubsidiary party hereto (including any Subsidiary formed or 

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acquired after the Closing Date executing anAdditional Guarantor Supplement in the form attached hereto as Exhibit G orsuch other form acceptable to the Administrative Agent) hereby unconditionallyand irrevocably guarantees jointly and severally to the Administrative Agent,the Lenders, and their Affiliates, the due and punctual payment of all presentand future Obligations, Hedging Liability, and Funds Transfer and DepositAccount Liability, including, but not limited to, the due and punctual paymentof principal of and interest on the Notes, the Reimbursement Obligations, andthe due and punctual payment of all other Obligations now or hereafter owed bythe Borrower under the Loan Documents and the due and punctual payment of allHedging Liability and Funds Transfer and Deposit Account Liability, in eachcase as and when the same shall become due and payable, whether at statedmaturity, by acceleration, or otherwise, according to the terms hereof andthereof (including interest which, but for the filing of a petition inbankruptcy, would otherwise accrue on any such indebtedness, obligation, orliability).  In case of failure by theBorrower or other obligor punctually to pay any Obligations, Hedging Liability,or Funds Transfer and Deposit Account Liability guaranteed hereby, eachGuarantor hereby unconditionally agrees to make such payment or to cause suchpayment to be made punctually as and when the same shall become due andpayable, whether at stated maturity, by acceleration, or otherwise, and as ifsuch payment were made by the Borrower or such obligor, it being agreed thatthis is a guaranty of payment as opposed to a guaranty of collection.  This Section 12 is intended to amend andrestate the provisions of Section 12 set forth in the Prior Credit Agreementwithout effecting any novation or release thereunder.

*Section12.2         Guarantee Unconditional*.  The obligations of each Guarantor under thisSection 12 shall be unconditional and absolute and, without limiting thegenerality of the foregoing, shall not be released, discharged, or otherwise affectedby:

(a)           any extension, renewal, settlement,compromise, waiver, or release in respect of any obligation of the Borrower orother obligor or of any other guarantor under this Agreement or any other LoanDocument or by operation of law or otherwise;

(b)           any modification or amendment of orsupplement to this Agreement or any other Loan Document or any agreementrelating to Hedging Liability or Funds Transfer and Deposit Account Liability;

(c)           any change in the corporateexistence, structure, or ownership of, or any insolvency, bankruptcy,reorganization, or other similar proceeding affecting, the Borrower or otherobligor, any other guarantor, or any of their respective assets, or anyresulting release or discharge of any obligation of the Borrower or otherobligor or of any other guarantor contained in any Loan Document;

(d)           the existence of any claim, set-off,or other rights which the Borrower or other obligor or any other guarantor mayhave at any time against the Administrative Agent, any Lender, or any otherPerson, whether or not arising in connection herewith;

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(e)           any failure to assert, or anyassertion of, any claim or demand or any exercise of, or failure to exercise,any rights or remedies against the Borrower or other obligor, any otherguarantor, or any other Person or Property;

(f)            any application of any sums bywhomsoever paid or howsoever realized to any obligation of the Borrower orother obligor, regardless of what obligations of the Borrower or other obligorremain unpaid;

(g)           any invalidity or unenforceabilityrelating to or against the Borrower or other obligor or any other guarantor forany reason of this Agreement or of any other Loan Document or any agreementrelating to Hedging Liability or Funds Transfer and Deposit Account Liabilityor any provision of applicable law or regulation purporting to prohibit thepayment by the Borrower or other obligor or any other guarantor of theprincipal of or interest on any Note or any Reimbursement Obligation or anyother amount payable under the Loan Documents or any agreement relating toHedging Liability or Funds Transfer and Deposit Account Liability; or

(h)           any other act or omission to act ordelay of any kind by the Administrative Agent, any Lender, or any other Personor any other circumstance whatsoever that might, but for the provisions of thisparagraph, constitute a legal or equitable discharge of the obligations of anyGuarantor under this Section 12.

*Section12.3         Discharge Only upon Paymentin Full; Reinstatement in Certain Circumstances*.  Each Guarantor’s obligations under thisSection 12 shall remain in full force and effect until the Revolving CreditCommitments are terminated, all Letters of Credit have expired, and theprincipal of and interest on the Notes and all other amounts payable by theBorrower and the Guarantors under this Agreement and all other Loan Documentsand, if then outstanding and unpaid, all Hedging Liability and Funds Transferand Deposit Account Liability shall have been paid in full.  If at any time any payment of the principalof or interest on any Note or any Reimbursement Obligation or any other amountpayable by the Borrower or other obligor or any Guarantor under the LoanDocuments or any agreement relating to Hedging Liability or Funds Transfer andDeposit Account Liability is rescinded or must be otherwise restored or returnedupon the insolvency, bankruptcy, or reorganization of the Borrower or otherobligor or of any guarantor, or otherwise, each Guarantor’s obligations underthis Section 12 with respect to such payment shall be reinstated at such timeas though such payment had become due but had not been made at such time.

*Section12.4         Subrogation*.  Each Guarantor agrees it will not exerciseany rights which it may acquire by way of subrogation by any payment madehereunder, or otherwise, until all the Obligations, Hedging Liability, andFunds Transfer and Deposit Account Liability shall have been paid in fullsubsequent to the termination of all the Revolving Credit Commitments andexpiration of all Letters of Credit.  Ifany amount shall be paid to a Guarantor on account of such subrogation rightsat any time prior to the later of (x) the payment in full of the Obligations,Hedging Liability, and Funds Transfer and Deposit Account Liability and allother amounts payable by the Borrower hereunder and the other Loan Documentsand (y) the termination of the Revolving Credit Commitments and expiration ofall Letters of Credit, such amount shall be held in trust for the benefit ofthe Administrative Agent and the Lenders (and their Affiliates) and 

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shall forthwith be paid to the Administrative Agentfor the benefit of the Lenders (and their Affiliates) or be credited andapplied upon the Obligations, Hedging Liability, and Funds Transfer and DepositAccount Liability, whether matured or unmatured, in accordance with the termsof this Agreement.

*Section12.5         Waivers*.  Each Guarantor irrevocably waives acceptancehereof, presentment, demand, protest, and any notice not provided for herein,as well as any requirement that at any time any action be taken by theAdministrative Agent, any Lender, or any other Person against the Borrower orother obligor, another guarantor, or any other Person.

*Section12.6         Limit on Recovery*.  Notwithstanding any other provision hereof,the right of recovery against each Guarantor under this Section 12 shall notexceed $1.00 less than the lowest amount which would render such Guarantor’sobligations under this Section 12 void or voidable under applicable law,including, without limitation, fraudulent conveyance law.

*Section12.7         Stay of Acceleration*.  If acceleration of the time for payment ofany amount payable by the Borrower or other obligor under this Agreement or anyother Loan Document, or under any agreement relating to Hedging Liability orFunds Transfer and Deposit Account Liability, is stayed upon the insolvency,bankruptcy or reorganization of the Borrower or such obligor, all such amountsotherwise subject to acceleration under the terms of this Agreement or theother Loan Documents, or under any agreement relating to Hedging Liability or FundsTransfer and Deposit Account Liability, shall nonetheless be payable by theGuarantors hereunder forthwith on demand by the Administrative Agent made atthe request of the Required Lenders.

*Section12.8         Benefit to Guarantors*.  The Borrower and the Guarantors are engagedin related businesses and integrated to such an extent that the financialstrength and flexibility of the Borrower has a direct impact on the success ofeach Guarantor.  Each Guarantor willderive substantial direct and indirect benefit from the extensions of credithereunder.

*Section12.9         Guarantor Covenants*.  Each Guarantor shall take such action as theBorrower is required by this Agreement to cause such Guarantor to take, andshall refrain from taking such action as the Borrower is required by thisAgreement to prohibit such Guarantor from taking.

SECTION13.         MISCELLANEOUS.

*Section13.1         Withholding Taxes*.  (a)  *Payments Free of Withholding*.  Except as otherwise required by law andsubject to Section 13.1(b) hereof, each payment by the Borrower and theGuarantors under this Agreement or the other Loan Documents shall be madewithout withholding for or on account of any present or future taxes (otherthan overall net income taxes on the recipient) imposed by or within thejurisdiction in which the Borrower or such Guarantor is domiciled, anyjurisdiction from which the Borrower or such Guarantor makes any payment, or(in each case) any political subdivision or taxing authority thereof ortherein, excluding, in the case of the Administrative Agent and each Lender,(i) taxes imposed on or measured by its net income, and franchise taxes imposedon it (in lieu of net income taxes), by the jurisdiction (or any politicalsubdivision thereof) under the Legal Requirements of which the Administrative 

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Agent or such Lender, as the case may be, is organizedor maintains a lending office and (ii) in the case of a foreign Lender, anywithholding tax that is imposed on amounts payable to such Lender at the timesuch foreign Lender becomes a party to this Agreement (or designates a newLending Office) or is attributable to such foreign Lender’s failure to complywith Section 13.1(b).  If any suchwithholding is so required, the Borrower or such Guarantor shall make thewithholding, pay the amount withheld to the appropriate governmental authoritybefore penalties attach thereto or interest accrues thereon, and forthwith paysuch additional amount as may be necessary to ensure that the net amountactually received by each Lender and the Administrative Agent free and clear ofsuch taxes (including such taxes on such additional amount) is equal to theamount which that Lender or the Administrative Agent (as the case may be) wouldhave received had such withholding not been made.  If the Administrative Agent or any Lenderpays any amount in respect of any such taxes, penalties or interest, theBorrower or such Guarantor shall reimburse the Administrative Agent or suchLender for that payment on demand in the currency in which such payment wasmade.  If the Borrower or such Guarantorpays any such taxes, penalties or interest, it shall deliver official taxreceipts evidencing that payment or certified copies thereof to the Lender orAdministrative Agent on whose account such withholding was made (with a copy tothe Administrative Agent if not the recipient of the original) on or before thethirtieth day after payment. Notwithstanding anything to the contrary herein, the Borrower and theGuarantors shall have no liability or responsibility for payment of any penalties,interest or fines accruing on any taxes pursuant to this Section 13 which ariseor result from the Administrative Agent’s or any Lender’s failure to complywith any Legal Requirement.

(b)           *U.S. Withholding TaxExemptions*.  Each Lender thatis not a United States person (as such term is defined in Section 7701(a)(30)of the Code) shall submit to the Borrower and the Administrative Agent on orbefore the date the initial Credit Event is made hereunder or, if later, thedate such financial institution becomes a Lender hereunder, two duly completedand signed copies of (i) either Form W-8 BEN (relating to such Lender andentitling it to a complete exemption from withholding under the Code on allamounts to be received by such Lender, including fees, pursuant to the LoanDocuments and the Obligations) or Form W-8 ECI (relating to all amounts to bereceived by such Lender, including fees, pursuant to the Loan Documents and theObligations) of the United States Internal Revenue Service or (ii) solely ifsuch Lender is claiming exemption from United States withholding tax underSection 871(h) or 881(c) of the Code with respect to payments of “portfoliointerest”, a Form W-8 BEN, or any successor form prescribed by the InternalRevenue Service, and a certificate representing that such Lender is not a bankfor purposes of Section 881(c) of the Code, is not a 10-percent shareholder(within the meaning of Section 871(h)(3)(B) of the Code) of the Borrower and isnot a controlled foreign corporation related to the Borrower (within themeaning of Section 864(d)(4) of the Code). Thereafter and from time to time, each Lender shall submit to theBorrower and the Administrative Agent such additional duly completed and signedcopies of one or the other of such Forms (or such successor forms as shall beadopted from time to time by the relevant United States taxing authorities) andsuch other certificates as may be (i) requested by the Borrower in a writtennotice, directly or through the Administrative Agent, to such Lender and (ii)required under then current United States law or regulations to avoid or reduceUnited States withholding taxes on payments in respect of all amounts to bereceived by such Lender, including fees, pursuant to the Loan Documents or theObligations.  Upon the request of theBorrower or the Administrative Agent, each Lender that is a United 

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States person (as suchterm is defined in Section 7701(a)(30) of the Code) shall submit to theBorrower and the Administrative Agent a certificate to the effect that it issuch a United States person.

(c)           *Inability of Lender toSubmit Forms*.  If any Lenderdetermines, as a result of any change in applicable law, regulation or treaty,or in any official application or interpretation thereof, that it is unable tosubmit to the Borrower or the Administrative Agent any form or certificate thatsuch Lender is obligated to submit pursuant to subsection (b) of this Section13.1 or that such Lender is required to withdraw or cancel any such form orcertificate previously submitted or any such form or certificate otherwisebecomes ineffective or inaccurate, such Lender shall promptly notify theBorrower and Administrative Agent of such fact and the Lender shall to thatextent not be obligated to provide any such form or certificate and will beentitled to withdraw or cancel any affected form or certificate, as applicable.

(d)           *Refunds. *If the Administrative Agent or anyLender determines, in its sole discretion, that it has received a refund of anytaxes as to which it has been indemnified by the Borrower under this Agreementor with respect to which the Borrower has paid additional amounts pursuant tothis Section, it shall pay to the Borrower an amount equal to such refund (butonly to the extent of indemnity payments made under this Agreement oradditional amounts paid by the Borrower under this Section with respect to thetaxes giving rise to such refund), net of all out-of-pocket expenses of theAdministrative Agent or such Lender, as the case may be, and without interest (otherthan any interest paid by the relevant governmental authority with respect tosuch refund, provided that the Borrower, upon the request of the AdministrativeAgent or such Lender, agrees to repay the amount paid over to the Borrower tothe Administrative Agent or such Lender in the event the Administrative Agentor such Lender is required to repay such refund to such governmental authority.

(e)           *Change of Lending Office.* If Borrower is required to pay any additionalamount to any Lender or any governmental authority for the account of anyLender pursuant to Section 13.1, then such Lender shall use reasonable effortsto designate a different Lending Office for funding or booking its Loanshereunder or to assign its rights and obligations hereunder to another of itsoffices, branches or affiliates, if, in the judgment of such Lender, suchdesignation or assignment (i) would eliminate or reduce amounts payablepursuant to Section 13.1 in the future and (ii) would not subject such Lenderto any unreimbursed cost or expense and would not otherwise be disadvantageousto such Lender.  The Borrower herebyagrees to pay all reasonable costs and expenses incurred by any Lender inconnection with any such designation or assignment.

*Section13.2         No Waiver, Cumulative Remedies*.  No delay or failure on the part of theAdministrative Agent or any Lender or on the part of the holder or holders ofany of the Obligations in the exercise of any power or right under any LoanDocument shall operate as a waiver thereof or as an acquiescence in anydefault, nor shall any single or partial exercise of any power or rightpreclude any other or further exercise thereof or the exercise of any otherpower or right.  The rights and remedieshereunder of the Administrative Agent, the Lenders and of the holder or holdersof any of the Obligations are cumulative to, and not exclusive of, any rightsor remedies which any of them would otherwise have.

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*Section13.3         Non-Business Days*.  If any payment hereunder becomes due andpayable on a day which is not a Business Day, the due date of such paymentshall be extended to the next succeeding Business Day on which date suchpayment shall be due and payable.  In thecase of any payment of principal falling due on a day which is not a BusinessDay, interest on such principal amount shall continue to accrue during suchextension at the rate per annum then in effect, which accrued amount shall bedue and payable on the next scheduled date for the payment of interest.

*Section13.4         Documentary Taxes*.  The Borrower agrees to pay on demand anydocumentary, stamp or similar taxes payable in respect of this Agreement or anyother Loan Document, including interest and penalties, in the event any suchtaxes are assessed, irrespective of when such assessment is made and whether ornot any credit is then in use or available hereunder.

*Section13.5         Survival of Representations*.  All representations and warranties madeherein or in any other Loan Document or in certificates given pursuant heretoor thereto shall survive the execution and delivery of this Agreement and theother Loan Documents, and shall continue in full force and effect with respectto the date as of which they were made as long as any credit is in use oravailable hereunder.

*Section13.6         Survival of Indemnities*.  All indemnities and other provisions relativeto reimbursement to the Lenders of amounts sufficient to protect the yield ofthe Lenders with respect to the Loans and Letters of Credit, including, but notlimited to, Sections 1.11, 10.3, and 13.15 hereof, shall survive thetermination of this Agreement and the other Loan Documents and the payment ofthe Obligations.

*Section13.7         Sharing of Set-Off*.  Each Lender agrees with each other Lender aparty hereto that if such Lender shall receive and retain any payment, whetherby set-off or application of deposit balances or otherwise, on any of the Loansor Reimbursement Obligations in excess of its ratable share of payments on allsuch Obligations then outstanding to the Lenders, then such Lender shallpurchase for cash at face value, but without recourse, ratably from each of theother Lenders such amount of the Loans or Reimbursement Obligations, orparticipations therein, held by each such other Lenders (or interest therein)as shall be necessary to cause such Lender to share such excess payment ratablywith all the other Lenders; *provided, however*,that if any such purchase is made by any Lender, and if such excess payment orpart thereof is thereafter recovered from such purchasing Lender, the relatedpurchases from the other Lenders shall be rescinded ratably and the purchaseprice restored as to the portion of such excess payment so recovered, butwithout interest.  For purposes of thisSection, amounts owed to or recovered by the L/C Issuer in connection withReimbursement Obligations in which Lenders have been required to fund theirparticipation shall be treated as amounts owed to or recovered by the L/CIssuer as a Lender hereunder.

*Section13.8         Notices*.  Except as otherwise specified herein, allnotices hereunder and under the other Loan Documents shall be in writing(including, without limitation, notice by telecopy) and shall be given to therelevant party at its address or telecopier number set forth below, or suchother address or telecopier number as such party may hereafter specify bynotice to the Administrative Agent and the Borrower given by courier, by UnitedStates certified or 

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registered mail, by telecopy or by othertelecommunication device capable of creating a written record of such noticeand its receipt.  Notices under the LoanDocuments to the Lenders and the Administrative Agent shall be addressed totheir respective addresses or telecopier numbers set forth on the signaturepages hereof, and to the Borrower or any Guarantor to:

| Kimball Hill, Inc.               |
|----------------------------------|
| 5999 New Wilke  Road, Suite 504  |
| Rolling Meadows,  Illinois 60008 |
| Attention:                       |   | Treasurer |
| Telephone:                       |   | (847) 364-7300 |
| Telecopy:                        |   | (847) 290-1565 |
|                             |   |   |
| and a copy to:                   |
|                             |
| Kimball Hill, Inc.               |
| 5999 New Wilke  Road, Suite 504  |
| Rolling Meadows,  Illinois 60008 |
| Attention:                       |   | General Counsel |
| Telephone:                       |   | (847) 364-7300 |
| Telecopy:                        |   | (847) 981-2980 |

 

Each such notice, request or other communication shallbe effective (i) if given by telecopier, when such telecopy is transmitted tothe telecopier number specified in this Section or on the signature pageshereof and a confirmation of such telecopy has been received by the sender,(ii) if given by mail, 5 days after such communication is deposited in the mail,certified or registered with return receipt requested, addressed as aforesaidor (iii) if given by any other means, when delivered at the addresses specifiedin this Section or on the signature pages hereof; *provided*that any notice given pursuant to Section 1 hereof shall be effective only uponreceipt.

*Section13.9         Counterparts*.  This Agreement may be executed in any numberof counterparts, and by the different parties hereto on separate counterpartsignature pages, and all such counterparts taken together shall be deemed toconstitute one and the same instrument.

*Section13.10       Successors and Assigns*.  This Agreement shall be binding upon theBorrower and the Guarantors and their successors and assigns, and shall inureto the benefit of the Administrative Agent and each of the Lenders and thebenefit of their respective successors and assigns, including any subsequentholder of any of the Obligations.  TheBorrower and the Guarantors may not assign any of their rights or obligationsunder any Loan Document without the written consent of all of the Lenders.

*Section13.11       Participants*.  Each Lender shall have the right at its owncost to grant participations (to be evidenced by one or more agreements orcertificates of participation) in the Loans made and Reimbursement Obligationsand/or Revolving Credit Commitments held by such Lender at any time and fromtime to time to one or more other Persons; *provided* thatno such participation shall relieve any Lender of any of its obligations underthis Agreement, and, *provided, further*that no such participant shall have any rights under this Agreement except asprovided in this Section, and the Administrative Agent shall have no obligationor responsibility 

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to such participant. Any agreement pursuant to which such participation  is granted shall provide that the grantingLender shall retain the sole right and responsibility to enforce theobligations of the Borrower under this Agreement and the other Loan Documentsincluding, without limitation, the right to approve any amendment, modificationor waiver of any provision of the Loan Documents, except that such agreementmay provide that such Lender will not agree to any modification, amendment orwaiver of the Loan Documents that would reduce the amount of or postpone anyfixed date for payment of any Obligation in which such participant has aninterest.  Any party to which such aparticipation has been granted shall have the benefits of Section 1.11 andSection 10.3 hereof.  The Borrowerauthorizes each Lender to disclose to any participant or prospectiveparticipant under this Section any financial or other information pertaining tothe Borrower or any Subsidiary, provided such participant expressly agrees tobe bound by the provisions of Section 13.25 hereof.

*Section13.12       Assignments*.  (a) Each Lender shall have the right at any time, with the prior consent ofthe Administrative Agent (and the L/C Issuers, if other than the AdministrativeAgent) (except in the case of assignments to an existing Lender or an Affiliatethereof, in which case no consent by the Administrative Agent shall be needed)and, so long as no Event of Default then exists, the Borrower (which consent ofthe Borrower shall not be unreasonably withheld) to sell, assign, transfer ornegotiate all or any part of its rights and obligations under the LoanDocuments (including, without limitation, the indebtedness evidenced by theNotes then held by such assigning Lender, together with an equivalentpercentage of its obligation to make Loans and participate in Letters ofCredit) to one or more commercial banks or other financial institutions orinvestors, *provided* that, unless otherwise agreedto by the Administrative Agent, such assignment shall be of a fixed percentage(and not by its terms of varying percentage) of the assigning Lender’s rightsand obligations under the Loan Documents; *provided, however*,that in order to make any such assignment (i) unless the assigning Lender isassigning all of its Revolving Credit Commitments, outstanding Loans andinterests in L/C Obligations, the assigning Lender shall retain at least$5,000,000 in unused Revolving Credit Commitments, outstanding Loans andinterests in Letters of Credit, (ii) the assignee Lender shall have RevolvingCredit Commitments, outstanding Loans and interests in Letters of Credit of atleast $5,000,000, (iii) each such assignment shall be evidenced by a writtenagreement (substantially in the form attached hereto as Exhibit H or in suchother form acceptable to the Administrative Agent) executed by such assigningLender, such assignee Lender or Lenders, the Administrative Agent (and the L/CIssuers, if other than the Administrative Agent) and, if required as providedabove, the Borrower, which agreement shall specify in each instance the portionof the Obligations which are to be assigned to the assignee Lender and theportion of the Revolving Credit Commitments of the assigning Lender to beassumed by the assignee Lender, and (iv) the assigning Lender shall pay to theAdministrative Agent a processing fee of $3,500 and any out-of-pocket attorneys’fees and expenses incurred by the Administrative Agent in connection with anysuch assignment agreement.  Any suchassignee shall become a Lender for all purposes hereunder to the extent of therights and obligations under the Loan Documents it assumes and the assigningLender shall be released from its obligations, and will have released itsrights, under the Loan Documents to the extent of such assignment.  The address for notices to such assigneeLender shall be as specified in the assignment agreement executed by it.  Promptly upon the effectiveness of any suchassignment agreement, the Borrower shall execute and deliver replacement Notesto the assignee Lender and the assigning Lender in the respective amounts oftheir Revolving Credit Commitments (or assigned principal amounts, asapplicable) 

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after giving effect to the reduction occasioned bysuch assignment (all such Notes to constitute “*Notes*”for all purposes of the Loan Documents), and the assignee Lender shallthereafter surrender to the Borrower its old Notes.  The Borrower authorizes each Lender todisclose to any purchaser or prospective purchaser of an interest in the Loansand interest in Letters of Credit owed to it or its Revolving CreditCommitments under this Section any financial or other information pertaining tothe Borrower or any Subsidiary.

(b)           Any Lender may at any time pledge orgrant a security interest in all or any portion of its rights under thisAgreement to secure obligations of such Lender, including any such pledge orgrant to a Federal Reserve Bank, and this Section shall not apply to any suchpledge or grant of a security interest; *provided* thatno such pledge or grant of a security interest shall release a Lender from anyof its obligations hereunder or substitute any such pledgee or secured partyfor such Lender as a party hereto; *provided further, however*,the right of any such pledgee or grantee (other than any Federal Reserve Bank)to further transfer all or any portion of the rights pledged or granted to it,whether by means of foreclosure or otherwise, shall be at all times subject tothe terms of this Agreement.

*Section13.13       Amendments*.  Any provision of this Agreement or the otherLoan Documents may be amended or waived if, but only if, such amendment orwaiver is in writing and is signed by (a) the Borrower, (b) the RequiredLenders, and (c) if the rights or duties of the Administrative Agent or the L/CIssuer are affected thereby, the Administrative Agent or such L/C Issuer, asapplicable; *provided* that:

(i)            no amendment or waiver pursuant tothis Section 13.13 shall (A) increase any Revolving Credit Commitment of anyLender without the consent of such Lender or (B) reduce the amount of orpostpone the date for any scheduled payment of any principal of or interest onany Loan or of any Reimbursement Obligation or of any fee payable hereunderwithout the consent of the Lender to which such payment is owing or which hascommitted to make such Loan or Letter of Credit (or participate therein)hereunder;

(ii)           no amendment or waiver pursuant tothis Section 13.13 shall, unless signed by each Lender, increase the aggregateRevolving Credit Commitments of the Lenders (except as provided in Section1.13), change the definitions of Revolving Credit Termination Date or RequiredLenders, change the provisions of this Section 13.13, release any materialguarantor, or affect the number of Lenders required to take any actionhereunder or under any other Loan Document; and

(iii)          no amendment to Section 12 hereofshall be made without the consent of the Guarantor(s) affected thereby.

*Section13.14       Headings*.  Section headings used in this Agreement arefor reference only and shall not affect the construction of this Agreement.

*Section13.15       Costs and Expenses;Indemnification*. (a)  The Borrower agrees to payall costs and expenses of the Administrative Agent in connection with thepreparation, negotiation, syndication, and administration of the LoanDocuments, including, without limitation, the 

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reasonable fees and disbursements of counsel to theAdministrative Agent, in connection with the preparation and execution of theLoan Documents, and any amendment, waiver or consent related thereto, whetheror not the transactions contemplated herein are consummated.  The Borrower further agrees to indemnify theAdministrative Agent, each Lender, and their respective directors, officers,employees, agents, financial advisors, and consultants against all losses,claims, damages, penalties, judgments, liabilities and expenses (including,without limitation, all expenses of litigation or preparation therefor, whetheror not the indemnified Person is a party thereto, or any settlement arrangementarising from or relating to any such litigation) which any of them may pay orincur arising out of or relating to any Loan Document or any of thetransactions contemplated thereby or the direct or indirect application orproposed application of the proceeds of any Loan or Letter of Credit, other thanthose which arise from the gross negligence or willful misconduct of the partyclaiming indemnification.  The Borrower,upon demand by the Administrative Agent or a Lender at any time, shallreimburse the Administrative Agent or such Lender for any legal or otherexpenses incurred in connection with investigating or defending against any ofthe foregoing (including any settlement costs relating to the foregoing) exceptif the same is directly due to the gross negligence or willful misconduct ofthe party to be indemnified.  Theobligations of the Borrower under this Section shall survive the termination ofthis Agreement.

(b)           The Borrower unconditionally agreesto forever indemnify, defend and hold harmless, and covenants not to sue forany claim for contribution against, the Administrative Agent and the Lendersfor any damages, costs, loss or expense, including without limitation,response, remedial or removal costs, arising out of any of the following:  (i) any presence, release, threatened releaseor disposal of any hazardous or toxic substance or petroleum by the Borrower orany Subsidiary or otherwise occurring on or with respect to its Property(whether owned or leased), (ii) the operation or violation of any environmentallaw, whether federal, state, or local, and any regulations promulgatedthereunder, by the Borrower or any Subsidiary or otherwise occurring on or withrespect to its Property (whether owned or leased), (iii) any claim for personalinjury or property damage in connection with the Borrower or any Subsidiary orotherwise occurring on or with respect to its Property (whether owned orleased), and (iv) the inaccuracy or breach of any environmental representation,warranty or covenant by the Borrower or any Subsidiary made herein or in any otherLoan Document evidencing or securing any Obligations or setting forth terms andconditions applicable thereto or otherwise relating thereto, except for damagesarising from the willful misconduct or gross negligence of the party claimingindemnification.  This indemnificationshall survive the payment and satisfaction of all Obligations and thetermination of this Agreement, and shall remain in force beyond the expirationof any applicable statute of limitations and payment or satisfaction in full ofany single claim under this indemnification. This indemnification shall be binding upon the successors and assigns ofthe Borrower and shall inure to the benefit of Administrative Agent and theLenders directors, officers, employees, agents, and collateral trustees, andtheir successors and assigns.

*Section13.16       Set-off*.  In addition to any rights now or hereaftergranted under applicable law and not by way of limitation of any such rights,upon the occurrence of any Event of Default, each Lender and each subsequentholder of any Obligation is hereby authorized by the Borrower and eachGuarantor at any time or from time to time, without notice to the Borrower orsuch Guarantor or to any other Person, any such notice being hereby expresslywaived, to set-off and 

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to appropriate and to apply any and all deposits(general or special, including, but not limited to, indebtedness evidenced bycertificates of deposit, whether matured or unmatured, but not including trustaccounts, and in whatever currency denominated) and any other indebtedness atany time held or owing by that Lender or that subsequent holder to or for thecredit or the account of the Borrower or such Guarantor, whether or notmatured, against and on account of the Obligations of the Borrower or suchGuarantor to that Lender or that subsequent holder under the Loan Documents,including, but not limited to, all claims of any nature or description arisingout of or connected with the Loan Documents, irrespective of whether or not (a)that Lender or that subsequent holder shall have made any demand hereunder or(b) the principal of or the interest on the Loans or Notes and other amountsdue hereunder shall have become due and payable pursuant to Section 9 andalthough said obligations and liabilities, or any of them, may be contingent orunmatured.

*Section13.17       Entire Agreement*.  The Loan Documents constitute the entireunderstanding of the parties thereto with respect to the subject matter thereofand any prior agreements, whether written or oral, with respect thereto aresuperseded hereby.

*Section13.18       Governing Law*.  This Agreement and the other Loan Documents(except as otherwise specified therein), and the rights and duties of theparties hereto, shall be construed and determined in accordance with theinternal laws of the State of Illinois.

*Section13.19       Severability of Provisions*.  Any provision of any Loan Document which isunenforceable in any jurisdiction shall, as to such jurisdiction, beineffective to the extent of such unenforceability without invalidating theremaining provisions hereof or affecting the validity or enforceability of suchprovision in any other jurisdiction.  Allrights, remedies and powers provided in this Agreement and the other LoanDocuments may be exercised only to the extent that the exercise thereof doesnot violate any applicable mandatory provisions of law, and all the provisionsof this Agreement and other Loan Documents are intended to be subject to allapplicable mandatory provisions of law which may be controlling and to belimited to the extent necessary so that they will not render this Agreement orthe other Loan Documents invalid or unenforceable.

*Section13.20       Excess Interest*.  Notwithstanding any provision to the contrarycontained herein or in any other Loan Document, no such provision shall requirethe payment or permit the collection of any amount of interest in excess of themaximum amount of interest permitted by applicable law to be charged for theuse or detention, or the forbearance in the collection, of all or any portionof the Loans or other obligations outstanding under this Agreement or any otherLoan Document (“*Excess Interest*”).  If any Excess Interest is provided for, or isadjudicated to be provided for, herein or in any other Loan Document, then insuch event (a) the provisions of this Section shall govern and control, (b)neither the Borrower nor any guarantor or endorser shall be obligated to payany Excess Interest, (c) any Excess Interest that the Administrative Agent orany Lender may have received hereunder shall, at the option of theAdministrative Agent, be (i) applied as a credit against the then outstandingprincipal amount of Obligations hereunder and accrued and unpaid interestthereon (not to exceed the maximum amount permitted by applicable law), (ii)refunded to the Borrower, or (iii) any combination of the foregoing, (d) theinterest rate payable hereunder or under any other Loan Document shall beautomatically subject to reduction to the maximum lawful contract rate allowedunder applicable 

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usury laws (the “*Maximum Rate*”),and this Agreement and the other Loan Documents shall be deemed to have been,and shall be, reformed and modified to reflect such reduction in the relevantinterest rate, and (e) neither the Borrower nor any guarantor or endorser shallhave any action against the Administrative Agent or any Lender for any damageswhatsoever arising out of the payment or collection of any ExcessInterest.  Notwithstanding the foregoing,if for any period of time interest on any of Borrower’s Obligations iscalculated at the Maximum Rate rather than the applicable rate under thisAgreement, and thereafter such applicable rate becomes less than the MaximumRate, the rate of interest payable on the Borrower’s Obligations shall remainat the Maximum Rate until the Lenders have received the amount of interestwhich such Lenders would have received during such period on the Borrower’sObligations had the rate of interest not been limited to the Maximum Rateduring such period.

*Section13.21       Construction*.  The provisions of this Agreement relating toSubsidiaries shall only apply during such times as the Borrower has one or moreSubsidiaries.

*Section13.22       Lender’s Obligations Several*.  The obligations of the Lenders hereunder areseveral and not joint.  Nothing containedin this Agreement and no action taken by the Lenders pursuant hereto shall bedeemed to constitute the Lenders a partnership, association, joint venture orother entity.

*Section13.23       Submission to Jurisdiction;Waiver of Jury Trial*. The Borrower and the Guarantors hereby submit to the nonexclusivejurisdiction of the United States District Court for the Northern District ofIllinois and of any Illinois State court sitting in the City of Chicago forpurposes of all legal proceedings arising out of or relating to this Agreement,the other Loan Documents or the transactions contemplated hereby orthereby.  The Borrower and the Guarantorsirrevocably waive, to the fullest extent permitted by law, any objection whichthey may now or hereafter have to the laying of the venue of any suchproceeding brought in such a court and any claim that any such proceedingbrought in such a court has been brought in an inconvenient forum.  THE BORROWER, THE GUARANTORS, THE ADMINISTRATIVE AGENT,AND THE LENDERS HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY INANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENT OR THETRANSACTIONS CONTEMPLATED THEREBY.

*Section13.24       USA Patriot Act*.  Each Lender that is subject to therequirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed intolaw October 26, 2001)) (the “*Act*”) herebynotifies the Borrower that pursuant to the requirements of the Act, it isrequired to obtain, verify, and record information that identifies theBorrower, which information includes the name and address of the Borrower andother information that will allow such Lender to identify the Borrower inaccordance with the Act.

*Section13.25       Confidentiality*.  Each of the Administrative Agent, theLenders, the L/C Issuer and any participant under Section 13.11 hereof agreesto maintain the confidentiality of the Information (as defined below), exceptthat Information may be disclosed (a) to its and its Affiliates’ directors,officers, employees and agents, including accountants, legal counsel and otheradvisors to the extent any such Person has a need to know such Information (itbeing understood that the Persons to whom such disclosure is made will first beinformed of the confidential nature of such Information and instructed to keepsuch Information confidential), (b)

87

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to the extent requested by any regulatory authority,such as the National Association of Insurance Commissioners), (c) to the extentrequired by applicable laws or regulations or by any subpoena or similar legalprocess, (d) to any other party hereto, (e) in connection with the exercise ofany remedies hereunder or under any other Loan Document or any suit, action orproceeding relating to this Agreement or any other Loan Document or theenforcement of rights hereunder or thereunder, (f) subject to an agreementcontaining provisions substantially the same as those of this Section, to (A)any assignee of or participant in, or any prospective assignee of orparticipant in, any of its rights or obligations under this Agreement or (B)any actual or prospective counterparty (or its advisors) to any swap orderivative transaction relating to the Borrower or any of its Subsidiaries andits obligations, (g) with the prior written consent of the Borrower, (h) to theextent such Information (A) becomes publicly available other than as a resultof a breach of this Section or (B) becomes available to the AdministrativeAgent, any Lender or the L/C Issuer on a non-confidential basis from a sourceother than the Borrower or any of its Subsidiaries or any of their directors,officers, employees or agents, including accountants, legal counsel and otheradvisors, (i) to rating agencies if requested or required by such agencies inconnection with a rating relating to the Loans or Revolving Credit Commitmentshereunder, of (j) to entities which compile and publish information about thesyndicated loan market, *provided* thatonly basic information about the pricing and structure of the transactionevidenced hereby may be disclosed pursuant to this subsection (j), or (k) toholders of any Subordinated Debt.

For purposes of this Section, *“Information”*means all information received from the Borrower or any of its Subsidiariesrelating to the Borrower or any of its Subsidiaries or any of their respectivebusinesses, other than any such information that is available to theAdministrative Agent, any Lender or the L/C Issuer on a non-confidential basisprior to disclosure by the Borrower or any of its Subsidiaries.

[SIGNATURE PAGES TOFOLLOW]

88

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This Agreement isentered into between us for the uses and purposes hereinabove set forth as ofthe date first above written.
|        | *“Borrower”*                           |
|--------|--------------------------------------------------|
|   |                                             |
|   | **KIMBALL HILL, INC.,** an  Illinois corporation |
|   | ** **                                       |
|   | By:                                              | /s/David K. Hill |
|   | Name:                                            | David K. Hill |
|   | Title:                                           | Chairman, Chief Executive Officer and Director |

 

----

 
|        | *“Guarantors”*                            |
|--------|-----------------------------------------------------|
|   | * *                                            |
|   | **Cactus Hills, LLC**                               |
|   | **Kimball Hill Homes  TEXAS Investments, L.L.C.**   |
|   | **Kimball Hill Homes  TEXAS Operations, L.L.C.**    |
|   | **Kimball Hill Texas  Investment Company, L.L.C.**  |
|   | **Kimball Hill Far East  Detroit, LLC**             |
|   | **KH Financial Holding  Company**                   |
|   | **KHH Texas Trading  Company L.P.**                 |
|   | **Kimball Hill Homes  Austin, L.P.**                |
|   | **Kimball Hill Homes  California, Inc.**            |
|   | **Kimball Hill Homes  Dallas, L.P.**                |
|   | **Kimball Hill Homes  Florida, Inc.**               |
|   | **Kimball Hill Homes  Houston, L.P.**               |
|   | **Kimball Hill Homes  Illinois, LLC**               |
|   | **Kimball Hill Homes  Nevada, Inc.**                |
|   | **Kimball Hill Homes  Ohio, Inc.**                  |
|   | **Kimball Hill Homes  Oregon, Inc.**                |
|   | **Kimball Hill Homes  Realty Florida, Inc.**        |
|   | **Kimball Hill Homes  San Antonio, L.P.**           |
|   | **Kimball Hill Homes  Texas, Inc.**                 |
|   | **Kimball Hill Homes  Washington, Inc.**            |
|   | **Kimball Hill Homes  Wisconsin, Inc.**             |
|   | **National Credit and  Guaranty Corporation**       |
|   | **River Oaks Realty,  L.P.**                        |
|   | **18th and Peoria, LLC**                            |
|   | **Kimball Hill Suburban  Centers, L.L.C.**          |
|   | **Kimball Hill Urban  Centers, L.L.C.**             |
|   | **Kimball Hill Urban  Centers Chicago One, L.L.C.** |
|   | **Kimball Hill Urban  Centers Chicago Two, L.L.C.** |
|   |                                                |
|   | By:                                                 | /s/ David K. Hill |
|   |                                                | David K. Hill |
|   |                                                | Chairman and CEO |

 

----

 
|        | **East Lake Park, Inc.**              |
|--------|---------------------------------------|
|   | **Kimball Hill  Stateway, Inc.**      |
|   |                                  |
|   | By:                                   | /s/ David K. Hill |
|   |                                  | David K. Hill |
|   |                                  | President |
|   |                                  |
|   | **Kimball Hill Bellevue  Ranch, LLC** |
|   | **Kimball Hill  Reflections, LLC**    |
|   | **Kimball Hill Sheldon  Lakes, LLC**  |
|   | **Kimball Hill  Villages, LLC**       |
|   |                                  |
|   | By:                                   | Kimball Hill Homes California, Inc., its manager |
|   |                                  |   |
|   |                                  | By: | /s/ David K. Hill |
|   |                                  |   | David K. Hill |
|   |                                  |   | Chairman and CEO |

 

----

 
|        | **Bridle Ridge Limited  Partnership**                    |
|--------|----------------------------------------------------------|
|   | **Parkview Limited  Partnership**                        |
|   | **River Pointe Limited  Partnership**                    |
|   | **Sonata at Morada  Ranch Limited Partnership**          |
|   | **Windmill Park Limited  Partnership**                   |
|   | **Kimball Hill Chadwick  Farms Limited Partnership**     |
|   | **Kimball West Frisco  Limited Partnership**             |
|   | **Kimball Hill Calusa  Palms Limited Partnership**       |
|   | **Kimball Hill Marbella  Estates Limited Partnership**   |
|   | **Indian Trails Limited  Partnership**                   |
|   | **Astor Place Limited  Partnership**                     |
|   | **Bolingbrook Limited  Partnership**                     |
|   | **Edgewater Limited  Partnership**                       |
|   | **Huntington Chase  Limited Partnership**                |
|   | **Legend Lakes Limited  Partnership**                    |
|   | **Waterford Limited  Partnership**                       |
|   | **Whispering Meadow  Limited Partnership**               |
|   | **White Oak Limited  Partnership**                       |
|   | **Kimball Hill  Centennial Heights Limited Partnership** |
|   | **Kimball Hill  Heathers/Caparola Limited Partnership**  |
|   | **Kimball Mountain  First Limited Partnership**          |
|   | **Kimball Cove Limited  Partnership**                    |
|   | **Gables at Hiddenbrook  Limited Partnership**           |
|   | **Park Shore, L.L.C.**                                   |
|   | **KIMBALL HILL URBAN  CENTERS SPECIAL PURPOSES, L.L.C.** |
|   |                                                     |
|   | By:                                                      | /s/ David K. Hill |
|   |                                                     | David K. Hill |
|   |                                                     | Chairman and CEO |

 

----

 
|        | **Kimball Hill TX  Properties, LLC** |
|--------|--------------------------------------|
|   |                                 |
|   | By:                                  | Kimball Hill Homes Houston, L.P., its manager |
|   |                                 |   |
|   |                                 | By: | /s/ David K. Hill |
|   |                                 |   | David K. Hill |
|   |                                 |   | Chairman and CEO |
|   |                                 |   |   |
|   | **THE HAMILTON PLACE PARTNERSHIP**   |
|   |                                 |   |   |
|   | By:                                  | Kimball Hill Homes Illinois, LLC, its general  partner |
|   |                                 |   |   |
|   |                                 | By: | /s/ David K. Hill |
|   |                                 |   | David K. Hill |
|   |                                 |   | Chairman and CEO |
|   |                                 |   |   |
|   | **KH Ingham Park South,  LLC**       |
|   | **KH SRAV II, LLC**                  |
|   |                                 |   |   |
|   | By:                                  | Kimball Hill Homes Illinois, LLC, its manager |
|   |                                 |   |   |
|   |                                 | By: | /s/ David K. Hill |
|   |                                 |   | David K. Hill |
|   |                                 |   | Chairman and CEO |
|   |                                 |   |   |
|   | **River Oaks Homes, LLP**            |
|   |                                 |   |   |
|   | By:                                  | Kimball Hill Homes Texas, Inc., its manager |
|   |                                 |   |   |
|   |                                 | By: | /s/ David K. Hill |
|   |                                 |   | David K. Hill |
|   |                                 |   | Chairman and CEO |

 

----

 
|        | *“Lenders”*                                                                                     |
|--------|-----------------------------------------------------------------------------------------------------------|
|   | * *                                                                                                  |
|   | **HARRIS N.A.,** in its individual  capacity as a Lender, as L/C Issuer, and as Administrative Agent |
|   |                                                                                                      |
|   | By:                                                                                                       | /s/ Scott W. Morris |
|   | Name:                                                                                                     | Scott W. Morris |
|   | Title:                                                                                                    | Vice President |
|   |                                                                                                      |
|   | Address:                                                                                                  |
|   | 111 W. Monroe Street, 10th Floor West                                                                     |
|   | Chicago, IL 60603                                                                                         |
|   | Attention:                                                                                                | Scott Morris |
|   | Telecopy:                                                                                                 | (312) 461-2968 |
|   | Telephone:                                                                                                | (312) 461-6791 |
|        |                                                                                                           |  |  |

 

----

 
|        | **BANK OF AMERICA, N.A.,** in its  individual capacity as a Lender, and as Syndication Agent |
|--------|----------------------------------------------------------------------------------------------|
|   |                                                                                         |
|   | By:                                                                                          | /s/ Patricia A. Provenzano |
|   | Name:                                                                                        | Patricia A. Provenzano |
|   | Title:                                                                                       | Senior Vice President |
|   |                                                                                         |
|   | Address:                                                                                     |
|   | One Lincoln Centre, Suite 300                                                                |
|   | 18W140 Butterfield Rd.                                                                       |
|   | Oakbrook Terrace, IL 60181                                                                   |
|   | Attention:                                                                                   | Patricia A. Provenzano |
|   | Telecopy:                                                                                    | (630) 627-1948 |
|   | Telephone:                                                                                   | (630) 620-3954 |
|        |                                                                                              |  |  |

 

----

 
|        | **KEYBANK NATIONAL ASSOCIATION,**  as Co-Documentation Agent and a Lender |
|--------|---------------------------------------------------------------------------|
|   | ** **                                                                |
|   | By:                                                                       | /s/ Kevin DeLozier |
|   | Name:                                                                     | Kevin DeLozier |
|   | Title:                                                                    | Senior Vice President |
|   |                                                                      |
|   | Address:                                                                  |
|   | 8117 Preston Road                                                         |
|   | Preston Commons West Tower #440                                           |
|   | Dallas, TX 75225                                                          |
|   | Attention:                                                                | Kevin Delozier |
|   | Telecopy:                                                                 | (214) 414-2621 |
|   | Telephone:                                                                | (214) 414-2585 |
|        |                                                                           |  |  |

 

----

 
|        | **CHARTER ONE BANK, N.A.,** as a  Lender |
|--------|------------------------------------------|
|   | ** **                               |
|   | By:                                      | /s/ Kurt Kuyawa |
|   | Name:                                    | Kurt Kuyawa |
|   | Title:                                   | Senior Vice President |
|   |                                     |
|   | Address:                                 |
|   | One Grant Square - ILG402                |
|   | Hinsdale, IL 60521                       |
|   | Attention:                               | Kurt Kuyawa |
|   | Telecopy:                                | (630) 850-8340 |
|   | Telephone:                               | (630) 794-8721 |
|        |                                          |  |  |

 

----

 
|        | **FIRST BANK,** as a Lender    |
|--------|--------------------------------|
|   | ** **                     |
|   | By:                            | /s/ James Brennan |
|   | Name:                          | James Brennan |
|   | Title:                         | Vice President |
|   |                           |
|   | Address:                       |
|   | 2100 S. Elmhurst               |
|   | Mount Prospect, Illinois 60056 |
|   | Attention:                     | Jim Brennan |
|   | Telecopy:                      | (847) 437-1530 |
|   | Telephone:                     | (847) 472-7923 |
|        |                                |  |  |

 

----

|        | **LaSALLE BANK NATIONAL ASSOCIATION,**  as a Lender |
|--------|-----------------------------------------------------|
|   | ** **                                          |
|   | By:                                                 | /s/ Russ Ruhnke |
|   | Name:                                               | Russ Ruhnke |
|   | Title:                                              | Senior Vice President |
|   |                                                |
|   | Address:                                            |
|   | 135 South LaSalle                                   |
|   | Suite 1225                                          |
|   | Chicago, Illinois 60603                             |
|   | Attention:                                          | Brad Amundsen |
|   | Telecopy:                                           | (312) 904-6392 |
|   | Telephone:                                          | (312) 904-1473 |
|        |                                                     |  |  |

 

----

 
|        | **FIFTH THIRD BANK,** as a Lender |
|--------|-----------------------------------|
|   | ** **                        |
|   | By:                               | /s/ Thomas O’Connell |
|   | Name:                             | Thomas O’Connell |
|   | Title:                            | Vice President |
|   |                              |
|   | Address:                          |
|   | 1701 Golf Road                    |
|   | Tower 1, GRLM7E                   |
|   | Rolling Meadows, IL 60008         |
|   | Attention:                        | Thomas O’Connell |
|   | Telecopy:                         | (847) 354-7150 |
|   | Telephone:                        | (847) 354-7096 |
|        |                                   |  |  |

 

----

 
|        | **ASSOCIATED BANK NATIONAL ASSOCIATION,**  as a Lender |
|--------|--------------------------------------------------------|
|   | ** **                                             |
|   | By:                                                    | /s/ Robert J. Burda |
|   | Name:                                                  | Robert J. Burda |
|   | Title:                                                 | Vice President |
|   |                                                   |
|   | Address:                                               |
|   | 500 Lake Cook Road, Suite 210                          |
|   | Deerfield, IL 60015                                    |
|   | Attention:                                             | Rob Burda |
|   | Telecopy:                                              | (847) 236-0996 |
|   | Telephone:                                             | (847) 236-4462 |
|        |                                                        |  |  |

 

----

 
|        | **NATIONAL CITY BANK,** as a  Lender |
|--------|--------------------------------------|
|   | ** **                           |
|   | By:                                  | /s/ Todd R. Olsen |
|   | Name:                                | Todd R. Olsen |
|   | Title:                               | Vice President |
|   |                                 |
|   | Address:                             |
|   | 1 North Franklin, Suite 2150         |
|   | Chicago, IL 60606                    |
|   | Attention:                           | Todd R. Olsen |
|   | Telecopy:                            | (312) 384-4623 |
|   | Telephone:                           | (312) 338-5209CICI |
|        |                                      |  |  |

 

----

 
|        | **CITIBANK TEXAS, N.A.,** as a  Lender |
|--------|----------------------------------------|
|   | ** **                             |
|   | By:                                    | /s/ J. Cory Lebouf |
|   | Name:                                  | J. Cory Lebouf |
|   | Title:                                 | Relationship Manager |
|   |                                   |
|   | Address:                               |
|   | 2000 West Sam Houston Parkway So. #600 |
|   | Houston, TX 77042                      |
|   | Attention:                             | J. Cory Lebouf |
|   | Telecopy:                              | (713) 954-2053 |
|   | Telephone:                             | (713) 260-3073 |
|        |                                        |  |  |

 

----

 
|        | **FRANKLIN BANK, SSB,** as a  Lender |
|--------|--------------------------------------|
|   | ** **                           |
|   | By:                                  | /s/ Sherry K. Day |
|   | Name:                                | Sherry K. Day |
|   | Title:                               | Senior Vice President |
|   |                                 |
|   | Address:                             |
|   | 9800 Richmond Ave, #680              |
|   | Houston, TX 77042                    |
|   | Attention:                           | Sherry K. Day |
|   | Telecopy:                            | (713) 339-8949 |
|   | Telephone:                           | (713) 339-8943 |
|        |                                      |  |  |

 

----

 
|        | **JPMORGAN CHASE BANK, N.A.,** as  a Lender |
|--------|---------------------------------------------|
|   | ** **                                  |
|   | By:                                         | /s/ Jennifer S. Kelley |
|   | Name:                                       | Jennifer S. Kelley |
|   | Title:                                      | Senior Vice President |
|   |                                        |
|   | Address:                                    |
|   | 131 S. Dearborn St., 5th Floor              |
|   | Mail code IL1-0458                          |
|   | Chicago, IL 60603                           |
|   | Attention:                                  | Jennifer S. Kelley |
|   | Telecopy:                                   | (312) 325-5173 |
|   | Telephone:                                  | (312) 325-5014 |
|        |                                             |  |  |

 

----

 
|        | **BANK OF THE WEST,** a California  banking corporation, as a Lender |
|--------|----------------------------------------------------------------------|
|   | ** **                                                           |
|   | By:                                                                  | /s/Pamela McGlynn |
|   |                                                                 | Pamela McGlynn, |
|   |                                                                 | Vice President & Documentation Supervisor |
|   |                                                                 |   |
|   | By:                                                                  | /s/Stacy Michrowski |
|   |                                                                 | Stacy Michrowski, |
|   |                                                                 | Senior Vice President, Syndications |
|   |                                                                 |
|   | Address:                                                             |
|   | 4041 MacArthur Blvd., Suite 100                                      |
|   | Newport Beach, CA 92660                                              |
|   | Attention:                                                           | Dana O. White |
|   | Telecopy:                                                            | (949) 833-3275 |
|   | Telephone:                                                           | (949) 622-6024 |
|        |                                                                      |  |  |

 

----

 
|        | **COMERICA BANK,** as a Lender |
|--------|--------------------------------|
|   | ** **                     |
|   | By:                            | /s/Charles Weddell |
|   | Name:                          | Charles Weddell |
|   | Title:                         | Vice President |
|   |                           |
|   | Address:                       |
|   | 500 Woodward Ave., MC 3256     |
|   | Detroit, MI 48226              |
|   | Attention:                     | Charles Weddell |
|   | Telecopy:                      | (313) 222-9295 |
|   | Telephone:                     | (313) 222-3323 |
|        |                                |  |  |

 

----

 
|        | **COMPASS BANK,** as a Lender    |
|--------|----------------------------------|
|   | ** **                       |
|   | By:                              | /s/ Johanna Duke Paley |
|   | Name:                            | Johanna Duke Paley |
|   | Title:                           | Senior Vice President |
|   |                             |
|   | Address:                         |
|   | 15 South 20th Street, 15th Floor |
|   | Birmingham, AL 35233             |
|   | Attention:                       | Johanna Duke Paley |
|   | Telecopy:                        | (205) 297-7212 |
|   | Telephone:                       | (205) 297-3851 |
|        |                                  |  |  |

 

----

 
|        | **BMO CAPITAL MARKETS FINANCING, INC.,**  as Co-Lead Arranger and Joint Book Runner |
|--------|-------------------------------------------------------------------------------------|
|   | ** **                                                                          |
|   | By:                                                                                 | /s/Sumit Sengupta |
|   | Name:                                                                               | Sumit Sengupta |
|   | Title:                                                                              | Managing Director |
|   |                                                                                |
|   | Address:                                                                            |
|   |                                                                                |
|   |                                                                                |
|   | Attention:                                                                          | Scott Morris |
|   | Telecopy:                                                                           | (312) 461-2968 |
|   | Telephone:                                                                          | (312) 461-6791 |
|        |                                                                                     |  |  |

 

 

 

----

| Exhibit A     |   | Form of Notice of  Payment Request                     |   |
|---------------|--------|--------------------------------------------------------|--------|
| Exhibit  B    |   | Form of Notice of  Borrowing                           |   |
| Exhibit  C    |   | Form of Notice of  Continuation/Conversion             |   |
| Exhibit  D-1  |   | Form of Revolving Note                                 |   |
| Exhibit  D-2  |   | Form of Swing Note                                     |   |
| Exhibit  E    |   | Form of Borrowing Base  Certificate                    |   |
| Exhibit  F    |   | Form of Compliance  Certificate                        |   |
| Exhibit  G    |   | Form of Additional  Guarantor Supplement               |   |
| Exhibit  H    |   | Form of Assignment and  Acceptance                     |   |
| Exhibit  I    |   | Form of Commitment and  Acceptance                     |   |
| Exhibit  J    |   | Form of Liquidity Certificate                          |   |
|          |   |                                                   |   |
| Schedule  1   |   | Revolving Credit  Commitments                          |   |
| Schedule  1.2 |   | Pre-existing Letters of  Credit                        |   |
| Schedule  4.5 |   | Parameters for  Projected Base Price for Housing Units |   |
| Schedule 6.2  |   | Subsidiaries                                           |   |

 

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