S-4/A

As filed with the Securities and Exchange Commission on January 23, 2012

Registration No. 333-177328

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Amendment No. 2

to

FORM S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

SHEA HOMES LIMITED PARTNERSHIP

(Exact name of registrant as specified in its charter)

1531	California	95-4240219
(Primary Standard Industrial Classification Code Number)	(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

SHEA HOMES FUNDING CORP.

(Exact name of registrant as specified in its charter)

1531	Delaware	37-1635024
(Primary Standard Industrial Classification Code Number)	(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

The subsidiary guarantors listed on Schedule A hereto.

(Exact name of registrant as specified in its charter)

655 Brea Canyon Road

Walnut, California 91789

(909) 594-9500

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Paul E. Mosley

Vice President and General Counsel

Shea Homes Limited Partnership

655 Brea Canyon Road

Walnut, California 91789

(909) 594-9500

(Name, address, including zip code, and telephone number, including area code, of agent for service)

With a copy to:

Andrew L. Fabens, Esq.

Gibson, Dunn & Crutcher LLP

200 Park Avenue

New York, NY 10166-0193

(212) 351-4000

Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this registration statement becomes effective.

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	x	Smaller reporting company	¨

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

Exchange Act Rule 13e-4(i) (Cross-Border Issue Tender Offer)    ¨

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)    ¨

The registrants hereby amend this registration statement on such date or dates as may be necessary to delay its effective date until the registrants shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until this registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

Schedule A – Subsidiary Guarantors

The following direct and indirect subsidiaries of Shea Homes Limited Partnership will guarantee the 8.625% Senior Secured Notes due 2019 and are co-registrants with Shea Homes Limited Partnership and Shea Homes Funding Corp. under this registration statement.

Name	Jurisdiction of Formation	I.R.S. Employer Identification No.
Highlands Ranch Development Corporation	Colorado	84-0941791
Monty Green Holdings, LLC	Delaware	20-3297164
Mountainbrook Village Company	Arizona	86-0720451
Sand Creek Cattle Company	Colorado	84-0865738
Serenade at Natomas, LLC	California	26-3917295
Seville Golf and Country Club LLC	Arizona	94-3383577
Shea Brea Development, LLC	Delaware	72-1579307
Shea Capital II, LLC	Delaware	20-3661716
Shea Communities Marketing Company	Delaware	36-3347987
Shea Financial Services, Inc.	California	03-0490610
Shea Homes, Inc.	Delaware	86-0702254
Shea Homes at Montage, LLC	California	26-3997836
Shea Homes Southwest, Inc.	Arizona	86-0533374
Shea Homes Vantis, LLC	California	45-2103204
Shea Insurance Services, Inc.	California	01-0627555
Shea La Quinta LLC	California	01-0661731
Shea Ninth and Colorado, LLC	Colorado	20-1093937
Shea Otay Village 11, LLC	California	33-0958666
Shea Proctor Valley, LLC	California	20-1412156
Shea Properties of Colorado, Inc.	Colorado	84-1058420
Shea Rivermark Village, LLC	California	95-4865301
Shea Tonner Hills, LLC	Delaware	20-0370852
Shea Victoria Gardens, LLC	Florida	26-0148229
SH Jubilee, LLC	Delaware	27-2901035
SH Jubilee Management, LLC	Delaware	27-2901082
SHI JV Holdings, LLC	Delaware	27-3677848
SHLP JV Holdings, LLC	Delaware	27-3677812
Tower 104 Gathering, LLC	Colorado	20-3384762
Tower 104 Oil, LLC	Colorado	20-3384270
Trilogy Antioch, LLC	California	20-2049392
UDC Advisory Services, Inc.	Illinois	86-0724765
UDC Homes Construction, Inc.	Arizona	86-0704849
Vistancia Construction, LLC	Delaware	20-0096025
Vistancia Marketing, LLC	Delaware	20-0096047

The information in this prospectus is not complete and may be changed. We may not complete the exchange offer and issue these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Subject to Completion, dated January 23, 2012

PROSPECTUS

$750,000,000

SHEA HOMES LIMITED PARTNERSHIP

SHEA HOMES FUNDING CORP.

Exchange Offer for All Outstanding

8.625% Senior Secured Notes due 2019 and Guarantees thereof

(CUSIP Nos. 82088K AA6 and U82091 AA4)

for new 8.625% Senior Secured Notes due 2019 and Guarantees thereof

that have been registered under the Securities Act of 1933

This exchange offer will expire at 5:00 p.m., New York City time,

                    on                     , 2012, unless extended.

We are offering to exchange Shea Homes Limited Partnership and Shea Homes Funding Corp.’s 8.625% Senior Secured Notes due 2019, which have been registered under the Securities Act of 1933, as amended (the “Securities Act”) and which we refer to in this prospectus as the “exchange notes,” for any and all Shea Homes Limited Partnership and Shea Homes Funding Corp.’s 8.625% Senior Secured Notes due 2019 issued on May 10, 2011, which we refer to in this prospectus as the “outstanding notes.” The term “notes” refers to both the exchange notes and the outstanding notes. We refer to the offer to exchange the exchange notes for the outstanding notes as the “exchange offer” in this prospectus.

The Exchange Notes:

• The terms of the registered exchange notes to be issued in the exchange offer are substantially identical to the terms of the outstanding notes, except that the transfer restrictions, registration rights and additional interest provisions relating to the outstanding notes will not apply to the exchange notes.

• We are offering the exchange notes pursuant to a registration rights agreement that we entered into in connection with the issuance of the outstanding notes.

• The exchange notes will bear interest at the rate of 8.625% per annum, payable semi-annually in cash, in arrears, on November 15 and May 15 each year.

• The exchange notes will be guaranteed on a senior basis by each of Shea Homes Limited Partnership’s subsidiaries that have guaranteed the outstanding notes.

Material Terms of the Exchange Offer:

• The exchange offer expires at 5:00 p.m., New York City time, on                     , 2012, unless extended.

• Upon expiration of the exchange offer, all outstanding notes that are validly tendered and not withdrawn will be exchanged for an equal principal amount of the exchange notes.

• You may withdraw tendered outstanding notes at any time prior to the expiration of the exchange offer.

• The exchange offer is not subject to any minimum tender condition, but is subject to customary conditions.

• The exchange of the exchange notes for outstanding notes will not be a taxable exchange for U.S. federal income tax purposes.

• Each broker-dealer that receives exchange notes for its own account pursuant to the exchange offer must acknowledge that it will deliver a prospectus meeting the requirements of the Securities Act of 1933, as amended, in connection with any resale of such exchange notes. The letter of transmittal accompanying this prospectus states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an “underwriter” within the meaning of the Securities Act. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of exchange notes received in exchange for outstanding notes where such exchange notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. We have agreed that for a period of 180 days after the expiration of the exchange offer, we will make this prospectus available to any broker-dealer for use in any such resale. See “Plan of Distribution.”

• There is no existing public market for the outstanding notes or the exchange notes. We do not intend to list the exchange notes on any securities exchange or quotation system.

See “Risk Factors” beginning on page 14.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or the accuracy of this prospectus. Any representation to the contrary is a criminal offense.

Prospectus dated                     , 2012

You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with any information or represent anything about us, our financial results or this offering that is not contained in this prospectus. If given or made, any such other information or representation should not be relied upon as having been authorized by us. We are not making an offer to sell these exchange notes in any jurisdiction where the offer or sale is not permitted.

The information in this prospectus is applicable only as of the date on its cover, and may change after that date. The information in any document incorporated by reference in this prospectus is applicable only as of the date of any such document. For any time after the cover date of this prospectus, we do not represent our affairs are the same as described or the information in this prospectus is correct—nor do we imply those things by delivering this prospectus or issuing exchange notes to you.

TABLE OF CONTENTS

HELPFUL INFORMATION	ii
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS	ii
WHERE YOU CAN FIND MORE INFORMATION	iii
MARKET INDUSTRY DATA AND FORECASTS	iii
PROSPECTUS SUMMARY	1
RISK FACTORS	14
RATIO OF EARNINGS TO FIXED CHARGES	38
USE OF PROCEEDS	39
CAPITALIZATION	40
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER INFORMATION	41
THE EXCHANGE OFFER	43
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	51
BUSINESS	85
PROPERTIES	95
LEGAL PROCEEDINGS	96
MANAGEMENT	97
EXECUTIVE COMPENSATION	99
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT	103
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS	105
DESCRIPTION OF OTHER INDEBTEDNESS	112
DESCRIPTION OF THE NOTES	114
BOOK-ENTRY, DELIVERY AND FORM	164
CERTAIN MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS	166
CERTAIN ERISA CONSIDERATIONS	171
PLAN OF DISTRIBUTION	173
LEGAL MATTERS	174
EXPERTS	174

i

HELPFUL INFORMATION

As used throughout this prospectus, unless the context otherwise requires or indicates:

• “SHLP” means Shea Homes Limited Partnership, and not its subsidiaries;

• “SHI” means Shea Homes, Inc., a wholly-owned subsidiary of SHLP, and not its subsidiaries;

• “Issuers” means SHLP and Shea Homes Funding Corp., and not their subsidiaries;

• “Shea,” the “Company,” “we,” “our,” and “us” refer to SHLP and its subsidiaries, including Shea Homes Funding Corp., on a consolidated basis; and

• “Guarantors” means the direct and indirect subsidiaries of SHLP that will guarantee the exchange notes.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain parts of this prospectus and the documents incorporated by reference herein contain forward-looking statements and information relating to us that are based on the beliefs of management as well as assumptions made by, and information currently available to, us. When used in this document, words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan” and “project” and similar expressions, as they relate to us are intended to identify forward-looking statements. These statements reflect our current views with respect to future events, are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Further, certain forward-looking statements are based upon assumptions of future events that may not prove to be accurate.

See the “Risk Factors” section of this prospectus for a description of risk factors that could significantly affect our financial results. In addition, the following factors could cause actual results to differ materially from the results that may be expressed or implied by such forward-looking statements. These factors include, among other things:

• changes in employment levels;

• changes in the availability of financing for homebuyers;

• changes in interest rates;

• changes in consumer confidence;

• changes in levels of new and existing homes for sale;

• changes in demographic trends;

• changes in housing demands;

• changes in home prices;

• elimination or reduction of tax benefits associated with owning a home;

• litigation risks associated with home warranty and construction defect and other claims; and

• various other factors, both referenced and not referenced in this prospectus.

Many of these factors are macroeconomic in nature and are, therefore, beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results, performance or achievements may vary materially from those described in this prospectus as anticipated, believed, estimated, expected, intended, planned or projected. Except as required by law, we neither intend nor assume any obligation to revise or update these forward-looking statements, which speak only as of their dates.

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WHERE YOU CAN FIND MORE INFORMATION

SHLP, Shea Homes Funding Corp. and the subsidiary guarantors listed on Schedule A thereto as co-registrants (the “Guarantors”) have filed a registration statement with the Securities and Exchange Commission (the “Commission”) on Form S-4 to register the exchange offer contemplated in this prospectus. This prospectus is part of that registration statement. As allowed by the Commission’s rules, this prospectus does not contain all the information found in the registration statement or the exhibits to the registration statement. This prospectus contains summaries of the material terms and provisions of certain documents and in each instance we refer you to the copy of such document filed as an exhibit to the registration statement.

We have not authorized anyone to give any information or make any representation about us that is different from or in addition to, that contained in this prospectus. Therefore, if anyone does give you information of this sort, you should not rely on it as authorized by us. If you are in a jurisdiction where offers to sell, or solicitations of offers to purchase, the securities offered by this prospectus are unlawful, or if you are a person to whom it is unlawful to direct these types of activities, then the offer presented in this prospectus does not extend to you. Neither the delivery of this prospectus, nor any sale made hereunder, shall under any circumstances create any implication that there has been no change in our affairs since the date on the front cover of this prospectus.

Upon the effectiveness of the registration statement, of which this prospectus forms a part, SHLP, Shea Homes Funding Corp. and the Guarantors will be subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and in accordance therewith will file annual, quarterly and other reports and information with the Commission.

The registration statement (including the exhibits and schedules thereto) and the periodic reports and other information filed by SHLP and Shea Homes Funding Corp. with the Commission may be inspected and copied at the Commission’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Please call the Commission at 1-800-SEC-0330 for further information on the Public Reference Room. Such information may also be accessed electronically by means of the Commission’s homepage on the Internet at http://www.sec.gov.

You may also obtain this information without charge by writing or telephoning us at the following address and telephone number:

Shea Homes Limited Partnership

655 Brea Canyon Road

Walnut, CA 91789

(909) 594-9500

Attn: Bruce Varker, Chief Financial Officer

To ensure timely delivery, you must request this information no later than five business days before the expiration of the exchange offer.

MARKET INDUSTRY DATA AND FORECASTS

Any market or industry data contained in this prospectus are based on various sources, including internal data and estimates, independent industry publications, government publications, reports by market research firms or other published independent sources. Industry publications and other published sources generally state the information contained therein has been obtained from third-party sources believed to be reliable. Internal data and estimates are based upon information obtained from trade and business organizations and other contacts in the markets in which we operate and management’s understanding of industry conditions, and such information has not been verified by any independent sources.

iii

PROSPECTUS SUMMARY

The following summary contains information about our business and the exchange offer. It does not contain all information that may be important to you in making a decision to exchange outstanding notes for exchange notes. For a more complete understanding of our business and the offering of the notes, we urge you to read this entire prospectus carefully, including the “Risk Factors,” “Cautionary Statement Regarding Forward-Looking Statements” and “Where You Can Find More Information” sections and our financial statements included elsewhere in this prospectus. All financial data provided in this prospectus are financial data of SHLP and its consolidated subsidiaries unless otherwise disclosed.

Overview

We are one of the largest private homebuilders in the United States by total number of closings according to data compiled for Builder Magazine’s 2010 “Builder 100” List. We design, build and market single-family detached and attached homes across various geographic markets in California, Arizona, Colorado, Washington, Nevada and Florida. We serve a broad customer base including entry, move-up, luxury and active adult buyers. We have been recognized by industry professionals and our homebuyers for quality, customer service and craftsmanship, as evidenced by receipt of some of the homebuilding industry’s most prominent awards, including being named as “Builder of the Year” in 2007 by Professional Builder magazine and one of “America’s Best Builders” in 2005 by the National Association of Homebuilders and Builder magazine. In February 2011, Shea Homes was honored as one of 40 brands in the country to be named a J.D. Power “Customer Service Champion” and is the only homebuilder to receive this honor.

For the nine months ended September 30, 2011, we closed 806 homes having an average selling price of approximately $416,000. Our total revenues from sales of homes, land and homebuilding related activities for the nine months ended September 30, 2011 were $346.3 million and the net loss attributable to SHLP for the same period was $107.3 million. At September 30, 2011, our total debt was $752.3 million. In addition, we have a significant number and amount of contingent liabilities which could have a material adverse effect on our liquidity, financial condition, and results of operations if they are required to be satisfied by us. See “—Risks Relating to Us and Our Business—We have a significant number of contingent liabilities, and if any are required to be satisfied by us, could have a material adverse effect on our financial condition and results of operations.” At September 30, 2011, we were selling homes in 78 communities, with home prices ranging from approximately $129,000 to $1,138,000 and we had sold but not closed 682 homes, which comprise our sales order backlog. The value of this backlog was approximately $295.1 million of revenue anticipated to be realized at closing occurring primarily from October 2011 through December 2012. However, because sales order contracts can be cancelled by the buyer in certain circumstances, not all homes in backlog will result in closings.

Our operating results are aggregated into three reportable segments:

• California South, comprised of the results of our communities in Los Angeles, Ventura, Orange County, Inland Empire and San Diego;

• California North, comprised of the results of our communities in northern and central California; and

• Mountain West/Other, comprised of the results of our communities in Arizona, Colorado, Washington, Nevada and Florida.

Our communities are grouped into these segments based on similar economic and other characteristics, including product types, production processes, suppliers, subcontractors, jurisdictional and political environments, land availability and values, and underlying demand and supply.

1

We are one of a group of companies owned by the Shea family (collectively, the “Shea Family Owned Companies”). Since 1881 in Portland, Oregon, beginning with a plumbing contractor business, the Shea family has owned and operated homebuilding, heavy construction and commercial property businesses. The Shea Family Owned Companies have grown but remained privately held by the Shea family. The Shea family began building homes in 1968 through J.F. Shea Co., Inc. (“JFSCI”) and, in 1989, homebuilding under the Shea Homes brand was moved to the newly-formed SHLP, an entity under the broader umbrella of JFSCI. In all, the Shea Homes brand has enjoyed a 40-plus year legacy of consistent family management and support.

We operate under three brands: Shea Homes, Trilogy and SPACES. Each reflects our value proposition: homes designed to meet the needs of our customers, with standard energy-efficient features, built in an environmentally-responsible manner.

• Shea Homes, our flagship brand, targets first-time and move-up buyers. Each segment builds and markets houses under the Shea Homes brand;

• Trilogy, master-planned communities designed and built to meet the needs and active lifestyles of the “baby boomer” generation. These communities combine quality homes with diverse resort-like amenities in each segment; and

• SPACES, our newest brand, targets 25-40 year-old buyers in each segment with contemporary, practical homes that have flexible floor plans and stylish, energy-efficient features at an affordable price point. We have opened SPACES communities in each segment.

2

THE ISSUERS AND THE GUARANTORS

The chart below illustrates our corporate structure and is provided for illustrative purposes only and does not purport to represent all legal entities owned or controlled by the Issuers. Certain of our wholly-owned direct and indirect subsidiaries guarantee the notes. The obligations under the notes are not guaranteed by our subsidiary Partners Insurance Company, Inc. (“PIC”) (which is an unrestricted subsidiary under the indenture governing the notes) or by any joint venture with respect to which we do not own 100% of the economic interest, including certain of our joint ventures that are consolidated for financial reporting purposes (collectively, the “Consolidated Joint Ventures”)¹. See “Description of the Notes— The Guarantees.”

¹  Shea Homes Southwest, Inc. owns 100% of the economic and voting interests in Vistancia Marketing, LLC and Vistancia Construction, LLC, both guarantors of the notes.

3

THE SHEA FAMILY OWNED COMPANIES

We are one of the Shea Family Owned Companies. The Shea Family Owned Companies are operated in three major groups: homebuilding, heavy construction and commercial property development and management. Much of the Shea Family Owned Companies’ business has traditionally been operated and managed through JFSCI, with each of the homebuilding, heavy construction and commercial property businesses providing management, administrative, financial and credit support to one another. Over the past several years, the Shea family and our management have made a series of changes to the business and operating structure of the Shea Family Owned Companies so that, currently:

• the Shea family homebuilding business is owned and operated primarily through SHLP, SHI and their respective subsidiaries;

• the Shea family heavy construction business is owned and operated primarily through JFSCI; and

• the Shea family commercial development and management operation is owned and operated primarily through Shea Properties LLC and Shea Properties II, LLC (collectively, “Shea Properties”).

In the future, JFSCI will continue to provide management and certain administrative support, including cash management and treasury services, to SHLP, SHI and the Shea family’s heavy construction and commercial property businesses. See “Certain Relationships and Related Party Transactions.” However, we intend that SHLP, SHI and their respective subsidiaries will not receive new financial or credit support from, and will not provide new financial or credit support to, the other Shea family businesses. See “Risk Factors—We have a significant number of affiliated entities, with whom we have entered into many transactions. Our relationship with these entities could adversely affect us.”

4

The chart below illustrates our ownership structure within the Shea Family Owned Companies. This chart is provided for illustrative purposes only and does not purport to represent all legal entities owned or controlled by the Shea family or the Issuers.

5

THE EXCHANGE OFFER

The summary below describes the principal terms and conditions of the exchange offer. Certain of these terms and conditions are subject to important limitations and exceptions. The section of this prospectus entitled “Description of the Notes” contains a more detailed description of the terms and conditions.

The Exchange Offer Up to $750 million aggregate principal amount of exchange notes registered under the Securities Act are being offered in exchange for the same principal amount of outstanding notes. Terms of the exchange notes and the outstanding notes are substantially identical, except that the transfer restrictions, registration rights and rights to increased interest in addition to the stated interest rate on the outstanding notes (“Additional Interest”) provisions applicable to the outstanding notes will not apply to the exchange notes. You may tender outstanding notes for exchange in whole or in part in any integral multiple of $1,000, subject to a minimum exchange of $2,000. We are undertaking the exchange offer to satisfy our obligations under the registration rights agreement relating to the outstanding notes. For a description of the procedures for tendering the outstanding notes. See “The Exchange Offer—How to Tender Outstanding Notes for Exchange.”

To exchange your outstanding notes for exchange notes, you must properly tender them before the expiration of the exchange offer. Upon expiration of the exchange offer, your rights under the registration rights agreement pertaining to the outstanding notes will terminate, except under limited circumstances.

Expiration Time The exchange offer expires at 5:00 p.m., New York City time on                     , 2012, unless the exchange offer is extended. See “The Exchange Offer—Terms of the Exchange Offer; Expiration Time.”

Interest on Outstanding Notes Exchanged in the Exchange Offer Holders whose outstanding notes are exchanged for exchange notes will not receive a payment in respect of interest accrued but unpaid on such outstanding notes from the most recent interest payment date up to but excluding the settlement date. Instead, interest on the exchange notes received in exchange for such outstanding notes will (i) accrue from the last date on which interest was paid on such outstanding notes and (ii) accrue at the same rate as and be payable on the same dates as interest was payable on such outstanding notes. However, if any interest payment occurs prior to the settlement date on any outstanding notes already tendered for exchange in the exchange offer, the holder of such outstanding notes will be entitled to receive such interest payment.

Conditions to the Exchange Offer The exchange offer is subject to customary conditions (see “The Exchange Offer—Conditions to the Exchange Offer”), some of which we may waive in our sole discretion. The exchange offer is not conditioned upon any minimum principal amount of outstanding notes being tendered for exchange.

6

How to Tender Outstanding Notes for Exchange You must tender your outstanding notes through book-entry transfer in accordance with The Depository Trust Company’s Automated Tender Offer Program, known as ATOP. If you wish to accept the exchange offer, you must arrange for The Depository Trust Company to transmit to the exchange agent certain required information, including an agent’s message forming part of a book-entry transfer in which you agree to be bound by the terms of the letter of transmittal, and transfer the outstanding notes being tendered into the exchange agent’s account at The Depository Trust Company.

Guaranteed Delivery Procedures If you wish to tender your outstanding notes and the procedures for book-entry transfer cannot be completed by the expiration time, you may tender your outstanding notes according to the guaranteed delivery procedures described in “The Exchange Offer—Guaranteed Delivery Procedures.”

Special Procedures for Beneficial Owners If you beneficially own outstanding notes registered in the name of a broker, dealer, commercial bank, trust company or other nominee and you wish to tender your outstanding notes in the exchange offer, you should contact the registered holder promptly and instruct it to tender on your behalf. See “The Exchange Offer—How to Tender Outstanding Notes for Exchange.”

Withdrawal of Tenders You may withdraw your tender of outstanding notes at any time prior to the expiration time by delivering a notice of withdrawal to the exchange agent in conformity with the procedures discussed under “The Exchange Offer—Withdrawal Rights.”

Acceptance of Outstanding Notes and Delivery of Exchange Notes Upon consummation of the exchange offer, we will accept any and all outstanding notes that are properly tendered in the exchange offer and not withdrawn prior to the expiration time. The exchange notes issued pursuant to the exchange offer will be delivered promptly following the expiration time. See “The Exchange Offer—Terms of the Exchange Offer; Expiration Time.”

Registration Rights Agreement We are making the exchange offer pursuant to the registration rights agreement that we entered into on May 10, 2011 with the initial purchaser of the outstanding notes. As a result of making and consummating this exchange offer, we will have fulfilled our obligations under the registration rights agreement with respect to the registration of securities, subject to certain limited exceptions. If you do not tender your outstanding notes in the exchange offer, you will not have any further registration rights under the registration rights agreement or otherwise unless you were not eligible to participate in the exchange offer or do not receive freely tradable exchange notes in the exchange offer.

7

Resales of Exchange Notes We believe the exchange notes issued in the exchange offer may be offered for resale, resold or otherwise transferred by you without compliance with the registration and prospectus delivery requirements of the Securities Act, provided that:

• you are not an “affiliate” of ours;

• the exchange notes you receive pursuant to the exchange offer are being acquired in the ordinary course of your business;

• you have no arrangement or understanding with any person to participate in the distribution of the exchange notes issued to you in the exchange offer;

• if you are not a broker-dealer, you are not engaged in, and do not intend to engage in, a distribution of the exchange notes issued in the exchange offer; and

• if you are a broker-dealer, you will receive the exchange notes for your own account, the outstanding notes were acquired by you as a result of market-making or other trading activities, and you will deliver a prospectus when you resell or transfer any exchange notes issued in the exchange offer. See “Plan of Distribution” for a description of the prospectus delivery obligations of broker dealers in the exchange offer.

If you do not meet these requirements, your resale of the exchange notes must comply with the registration and prospectus delivery requirements of the Securities Act.

Our belief is based on interpretations by the Commission staff, as set forth in no-action letters issued to third parties. The Commission staff has not considered this exchange offer in the context of a no-action letter, and we cannot assure you that the Commission staff would make a similar determination with respect to this exchange offer.

If our belief is not accurate and you transfer an exchange note without delivering a prospectus meeting the requirements of the federal securities laws or without an exemption from these laws, you may incur liability under the federal securities laws. We do not and will not assume, or indemnify you against, this liability.

See “The Exchange Offer—Consequences of Exchanging Outstanding Notes.”

Consequences of Failure to Exchange Your Outstanding Notes If you do not exchange your outstanding notes for exchange notes in the exchange offer, your outstanding notes will continue to be subject to the restrictions on transfer provided in the legend on the outstanding notes and in the indenture governing the notes. In general, the outstanding notes may not be offered or sold unless

8

registered or sold in a transaction exempt from registration under the Securities Act and applicable state securities laws. Accordingly, the trading market for your untendered outstanding notes could be adversely affected.

Exchange Agent The exchange agent for the exchange offer is Wells Fargo Bank, National Association. For additional information, see “The Exchange Offer—The Exchange Agent” and the accompanying letter of transmittal.

Certain Federal Income Tax Considerations The exchange of your outstanding notes for exchange notes will not be a taxable exchange for United States federal income tax purposes. You should consult your own tax advisor as to the tax consequences to you of the exchange offer, as well as tax consequences of the ownership and disposition of the exchange notes. For additional information, see “Certain Material U.S. Federal Income Tax Considerations.”

9

Summary of the Terms of the Exchange Notes

The terms of the exchange notes are substantially identical to the outstanding notes, except the transfer restrictions, registration rights and Additional Interest provisions applicable to the outstanding notes will not apply to the exchange notes. The following is a summary of the principal terms of the exchange notes. A more detailed description is contained in the section “Description of the Notes” in this prospectus.

Issuer Shea Homes Limited Partnership

Co-Issuer Shea Homes Funding Corp.

Notes Offered $750,000,000 aggregate principal amount of 8.625% Senior Secured Notes due 2019.

Maturity Date The exchange notes mature May 15, 2019.

Interest Interest on the exchange notes will accrue at a rate of 8.625% per annum and is payable semi-annually in cash in arrears on May 15 and November 15 each year.

Holders whose outstanding notes are exchanged for exchange notes will not receive a payment in respect of interest accrued but unpaid on such outstanding notes from the most recent interest payment date up to but excluding the settlement date. Instead, interest on the exchange notes received in exchange for such outstanding notes will (i) accrue from the last date on which interest was paid on such outstanding notes and (ii) accrue at the same rate as and be payable on the same dates as interest was payable on such outstanding notes. However, if any interest payment occurs prior to the settlement date on any outstanding notes already tendered for exchange in the exchange offer, the holder of such outstanding notes will be entitled to receive such interest payment.

Optional Redemption We may redeem some or all of the exchange notes at any time on or after May 15, 2015, at the redemption prices specified under the section “Description of the Notes—Optional Redemption” plus accrued and unpaid interest, if any, to the redemption date.

At any time prior to May 15, 2015, we may also redeem the exchange notes, in whole or in part, at a redemption price of 100% of the principal amount of the exchange notes, plus a “make-whole” premium and accrued and unpaid interest, if any, to the redemption date.

At any time prior to May 15, 2014, we may also redeem up to 35% of the original aggregate principal amount of the exchange notes with the proceeds of certain equity offerings, in each case, at a redemption price equal to 108.625% of the aggregate principal amount of the exchange notes to be redeemed, plus accrued and unpaid interest, if any, to the redemption date.

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Change of Control Upon a Change of Control as described in the section “Description of the Notes—Certain Covenants—Change of Control,” we will be required to make an offer to repurchase all or part of the exchange notes at 101% of the principal amount, plus accrued and unpaid interest, if any, to the date of repurchase.

Guarantees The exchange notes will be guaranteed by the Guarantors. If the Issuers cannot make payments under the notes when they are due, the Guarantors must make such payments instead. PIC will not be a Guarantor and will be treated as an unrestricted subsidiary under the indenture governing the notes.

The exchange notes will not be guaranteed by any joint venture with respect to which we do not own 100% of the economic interest, including certain of our joint ventures that are consolidated for financial reporting purposes.

Ranking The exchange notes and the guarantees will be the Issuers’ and the Guarantors’ general senior secured obligations and will:

• be effectively senior to all existing and future unsecured indebtedness of the Issuers to the extent of the value of the collateral securing the notes and the guarantees;

• rank equally in right of payment with all of the Issuers’ and the Guarantors’ existing and future senior indebtedness;

• rank senior in right of payment to the Issuers’ and the Guarantors’ future subordinated indebtedness, if any;

• rank equally with the indebtedness outstanding under our letter of credit facility, but the lenders under the letter of credit facility will have the right to be repaid before the notes from the proceeds of any enforcement action taken against the collateral;

• be effectively subordinated to any existing and future indebtedness of either of the Issuers and the Guarantors that is secured by assets that do not constitute collateral, to the extent of the value of such assets; and

• be effectively subordinated to any existing and future indebtedness of subsidiaries or joint ventures of either of the Issuers that are not Guarantors.

Collateral The exchange notes and the guarantees will be secured by a lien on substantially all assets owned by the Issuers and Guarantors on the issue date of the exchange notes or thereafter acquired, subject to permitted liens and certain exceptions.

The collateral will also secure on a Pari-Passu basis our obligations with respect to our letter of credit facility, but lenders under our letter of credit facility will have the right to be repaid before the exchange notes from the proceeds of any enforcement action taken against the collateral.

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The collateral will not include:

• except to secure our letter of credit facility, the pledge of stock of subsidiaries of SHLP to the extent such pledge would result in separate financial statements of such subsidiary being required in SEC filings;

• personal property where the cost of obtaining a security interest or perfection thereof exceeds its benefits;

• real property subject to alien securing indebtedness incurred for the purpose of financing the acquisition thereof (to the extent creation of additional security interests in such property is prohibited by contract);

• assets, with respect to which any applicable law or contract (including certain profit and price participation arrangements) prohibits creation or perfection of security interests therein, or that otherwise results in a default, waiver or termination of rights or privileges arising under such law or contract;

• all trademarks, trade names and other intellectual property bearing the name “Shea” or a variant thereof (provided noteholders shall have a non-exclusive license to use such intellectual property in connection with the exercise of default remedies);

• cash collateral supporting (1) deductible, retention and other obligations to insurance carriers, (2) reimbursement claims in respect of letters of credit and surety providers, (3) contingent claims arising in respect of community facility district, metrodistrict, Mello-Roos, subdivision improvement bonds and similar obligations arising in the ordinary course of business of a homebuilder and (4) cash management services;

• equity interests in joint ventures where the joint venture agreement prohibits creation of such security interests;

• any leasehold interests in real property;

• any real property in a community under development with an investment at the end of the most recent quarter (as determined in accordance with GAAP) of less than $2.0 million or with less than 10 lots remaining unsold (to the extent the Issuers do not create a lien in such property);

• deposit accounts and securities accounts with aggregate balance for all such excluded accounts not to exceed $2.0 million in aggregate amount, or established solely for purposes of funding payroll, trust and other compensation benefits to employees; and

• all vehicles covered by a certificate of title.

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Certain Covenants The indenture governing the exchange notes contains covenants that limit, among other things, the Issuer and Guarantors’ ability to:

• incur additional indebtedness (including the issuance of certain preferred stock);

• pay dividends and distributions on our equity interests;

• repurchase our equity interests;

• retire unsecured or subordinated notes more than one year prior to their maturity;

• make investments in subsidiaries and joint ventures that are not restricted subsidiaries that guarantee the notes, including PIC;

• sell certain assets;

• incur liens;

• merge with or into other companies;

• expand into unrelated businesses; and

• enter into certain transactions with our affiliates.

These covenants will be subject to a number of important exceptions and qualifications. See “Description of the Notes—Certain Covenants.”

Use of Proceeds We will not receive any cash proceeds from issuance of the exchange notes offered by this prospectus.

Risk Factors Investment in the notes involves certain risks. You should carefully consider the information under “Risk Factors” and all other information included in this prospectus before investing in the notes.

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RISK FACTORS

An investment in the exchange notes involves risks. You should carefully consider the risks described below as well as the other information contained in this prospectus prior to making an investment decision. If any of the following risks occurs, our business, financial condition and results of operations could be materially adversely affected. In such case, you may lose all or part of your original investment. As used below, the term “notes” refers to both the outstanding notes and the exchange notes.

Risks Relating to Us and Our Business

The homebuilding industry, which is very cyclical and affected by a variety of factors, is in a significant downturn, and its duration and ultimate severity are uncertain. A continuation or further deterioration in industry conditions or in broader economic conditions could have additional material adverse effects on our business, financial condition and results of operations.

The homebuilding industry is cyclical and is significantly affected by changes in industry conditions, as well as in general and local economic conditions, such as changes in:

• employment and wage levels;

• availability of financing for homebuyers;

• interest rates;

• a lack of consumer confidence that results in a lack of urgency to buy;

• levels of new and existing homes for sale;

• demographic trends;

• housing demand; and

• government.

These changes may occur on a national scale, like the current downturn, or may acutely affect some of the regions or markets in which we operate more than others. When adverse conditions affect any of our larger markets, they could have a proportionately greater impact on us than on some other homebuilding companies that have smaller presences in such markets. Our operations in previously strong markets, particularly California and Arizona, have more adversely affected our results of operations than our other markets in the current downturn.

An oversupply of alternatives to new homes, including foreclosed homes, homes held for sale by investors and speculators, other existing homes and rental properties, can also reduce our ability to sell new homes, depress new home prices and reduce our margins on the sales of new homes. High levels of foreclosures not only contribute to additional inventory available for sale, but also reduce appraised values for new homes, potentially resulting in lower sales prices.

As a result of the foregoing matters, potential customers may be less willing or able to buy our homes.

The current downturn in the homebuilding industry is in its sixth year and has become one of the most severe housing downturns in U.S. history. The significant decline in demand for new homes, significant oversupply of homes on the market and significant reductions in the availability of financing for homebuyers that have marked this downturn are continuing and may continue for some time. We have experienced material reductions in our home sales and homebuilding revenues, and we have incurred material inventory impairments and losses from our joint venture interests and other write-offs. It is not clear when or if these trends will reverse or when we may return to profitability. The continuation or worsening of this downturn would have a further material adverse effect on our business, financial condition and results of operations.

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Our ability to respond to the downturn is limited. Numerous home mortgage foreclosures have increased supply and driven down prices, making the purchase of a foreclosed home an attractive alternative to purchasing a new home. Homebuilders have responded to declining sales and increased cancellation rates with significant concessions, further adding to the price declines. With the decline in the values of homes and the inability of many homeowners to make their mortgage payments, the credit markets have been significantly disrupted, putting strains on many households and businesses. In the face of these conditions, the overall economy has weakened significantly, with high unemployment levels and substantially reduced consumer spending and confidence. As a result, demand for new homes remains at historically low levels.

We cannot predict the duration or ultimate severity of the current economic downturn. Nor can we provide assurance that our responses to the homebuilding downturn or the government’s attempts to address the troubles in the overall economy will be successful. Additionally, we cannot predict the timing or effect of the winding down or possible withdrawal of government intervention or support.

The reduction in availability of mortgage financing has adversely affected our business, and the duration and ultimate severity of the effects are uncertain.

During the last four years the mortgage lending industry has experienced significant instability, beginning with increased defaults on subprime loans and other nonconforming loans and compounded by expectations of increasing interest payment requirements and further defaults. This in turn resulted in a decline in the market value of many mortgage loans and related securities. Lenders, regulators and others questioned the adequacy of lending standards and other credit requirements for several loan products and programs offered in recent years. Credit requirements have tightened, and investor demand for mortgage loans and mortgage-backed securities has declined. The deterioration in credit quality has caused most lenders to stop offering subprime mortgages and most other loan products that are not eligible for sale to Fannie Mae or Freddie Mac or loans that do not meet Federal Housing Administration (“FHA”) and Veterans Administration (“VA”) requirements. Fewer loan products, changes in conforming loan limits, tighter loan qualifications and a reduced willingness of lenders to provide loans make it more difficult for many buyers to finance the purchase of our homes. These factors have served to reduce the pool of qualified homebuyers and made it more difficult to sell to first-time and move-up buyers who historically made up a substantial part of our customers. These reductions in demand have adversely affected our business, financial condition and results of operations, and the duration and severity of their effects are uncertain.

The liquidity provided by Fannie Mae and Freddie Mac to the mortgage industry has been very important to the housing market. These entities have required substantial injections of capital from the federal government and may require additional government support in the future. The federal government has proposed changing the nature of the relationship between Fannie Mae and Freddie Mac and the federal government and even eliminating these entities. If Fannie Mae and Freddie Mac were dissolved or if the federal government determined to stop providing liquidity support to the mortgage market, there would be a reduction in available financing from these institutions. Any such reduction would likely have an adverse effect on interest rates, mortgage availability and new home sales.

The FHA insures mortgage loans that generally have lower down payments and, as a result, it continues to be a particularly important support for financing home purchases. In the last two years, more restrictive guidelines were placed on FHA insured loans, such as increasing minimum down payment requirements. In the near future, further restrictions are expected on FHA insured loans including, but not limited to, limitations on seller-paid closing costs and concessions. These or any other restrictions may negatively affect the availability or affordability of FHA financing, which could adversely affect our ability to sell homes.

While use of down payment assistance programs by our homebuyers has decreased significantly, some customers still utilize 100% financing through programs offered by the VA and United States Department of Agriculture. There can be no assurance these or other programs will continue to be available or will be as attractive to our customers as programs currently offered, which could adversely affect our home sales.

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Because most customers require mortgage financing, increases in interest rates could lower demand for our products, limit our marketing effectiveness and limit our ability to realize our backlog.

Most customers finance their home purchases through lenders providing mortgage financing. Increases in interest rates could lower demand for new homes because the mortgage costs to potential homebuyers would increase. Even if potential new homebuyers do not need financing, changes in interest rates could make it difficult to sell their existing homes to potential buyers who need financing. This could prevent or limit our ability to attract new customers and fully realize our backlog because our sales contracts generally include a financing contingency which permits buyers to cancel their sales contracts if mortgage financing is unobtainable within a specified time. This contingency period is typically four to eight weeks following the date of execution of the sales contract. Exposure to such financing contingencies renders us vulnerable to changes in prevailing interest rates.

Cancellations of home sales orders in backlog may increase as homebuyers choose to not honor their contracts.

Notwithstanding our sales strategies, we experienced elevated rates of sales order cancellations in 2006 through 2008. Since 2008, our sales order cancellation rate has improved, and it is currently below our historical average for the period from 1997 to 2010. We believe the elevated cancellation rate in 2007 and 2008 was largely a result of reduced homebuyer confidence, due principally to continued price declines, growth in foreclosures and continued high unemployment. A more restrictive mortgage lending environment and the inability of some buyers to sell their existing homes have also impacted cancellations. Many of these factors are beyond our control, and it is uncertain whether they will cause cancellation rates to rise in the future.

Home prices and demand in California, Arizona, Colorado, Washington, Nevada and Florida have a large impact on our results of operations because we conduct our homebuilding business in these states.

Our operations are concentrated in regions that are among the most severely affected by the current economic downturn. We conduct our homebuilding business in California, Arizona, Colorado, Washington, Nevada and Florida. Home prices and sales in these states have declined significantly since the end of 2006. These states, particularly California, continue to experience economic difficulties, including elevated levels of unemployment and precarious budget situations in state and local governments, which may materially adversely affect the market for our homes in those areas. Declines in home prices and sales in these states also adversely affect our financial condition and results of operations.

Inflation could adversely affect our business, financial condition and results of operations, particularly in a period of oversupply of homes.

Inflation can adversely affect us by increasing costs of land, materials and labor. However, we may be unable to offset these increases with higher sales prices. In addition, inflation is often accompanied by higher interest rates, which have a negative impact on housing demand. In such an environment, we may be unable to raise home prices sufficiently to keep up with the rate of cost inflation and, accordingly, our margins could decrease. Moreover, with inflation, the purchasing power of our cash resources can decline. Efforts by the government to stimulate the economy may not be successful, but have increased the risk of significant inflation and its resulting adverse effect on our business, financial condition and results of operations.

Supply shortages and risks of demand for building materials and skilled labor could increase costs and delay deliveries.

The homebuilding industry has periodically experienced significant difficulties that can affect the cost or timing of construction, and adversely impact our revenues and operating margins, including:

• difficulty in acquiring land suitable for residential building at affordable prices in locations where our potential customers want to live;

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• shortages of qualified labor;

• reliance on local subcontractors, manufacturers and distributors who may be inadequately capitalized;

• shortages of materials; and

• increases in cost of materials, particularly lumber, drywall, cement and steel, which are significant components of home construction costs.

While competitive bidding helps control labor and building material costs, the downward trend of these costs has stopped. Material manufacturers are less inclined to reduce prices, and TradePartners^® labor costs are at a point where further reductions are unlikely, in fact, costs could increase and adversely affect our financial condition and results of operations.

In several of our markets in 2011 through 2013, we need to replenish our inventory of lots for construction. If the housing market recovers, the price of improved or finished lots for construction in these markets could increase, and adversely affect our financial condition and results of operations.

Elimination or reduction of the tax benefits associated with owning a home could prevent potential customers from buying our homes and adversely affect our business or financial results.

Significant expenses of owning a home, including mortgage interest and real estate taxes, generally are deductible expenses for an individual’s federal and, in some cases, state income taxes, subject to certain limitations. If the federal government or a state government changes its income tax laws, as has been discussed, to eliminate or substantially modify these income tax deductions, the after-tax cost of owning a new home would increase for many potential customers. The resulting loss or reduction of homeowner tax deductions, if such tax law changes were enacted without offsetting provisions, would adversely affect demand for new homes.

Homebuilding is subject to home warranty and construction defect claims and other litigation risks in the ordinary course of business that can be significant. Our operating expenses could increase if we are required to pay higher insurance premiums or incur substantial litigation costs with respect to such claims and risks.

As a homebuilder, we are subject to home warranty and construction defect claims arising in the ordinary course of business. As a consequence, we maintain liability insurance in the form of a “rolling wrap-up” insurance program which insures both us and our TradePartners^®. We also record customer service and warranty reserves for the homes we sell based on historical experience in our markets and our judgment of the qualitative risks associated with the types of homes built. See the further description of “rolling wrap-up” insurance policies in the “Business—Insurance Coverage” section. Because of the uncertainties inherent in these matters, we cannot provide assurance that, in the future, our insurance coverage, TradePartners^® arrangements and reserves will be adequate to address all warranty and construction defect claims.

Costs of insuring against construction defect and product liability claims are high, and the amount and scope of coverage offered by insurance companies at acceptable rates is limited. The scope of coverage may continue to be limited or further restricted and may become more costly.

Increasingly in recent years, individual and class action lawsuits have been filed against homebuilders asserting claims of personal injury and property damage caused by various sources, including faulty materials and presence of mold in residential dwellings. Furthermore, decreases in home values as a result of general economic conditions may result in an increase in both non-meritorious and meritorious construction defect claims, as well as claims based on marketing and sales practices. Our insurance may not cover all of the claims arising from such issues, or such coverage may become prohibitively expensive. Notwithstanding, our annual policy limits are $50.0 million per occurrence and $50.0 million in the aggregate. If we are unable to obtain adequate insurance against these claims, we may experience litigation costs and losses that could adversely affect our financial condition and results of operations. Even if we are successful in defending such claims, we may incur significant costs.

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Historically, builders have recovered a significant portion of the construction and product defect liabilities and defense costs from their subcontractors and insurance carriers. We try to minimize our liability exposure by providing a master insurance policy and requiring TradePartners^® to enroll in a “rolling wrap-up” insurance policy. Insurance coverage available to us and our TradePartners^® for construction and product defects is expensive and the scope of coverage is restricted. If we cannot effectively recover from our carriers, we may suffer greater losses, which could adversely affect our financial condition and results of operations.

Furthermore, a builder’s ability to recover against an insurance policy depends upon the continued solvency and financial strength of the insurance carrier issuing the policy. The states where we build homes typically limit property damage claims resulting from construction defects to those arising within an eight- to twelve-year period from close of escrow. To the extent any carrier providing insurance coverage to us or our TradePartners^® becomes insolvent or experiences financial difficulty, we may be unable to recover on those policies, which could adversely affect our financial condition and results of operations.

Homebuilding is very competitive, and competitive conditions could adversely affect our business, financial condition and results of operations.

The homebuilding industry is highly competitive. Homebuilders compete not only for homebuyers, but also for desirable properties, financing, raw materials and skilled labor. We compete with other local, regional and national homebuilders, often within larger subdivisions designed, planned and developed by such homebuilders. We also compete with existing home sales, foreclosures and rental properties. In addition, consolidation of some homebuilding companies may create competitors with greater financial, marketing and sales resources with the ability to compete more effectively. New competitors may also enter our markets. These competitive conditions in the homebuilding industry can result in:

• lower sales;

• lower selling prices;

• increased selling incentives;

• lower profit margins;

• impairments in the value of inventory and other assets;

• difficulty in acquiring suitable land, raw materials, and skilled labor at acceptable prices or terms; or

• delays in home construction.

These competitive conditions affect our business, financial condition and results of operations. During the current downturn in the homebuilding industry, the reactions of our competitors may have reduced the effectiveness of our efforts to achieve pricing stability and reduce inventory levels.

Our success depends on the availability of suitable undeveloped land and improved lots at acceptable prices, and having sufficient liquidity to acquire such properties.

Our success in developing land and building and selling homes depends in part upon the continued availability of suitable undeveloped land and improved lots at acceptable prices. Availability of undeveloped land and improved lots for purchase at favorable prices depends on many factors beyond our control, including risk of competitive over-bidding and restrictive governmental regulation. Should suitable land become less available, the number of homes we may be able to build and sell would be reduced, which would reduce revenue and profits. In addition, our ability to purchase land depends upon us having sufficient liquidity. We may be disadvantaged in competing for land due to our debt obligations, limited cash resources, inability to incur further debt and, as a result, more limited access to capital compared to publicly traded competitors.

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Poor relations with the residents of our communities could adversely impact sales, which could cause revenues or results of operations to decline.

Residents of communities we develop rely on us to resolve issues or disputes that may arise in connection with development or operation of their communities. Efforts to resolve these issues or disputes could be unsatisfactory to the affected residents and subsequent actions by these residents could adversely affect our reputation or sales. In addition, we could be required to incur costs to settle these issues or disputes or to modify our community development plans, which could adversely affect our financial condition and results of operations.

If we are unable to develop our communities successfully or within expected timeframes, results of operations could be adversely affected.

Before a community generates revenues, time and capital are required to acquire land, obtain development approvals and construct project infrastructure, amenities, model homes and sales facilities. Our inability to successfully develop and market our communities and to generate cash flow from these operations in a timely manner could have a material adverse effect on our business, financial condition and results of operations.

Our business is seasonal in nature and quarterly operating results can fluctuate.

Our quarterly operating results generally fluctuate by season. We typically achieve our highest new home sales orders in the spring and summer, although new homes sales order activity is also highly dependent on the number of active selling communities and the timing of new community openings. Because it typically takes us three to eight months to construct a new home, we deliver a greater number of homes in the second half of the calendar year as sales orders convert to home deliveries. As a result, our revenues from homebuilding operations are higher in the second half of the year, particularly in the fourth quarter, and we generally experience higher capital demands in the first half of the year when we incur construction costs. If, due to construction delays or other causes, we cannot close our expected number of homes in the second half of the year, our financial condition and results of operations may be adversely affected.

We may be adversely affected by weather conditions and natural disasters.

Weather conditions and natural disasters, such as hurricanes, tornadoes, earthquakes, snow storms, landslides, wildfires, volcanic activity, droughts and floods can harm our homebuilding business and delay home closings, increase the cost or availability of materials or labor, or damage homes under construction. In addition, the climates and geology of many of the states where we operate present increased risks of adverse weather or natural disasters. In particular, a large portion of our homebuilding operations are concentrated in California, which is subject to increased risk of earthquakes. Any such events or any business interruption caused thereon could have a material adverse effect on our business, financial condition and results of operations.

Utility and resource shortages or rate fluctuations could have an adverse effect on operations.

Our communities have experienced utility and resource shortages, including significant changes to water availability and increases in utility and resource costs. Shortages of natural resources, particularly water, may make it more difficult to obtain regulatory approval of new developments. We may incur additional costs and be unable to complete construction as scheduled if these shortages and utility rate increases continue. Furthermore, these shortages and utility rate increases may adversely affect the regional economies where we operate, which may reduce demand for our homes.

In addition, costs of petroleum products, which are used to deliver materials and transport employees, fluctuate and may increase due to geopolitical events or accidents. This could also result in higher costs for products utilizing petrochemicals, which could adversely affect our financial condition and results of operations.

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The IRS has disallowed certain income recognition methodologies. If we are unsuccessful in appealing this decision, we could become subject to a substantial tax liability from previous years.

Since 2002, SHI and SHLP have used the “completed contract method” of accounting (the “CCM”) to recognize taxable income or loss with respect to the majority of their respective homebuilding operations. The CCM allows SHI and SHLP to defer taxable income/loss recognition from their homebuilding operations until projects are substantially complete, rather than annually based on the sale of individual homes to buyers of those homes. The Internal Revenue Service (the “IRS”) has assessed a tax deficiency against SHLP and SHI contending they did not accurately and appropriately apply the relevant U.S. Treasury Regulations in calculating their respective homebuilding projects’ income/loss pursuant to the CCM for years 2004 through 2008, and years 2003 through 2008, respectively. SHI and SHLP believe their use of the CCM complies with the relevant regulations and have filed a petition with the United States Tax Court to challenge the IRS position. If, contrary to our expectations, the IRS should prevail in this matter, SHI and SHLP would be required to recognize income for prior years that would otherwise be deferred until future years. With respect to SHI, this earlier recognition of income could result in a tax liability of up to $59 million (federal and state income taxes inclusive of interest). With respect to SHLP, the earlier recognition of income could result in the owners of SHLP incurring an additional tax liability of up to $101 million (federal and state income taxes inclusive of interest) for the years at issue, and SHLP would be required to make a distribution to its owners to pay a portion of such tax liability. See “Certain Relationships and Related Party Transactions—Tax Distribution Agreement.” The indenture governing the notes restricts SHLP’s ability to make such distributions in excess of a specified amount determined by a formula, unless SHLP receives a cash equity contribution from JFSCI in the amount of such excess. See “Description of the Notes—Limitations on Restricted Payments.” Such potential additional taxes imposed on SHI and tax distributions by SHLP may have a material adverse effect on the financial condition and results of operations of SHI and SHLP, respectively, which could compromise our ability to service our debt, including the notes.

Under our Tax Distribution Agreement, we are required to make distributions to our equity holders from time to time based on their ownership in SHLP, which is a limited partnership and, under certain circumstances, those distributions may occur even if SHLP does not have taxable income.

Under the Tax Distribution Agreement (as described under “Certain Relationships and Related Party Transactions—Tax Distribution Agreement”), SHLP will be required to make cash distributions to the partners of SHLP (or their direct or indirect holders) for taxable income allocated to them in connection with their ownership interests in SHLP. In addition, SHLP will be required under the Tax Distribution Agreement to provide tax distributions to the partners of SHLP (or their direct or indirect holders) for any additional taxable income allocated to them as a result of any audit, tax proceeding or tax contest arising from or in connection with any tax position taken by SHLP (or any entity treated as a “pass-through” entity under U.S. federal income tax principles in which SHLP has an ownership interest). If any audit, proceeding or contest in connection with years prior to 2011 (including those related to the CCM) ultimately results in an increase in taxable income allocated to our partners, or any disallowance of losses or deductions previously allocated to our partners, then we would be required to make additional tax distributions to them, even if the audit, proceeding or contest resulted in a reduction of a tax loss previously allocated for such period and no taxable income had been previously allocated to them for such period or would be so allocated after such reduction. Any distribution under the Tax Distribution Agreement could have a material adverse effect on our business, financial condition and results of operations, which could compromise our ability to service our debt, including the notes.

Our ability to generate sufficient cash or access other limited sources of liquidity to operate our business and service our debt depends on many factors, some of which are beyond our control.

Our ability to make payments on the notes and to fund land acquisition, development and construction costs depends on our ability to generate sufficient cash flow, which is subject to general economic, financial, competitive, legislative and regulatory factors and other factors beyond our control. We cannot assure we will generate sufficient cash flow from operations to pay principal and interest on the notes or fund operations. As a

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result, we may need to refinance all or a portion of our debt, including the notes, on or before the maturity thereof, or incur additional debt. We cannot assure we will be able to do so on favorable terms, if at all. If we are unable to timely refinance our debt, we may need to dispose of certain assets, minimize capital expenditures or take other steps that could be detrimental to our business and could reduce the value of the collateral. There is no assurance these alternatives will be available, if at all, on satisfactory terms or on terms that will not require us to breach the terms and conditions of our existing or future debt agreements. Any inability to generate sufficient cash flow, refinance debt or incur additional debt on favorable terms could have a material adverse effect on our financial condition and results of operations, and could compromise our ability to service our debt, including the notes.

In addition, we use letters of credit and surety bonds to secure our performance under various construction and land development agreements, escrow agreements, financial guarantees and other arrangements. Should our future performance or economic conditions continue to make such letters of credit and surety bonds costly or difficult to obtain or lead to us being required to collateralize such instruments to a greater extent than previously, our business, financial condition and results of operations could be adversely affected.

We have a significant number of contingent liabilities, and if any are satisfied by us, could have a material adverse effect on our financial condition and results of operations.

At September 30, 2011, contingent liabilities included:

• $11.6 million of potential liabilities pursuant to guarantees by SHLP of outstanding debt of AGS Home Builder I, LP, an Unconsolidated Joint Venture in which SHLP has an effective 9.1% ownership interest, of which SHLP’s joint venture partners, certain investment funds managed by Angelo Gordon, are contractually obligated to reimburse SHLP for approximately 90% of any amounts required to be paid under such guarantees;

• $25.4 million of potential liabilities pursuant to certain guarantees of outstanding debt of Shea/Baker Ranch Associates, LLC, a joint venture 50% owned by a Shea Family Owned Company in which SHLP has no ownership interest;

• $46.4 million of potential liabilities pursuant to guarantees in respect of certain permanent financings of stabilized projects of other Shea Family Owned Companies in which SHLP and its subsidiaries have no ownership interest, which guarantees could be triggered by certain “bad boy” acts of the affiliated borrower, such as voluntary bankruptcy, fraud or material misrepresentation;

• $29.3 million of remaining exposure with respect to $69.0 million of surety bond indemnifications related to Unconsolidated Joint Ventures and $3.7 million of remaining exposure with respect to $7.7 million of surety bond indemnifications related to other Shea Family Owned Companies;

• $70.8 million of remaining exposure in connection with $179.2 million of surety bonds issued in respect of projects of SHLP and its subsidiaries; and

• other commitments to fund certain of our joint ventures pursuant to the agreements and organizational documents governing such joint ventures.

See “Description of Other Indebtedness” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Contractual Obligations, Commercial Commitments and Off-Balance Sheet Agreements.” The amounts above do not include obligations with respect to letters of credit issued under our existing letter of credit facility as credit support for certain liabilities of our joint ventures.

Certain of our homebuilding projects utilize and may continue to utilize community facility district, metro-district and other local government bond financing programs to fund construction or acquisition of infrastructure improvements. Interest and principal on these bonds are typically paid from taxes and assessments levied on homeowners following the sale of new homes within the project. From time to time we enter into credit support

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arrangements where we are required to make interest and principal payments on these bonds if the taxes and assessments levied on homeowners are insufficient to cover such obligations. Furthermore, reimbursement of these payments to us is dependent on the district or local government’s ability to generate sufficient tax and assessment revenues from the sale of new homes. If the downturn in the homebuilding industry continues and results in further declines in new home sales, taxes and assessments levied on homeowners may be insufficient to cover interest and principal obligations on these bonds and we may be required to fund these shortfalls, possibly without reimbursement, and/or accrue liabilities in connection with these credit support arrangements.

If we must satisfy any of these contingent liabilities, it could have a material adverse effect on our financial condition and results of operations.

The indenture governing the notes and our letter of credit facility contain, and any future indebtedness may contain, financial and operating restrictions that may affect our ability to operate our business.

The indenture governing the notes and our letter of credit facility do, and any future indebtedness may, contain various covenants that, among other things, limit our ability to grant certain liens to support indebtedness, invest in joint venture transactions, merge or sell assets. In addition, the indenture governing the notes and our letter of credit facility do, and any future indebtedness may, contain restrictions on our ability to incur indebtedness, enter into certain affiliate transactions and make certain distributions. These covenants could adversely affect our ability to finance our operations or capital needs or engage in, expand or pursue our business activities and prevent us from engaging in certain transactions that might otherwise be considered beneficial. In particular, restrictions on our ability to enter into joint venture transactions may limit our ability to undertake new large scale master-planned development opportunities, including developments of our homes under the Trilogy brand, and may thereby adversely affect our growth and results of operations. In addition, these covenants may restrict our ability to meet capital commitments under our joint venture agreements, which may result in our ownership interests in the corresponding joint ventures being reduced or eliminated.

The risks associated with our land and lot inventory could adversely affect our business, financial condition and results of operations.

The risks inherent in controlling or purchasing, holding and developing land for new home construction are substantial and increase as consumer demand for housing decreases. The value of undeveloped land, building lots and housing inventories can fluctuate significantly from changing market conditions. If the fair market value of the land, lots and inventories we hold decreases, we may be required to reduce their carrying value and take significant impairment charges. We may have acquired options on or bought and developed land at a cost we will not be able to recover fully or on which we cannot build and sell homes profitably. In addition, our deposits for land controlled under option or similar contracts may be put at risk. In certain circumstances, a grant of entitlements or development agreement with respect to particular land may include restrictions on the transfer of such entitlements to a buyer which may increase our exposure to decreases in the price of such entitled land by restricting our ability to sell it for its full entitled value. In addition, inventory carrying costs can be significant and result in reduced margins or losses in a poorly performing community or market. In the present weak market, we have recorded significant inventory impairment charges and sold homes and land for lower margins, and such conditions may persist.

Historically, our goals for the ownership and control of land were based on management’s expectations for future volume growth. In light of weak market conditions since 2006, we significantly reduced purchases of undeveloped land and land development spending, and made substantial land sales to reduce inventory to better align with our reduced rate of production. We also terminated certain land option contracts and wrote off earnest money deposits and pre-acquisition costs related to these option contracts. Because future market conditions are uncertain, we cannot provide assurance these measures will be successful in managing future inventory risks or avoiding future impairment charges. We could be limited in the amount of land we can dispose of, therefore, our

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cash inflows attributable to land sales may decline. Our flexibility in responding to changes in market conditions, including our ability to respond to further declines in the housing market or to benefit from a return to growth, has been reduced as the amount of our land controlled by option and similar contracts has declined.

Also, use of option contracts is dependent on the willingness of land sellers, availability of capital, housing market conditions and geographic preferences. Options may be more difficult to obtain from land sellers in stronger housing markets and are more prevalent in certain geographic regions.

In certain consolidated homebuilding projects, we have contractual obligations to purchase and receive water system connection rights which, at September 30, 2011, were $39.7 million. These water system connection rights are held and then transferred to homebuyers upon closing of their home or transferred upon the sale of land to the respective buyer. These water system connection rights can also be sold or leased but generally only within the local jurisdiction. The risks inherent in purchasing, controlling or holding these water system connection rights are substantial and increase as consumer demand for housing decreases. The value of these water system connection rights and their marketability can also fluctuate from changing market conditions. If the fair market value of these water system connection rights decreases, we may be required to reduce their carrying value which could adversely affect our financial condition and results of operations.

In certain consolidated homebuilding projects, we make infrastructure improvements on behalf of community facility districts and metro-districts or advance them funds for such improvements, both reimbursable to us from tax proceeds, assessments or bond financing and dependent on the district’s ability to secure capital from these sources. If the downturn in the homebuilding industry continues and results in further declines in new home sales, then taxes and assessments levied on homeowners may be insufficient to reimburse us. Furthermore, if bond financing is unavailable, these districts may be unable to reimburse us. In either case, we may be required to recognize a charge for uncollectible accounts which could adversely affect our financial condition and results of operations.

We conduct certain of our operations through Unconsolidated Joint Ventures with independent and affiliated third parties in which we do not have a controlling interest. These investments involve risks and are highly illiquid.

We currently operate through a number of unconsolidated homebuilding and land development joint ventures with independent and affiliated parties in which we do not have a controlling interest (the “Unconsolidated Joint Ventures”). At September 30, 2011, we had an investment of $30.0 million in these Unconsolidated Joint Ventures and guaranteed, on a joint and several basis, $11.6 million of outstanding liabilities for projects under development by these Unconsolidated Joint Ventures. See “Description of Other Indebtedness.” In addition, we issue and may continue to issue letters of credit under our letter of credit facility as credit support for liabilities of our Unconsolidated Joint Ventures.

Our investments in the Unconsolidated Joint Ventures involve risks and are highly illiquid, and their success depends in part on our joint venture partners’ performance, which can be impacted by their financial strength and other factors. There are a limited number of sources willing to provide acquisition, development and construction financing to land development and homebuilding joint ventures and, as market conditions become more challenging, it may be difficult or impossible to obtain financing for our Unconsolidated Joint Ventures on commercially reasonable terms. Recently, due to tighter credit markets, we have been unable to obtain financing for newly created Unconsolidated Joint Ventures. In addition, we lack a controlling interest in our Unconsolidated Joint Ventures and, therefore, are usually unable to require our Unconsolidated Joint Ventures sell assets or return invested capital, make additional capital contributions, or take other action without the vote of at least one venture partner. Therefore, absent partner agreement, we will be unable to liquidate our Unconsolidated Joint Ventures investments to generate cash.

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We have a significant number of affiliated entities with whom we have entered into many transactions. Our relationship with these entities could adversely affect us.

We are part of the Shea Family Owned Companies, which are operated in three major groups: homebuilding, heavy construction and commercial property development and management. See “Prospectus Summary—The Shea Family Owned Companies.” Though our business forms the core of the homebuilding group, we have historically entered into many transactions with other Shea Family Owned Companies which are not part of the homebuilding group. See “Certain Relationships and Related Party Transactions.” These transactions range from management and administrative related matters to joint ventures, transfers of assets and financial guarantees and other credit support arrangements. We are currently party to many such affiliate transactions, not all of which are memorialized in formal written agreements. In the future, we will continue to be party to many of the affiliate transactions currently in existence, and it is likely we will enter into new affiliate transactions.

The homebuilding group of the Shea Family Owned Companies, which is operated largely through us, has only recently been operated as an independent business without credit support from the other Shea Family Owned Companies. If we are unable to continue to operate without such credit support, it could materially adversely affect our business, financial condition and results of operations. In addition, though we do not expect to receive new credit support from other Shea Family Owned Companies, we will still depend on our affiliates to provide us with certain management and administrative services. If these affiliates become unable to provide us with such services, we could incur significant additional costs to obtain them through other means.

Until August 2011, one of our affiliates, JFSCI, provided us with centralized cash management services. See “Certain Relationships and Related Party Transactions—Cash Management Services Provided by JFSCI.” As part of this function, we engaged in related party transactions and monetary transfers to settle amounts owed. The resultant accounts receivables and payables from these transfers are paid monthly. In August 2011, we ceased our participation in the centralized cash management service and performed the function independently. In addition, SHI has an unsecured term note receivable from JFSCI (the “Intercompany Debt Balance”), which bears interest at 4%, is payable in equal quarterly installments and due May 15, 2019, and has an outstanding balance, including accrued interest, at September 30, 2011 of $25.1 million. Quarterly, we evaluate collectability of the Intercompany Debt Balance, which includes consideration of JFSCI’s payment history, operating performance and future payment requirements under the note. Based on these criteria, and as JFSCI applied prepayments under the note to defer future installments until February 2014, we do not presently anticipate collection risks on the Intercompany Debt Balance. However, JFSCI’s inability to honor its obligation with respect to the Intercompany Debt Balance could have a material adverse effect on our financial condition, results of operations and capital resources.

Although the Indenture prohibits us from entering into certain affiliate transactions in the future unless they are on arm’s-length terms, this prohibition is subject to many exceptions and limitations. See “Description of the Notes—Limitations on Transactions with Affiliates.” In particular, with respect to transactions involving the transfer of real property, we will only be required to obtain third-party independent estimates of the value of such real property when the transaction involves consideration exceeding $10.0 million. With respect to all other affiliate transactions, we will only be required to obtain an independent third-party fairness opinion in connection with transactions involving consideration exceeding $5.0 million.

Finally, though the current intention with respect to the Shea Family Owned Companies is to create three independent businesses that do not provide credit support to each other, it is possible the homebuilding group would be adversely affected by future financial and other difficulties arising with respect to either the heavy construction or commercial property group. For example, if any of the Shea Family Owned Companies not a part of the homebuilding group require financial support, it is likely the attention and financial resources of the Shea family members could be diverted from us and toward the business in need of additional support. Moreover if any of the Shea Family Owned Companies becomes subject to a bankruptcy, liquidation or similar proceeding, such proceeding could have a substantial effect on our business because of the extensive nature of the transactions among the Shea Family Owned Companies. It is possible that, among other consequences:

• any outstanding guarantee by us of indebtedness or other obligations of such Shea Family Owned Company could be called, which could adversely affect our financial condition and results of operations;

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• our receivable from JFSCI and the Intercompany Debt Balance could become uncollectible, which could have a material adverse effect on our financial condition and results of operations;

• any existing affiliate transaction could be terminated, resulting in our inability to access needed services;

• prior affiliate transactions could be examined and set aside, resulting in our liability to the bankruptcy or liquidation estate; and

• such Shea Family Owned Company could be closed or sold to an unrelated buyer, resulting in a loss of any synergies from which we benefit as a member of the Shea Family Owned Companies.

The families and family trusts that own our equity interests may have interests different from yours.

Entities directly or indirectly owned by the Shea family beneficially own substantially all of the equity interests in SHLP. As a result, members of the Shea family have the ability to control SHLP and, except as otherwise provided by law or our organizational documents, to approve or disapprove matters that may be submitted to a vote of SHLP’s limited partners. Each director is a member of the Shea family or an employee of other Shea Family Owned Companies. We have been advised Shea family members do not currently plan to appoint any nonaffiliated or independent directors.

Our ownership group and their affiliates operate businesses using the Shea Homes brand that derive revenue from homebuilding and land development, including Shea Homes North Carolina, which are not owned by SHLP. We do not receive any brand licensing or sales revenue from these businesses, although in certain circumstances we provide them with management and administrative services. Certain of these affiliated entities have also engaged, and will continue to engage, in transactions with us. Shea Mortgage, Inc. (“Shea Mortgage”) derives revenue from loan fees paid by our customers. Shea Properties develops commercial properties that are sometimes built on land purchased from us, and we develop properties on land purchased from Shea Properties. See “Certain Relationships and Related Party Transactions” for a description of such transactions. In the future, we may enter into other agreements with affiliates of this group. Shea family members comprising our ownership group are not restricted from engaging in homebuilding or land development activities through independent entities.

The interests of our limited partners and owners of J.F. Shea Construction Management, Inc., our ultimate general partner, could conflict with interests of our note holders. For example, if we encounter financial difficulties or are unable to pay our debts as they mature, the interests of our equity holders might conflict with the interests of our note holders. In addition, our owners may have interests in pursuing acquisitions, divestitures, financings or other transactions that, in their judgment, could enhance their investments, even though such transactions might involve risks to our note holders. Furthermore, our owners currently own and may in the future own businesses, which may operate under the Shea Homes brand, that directly compete with our business. In addition, although the indenture governing the notes contains a covenant limiting transactions with affiliates, this covenant has a number of significant exceptions and, in any case, does not prohibit transactions with affiliates but only requires they be on arm’s-length terms. No owner has any obligation to provide us with any additional debt or equity financing.

We are dependent on the services of our senior management team and certain of our key employees, and loss of their services could hurt our business.

We believe our senior management’s experience in the homebuilding industry and tenure with our company are competitive strengths, and our success depends upon our ability to retain these executives. In addition, we believe our ability to attract, train, assimilate and retain new skilled personnel is important to our success. If we are unable to retain senior management and certain key employees, particularly lead personnel in our markets, as well as our senior corporate officers, or attract, train, assimilate or retain other skilled personnel, it could hinder the execution of our business strategy. Competition for qualified personnel in our markets is intense, and it could

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be difficult to find experienced personnel to replace our employees, many of whom have significant homebuilding experience. Furthermore, a significant increase in our active communities would necessitate hiring a significant number of field and sales personnel, who are in short supply in our markets.

We continue to consider growth or expansion of our operations, which could have a material adverse effect on our financial condition and results of operations.

We continue to consider opportunities for growth, primarily within our existing markets, but also in new markets. Additional growth of our business, either through increased land purchases or development of larger projects, may have a material adverse effect on our financial condition and results of operations. Any expansion of our business into new markets could divert the attention of senior management from our existing business and could fail due to our relative lack of experience in those markets. In addition, while we do not currently intend to acquire any homebuilding operations from third parties, opportunities may arise in the future, and any acquisition could be difficult to integrate with our operations and could require us to assume unanticipated liabilities or expenses.

Government regulations could increase the cost and limit the availability of our development and homebuilding projects and adversely affect our business, financial condition and results of operations.

We are subject to extensive and complex regulations that affect land development and home construction, including zoning, density restrictions, building design and building standards. These regulations often provide broad discretion to the administering governmental authorities as to the conditions we must meet prior to being approved, if approved at all. We are subject to determinations by these authorities as to the adequacy of water and sewage facilities, roads and other local services. New housing developments may also be subject to various assessments for schools, parks, streets and other public improvements. In addition, in many markets, government authorities have implemented no growth or growth control initiatives and preservation of land and endangered species, often as a result of local grass-roots lobbying efforts. Furthermore, restrictions on immigration can create a shortage of skilled labor. Any of these regulatory issues can limit or delay home construction and increase operating costs.

We are also subject to various local, state and federal laws and regulations concerning protection of health, safety and the environment. These matters may result in delays, may cause us to incur substantial compliance, remediation, mitigation and other costs or subject us to fines, penalties and related litigation. These laws and regulations can also prohibit or severely restrict development and homebuilding activity in environmentally sensitive areas.

We may incur additional operating expenses or delays due to compliance requirements or fines, penalties and remediation costs pertaining to environmental regulations within our markets.

We are subject to local, state and federal statutes, ordinances, rules and regulations concerning land use and the protection of health and the environment; including those governing discharge of pollutants to water and air, handling of hazardous materials and cleanup of contaminated sites. The particular impact and requirements of environmental laws that apply to any given community vary greatly according to the community site, the site’s environmental conditions and the present and former use of the site. We expect that increasingly stringent requirements will be imposed on homebuilders. Environmental laws may result in delays, cause us to implement time consuming and expensive compliance programs and prohibit or severely restrict development in certain environmentally sensitive regions or areas. Environmental regulations can also have an adverse impact on the availability and price of certain raw materials, such as lumber. Furthermore, we could incur substantial costs, including cleanup costs, fines, penalties and other sanctions and damages from third-party claims for property damage or personal injury, as a result of our failure to comply with, or liabilities under, applicable environmental laws and regulations. In addition, we are subject to third-party challenges under environmental laws and regulations to the permits and other approvals required for our projects and operations.

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Changes in governmental regulation of our financial services operations could adversely affect our business, financial condition and results of operations.

We assist customers with finding homeowners’ insurance through Shea Insurance Services, Inc., a wholly-owned subsidiary of SHLP. Through Shea Mortgage, a related entity within the Shea Family Owned Companies but not a subsidiary of SHLP or consolidated in its financial statements, we are also able to arrange mortgage origination options for our customers, helping us to ensure they secure financing for their home purchases.

These financial services operations are subject to federal, state and local laws and regulations. There have been numerous proposed changes in these regulations as a result of the housing downturn. For example, in July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (H.R.4173) was signed into law which will significantly impact regulation of the financial services industry, including creating new standards related to regulatory oversight of systematically important financial companies, derivatives transactions, asset-backed securitization, mortgage underwriting and consumer financial protection. Among other things, this legislation provides for a number of new requirements relating to residential mortgage lending practices, many of which are to be developed further by implementing rules. These include, among others, minimum standards for mortgages and lender practices in making mortgages, limitations on certain fees, retention of credit risk, prohibition of certain tying arrangements and remedies for borrowers in foreclosure proceedings. The effect of such provisions on our financial services business will depend on the rules that are ultimately enacted. In addition, we cannot predict what similar changes to, or new enactments of, statutes and regulations pertinent to our financial services operations will occur. Any such changes or new enactments could have a material adverse effect on our financial condition and results of operations.

We could be adversely affected by negative changes in our credit ratings.

Our ability to access capital on favorable terms is a key factor in our ability to service our debt and fund our operations. Downgrades to our credit ratings and negative changes to the outlook for such credit ratings have in the past required, and may in the future require, significant management time and effort to address. Such changes in the past have made it difficult and costly for us to access debt capital and engage in other ordinary course financing transactions relating to our new developments. Any future adverse action by any of the principal credit agencies may exacerbate these difficulties.

Risk Factors Related to the Exchange Offer

We cannot assure you that an active trading market for the exchange notes will exist if you desire to sell the exchange notes.

There is no existing public market for the outstanding notes or the exchange notes. We do not intend to have the exchange notes listed on a national securities exchange or to arrange for quotation on any automated dealer quotation systems. Therefore, we cannot assure you as to the development or liquidity of any trading market for the exchange notes. The liquidity of any market for the exchange notes will depend on various factors, including:

• the number of holders of exchange notes;

• our financial condition and results of operations;

• the market for similar securities;

• the interest of securities dealers in making a market in the exchange notes; and

• prevailing interest rates.

Historically, the market for non-investment grade debt has been subject to disruptions that have caused substantial volatility in the prices of securities similar to the exchange notes. The market, if any, for the exchange notes may face similar disruptions that may adversely affect the prices at which you could sell your exchange notes. Therefore, you may not be able to sell your exchange notes at a particular time and the price you receive when you sell may not be favorable.

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You may have difficulty selling any outstanding notes that you do not exchange.

If you do not exchange your outstanding notes for exchange notes in the exchange offer, you will continue to hold outstanding notes subject to restrictions on their transfer. Those transfer restrictions are described in the indenture governing the outstanding notes and in the legend contained on the outstanding notes, and arose because we originally issued the outstanding notes under an exemption from the registration requirements of the Securities Act.

In general, you may offer or sell your outstanding notes only if they are registered under the Securities Act and applicable state securities laws, or if they are offered and sold under an exemption from those requirements. We do not currently intend to register the outstanding notes under the Securities Act or any state securities laws. If a substantial amount of the outstanding notes is exchanged for a like amount of the exchange notes issued in the exchange offer, the liquidity of your outstanding notes could be adversely affected. See “The Exchange Offer—Consequences of Failure to Exchange Outstanding Notes” for a discussion of additional consequences of failing to exchange your outstanding notes.

Risks Relating to the Notes and the Guarantees

Our substantial debt could adversely affect our financial condition and results of operations.

We have a significant amount of debt. At September 30, 2011, the total principal amount of our debt was $752.3 million. In addition, we have a substantial amount of contingent liabilities which could affect our business. See “—Risks Relating to Us and Our Business—We have a significant number of contingent liabilities, and if any are required to be satisfied by us, could have a material adverse effect on our financial condition and results of operations.”

Our substantial debt and contingent liabilities could have important consequences for the holders of the notes, including:

• making it more difficult for us to satisfy our obligations with respect to the notes;

• increasing our vulnerability to adverse economic or industry conditions;

• limiting our ability to obtain additional financing to fund capital expenditures and acquisitions, particularly when the availability of financing in the capital markets is limited;

• requiring a substantial portion of our cash flows from operations for the payment of interest on our debt and reducing our ability to use our cash flows to fund working capital, capital expenditures, acquisitions and general corporate requirements;

• limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; and

• placing us at a competitive disadvantage to less leveraged competitors.

We may incur additional indebtedness, which indebtedness might rank equal to the notes or the guarantees thereof.

Despite our indebtedness, we and our subsidiaries may be able to incur significant additional indebtedness, including secured indebtedness, in the future, including under our letter of credit facility, which is secured on a Pari-Passu basis with the notes but will have the benefit of payment priority upon enforcement against the collateral. Although the indenture governing the notes contains restrictions on our and our subsidiaries’ ability to incur additional indebtedness, these restrictions are subject to qualifications and exceptions, and, under certain circumstances, the indebtedness incurred in compliance with such restrictions could be substantial and certain of this indebtedness may be secured by the same collateral securing the notes, and the respective guarantees thereof. If new indebtedness is added to our and our subsidiaries’ debt levels, the related risks that we and the Guarantors

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face would be increased, and we may not be able to meet all our debt obligations, including repayment of the notes, in whole or in part. If we incur any additional debt that is secured on an equal and ratable basis with the notes or the guarantees, the holders of that debt will be entitled to share ratably with the holders of the notes in any proceeds distributed in connection with any enforcement against the collateral or an insolvency, liquidation, reorganization, dissolution or other winding-up of the applicable Issuer or Guarantor. This may have the effect of reducing the amount of proceeds paid to holders of the notes.

The indenture governing the notes and our letter of credit facility do, and agreements governing our future indebtedness may, contain covenants that could adversely affect our ability to operate our business, as well as significantly affect our financial condition, and therefore could adversely affect our results of operations.

The indenture governing the notes and our letter of credit facility contain covenants that restrict certain activities. These covenants restrict, among other things, our ability to:

• pay dividends or distributions, repurchase equity or prepay subordinated debt;

• incur additional debt or issue certain equity interests;

• incur liens on assets;

• merge or consolidate with another company or sell all or substantially all of our assets;

• enter into transactions with affiliates;

• make certain investments;

• create certain restrictions on the ability of restricted subsidiaries to transfer assets;

• guarantee certain debt; and

• enter into sale and lease-back transactions.

The agreements we enter into governing our future indebtedness may impose similar or other restrictions. The restrictions contained in the indenture governing the notes and in any agreements governing future indebtedness may limit our financial flexibility, prohibit or limit any contemplated strategic initiatives, limit our ability to grow and increase our revenues or restrict our ability to respond to competitive changes.

We may be unable to purchase the notes upon a change of control.

We may be unable to raise the funds necessary to fulfill our obligations under the notes following a “change of control” as defined in the indenture governing the notes. Under the indenture, upon the occurrence of a defined change of control, we will be required to offer to repurchase all outstanding notes at 101% of the principal amount thereof plus, without duplication, accrued and unpaid interest and special interest, if any, to the date of repurchase. However, we may not have sufficient funds at the time of the change of control to make the required repurchase of the notes. Our failure to make or complete a change of control offer would place us in default under the indenture governing the notes.

In addition, the definition of change of control in the indenture governing the notes includes the sale of “all or substantially all” of our assets. There is no precise established definition of the phrase “substantially all” under New York law, the law which governs the indenture. Accordingly, upon a sale of less than all of our assets, the ability of a holder of notes to require us to repurchase such notes may be uncertain.

We could enter into significant transactions that would not constitute a change of control requiring us to repurchase the notes, but that could adversely affect our risk profile.

We could, in the future, enter into certain transactions, including certain recapitalizations, that would not result in a change of control, but would increase the amount of indebtedness outstanding at such time or otherwise affect our capital structure or credit ratings. Restrictions on our ability to incur additional indebtedness

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are contained in the covenants described under “Description of the Notes—Certain Covenants—Limitations on Indebtedness” and “Description of the Notes—Certain Covenants—Limitations on Liens.” Such restrictions in the indenture governing the notes can be waived with consent of the holders of a majority in principal amount of the notes then outstanding. Except for limitations contained in such covenants, however, the indenture does not contain any covenants or provisions that may afford holders of the notes protection in the event of a highly leveraged transaction.

The guarantees and security interests provided by the Guarantors may not be enforceable and, under specific circumstances, federal and state courts may void the guarantees and security interests and require noteholders to return payments received from the Guarantors.

Although the notes will be guaranteed by the Guarantors and secured by collateral provided by each Guarantor, a court could void or subordinate any Guarantor’s guarantee, or the security interest provided by any Guarantor, under federal or state fraudulent conveyance laws if existing or future creditors of any such Guarantor were successful in establishing that:

• such guarantee or security interest was incurred with fraudulent intent; or

• such Guarantor did not receive fair consideration or reasonably equivalent value for issuing its guarantee or providing collateral; and either:

• such Guarantor was insolvent at the time of the guarantee or creation of the security interest;

• such Guarantor was rendered insolvent by reason of such guarantee or the creation of such security interest;

• such Guarantor was engaged in a business or transaction or about to engage in such business or transaction for which its assets constituted unreasonably small capital to carry on its business; or

• such Guarantor intended to incur, or believed that it would incur, debt beyond its ability to pay such debt as it matured (as all of the foregoing terms may be defined in or interpreted under the relevant fraudulent transfer or conveyance statutes).

In such event, any payment by a Guarantor pursuant to its guarantee or security interest could be voided and required to be returned to the Guarantor, or to a fund for the benefit of the Guarantor’s creditors. Measures of insolvency for purposes of determining whether a fraudulent conveyance occurred would vary depending upon laws of the relevant jurisdiction and upon valuation assumptions and methodology applied by the court. Generally, however, a company would be considered insolvent for purposes of the foregoing if:

• the sum of the company’s debts, including contingent, unliquidated and unmatured liabilities, is greater than such company’s property at fair valuation;

• the present fair saleable value of the company’s assets is less than the amount that will be required to pay the probable liability on its existing debts, including contingent liabilities, as they become absolute and matured; or

• the company could not pay its debts or contingent liabilities as they become due.

We have no assurance as to what standard a court would use to determine whether or not a Guarantor would be solvent at the relevant time, or regardless of the standard used, that the guarantees or security interests would not be voided or subordinated to any Guarantor’s other liabilities. If such a case were to occur, the applicable guarantee or security interest could be subject to the claim that, since such guarantee or security interest was incurred for the benefit of the Issuers and only indirectly for the benefit of the Guarantor, the obligations of such Guarantor were incurred for less than fair consideration.

Any guarantee of the notes will contain a provision designed to limit the Guarantor’s liability to the maximum amount that it could incur without causing the incurrence of obligations under its guarantee to be a

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fraudulent transfer. However, there is some doubt as to whether this provision is effective to protect such guarantee, or a security interest provided by such Guarantor, from being voided under fraudulent transfer law. In a recent Florida bankruptcy case, a similar provision was found to be ineffective to protect the guarantors.

If a Guarantor’s guarantee or security interest is voided as a fraudulent conveyance or found to be unenforceable for any other reason, holders of the notes will not have a claim against such Guarantor and will only be a creditor of the Issuers and the remaining Guarantors, if any, to the extent the guarantee and security interest of those Guarantors are not set aside or found to be unenforceable. The notes then would in effect be structurally subordinated to all liabilities of the Guarantor whose guarantee or security interest was avoided.

Because each Guarantor’s liability under its guarantee may be reduced to zero, avoided or released under certain circumstances, you may not receive any payments from some or all of the Guarantors.

You will have the benefit of the guarantees of the Guarantors. However, the guarantee by each Guarantor is limited to the maximum amount that such Guarantor is permitted to guarantee under applicable law. As a result, a Guarantor’s liability under its guarantee could be reduced to zero, depending upon the amount of other obligations of such Guarantor. Further, under the circumstances discussed more fully above, a court under federal or state fraudulent conveyance and transfer statutes could avoid the obligations under a guarantee or further subordinate it to all other obligations of the Guarantor. In addition, you will lose the benefit of a particular guarantee if it is released under the circumstances described under “Description of the Notes—The Guarantees.”

The notes are joint and several obligations of a California limited partnership and a Delaware corporation, the latter of which has no independent operations or subsidiaries and generates no cashflow to service the notes.

Shea Homes Funding Corp. is a finance company with no operations of its own and no material assets. As a result of the foregoing, Shea Homes Funding Corp. has no cash flows and will provide no credit support for the notes.

Your right to receive payments under the notes is junior to the existing and future indebtedness and other liabilities of our subsidiaries that are not Guarantors and of our joint ventures.

The notes will not be guaranteed by all of our subsidiaries or any of our joint ventures (other than Vistancia Construction, LLC and Vistancia Marketing, LLC), and under certain circumstances, subsidiaries and joint ventures guaranteeing the notes may be released from their guarantees and the security interests securing those guarantees without the consent of holders of the notes. See “Description of the Notes—The Guarantees.” In the event of a bankruptcy, liquidation or reorganization of any of our non-guarantor subsidiaries or joint ventures, creditors of such subsidiaries or joint ventures, including any trade creditors, joint venture partners, debt holders or any preferred equity holders, will be entitled to payment of their claims from the assets of those subsidiaries or joint ventures before any such assets are made available for distribution to us, except to the extent that we may also have a claim as a creditor. Thus, the notes will be effectively junior to the claims of creditors of our non-guarantor consolidated subsidiaries and of our joint ventures. Our non-guarantor subsidiaries are permitted to incur substantial additional liabilities in the future under the terms of the indenture and our joint ventures will not be restricted by the covenants contained in the indenture.

Your right to receive payments under the notes is junior to our and the Guarantors’ existing and future secured indebtedness and other secured obligations to the extent that the assets that secure such indebtedness and other obligations do not secure the notes.

The notes and the guarantees will be effectively subordinated to any existing and future obligations of either of the Issuers or any Guarantor that is secured with assets that do not constitute collateral to the extent of the value of such assets securing such indebtedness. If we file for bankruptcy, liquidate or dissolve, our assets that

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secure indebtedness other than the notes or that secure any other obligation would be available to pay amounts owing with respect to the notes and the guarantees only after we pay all amounts owed to such other secured indebtedness or other obligation. Accordingly, we may not have sufficient assets remaining to make any or all payments in respect of the notes.

The collateral may not be valuable enough to satisfy all the obligations secured by such collateral and, in certain circumstances, can be released without the consent of holders of the notes.

The notes and guarantees are secured by substantially all the assets of the Issuers and the Guarantors, including stock of certain of their subsidiaries (subject to certain limitations), but specifically excluding certain types of assets. See “Description of the Notes—Security.” The indenture governing the notes allows us to incur additional secured debt or other secured liabilities, including under certain circumstances debt or other liabilities that share in the collateral securing the notes and the guarantees, including debt under our letter of credit facility, which are secured on a Pari-Passu basis with the notes but will have the benefit of payment priority upon enforcement against the collateral. See “Description of the Notes—Certain Covenants—Limitations on Liens.”

There is no assurance that the fair market value of the collateral is equal to our obligations with respect to the notes. In addition, the fair market value of the collateral is subject to fluctuations based on factors that include, among others, general economic conditions and similar factors. The amount to be received upon a sale of the collateral would be dependent on numerous factors, including, but not limited to, the actual fair market value of the collateral at such time, the timing and the manner of the sale and the availability of buyers. Most of the collateral is illiquid and may have no readily ascertainable market value. Likewise, we cannot assure holders of the notes that the collateral will be saleable or, if saleable, that there will not be substantial delays in its liquidation. Accordingly, in the event of a foreclosure, liquidation, bankruptcy or similar proceeding, the collateral may not be sold in a timely or orderly manner, and the proceeds from any sale or liquidation of the collateral may not be sufficient to satisfy the Issuers’ and the Guarantors’ obligations under the notes, the guarantees, our letter of credit facility and any future debt or other liabilities that is secured by the collateral.

If the value of the collateral, or the proceeds of any sale of the collateral, are not sufficient to repay all amounts due on the notes, the holders of the notes (to the extent not repaid from the proceeds of the sale of the collateral) would have only a senior unsecured, unsubordinated claim against the Issuers’ and the Guarantors’ remaining assets. In addition, as described under “Description of the Notes—Release of Liens,” the security interests can be released without the consent of holders of the notes in certain circumstances.

Also, certain permitted liens on the collateral securing the notes may allow the holder of such lien to exercise rights and remedies with respect to the collateral subject to such lien that could adversely affect the value of such collateral and the ability of the trustee to realize or foreclose upon such collateral. See “Description of the Notes—Certain Covenants—Limitations on Liens.”

In addition, some of the real property pledged as collateral for the notes is currently unentitled. The future value of this real property will depend on our ability to obtain entitlements in relation to it. To the extent we are unable to obtain such entitlements, the value of such real property may be adversely affected. Also, in some of our markets, land sellers require that we enter into agreements to make future payments to such sellers after a specified period of time following such acquisition or at the time of the subsequent sale of the subject real property, which future payments (1) are based on one or more of the subsequent sale price of the subject real property, the allocated costs of developing the subject real property and an amount specified at the time of such acquisition and (2) may include fixed minimum amounts in respect of such arrangements and true-up payments. Our obligations to make these supplemental payments are secured by a first priority lien on the purchased land that will remain senior to any lien granted to secure the notes.

Certain of our housing developments are controlled by joint ventures and non-wholly owned subsidiaries in which we are a member. The properties within these housing developments may or may not be secured by separate loan facilities. We generally hold a minority interest in these joint ventures and are unable to pledge

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these properties as collateral. Therefore, the homebuilding and land development assets within these joint ventures are not pledged as collateral for the notes.

Other claimants may have security interests in the collateral that have priority to the security interests for the benefit of the noteholders.

Although the notes and the guarantees are secured by all the assets of the Issuers and the Guarantors other than the excluded assets described under “Description of the Notes—Security—General,” the security interest in the collateral for the benefit of the noteholders are subject to certain priority claims, including the following:

• pursuant to the Intercreditor Agreement entered into in connection with our letter of credit facility, any proceeds realized upon enforcement by the collateral agent of its rights under the various security documents and available to pay claims of the parties subject to the Intercreditor Agreement will be applied first to discharge obligations with respect to our letter of credit facility (or any replacement facility) before such proceeds will be applied to pay the claims of noteholders (or any other Pari-Passu debt holders);

• although the indenture governing the notes contains a covenant limiting our ability to create additional liens with respect to the collateral securing the notes, this covenant has a number of exceptions and permits certain liens, some of which will have a priority claim to some of the collateral either as a matter of law or as a matter of contract, see “Description of the Notes—Definitions of certain terms used in the Indenture—Permitted Liens;” and

• included in the type of liens permitted by the indenture are Permitted Priority Liens (as defined in the indenture) which require the collateral agent, pursuant to the terms of the Intercreditor Agreement, to expressly subordinate the security interest in favor of the noteholders to certain kinds of liens that we grant in the ordinary course of our homebuilding business. See “Description of the Notes—Security— Intercreditor Agreement.”

To the extent any person has a priority interest in the collateral securing the notes and the guarantees, the proceeds realized upon enforcement with respect of such collateral will be available to satisfy our liability to such person before any such proceeds are available to satisfy the claims of the noteholders or any other holder of a Pari-Passu security interest in such collateral.

We will, in most cases, have control over the collateral, and the sale or pledge of particular assets by us could reduce the pool of assets securing the notes and the guarantees.

The security documents related to the notes generally allow us to remain in possession of, retain exclusive control over, freely operate, dispose of and collect, invest and dispose of any income from, the collateral securing the notes and the guarantees thereof. Therefore, the pool of assets securing the notes and the guarantees and any other debt similarly secured will change from time to time, and its fair market value may decrease from its value on the date the notes were originally issued.

The collateral is subject to casualty risk.

Even if we maintain insurance, there are certain losses with respect to the collateral that may be either uninsurable or not economically insurable, in whole or part. Insurance proceeds may not compensate us fully for our losses. If there is a complete or partial loss of any collateral, the insurance proceeds may not be sufficient to satisfy all of our obligations, including the notes and the guarantees.

Rights of holders of the notes in the collateral may be adversely affected by the failure to perfect security interests in the collateral.

Applicable law requires a security interest in certain tangible and intangible assets can only be properly perfected and its priority retained through certain actions undertaken by the secured party. The liens on the

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collateral securing the notes and the guarantees may not be perfected with respect to the claims of the notes and the guarantees if the collateral agent is unable to take the actions necessary to perfect any of these liens on or prior to the date of the indenture governing the notes.

The Issuers and the Guarantors have limited obligations to perfect the security interest for the benefit of the holders of the notes in specified collateral. There can be no assurance the trustee or the collateral agent for the notes will monitor, or we will inform such trustee or collateral agent of, the future acquisition of assets and rights that constitute collateral, and necessary action will be taken to properly perfect the security interest in such after-acquired collateral. Neither the trustee nor collateral agent for the notes has an obligation to monitor the acquisition of additional assets or rights that constitute collateral or the perfection of any security interest. Such failure to monitor may result in the loss of the security interest in the collateral or the priority of the security interest in favor of the notes and the guarantees against third parties.

The use of a collateral agent and the existence of other pari-passu indebtedness may diminish the rights that a secured creditor would otherwise have with respect to the collateral. Your right to take enforcement action with respect to the liens securing the notes is limited in certain circumstances.

The terms of the intercreditor agreement contain provisions restricting the rights of the holders of the notes to take enforcement action with respect to the liens securing such notes in certain circumstances. These provisions will generally provide that the applicable authorized representative (which may be a party other than the trustee for the holders of the notes) and the agent for the lenders under our letter of credit facility must generally engage in certain consultative processes before enforcing the liens securing the notes. In addition, disagreements between the applicable authorized representative and the agent for the lenders under our letter of credit facility could limit or delay the ability of the collateral agent to enforce the liens securing the notes. Furthermore, the collateral agent may fail to act in a timely manner after receiving instructions from the agent for the lenders under our letter of credit facility and the applicable authorized representative. Delays in the enforcement could decrease or eliminate recovery values.

In the event of a disagreement between the agent for the lenders under our letter of credit facility and the applicable authorized representative, the intercreditor agreement provides that the agent for the lenders under our letter of credit facility will ultimately have the ability to direct the collateral agent to act (or refrain from acting) with respect to the collateral. The collateral agent may be instructed to take actions holders of the notes disagree with, or may fail to take actions holders of the notes wish to pursue. Holders of the notes will not have any independent power to enforce, or have recourse to, the intercreditor agreement, or to exercise any rights or powers arising under the intercreditor agreement, except through the trustee for holders of the notes, to the extent the trustee is the applicable authorized representative. By accepting a note, you will be deemed to have agreed to these restrictions. As a result of these restrictions, holders of the notes have limited remedies and recourse against the Issuers and the Guarantors in the event of a default. See “Description of the Notes—Security—Intercreditor Agreement.”

In addition, the collateral agent may be subject to conflicts of interest due to its role as bailee or agent on behalf of competing classes of creditors. Moreover, holders of the notes have limited rights against the collateral agent.

The “one action” rule in California may limit the ability of the collateral agent to foreclose on California real property that has been mortgaged to secure the notes and may provide certain defenses to the enforcement of the guarantees against the Guarantors.

A substantial portion of the collateral securing the notes consists of real property located in California. California law prohibits more than one “action” to enforce a mortgage obligation, and some courts have construed the term “action” broadly to include both judicial and non-judicial actions (i.e., non-judicial foreclosure). California also has anti-deficiency laws, which in combination with “one action” laws, require

34

creditors with debt secured by real property must first seek to exhaust the secured collateral before the creditor may seek a judgment on the deficiency (if permitted at all under the anti-deficiency statutes). Further, application of the California one-action rule may impair or limit the ability of the collateral agent to enforce its remedies on real property located outside of California prior to enforcing its remedies against the California real property in case such enforcement is perceived as an “action” to enforce the mortgage obligation under California law. If a court determines the collateral agent has taken its “action” to enforce the mortgage obligation, the collateral agent may inadvertently waive its security interest in the property. Also, application of the California one-action rule may result in certain defenses to the enforcement of a guarantee of an obligation if that obligation is secured by real property located in California. As a result, the collateral agent’s ability to foreclose upon any California real property that has been mortgaged to secure the notes may be significantly delayed and otherwise limited by the application of California law.

There are circumstances other than repayment or discharge of the notes under which the collateral securing the notes and the guarantees will be released without the consent of holders of the notes or the consent of the trustee under the indenture governing the notes.

Security interests and liens for the benefit of holders of the notes may, in certain circumstances, be released without consent of such holders or the trustee under the indenture governing the notes. Security documents related to the notes will generally provide for a release of all liens on any asset constituting collateral that is disposed of in compliance with provisions of the indenture governing the notes.

Under the indenture governing the notes and applicable security documents, all or a portion of the collateral securing the notes will be released or holders of the notes will no longer be entitled to the benefit of the lien of the security documents on affected collateral:

• upon satisfaction of all conditions set forth under “Description of the Notes—Discharge and Defeasance of Indenture”;

• upon a sale, transfer or other disposal of such collateral in a transaction not prohibited under the indenture governing the notes; and

• with respect to collateral held by a Guarantor, upon release of such Guarantor from its guarantee in accordance with the terms of the indenture governing the notices.

The indenture governing the notes will also permit the Issuers to designate one or more subsidiaries that are Guarantors as unrestricted subsidiaries. If the Issuers designate a Guarantor as an unrestricted subsidiary, holders of the notes will no longer be entitled to the benefit of the lien of the security documents on any collateral owned by such subsidiary, and the guarantee of such subsidiary will be released. Designation of an unrestricted subsidiary would effectively reduce the aggregate value of the collateral securing the notes and the guarantees to the extent of the value of the assets of the unrestricted subsidiary that constituted collateral securing the notes immediately prior to such designation. In addition, following such designation and release of the guarantee, the creditors of the unrestricted subsidiary would have structurally senior claims on the assets of such unrestricted subsidiary.

Shares of stock and other equity interests or other securities of any of the Issuers’ subsidiaries that are pledged to secure the exchange notes or the guarantees will no longer constitute collateral for the benefit of the exchange notes and the guarantees if the pledge of such stock and other equity interests or other securities would require the filing with the Commission of separate financial statements for that subsidiary.

The notes and guarantees are secured by a pledge of the stock, or in some circumstances other securities, of certain subsidiaries of the Issuers. Under Rule 3-16 of Regulation S-X under the Securities Act as currently in effect, if the par value, book value as carried by us or market value (whichever is greatest) of the stock or other securities of a subsidiary pledged as part of the collateral is greater than or equal to 20% of the aggregate principal amount of the notes then outstanding, we would be required to provide separate financial statements of

35

that subsidiary to the Commission if the notes were registered under the Securities Act or the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Upon the effectiveness of the registration statement to be filed with the SEC on Form S-4, of which this prospectus forms a part, the exchange notes will become registered under the Securities Act, and, under the security documents, the stock and other securities of any subsidiary of the Issuers that had been pledged as collateral to secure the exchange notes or the guarantees will be excluded from the collateral securing the exchange notes to the extent liens thereon would trigger the requirement to file separate financial statements of that subsidiary with the Commission under Rule 3-16 of Regulation S-X (as in effect from time to time). See “Description of the Notes—Security.” As a result, holders of the notes could lose a portion of the benefit of the security interest in the stock or other securities of those subsidiaries although other creditors having benefit of the same collateral would continue to benefit from a security interest in that portion of the stock or other securities.

In the event of a bankruptcy of an Issuer or any of the Guarantors, holders of the notes may be deemed to have an unsecured claim to the extent that obligations in respect of the notes exceed the fair market value of the collateral securing the notes.

In any bankruptcy case under Title 11 of the United States Code, as amended (the “Bankruptcy Code”), with respect to either Issuer or any of the Guarantors, it is possible the bankruptcy trustee, the debtor-in-possession or competing creditors will assert the value of the collateral with respect to the notes on the date of such valuation is less than the then-current principal amount of the notes and all other obligations with equal and ratable security interests in the collateral. Upon a finding by the bankruptcy court that the notes are under-collateralized, the claims in the bankruptcy case with respect to the notes would be bifurcated between a secured claim and an unsecured claim, and the unsecured claim would not be entitled to the benefits of security in the collateral. Other consequences of a finding of under-collateralization would be, among other things, a lack of entitlement on the part of the notes to receive post-petition interest and a lack of entitlement on the part of the unsecured portion of the notes to receive “adequate protection” under the Bankruptcy Code. In addition, if any payments of post-petition interest had been made prior to the time of such a finding of under-collateralization, those payments could be recharacterized by the bankruptcy court as a reduction of the principal amount of the secured claim with respect to the notes.

Bankruptcy laws may limit the ability of holders of the notes to realize value from the collateral.

The right of the collateral agent to repossess and dispose of the collateral upon the occurrence of an event of default under the indenture governing the notes is likely to be significantly impaired by applicable bankruptcy law if a bankruptcy case were to be commenced by or against either Issuer or any of the Guarantors before the collateral agent repossessed and disposed of the collateral. For example, under the Bankruptcy Code, pursuant to the automatic stay imposed upon the bankruptcy filing, a secured creditor is prohibited from repossessing its collateral from a debtor in a bankruptcy case, or from disposing of collateral repossessed from such debtor, or taking other actions to levy against a debtor, without bankruptcy court approval after notice and a hearing. Moreover, the Bankruptcy Code permits the debtor to continue to retain and to use collateral even though the debtor is in default under the applicable debt instruments, provided that the secured creditor is given “adequate protection.” The meaning of the term “adequate protection” is undefined in the Bankruptcy Code and may vary according to circumstances (and is within the discretion of the bankruptcy court), but it is intended in general to protect the secured creditor’s interest in the collateral from diminishing in value during the pending of the bankruptcy case and may include periodic payments or the granting of additional security, if and at such times as the court in its discretion determines, for any diminution in the value of the collateral as a result of the automatic stay or any use of the collateral by the debtor during the pendency of the bankruptcy case. A bankruptcy court could conclude the secured creditor’s interest in its collateral is “adequately protected” against any diminution in value during the bankruptcy case without the need of providing any additional adequate protection. Due to imposition of the automatic stay, lack of a precise definition of the term “adequate protection” and broad discretionary powers of a bankruptcy court, it is impossible to predict (i) how long payments under the notes could be delayed, or, if made at all, following commencement of a bankruptcy case, (ii) whether or when the

36

collateral agent could repossess or dispose of the collateral or (iii) whether or to what extent holders of the notes would be compensated for any delay in payment or loss of value of the collateral through the requirement of “adequate protection.”

Any future pledge of collateral or guarantee in favor of the holders of the notes might be voidable in bankruptcy.

Any future pledge of collateral or guarantee in favor of the holders of the notes might be voidable in a bankruptcy case of the pledgor or Guarantor if certain events or circumstances exist or occur, including under the Bankruptcy Code, if the pledgor or Guarantor is insolvent at the time of the pledge or guarantee, the pledge or guarantee enables holders of the notes to receive more than they would if the pledge or guarantee had not been made and the debtor were liquidated under chapter 7 of the Bankruptcy Code, and a bankruptcy case in respect of the pledgor is commenced within 90 days following the pledge (or one year before commencement of a bankruptcy case if the creditor that benefited from the lien or guarantee is an “insider” under the Bankruptcy Code).

Credit ratings assigned to the notes may not reflect all risks of an investment in the notes.

Credit ratings assigned to the notes reflect the rating agencies’ assessments of our ability to make payments on the notes when due. Consequently, real or anticipated changes in these credit ratings, or to the outlook for such credit ratings, will generally affect the market value of the notes. These credit ratings, however, may not reflect the potential impact of risks related to structure, market or other factors related to the value of the notes.

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RATIO OF EARNINGS TO FIXED CHARGES

The following table sets forth information regarding our ratio of earnings to fixed charges for the periods shown. In calculating the ratio of earnings to fixed charges, earnings are calculated as (a) income (loss) before income taxes, excluding income (loss) from joint ventures, plus (b) fixed charges, plus (c) capitalized interest included in cost of sales, plus (d) distributed income of equity investees, minus (e) interest capitalized. Fixed charges are comprised of (a) interest incurred and (b) the portion of rental expense deemed to be representative of an interest factor. For the years ended December 31, 2010, 2009, 2008 and 2007, earnings were insufficient to cover fixed charges for each such year by $9.7 million, $350.8 million, $553.9 million and $401.4 million, respectively. For the nine months ended September 30, 2011 and 2010, earnings were insufficient to cover fixed charges for the period by $69.0 million and $21.4 million, respectively.

	Nine Months Ended September 30,				Years Ended December 31,
	2011		2010		2010		2009		2008		2007		2006
Ratio of earnings to fixed charges		—		—		—		—		—		—		6.1x

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USE OF PROCEEDS

We will not receive any cash proceeds from the issuance of the exchange notes. In consideration for issuing the exchange notes, we will receive outstanding notes in like original principal amount at maturity. All outstanding notes received in the exchange offer will be cancelled. Because we are exchanging the exchange notes for the outstanding notes, which have substantially identical terms, the issuance of the exchange notes will not result in any increase in indebtedness. The exchange offer is intended to satisfy our obligations under the registration rights agreement executed in connection with the sale of the outstanding notes.

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CAPITALIZATION

The following sets forth the Company’s cash and cash equivalents and capitalization at September 30, 2011 and December 31, 2010. You should read this table in conjunction with “Selected Historical Consolidated Financial and Other Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements included elsewhere in this prospectus.

	September 30,              2011			December 31,         2010
	(In millions)
Cash and cash equivalents, including restricted cash and investments	$	236.1	(1)	$	190.4	(2)
Debt:
Senior Secured Notes due May 2019	$	750.0		$	—
Secured Facilities		—			805.4	(3)
Other debt		2.3			2.0
Total debt		752.3	(4)(5)		807.4	(5)
Total equity		332.3			432.3
Total capitalization	$	1,084.6		$	1,239.7

(1) Includes $15.8 million of cash of our non-guarantor subsidiaries, including PIC and the Consolidated Joint Ventures that will not guarantee the notes.

(2) Includes $13.3 million of cash of our non-guarantor subsidiaries, including PIC and the Consolidated Joint Ventures that will not guarantee the notes.

(3) On November 16, 2010, the Company and JFSCI, as borrowers, executed loan modifications and extensions to its unsecured revolving bank line of credit, unsecured private placement debt and unsecured term loans, resulting in the effective exchange for senior secured notes payable and senior secured subordinated notes payable (the “Secured Facilities”). The amount presented represents the face value of the Secured Facilities and includes $5.0 million principal amount that was forgiven in connection with the retirement of the Secured Facilities on May 10, 2011.

(4) On May 10, 2011, the Company issued 8.625% senior secured notes in the aggregate principal amount of $750.0 million (the “Secured Notes”) and repaid the outstanding amounts under the Secured Facilities. Principal and interest paid under the Secured Facilities was $779.6 million and $2.5 million, respectively. In connection with payment of the Secured Facilities, all payable-in-kind interest, $5.0 million of principal and certain fees were waived.

In addition, of $19.1 million of then outstanding letters of credit, $4.0 million was returned and $15.1 million was paid by the Company, with $14.5 million reimbursed by JFSCI for its share of the letters of credit paid by the Company.

Concurrent with the payoff of the Secured Facilities, an $88.4 million loss on debt extinguishment was recognized for the $65.0 million write-off of the Secured Facilities discount and the $23.4 million write-off of prepaid professional and loan fees incurred in connection with the Secured Facilities.

(5) Total debt does not include outstanding letters of credit.

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER INFORMATION

The following table sets forth our selected historical consolidated financial data at and for the years ended December 31, 2010, 2009, 2008, 2007 and 2006 and at and for the nine month periods ended September 30, 2011 and 2010. The selected historical consolidated financial data at and for the nine month periods ended September 30, 2011 and 2010 are derived from our unaudited consolidated financial statements and related notes included elsewhere in this prospectus. The selected historical consolidated financial data at December 31, 2010 and 2009 and for the years ended December 31, 2010, 2009 and 2008 are derived from our audited consolidated financial statements and related notes included elsewhere in this prospectus. The selected historical consolidated financial data at December 31, 2008, 2007 and 2006, and for the years ended December 31, 2007 and 2006 are derived from our audited consolidated financial statements and related notes not included herein. The following selected historical consolidated financial and other information should be read in conjunction with “Capitalization” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and with our consolidated financial statements included elsewhere in this prospectus.

	Nine Months Ended September 30,						Years Ended December 31,
	2011			2010			2010			2009			2008			2007			2006
	(Dollars in thousands)
Consolidated Statements of Operations:
Revenues	$	346,293		$	422,856		$	639,566		$	611,463		$	1,078,330		$	1,919,393		$	2,877,722
Cost of sales		(301,947	)		(400,248	)		(609,097	)		(986,206	)		(1,317,642	)		(2,174,158	)		(2,102,902	)
Gross margin		44,346			22,608			30,469			(374,743	)		(239,312	)		(254,765	)		774,820
Selling expenses		(30,529	)		(33,564	)		(46,665	)		(48,949	)		(98,537	)		(152,126	)		(167,667	)
General and administrative expenses		(25,624	)		(25,893	)		(32,440	)		(29,459	)		(64,832	)		(79,781	)		(154,790	)
Equity in income (loss) from joint ventures		(696	)		8,692			8,613			(35,089	)		(43,621	)		(27,340	)		5,323
Loss from disposition of joint ventures		—			—			—			—			(167,805	)		—			—
Loss on debt extinguishment		(88,384	)		—			—			—			—			—			—
Interest and other income (expense) net		(9,575	)		(22,046	)		(18,759	)		19,962			(30,421	)		10,404			2,443
Income (loss) before income taxes		(110,462	)		(50,203	)		(58,782	)		(468,278	)		(644,528	)		(503,608	)		460,129
Income tax benefit (expense)		3,868			(10,027	)		3,567			45,218			35,011			(52,474	)		(78,720	)
Net income (loss)		(106,594	)		(60,230	)		(55,215	)		(423,060	)		(609,517	)		(556,082	)		381,409
Less: Net (income) loss attributable to non-controlling interests		(702	)		(6,200	)		(4,874	)		30,717			14,802			8,912			(27,457	)
Net income (loss) attributable to SHLP	$	(107,296	)	$	(66,430	)	$	(60,089	)	$	(392,343	)	$	(594,715	)	$	(547,170	)	$	353,952
Consolidated Balance Sheet Information (at end of period):
Cash and cash equivalents, including restricted cash and investments	$	236,084		$	165,579		$	190,391		$	287,989		$	266,656		$	244,297		$	186,504
Inventory		876,237			894,576			800,029			903,504			1,584,570			2,020,086			2,811,496
Total assets		1,367,383			1,490,513			1,414,886			1,618,760			2,226,115			2,768,600			3,490,430
Total debt		752,328			759,481			730,005			745,017			858,538			685,227			802,499
Total equity		332,283			429,026			432,313			481,206			884,383			1,490,684			1,996,561
Other Consolidated Financial Information:
Interest incurred(1)	$	53,906		$	43,316		$	62,290		$	59,512		$	58,912		$	79,488		$	85,334
Depreciation and amortization		7,213			7,465			11,506			10,367			23,869			20,966			22,236
Other Consolidated Information:
Home sales orders (units)(2)		1,044			1,061			1,316			1,708			2,114			3,275			3,921
Homes closed (units)(3)		806			987			1,489			1,446			2,463			3,672			5,105
Average selling price of homes closed	$	415.6		$	414.8		$	416.0		$	404.3		$	430.5		$	481.1		$	524.2
Backlog at end of year (units)(4)		682			658			406			579			321			665			1,121
Backlog at end of year (sales value)	$	295,065		$	267,102		$	167,319		$	241,458		$	140,917		$	312,942		$	578,900

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(1) Interest incurred is interest accrued on debt, whether or not paid and independent of its capitalization treatment. Interest incurred includes debt issuance costs, modification fees and waiver fees when amortized as interest expense or capitalized as interest. Interest incurred is generally capitalized to inventory but is expensed when assets that qualify for interest capitalization do not exceed debt.

(2) Homes sales orders are contracts executed with homebuyers to purchase homes, net of cancellations.

(3) A home is closed when all escrow conditions are met, including delivery of the home, title passage and appropriate consideration is received and collection of associated receivables, if any, is reasonably assured. Revenue and cost of sales for a home are recognized at date of closing.

(4) Backlog represents homes sold under sales contract but not closed.

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THE EXCHANGE OFFER

Purpose of the Exchange Offer

This exchange offer is being made pursuant to the registration rights agreement we entered into with the initial purchasers of the outstanding notes on May 10, 2011. The summary of the registration rights agreement contained herein does not purport to be complete and is qualified in its entirety by reference to the registration rights agreement. A copy of the registration rights agreement is filed as an exhibit to the registration statement of which this prospectus forms a part. Each broker-dealer receiving exchange notes for its own account in exchange for outstanding notes, where such exchange notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge it will deliver a prospectus in connection with any resale of such exchange notes. See “Plan of Distribution.”

Terms of the Exchange Offer; Expiration Time

This prospectus and the accompanying letter of transmittal together constitute the exchange offer. Subject to the terms and conditions in this prospectus and the letter of transmittal, we will accept for exchange outstanding notes that are validly tendered at or before the expiration time and are not validly withdrawn as permitted below. The expiration time for the exchange offer is 5:00 p.m., New York City time, on                     , 2012, or such later date and time to which we, in our sole discretion, extend the exchange offer.

We expressly reserve the right, in our sole discretion:

• to extend the expiration time;

• if any of the conditions set forth below under “—Conditions to the Exchange Offer” has not been satisfied, to terminate the exchange offer and not accept any outstanding notes for exchange; and

• to amend the exchange offer in any manner.

We will give written notice of any extension, delay, non-acceptance, termination or amendment as promptly as practicable by a public announcement, and in the case of an extension, no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled expiration time. For a material change in the exchange offer, including the waiver of a material condition, we will extend the offer period if necessary so at least five business days remain in the exchange offer following notice of the material change.

During an extension, all outstanding notes previously tendered will remain subject to the exchange offer and may be accepted for exchange by us, upon expiration of the exchange offer, unless validly withdrawn.

Each broker-dealer receiving exchange notes for its own account in exchange for outstanding notes, where such outstanding notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge it will deliver a prospectus in connection with any resale of such exchange notes. See “Plan of Distribution.”

How to Tender Outstanding Notes for Exchange

Only a record holder of outstanding notes may tender in the exchange offer. When the holder of outstanding notes tenders and we accept outstanding notes for exchange, a binding agreement between us and the tendering holder is created, subject to the terms and conditions in this prospectus and the accompanying letter of transmittal. Except as set forth below, a holder of outstanding notes desiring to tender outstanding notes for exchange must, at or prior to the expiration time

• cause an agent’s message to be transmitted by The Depository Trust Company (DTC) to the exchange agent at the address set forth below under the heading “—The Exchange Agent,” and the exchange

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agent must receive, at or prior to the expiration time, a confirmation of the book-entry transfer of the outstanding notes being tendered into the exchange agent’s account at DTC, along with the agent’s message; or

• if time will not permit the procedures for book-entry transfer to be completed by the expiration time, the holder may effect a tender by complying with the guaranteed delivery procedures described below.

The term “agent’s message” means a message that:

• is transmitted by DTC;

• is received by the exchange agent and forms a part of a book-entry transfer;

• states that DTC has received an express acknowledgement that the tendering holder has received and agrees to be bound by, and makes each of the representations and warranties contained in, the letter of transmittal; and

• states that we may enforce the letter of transmittal against such holder.

By transmitting an agent’s message, you will not be required to deliver a letter of transmittal to the exchange agent. However, you will be bound by the terms of the letter of transmittal just as if you had signed it.

The method of delivery of the outstanding notes, the agent’s message and all other required documents to the exchange agent is at the election and sole risk of the holder. In all cases, you should allow sufficient time to assure timely delivery. No letters of transmittal or outstanding notes should be sent directly to us.

We will determine in our sole discretion all questions as to the validity, form and eligibility (including time of receipt) of outstanding notes tendered for exchange and all other required documents. We reserve the absolute right to:

• reject any and all tenders of any outstanding note not validly tendered;

• refuse to accept any outstanding note if, in our judgment or the judgment of our counsel, acceptance of the outstanding note may be deemed unlawful;

• waive any defects or irregularities or conditions of the exchange offer; and

• determine the eligibility of any holder who seeks to tender outstanding notes in the exchange offer.

Our determinations under, and of the terms and conditions of, the exchange offer, including the letter of transmittal and the instructions to it, or as to any questions with respect to the tender of any outstanding notes, will be final and binding on all parties. To the extent we waive any conditions to the exchange offer, we will waive such conditions as to all outstanding notes. Holders must cure any defects and irregularities in connection with tenders of outstanding notes for exchange within such reasonable period of time as we will determine, unless we waive such defects or irregularities. Neither we, the exchange agent nor any other person will be under any duty to give notification of any defect or irregularity with respect to any tender of outstanding notes for exchange, nor will any of us incur any liability for failure to give such notification.

If you beneficially own outstanding notes registered in the name of a broker, dealer, commercial bank, trust company or other nominee and you wish to tender your outstanding notes in the exchange offer, you should contact the registered holder promptly and instruct it to tender on your behalf.

Each broker-dealer that receives exchange notes for its own account in exchange for outstanding notes, where such exchange notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such exchange notes. See “Plan of Distribution.”

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WE MAKE NO RECOMMENDATION TO THE HOLDERS OF THE OUTSTANDING NOTES AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING ALL OR ANY PORTION OF THEIR OUTSTANDING NOTES IN THE EXCHANGE OFFER. IN ADDITION, WE HAVE NOT AUTHORIZED ANYONE TO MAKE ANY SUCH RECOMMENDATION. HOLDERS OF THE OUTSTANDING NOTES MUST MAKE THEIR OWN DECISION AS TO WHETHER TO TENDER PURSUANT TO THE EXCHANGE OFFER AND, IF SO, THE AGGREGATE AMOUNT OF OUTSTANDING NOTES TO TENDER, AFTER READING THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL AND CONSULTING WITH THEIR ADVISERS, IF ANY, BASED ON THEIR FINANCIAL POSITIONS AND REQUIREMENTS.

Book-Entry Transfers

Any financial institution that is a participant in DTC’s system must make book-entry delivery of outstanding notes by causing DTC to transfer the outstanding notes into the exchange agent’s account at DTC in accordance with DTC’s Automated Tender Offer Program, known as ATOP. Such participant should transmit its acceptance to DTC at or prior to the expiration time or comply with the guaranteed delivery procedures described below. DTC will verify such acceptance, execute a book-entry transfer of the tendered outstanding notes into the exchange agent’s account at DTC and then send to the exchange agent confirmation of such book-entry transfer. The confirmation of such book-entry transfer will include an agent’s message. An agent’s message must be transmitted to and received by the exchange agent at the address set forth below under “—The Exchange Agent” at or prior to the expiration time of the exchange offer, or the holder must comply with the guaranteed delivery procedures described below.

Guaranteed Delivery Procedures

If a holder of outstanding notes desires to tender such outstanding notes and the procedure for book-entry transfer cannot be completed on a timely basis, a tender may be effected if:

• at or prior to the expiration time, the exchange agent receives from an eligible institution a validly completed and executed notice of guaranteed delivery, substantially in the form accompanying this prospectus, by facsimile transmission, mail or hand delivery, setting forth the name and address of the holder of the outstanding notes being tendered and the amount of the outstanding notes being tendered. The notice of guaranteed delivery will state that the tender is being made and guarantee that within three New York Stock Exchange trading days after the date of execution of the notice of guaranteed delivery, a book-entry confirmation together with an agent’s message, will be transmitted to the exchange agent; and

• the exchange agent receives a book-entry confirmation, together with an agent’s message, within three New York Stock Exchange trading days after the date of execution of the notice of guaranteed delivery.

The term “eligible institution” means an institution that is a member in good standing of a Medallion Signature Guarantee Program recognized by the Exchange Agent, for example, the Securities Transfer Agents Medallion Program, the Stock Exchanges Medallion Program or the New York Stock Exchange Medallion Signature Program. An eligible institution includes firms that are members of a registered national securities exchange, members of the National Association of Securities Dealers, Inc., commercial banks or trust companies having an office in the United States or certain other eligible guarantors.

The notice of guaranteed delivery must be received prior to the expiration time.

Withdrawal Rights

You may withdraw tenders of your outstanding notes at any time prior to the expiration time.

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For a withdrawal to be effective, a written notice of withdrawal, by facsimile or by mail, must be received by the exchange agent, at the address set forth below under “—The Exchange Agent,” prior to the expiration time. Any such notice of withdrawal must:

• specify the name of the person having tendered the outstanding notes to be withdrawn;

• identify the outstanding notes to be withdrawn, including the principal amount of such outstanding notes; and

• specify the name and number of the account at DTC to be credited with the withdrawn outstanding notes and otherwise comply with the procedures of DTC.

We will determine all questions as to the validity, form and eligibility (including time of receipt) of such notices and our determination will be final and binding on all parties. Any tendered outstanding notes validly withdrawn will be deemed not to have been validly tendered for exchange for purposes of the exchange offer. Properly withdrawn notes may be re-tendered by following one of the procedures described under “—How to Tender Outstanding Notes for Exchange” above at any time at or prior to the expiration time.

Acceptance of Outstanding Notes for Exchange; Delivery of Exchange Notes

All of the conditions to the exchange offer must be satisfied or waived at or prior to the expiration of the exchange offer. Promptly following the expiration time we will accept for exchange all outstanding notes validly tendered and not validly withdrawn as of such date. We will promptly issue exchange notes for all validly tendered outstanding notes. For purposes of the exchange offer, we will be deemed to have accepted validly tendered outstanding notes for exchange when, as and if we have given oral or written notice to the exchange agent, with written confirmation of any oral notice to be given promptly thereafter. See “—Conditions to the Exchange Offer” for a discussion of the conditions that must be satisfied before we accept any outstanding notes for exchange.

For each outstanding note accepted for exchange, the holder will receive an exchange note registered under the Securities Act having a principal amount equal to, and in the denomination of, that of the surrendered outstanding note. Holders whose outstanding notes are exchanged for exchange notes will not receive a payment in respect of interest accrued but unpaid on such outstanding notes from the most recent interest payment date up to but excluding the settlement date. Instead, interest on the exchange notes received in exchange for such outstanding notes will (i) accrue from the last date on which interest was paid on such outstanding notes and (ii) accrue at the same rate as and be payable on the same dates as interest was payable on such outstanding notes. Accordingly, registered holders of exchange notes that are outstanding on the relevant record date for the first interest payment date following the consummation of the exchange offer will receive interest accruing from the most recent date through which interest has been paid on the outstanding notes. However, if any interest payment occurs prior to the settlement date on any outstanding notes already tendered for exchange in the exchange offer, the holder of such outstanding notes will be entitled to receive such interest payment. Outstanding notes that we accept for exchange will cease to accrue interest from and after the date of consummation of the exchange offer.

If we do not accept any tendered outstanding notes, or if a holder submits outstanding notes for a greater principal amount than the holder desires to exchange, we will return such unaccepted or non-exchanged outstanding notes without cost to the tendering holder. Such non-exchanged outstanding notes will be credited to an account maintained with DTC. We will have such non-exchanged outstanding notes credited to DTC promptly after the withdrawal, rejection of tender or termination of the exchange offer, as applicable.

Conditions to the Exchange Offer

The exchange offer is not conditioned upon the tender of any minimum principal amount of outstanding notes. Notwithstanding any other provision of the exchange offer, or any extension of the exchange offer, we will

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not be required to accept for exchange, or to issue exchange notes in exchange for, any outstanding notes and may terminate or amend the exchange offer, by oral (promptly confirmed in writing) or written notice to the exchange agent or by a timely press release, if at any time before the expiration of the exchange offer, any of the following conditions exist:

• any action or proceeding is instituted or threatened in any court or by or before any governmental agency challenging the exchange offer or that we believe might be expected to prohibit or materially impair our ability to proceed with the exchange offer;

• any stop order is threatened or in effect with respect to either (1) the registration statement of which this prospectus forms a part or (2) the qualification of the Indenture governing the notes under the Trust Indenture Act of 1939, as amended;

• any law, rule or regulation is enacted, adopted, proposed or interpreted that we believe might be expected to prohibit or impair our ability to proceed with the exchange offer or to materially impair the ability of holders generally to receive freely tradable exchange notes in the exchange offer. See “—Consequences of Failure to Exchange Outstanding Notes”;

• any change or a development involving a prospective change in our business, properties, assets, liabilities, financial condition, operations or results of operations taken as a whole, that is or may be adverse to us;

• any declaration of war, armed hostilities or other similar international calamity directly or indirectly involving the United States, or the worsening of any such condition that existed at the time that we commence the exchange offer; or

• we become aware of facts that, in our reasonable judgment, have or may have adverse significance with respect to the value of the outstanding notes or the exchange notes to be issued in the exchange offer.

Accounting Treatment

For accounting purposes, we will not recognize gain or loss upon the issuance of the exchange notes for outstanding notes.

Fees and Expenses

We will not make any payment to brokers, dealers, or others soliciting acceptance of the exchange offer except for reimbursement of mailing expenses. We will pay the cash expenses to be incurred in connection with the exchange offer, including:

• SEC registration fees;

• fees and expenses of the exchange agent and trustee;

• our accounting and legal fees;

• printing fees; and

• related fees and expenses.

Transfer Taxes

Holders who tender their outstanding notes for exchange will not be obligated to pay any transfer taxes in connection with the exchange. If, however, exchange notes issued in the exchange offer are to be delivered to, or are to be issued in the name of, any person other than the holder of the outstanding notes tendered, or if a transfer tax is imposed for any reason other than the exchange of outstanding notes in connection with the exchange offer, then the holder must pay these transfer taxes, whether imposed on the registered holder or on any other person. If satisfactory evidence of payment of or exemption from these taxes is not submitted with the letter of transmittal, the amount of these transfer taxes will be billed directly to the tendering holder.

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The Exchange Agent

We have appointed Wells Fargo Bank, National Association as our exchange agent for the exchange offer. Questions and requests for assistance respecting the procedures for the exchange offer, requests for additional copies of this prospectus or of the letter of transmittal and requests for notices of guaranteed delivery should be directed to the exchange agent at one of its addresses below:

Deliver to:

Wells Fargo Bank, National Association

By hand delivery or overnight courier at:

Wells Fargo Bank, National Association

Corporate Trust Operations

608 2nd Ave South

Northstar East Building-12th Floor

Minneapolis, MN 55402

or

By registered and certified mail at:

Wells Fargo Bank, National Association

Corporate Trust Operations

MAC N9303-121

P.O. Box 1517

Minneapolis, MN 55480

or

By regular mail or overnight courier at:

Wells Fargo Bank, National Association

Corporate Trust Operations

MAC N9303-121

Sixth & Marquette Avenue

Minneapolis, MN 55479

By facsimile transmission

(for eligible institutions only):

(612) 667-6282

Confirm by telephone:

(800) 344-5128

Consequences of Failure to Exchange Outstanding Notes

Outstanding notes that are not tendered or are tendered but not accepted will, following the consummation of the exchange offer, continue to be subject to the provisions in the Indenture and the legend contained on the outstanding notes regarding the transfer restrictions of the outstanding notes. In general, outstanding notes, unless registered under the Securities Act, may not be offered or sold except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. We do not currently anticipate that we will take any action to register under the Securities Act or under any state securities laws the outstanding notes that are not tendered in the exchange offer or that are tendered in the exchange offer but are not accepted for exchange.

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Holders of the exchange notes and any outstanding notes that remain outstanding after consummation of the exchange offer will vote together as a single series for purposes of determining whether holders of the requisite percentage of the series have taken certain actions or exercised certain rights under the indenture governing the notes.

Consequences of Exchanging Outstanding Notes

We have not requested, and do not intend to request, an interpretation by the Commission staff as to whether the exchange notes issued in the exchange offer may be offered for sale, resold or otherwise transferred by any holder without compliance with the registration and prospectus delivery provisions of the Securities Act. However, based on interpretations of the Commission staff, as set forth in a series of no-action letters issued to third parties, we believe that the exchange notes may be offered for resale, resold or otherwise transferred by holders of those exchange notes without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that:

• the holder is not an “affiliate” of ours within the meaning of Rule 405 promulgated under the Securities Act;

• the exchange notes issued in the exchange offer are acquired in the ordinary course of the holder’s business;

• neither the holder, nor, to the actual knowledge of such holder, any other person receiving exchange notes from such holder, has any arrangement or understanding with any person to participate in the distribution of the exchange notes issued in the exchange offer;

• if the holder is not a broker-dealer, the holder is not engaged in, and does not intend to engage in, a distribution of the exchange notes;

• if such a holder is a broker-dealer, such broker-dealer will receive the exchange notes for its own account in exchange for outstanding notes;

• such outstanding notes were acquired by such broker-dealer as a result of market-making or other trading activities; and

• it will deliver a prospectus meeting the requirements of the Securities Act in connection with the resale of exchange notes issued in the exchange offer, and will comply with the applicable provisions of the Securities Act with respect to resale of any exchange notes. (In no-action letters issued to third parties, the Commission has taken the position that broker-dealers may fulfill their prospectus delivery requirements with respect to exchange notes (other than a resale of an unsold allotment from the original sale of outstanding notes) by delivery of the prospectus relating to the exchange offer). See “Plan of Distribution” for a discussion of the exchange and resale obligations of broker-dealers in connection with the exchange offer.

Each holder participating in the exchange offer will be required to furnish us with a written representation in the letter of transmittal that they meet each of these conditions and agree to these terms.

However, because the Commission has not considered the exchange offer for our outstanding notes in the context of a no-action letter, we cannot guarantee that the Commission staff would make similar determinations with respect to this exchange offer. If our belief is not accurate and you transfer an exchange note without delivering a prospectus meeting the requirements of the federal securities laws or without an exemption from these laws, you may incur liability under the federal securities laws. We do not and will not assume, or indemnify you against, this liability.

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Any holder that is an affiliate of ours or that tenders outstanding notes in the exchange offer for the purpose of participating in a distribution:

• may not rely on the applicable interpretation of the SEC staff’s position contained in Exxon Capital Holdings Corp., SEC No-Action Letter (April 13, 1988), Morgan, Stanley & Co., Inc., SEC No-Action Letter (June 5, 1991) and Shearman & Sterling, SEC No-Action Letter (July 2, 1993); and

• must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction.

The exchange notes issued in the exchange offer may not be offered or sold in any state unless they have been registered or qualified for sale in such state or an exemption from registration or qualification is available and complied with by the holders selling the exchange notes. We currently do not intend to register or qualify the sale of the exchange notes in any state where we would not otherwise be required to qualify.

Filing of Shelf Registration Statements

Pursuant to the registration rights agreement, we agreed, among other things, that if (1) we are not permitted to consummate the Exchange Offer because the exchange offer is not permitted by applicable law or Commission policy; (2) the exchange offer is not consummated on or prior to the date that is 360 days after the issue date of the outstanding notes; (3) the initial purchaser so requests with respect to outstanding notes not eligible to be exchanged for exchange notes in the exchange offer and held by it following consummation of the exchange offer; or (4) any holder of Transfer Restricted Securities (as defined in the registration rights agreement) notifies us in writing prior to the 20th business day following consummation of the exchange offer that: (a) it is prohibited by law or Commission policy from participating in the exchange offer; or (b) it is a broker-dealer and owns notes acquired directly from the Issuers, then we will under certain circumstances be required to file with the Commission a shelf registration statement to cover resales of notes by the holders thereof.

The Issuers will, in the event of the filing of the shelf registration statement, provide to each holder of outstanding notes copies of the prospectus that is a part of the shelf registration statement, notify each such holder when the shelf registration statement has become effective and take certain other actions as are required to permit unrestricted resales of the outstanding notes. A holder of outstanding notes that sells its notes pursuant to the shelf registration statement generally (1) will be required to be named as a selling security holder in the related prospectus and to deliver a prospectus to purchasers, (2) will be subject to certain of the civil liability provisions under the Securities Act in connection with such sales and (3) will be bound by the provisions of the registration rights agreement that are applicable to such a holder (including certain indemnification rights and obligations thereunder). In addition, holders of outstanding notes will be required to deliver information to be used in connection with the shelf registration statement and to provide comments on the shelf registration statement within the time periods set forth in the registration rights agreement to have their outstanding notes included in the shelf registration statement.

Although we intend, if required, to file the shelf registration statement, we cannot assure you that the shelf registration statement will be filed or, if filed, that it will become or remain effective.

The foregoing description is a summary of certain provisions of the registration rights agreement. It does not restate the registration rights agreement in its entirety. We urge you to read the registration rights agreement, which is an exhibit to the registration statement of which this prospectus forms a part and can also be obtained from us. See “Where You Can Find More Information.”

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

OVERVIEW

We are one of the largest private homebuilders in the United States. We design, build and market single-family detached and attached homes across various geographic markets in California, Arizona, Colorado, Washington, Nevada and Florida.

Our homebuilding business, which comprises most of our operating results, constructs and sells single-family attached and detached homes designed to appeal to first-time, move-up and active adult homebuyers. Our homebuilding business also provides management services to joint ventures and other related and unrelated parties.

The operating results of our homebuilding business are aggregated into three reportable segments:

• California South, comprised of the results of our communities in Los Angeles, Ventura, Orange County, Inland Empire and San Diego;

• California North, comprised of the results of our communities in northern and central California; and

• Mountain West/Other, comprised of the results of our communities in Arizona, Colorado, Washington, Nevada and Florida.

Our communities are grouped into these segments based on similar economic and other characteristics, including product types, production processes, suppliers, subcontractors, jurisdictional and political environments, land availability and values, and underlying demand and supply.

Our Corporate segment primarily provides management services to our operating segments, and includes the results of our captive insurance provider, which primarily administers claims that are reinsured by third-party carriers. Results of our insurance brokerage services business are also included in our Corporate segment. Results of our traditional escrow services business, which ceased operations in 2010, are included in the 2010, 2009 and 2008 results of our Corporate segment.

KEY FACTORS INFLUENCING OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Market Conditions

Demand for housing in the United States is driven by changes in population, household income, mortgage rates, affordability, consumer confidence and employment levels. The supply of available housing varies based on a number of factors, including housing starts, inventories of existing homes available for sale and activities of speculative investors.

The downturn in the homebuilding industry is in its sixth year and is one of the most severe in U.S. history. Significant declines in new home demand, oversupply of homes and reductions in available homeowner financing continue. It is unclear when or if these trends will reverse.

Notwithstanding, in the fourth quarter of 2009, the housing market experienced some stabilization, albeit at significantly lower levels than before the current downturn, as homebuyers took advantage of declining home prices, low interest rates and temporary government incentive programs. In 2010 and the first half of 2011, job growth and home prices were relatively stable in most of our markets. Additionally, for the first 50 weeks, our year-to-date consolidated home sales orders in 2011 exceeded 2010, consolidated home sales orders per active selling community in 2011 were 11% higher and weekly consolidated home sales orders per active selling community in 2011 have equaled or exceeded 2010 results in 30 of the first 50 weeks and 22 of the last 30.

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Operations Restructuring

Beginning in 2007, in response to weak housing market conditions, we restructured our operations to reduce costs and to improve operating efficiencies through consolidation of selected offices, the disposal of related property and equipment and workforce reduction.

For the three and nine months ended September 30, 2011, we incurred $0.1 million and $0.3 million, respectively, of restructuring costs, primarily employee severance. For 2010, 2009 and 2008, we incurred $0.7 million, $1.7 million and $13.9 million, respectively, of restructuring costs, primarily employee severance and office vacancy. We believe this restructuring is substantially complete; however, until market conditions stabilize, we may incur additional restructuring costs.

Seasonality

Historically, the homebuilding industry experiences seasonal fluctuations. We typically experience the highest new home sales orders activity in spring and summer, although this activity is also highly dependent on the number of active selling communities, timing of new community openings and other market factors. Since it typically takes three to eight months to construct a new home, we deliver more homes in the second half of the year as spring and summer home sales orders convert to home deliveries. Because of this seasonality, home starts, construction costs and related cash outflows have historically been highest from April to October, and the majority of cash receipts from home closings occur during the second half of the year. Therefore, operating results for the three and nine months ended September 30, 2011 are not indicative of results expected for the year ended December 31, 2011.

Further, in contrast to this historical seasonal pattern, weakness in homebuilding market conditions during the last five years has distorted our results. Also, in 2010, expiration of the federal homebuyer tax credit impacted the timing of our construction activities and home sales order and closing volumes. Although we may experience our seasonal pattern in the future, given current market conditions, we make no assurances when or whether this pattern will recur.

Inflation

Our homebuilding segment can be adversely impacted by inflation, primarily from higher land, financing, labor, material and construction costs. In addition, inflation can lead to higher mortgage rates, which can significantly affect the affordability of mortgage financing to homebuyers. While we attempt to pass on cost increases to customers through increased prices, when weak housing market conditions exist, we are often unable to offset cost increases with higher selling prices.

Joint Venture Transactions

In April 2011, through our Consolidated Joint Venture, Shea Colorado, LLC, we entered into transactions with the joint venture partner of two Unconsolidated Joint Ventures in Colorado, in which we own a 50% ownership interest in each, SB Meridian Villages, LLC (SBMV) and TCD Bradbury LLC (TCDB). First, we assigned our membership interest in SBMV to the joint venture partner for $4.5 million, resulting in a $0.5 million gain. Second, we contributed $11.5 million cash to TCDB and received $15.4 million of land and a $0.6 million secured promissory note payable, and the joint venture partner received $12.2 million and $6.5 million of land and cash, respectively. TCDB then paid off a bank note payable that was secured by the land distributed to the TCDB partners.

In August 2009, our Consolidated Joint Venture, Vistancia, LLC, contributed substantially all its land to four single member LLCs and sold 90% of its interest in these LLCs to an unrelated third party for $67.5 million, resulting in a $195.7 million pre-tax loss, of which $228.8 million, including $38.3 million of interest expense, was included in cost of sales, offset by $33.1 million of other income from the debt cancellation (the “Vistancia Transaction”). Of the $195.7 million loss, $32.1 million was attributable to non-controlling interests.

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In May 2008, we restructured three joint ventures with the California Public Employees Retirement System (“CalPERS”). CalPERS purchased our entire interest in two joint ventures, Shea Capital I, LLC and Shea Mountain House, LLC, and we purchased CalPERS’ entire interest in the third joint venture, Shea Capital II, LLC (the “CalPERS Exchange”), resulting in a $167.6 million loss.

In December 2008, we sold our 1% interest in a homebuilding joint venture in North Carolina for $0.1 million, which resulted in a $0.2 million loss.

RESULTS OF OPERATIONS

The tabular homebuilding operating data presented throughout this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” includes data for SHLP and its wholly-owned subsidiaries and the Consolidated Joint Ventures. Data for our Unconsolidated Joint Ventures is presented separately where indicated. Our ownership interest in the Unconsolidated Joint Ventures varies, but is generally less than or equal to 50%.

Overview

Three and Nine Months Ended September 30, 2011 vs. Three and Nine Months Ended September 30, 2010

For the three months ended September 30, 2011, net income (loss) attributable to SHLP was $2.1 million compared to $(55.8) million for the three months ended September 30, 2010. This increase in income was primarily attributable to $46.7 million of higher gross margin (primarily due to no inventory impairment in 2011 and $42.9 million in 2010), $2.7 million write-off of professional fees in 2010 in connection with the modification and extension of our then outstanding indebtedness, and $11.4 million of lower income tax expense. These were partially offset by $2.2 million of higher selling, general and administrative costs and $1.8 million of lower equity income from joint ventures.

For the nine months ended September 30, 2011, net income (loss) attributable to SHLP was $(107.3) million compared to $(66.4) million for the nine months ended September 30, 2010. This increase in loss was primarily attributable to an $88.4 million loss on debt extinguishment in connection with the payoff of previously outstanding indebtedness in May 2011 and $9.4 million of lower income from joint ventures, partially offset by $21.7 million of higher gross margins (including $34.3 million of lower inventory impairment in 2011), $3.3 million of lower selling, general and administrative expense in 2011, $13.9 million of lower income tax expense, and a $23.6 million write-off of professional fees in 2010 in connection with the modification and extension of our then outstanding indebtedness.

	Three Months Ended September 30,									Nine Months Ended September 30,
	2011			2010			% Change			2011			2010			% Change
	(Dollars in thousands)
Revenues	$	157,300		$	124,604			26	%	$	346,293		$	422,856			(18	)%
Cost of sales		(133,645	)		(147,617	)		(9	)		(301,947	)		(400,248	)		(25	)
Gross margin		23,655			(23,013	)		203			44,346			22,608			96
Selling expenses		(11,141	)		(10,262	)		9			(30,529	)		(33,564	)		(9	)
General and administrative expenses		(9,136	)		(7,801	)		17			(25,624	)		(25,893	)		(1	)
Equity in income (loss) from joint ventures		(201	)		1,623			(112	)		(696	)		8,692			(108	)
Loss on debt extinguishment		—			—			—			(88,384	)		—			(100	)
Interest and other income (expense), net		(3,666	)		(7,734	)		53			(9,575	)		(22,046	)		57
Income (loss) before income taxes		(489	)		(47,187	)		99			(110,462	)		(50,203	)		(120	)
Income tax benefit (expense)		2,851			(8,530	)		133			3,868			(10,027	)		139
Net income (loss)		2,362			(55,717	)		104			(106,594	)		(60,230	)		(77	)
Less: Net (income) loss attributable to non-controlling interests		(264	)		(35	)		(654	)		(702	)		(6,200	)		89
Net income (loss) attributable to SHLP	$	2,098		$	(55,752	)		104	%	$	(107,296	)	$	(66,430	)		(62	)%

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2010 vs. 2009 and 2009 vs. 2008

In 2010, net income (loss) attributable to SHLP was $(60.1) million compared to $(392.3) million in 2009. This decrease in loss was primarily attributable to $405.2 million higher gross margin (including a $72.6 million inventory impairment in 2010, a $219.8 million inventory impairment in 2009 and a $228.8 million loss from the Vistancia Transaction in 2009) and $43.7 million of higher income from joint ventures (including a $1.3 million impairment in 2010 and a $30.5 million impairment in 2009), partially offset by $41.7 million of lower income tax benefit, $33.1 million income of debt extinguishment from the Vistancia Transaction in 2009 and a $25.7 million loan modification fee write-off in 2010.

In 2009, net income (loss) attributable to SHLP was $(392.3) million compared to $(594.7) million in 2008. This decrease in loss was primarily attributable to a $167.6 million loss from the CalPERS Exchange in 2008, $33.1 million income of debt extinguishment from the Vistancia Transaction in 2009, $85.0 million of lower selling, general and administrative costs, $19.2 million of lower net loss on marketable securities and $13.9 million of restructuring costs in 2008, partially offset by $135.4 of million lower gross margin (including a $219.8 million inventory impairment in 2009, a $228.8 million loss from the Vistancia Transaction in 2009 and a $403.3 million inventory impairment in 2008).

	Years Ended December 31,
	2010			2009			2008			% Change 2009-2010			% Change   2008-2009
	(Dollars in thousands)
Revenues	$	639,566		$	611,463		$	1,078,330			5	%		(43	)%
Cost of sales		(609,097	)		(986,206	)		(1,317,642	)		(38	)		(25	)
Gross margin		30,469			(374,743	)		(239,312	)		108			(57	)
Selling expenses		(46,665	)		(48,949	)		(98,537	)		(5	)		(50	)
General and administrative expenses		(32,440	)		(29,459	)		(64,832	)		10			(55	)
Equity in income (loss) from joint ventures		8,613			(35,089	)		(43,621	)		125			20
Loss from disposition of joint ventures		—			—			(167,805	)		—			—
Interest and other income (expense), net		(18,759	)		19,962			(30,421	)		(194	)		166
Income (loss) before income taxes		(58,782	)		(468,278	)		(644,528	)		87			27
Income tax benefit (expense)		3,567			45,218			35,011			(92	)		29
Net income (loss)		(55,215	)		(423,060	)		(609,517	)		87			31
Less: Net (income) loss attributable to non-controlling interests		(4,874	)		30,717			14,802			(116	)		108
Net income (loss) attributable to SHLP	$	(60,089	)	$	(392,343	)	$	(594,715	)		85	%		34	%

Revenues

Revenues are derived primarily from homes closed and land sales. House and land revenues are recorded at closing. Management fees from homebuilding ventures and projects are in other homebuilding revenues. Revenues generated from financial services, corporate and PIC are in other revenues.

54

Three and Nine Months Ended September 30, 2011 vs. Three and Nine Months Ended September 30, 2010

	Three Months Ended September 30,							Nine Months Ended September 30,
	2011		2010		%   Change			2011		2010		%   Change
	(Dollars in thousands)
Revenues:
House revenues	$	152,658	$	118,117		29	%	$	334,975	$	409,441		(18	)%
Land revenues		2,956		4,965		(40	)		6,986		9,120		(23	)
Other homebuilding revenues		1,360		1,360		—			3,481		3,303		5
Total homebuilding revenues		156,974		124,442		26			345,442		421,864		(18	)
Other revenues		326		162		101			851		992		(14	)
Total revenues	$	157,300	$	124,604		26	%	$	346,293	$	422,856		(18	)%

For the three months ended September 30, 2011, total revenues were $157.3 million compared to $124.6 million for the three months ended September 30, 2010. This increase was primarily attributable to a 24% increase in homes closed and a 5% increase in the average selling price (“ASP”) of homes closed.

For the nine months ended September 30, 2011, total revenues were $346.3 million compared to $422.9 million for the nine months ended September 30, 2010. This decrease was primarily attributable to an 18% decrease in homes closed.

For the three and nine months ended September 30, 2011 and 2010, homebuilding revenues by segment were as follows:

	Three Months Ended September 30,							Nine Months Ended September 30,
	2011		2010		%   Change			2011		2010		%   Change
	(Dollars in thousands)
California South:
House revenues	$	72,977	$	54,862		33	%	$	138,396	$	169,461		(18	)%
Land revenues		—		7		(100	)		65		111		(41	)
Other homebuilding revenues		11		11		—			26		31		(16	)
Total homebuilding revenues	$	72,988	$	54,880		33	%	$	138,487	$	169,603		(18	)%
California North:
House revenues	$	25,529	$	20,657		24	%	$	67,576	$	90,901		(26	)%
Land revenues		—		2,275		(100	)		210		2,275		(91	)
Other homebuilding revenues		127		246		(48	)		283		494		(43	)
Total homebuilding revenues	$	25,656	$	23,178		11	%	$	68,069	$	93,670		(27	)%
Mountain West/Other:
House revenues	$	54,152	$	42,598		27	%	$	129,003	$	149,079		(13	)%
Land revenues		2,956		2,683		10			6,711		6,734		—
Other homebuilding revenues		1,222		1,103		11			3,172		2,778		14
Total homebuilding revenues	$	58,330	$	46,384		26	%	$	138,886	$	158,591		(12	)%

For the three months ended September 30, 2011, total homebuilding revenues were $157.0 million compared to $124.4 million for the three months ended September 30, 2010. This increase was primarily attributable to a 24% increase in homes closed and a 5% increase in the ASP of homes closed. In the California South segment, homes closed and the ASP of homes closed increased, and in the California North segment, homes closed increased and the ASP did not change. In the Mountain West/Other segment, homes closed

55

increased 34%, partially offset by a 5% decrease in the ASP of homes closed. The net increase in homes closed was primarily attributable to the expiration of the federal homebuyer tax credit which stimulated higher sales order and homes closed prior to June 30, 2010. The net increase in the ASP of homes closed was primarily attributable to product mix weighted toward higher-priced homes, partially offset by the use of targeted price-reductions and incentives to sell homes.

For the nine months ended September 30, 2011, total homebuilding revenues were $345.4 million compared to $421.9 million for the nine months ended September 30, 2010. This decrease was primarily attributable to an 18% decrease in homes closed. In the California North segment, homes closed and the ASP of homes closed decreased. In other segments, homes closed decreased, partially offset by an increase in the ASP of homes closed. The net decrease in homes closed was attributable to downturns in the homebuilding industry, fewer active selling communities and expiration of the federal homebuyer tax credit which stimulated higher sales orders and homes closed prior to June 30, 2010. The net increase in the ASP of homes closed was primarily attributable to product mix weighted toward higher-priced homes, partially offset by the use of targeted price-reductions and incentives to sell homes.

For the three and nine months ended September 30, 2011 and 2010, total homes closed by segment were as follows:

	Three Months Ended September 30,							Nine Months Ended September 30,
	2011		2010		% Change			2011		2010		%   Change
Homes closed:
California South		121		109		11	%		260		320		(19	)%
California North		52		42		24			139		182		(24	)
Mountain West/Other		178		133		34			407		485		(16	)
Total consolidated		351		284		24			806		987		(18	)
Unconsolidated Joint Ventures		31		36		(14	)		80		136		(41	)
Total homes closed		382		320		19	%		886		1,123		(21	)%

For the three and nine months ended September 30, 2011 and 2010, the ASP of homes closed by segment was as follows:

	Three Months Ended September 30,							Nine Months Ended September 30,
	2011		2010		%   Change			2011		2010		%   Change
ASP of homes closed:
California South	$	603,132	$	503,321		20	%	$	532,300	$	529,563		1	%
California North		490,923		491,833		—			486,151		499,462		(3	)
Mountain West/Other		304,219		320,286		(5	)		316,958		307,379		3
Total consolidated		434,923		415,905		5			415,602		414,834		—
Unconsolidated Joint Ventures		313,065		319,556		(2	)		308,600		309,949		—
Total ASP of homes closed	$	425,034	$	405,066		5	%	$	405,940	$	402,132		1	%

56

2010 vs. 2009 and 2009 vs. 2008

	Years Ended December 31,
	2010		2009		2008			% Change 2009-2010			% Change 2008-2009
	(Dollars in thousands)
Revenues:
House revenues	$	620,683	$	587,504	$	1,055,066			6	%		(44	)%
Land revenues		13,116		20,873		26,629			(37	)		(22	)
Other homebuilding revenues		4,640		2,134		3,139			117			(32	)
Total homebuilding revenues		638,439		610,511		1,084,834			5			(44	)
Other revenues		1,127		952		(6,504	)		18			115
Total revenues	$	639,566	$	611,463	$	1,078,330			5	%		(43	)%

In 2010, total revenues were $639.6 million compared to $611.5 million in 2009. This increase was primarily attributable to a 3% increase in homes closed and a 3% increase in the ASP of homes closed, partially offset by a decrease in land revenues.

In 2009, total revenues were $611.5 million compared to $1.08 billion in 2008. This decrease was primarily attributable to a 41% decrease in homes closed, a 6% decrease in the ASP of homes closed and a decrease in land and other homebuilding revenues.

For the years ended December 31, 2010, 2009 and 2008, homebuilding revenues by segment were as follows:

	Years Ended December 31,
	2010		2009		2008		% Change   2009-2010			% Change   2008-2009
	(Dollars in thousands)
California South:
House revenues	$	270,592	$	246,093	$	433,413		10	%		(43	)%
Land revenues		111		8,455		4,395		(99	)		92
Other homebuilding revenues		46		56		1		(18	)		5,500
Total homebuilding revenues	$	270,749	$	254,604	$	437,809		6	%		(42	)%
California North:
House revenues	$	118,873	$	100,681	$	165,269		18	%		(39	)%
Land revenues		2,275		100		3,601		2,175			(97	)
Other homebuilding revenues		803		253		2,043		217			(88	)
Total homebuilding revenues	$	121,951	$	101,034	$	170,913		21	%		(41	)%
Mountain West/Other:
House revenues	$	231,218	$	240,729	$	456,380		(4	)%		(47	)%
Land revenues		10,729		12,319		18,634		(13	)		(34	)
Other homebuilding revenues		3,792		1,825		1,098		108			66
Total homebuilding revenues	$	245,739	$	254,873	$	476,112		(4	)%		(46	)%

In 2010, total homebuilding revenues were $638.4 million compared to $610.5 million in 2009. This increase was primarily attributable to a 3% increase in homes closed and a 3% increase in the ASP of homes closed. In the California South and California North segments, homes closed increased 8% and 9%, respectively,

57

and the ASP of homes closed increased 2% and 11%, respectively. In the Mountain West/Other segment, homes closed and the ASP of homes closed decreased 2%. The net increase in homes closed was primarily attributable to the federal homebuyer tax credit which stimulated higher sales orders and homes closed in 2010. The net increase in the ASP of homes closed was primarily attributable to product mix weighted toward higher-priced homes, partially offset by use of targeted price reductions and incentives to sell homes.

In 2009, total homebuilding revenues were $610.5 million compared to $1.08 billion in 2008. This decrease was primarily attributable to a 41% decrease in homes closed and a 6% decrease in the ASP of homes closed. In the California South and Mountain West/Other segments, homes closed decreased 41% and 41%, respectively, and the ASP of homes closed decreased 4% and 11%, respectively. In the California North segment, homes closed decreased 43% and the ASP of homes closed increased 1%. The net decrease in homes closed was primarily attributable to downturns in the homebuilding industry and fewer active selling communities. The net decrease in the ASP of homes closed was primarily attributable to product mix weighted toward lower-priced homes and use of targeted price reductions and incentives to sell homes.

For the years ended December 31, 2010, 2009 and 2008, total homes closed by segment were as follows:

	Years Ended December 31,
	2010		2009		2008		% Change 2009-2010			% Change 2008-2009
Homes closed:
California South		523		485		820		8	%		(41	)%
California North		238		219		386		9			(43	)
Mountain West/Other		728		742		1,257		(2	)		(41	)
Total consolidated		1,489		1,446		2,463		3			(41	)
Unconsolidated Joint Ventures		166		276		351		(40	)		(21	)
Total homes closed		1,655		1,722		2,814		(4	)%		(39	)%

For the years ended December 31, 2010, 2009 and 2008, ASP of homes closed by segment was as follows:

	Years Ended December 31,
	2010		2009		2008		% Change 2009-2010			% Change 2008-2009
ASP of homes closed:
California South	$	517,387	$	507,408	$	528,555		2	%		(4	)%
California North		493,249		445,494		441,899		11			1
Mountain West/Other		317,605		324,432		363,071		(2	)		(11	)
Total consolidated		416,007		404,339		430,463		3			(6	)
Unconsolidated Joint Ventures		308,575		317,331		359,917		(3	)		(12	)
Total ASP of homes closed	$	405,251	$	390,449	$	421,626		4	%		(7	)%

Gross Margin

Gross margin is revenues less cost of sales and is comprised of gross margins from our homebuilding and corporate segments. Total homebuilding gross margin is comprised of house, land and other homebuilding gross margins. Inventory impairments are included in other homebuilding gross margin.

58

Three and Nine Months Ended September 30, 2011 vs. Three and Nine Months Ended September 30, 2010

Gross margin for the three and nine months ended September 30, 2011 and 2010 was as follows:

	Three Months Ended September 30,												Nine Months Ended September 30,
	2011			Gross Margin %			2010			Gross Margin %			2011			Gross Margin %			2010			Gross Margin %
	(Dollars in thousands)
Gross margin:
House gross margin	$	26,357			17.3	%	$	17,095			14.5	%	$	58,655			17.5	%	$	60,143			14.7	%
Land gross margin		278			9.4			2,855			57.5			1,158			16.6			5,356			58.7
Other homebuilding gross margin		(3,306	)		—			(43,125	)		—			(16,318	)		—			(43,883	)		—
Total homebuilding gross margin		23,329			14.9			(23,175	)		(18.6	)		43,495			12.6			21,616			5.1
Other gross margin		326			100.0			162			100.0			851			100.0			992			100.0
Total gross margin	$	23,655			15.0	%	$	(23,013	)		(18.5	)%	$	44,346			12.8	%	$	22,608			5.3	%

For the three months ended September 30, 2011, total gross margin was $23.7 million compared to $(23.0) million for the three months ended September 30, 2010. This increase was primarily attributable to increased homes closed and ASP of homes closed, higher margins as a percentage of revenues on homes closed and lower inventory impairment, partially offset by lower margins on land sales and higher home warranty and related legal costs.

For the nine months ended September 30, 2011, total gross margin was $44.3 million compared to $22.6 million for the nine months ended September 30, 2010. This increase was primarily attributable to increased ASP of homes closed, higher margins as a percentage of revenues on homes closed and lower inventory impairment, partially offset by lower homes closed, lower margins on land sales and higher home warranty and related legal costs.

59

Composition of total homebuilding gross margin by segment for the three and nine months ended September 30, 2011 and 2010 was as follows:

	Three Months Ended September 30,												Nine Months Ended September 30,
	2011			Gross  Margin %			2010			Gross  Margin %			2011			Gross  Margin %			2010			Gross  Margin %
	(Dollars in thousands)
California South:
House gross margin	$	14,060			19.3	%	$	7,151			13.0	%	$	25,578			18.5	%	$	23,497			13.9	%
Land gross margin		—			—			7			100.0			65			100.0			111			100.0
Other homebuilding gross margin		(1,229	)		—			(43,050	)		—			(13,747	)		—			(43,428	)		—
Total homebuilding gross margin	$	12,831			17.6	%	$	(35,892	)		(65.4	)%	$	11,896			8.6	%	$	(19,820	)		(11.7	)%
California North:
House gross margin	$	4,545			17.8	%	$	3,632			17.6	%	$	13,248			19.6	%	$	13,959			15.4	%
Land gross margin		(7	)		(100.0	)		1,293			56.8			198			94.3			1,293			56.8
Other homebuilding gross margin		(314	)		—			308			—			(1,060	)		—			150			—
Total homebuilding gross margin	$	4,224			16.5	%	$	5,233			22.6	%	$	12,386			18.2	%	$	15,402			16.4	%
Mountain West/Other:
House gross margin	$	7,752			14.3	%	$	6,312			14.8	%	$	19,829			15.4	%	$	22,687			15.2	%
Land gross margin		285			9.6			1,555			58.0			895			13.3			3,952			58.7
Other homebuilding gross margin		(1,763	)		—			(383	)		—			(1,511	)		—			(605	)		—
Total homebuilding gross margin	$	6,274			10.8	%	$	7,484			16.1	%	$	19,213			13.8	%	$	26,034			16.4	%

Impairment significantly impacts gross margin. Impairment by segment and type for the three and nine months ended September 30, 2011 and 2010 were as follows. The decrease in inventory impairment for the three and nine months ended September 30, 2011 was primarily attributable to some housing market stabilization since the fourth quarter of 2009, particularly in sales prices. For the nine months ended September 30, 2011, $9.7 million of inventory impairment was isolated to one community.

	Three Months Ended September 30,							Nine Months Ended September 30,
	2011		2010		%      Change			2011		2010		%      Change
	(Dollars in thousands)
Impairment by segment:
California South	$	—	$	42,406		(100	)%	$	9,684	$	43,637		(78	)%
California North		—		—		—			—		—		—
Mountain West/Other		—		642		(100	)		618		2,261		(73	)
Total impairment	$	—	$	43,048		(100	)%	$	10,302	$	45,898		(78	)%
Impairment by type:
Inventory	$	—	$	42,858		(100	)%	$	10,302	$	44,636		(77	)%
Joint venture		—		190		(100	)		—		1,262		(100	)
Total impairment	$	—	$	43,048		(100	)%	$	10,302	$	45,898		(78	)%

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2010 vs. 2009 and 2009 vs. 2008

Gross margin for the years ended December 31, 2010, 2009 and 2008 was as follows:

	Years Ended December 31,
	2010			Gross  Margin %			2009			Gross    Margin %			2008			Gross    Margin %
	(Dollars in thousands)
Gross margin:
House gross margin	$	96,586			15.6	%	$	78,005			13.3	%	$	146,357			13.9	%
Land gross margin		5,572			42.5			(219,206	)		(1,050	)		9,025			33.9
Other homebuilding gross margin		(72,816	)		—			(232,416	)		—			(398,700	)		—
Total homebuilding gross margin		29,342			4.6			(373,617	)		(61.2	)		(243,318	)		(22.4	)
Other gross margin		1,127			—			(1,126	)		—			4,006			—
Total gross margin	$	30,469			4.8	%	$	(374,743	)		(61.3	)%	$	(239,312	)		(22.2	)%

In 2010, total gross margin was $30.5 million compared to $(374.7) million in 2009. This increase was primarily attributable to a 5% increase in total homebuilding revenues, a $147.2 million decrease in inventory impairment and a $228.8 million loss from the Vistancia Transaction in 2009, partially offset by a 3% increase in house cost of sales. In 2010, inventory impairment was $72.6 million compared to $219.8 million in 2009.

In 2009, total gross margin was $(374.7) million was compared to $(239.3) million in 2008. This decrease was primarily attributable to a 44% decrease in total homebuilding revenue and a $228.8 million loss from the Vistancia Transaction, partially offset by a 44% decrease in house cost of sales and a $183.5 million decrease in inventory impairment. In 2009, inventory impairment was $219.8 million compared to $403.3 million in 2008.

Composition of total homebuilding gross margin by segment for the years ended December 31, 2010, 2009 and 2008 was as follows:

	Years Ended December 31,
	2010			Gross  Margin %			2009			Gross    Margin %			2008			Gross    Margin %
	(Dollars in thousands)
California South:
House gross margin	$	43,291			16.0	%	$	32,091			13.0	%	$	57,273			13.2	%
Land gross margin		111			100.0			5,696			67.4	%		4,335			98.6
Other homebuilding gross margin		(51,936	)		—			(128,686	)		—			(94,662	)		—
Total homebuilding gross margin	$	(8,534	)		(3.2	)%	$	(90,899	)		(35.7	)%	$	(33,054	)		(7.5	)%
California North:
House gross margin	$	17,054			14.3	%	$	10,932			10.9	%	$	11,812			7.1	%
Land gross margin		1,292			56.8			122			122.0			682			18.9
Other homebuilding gross margin		(38	)		—			(49,897	)		—			(229,970	)		—
Total homebuilding gross margin	$	18,308			15.0	%	$	(38,843	)		(38.4	)%	$	(217,476	)		(127.2	)%
Mountain West/Other:
House gross margin	$	36,241			15.7	%	$	34,982			14.5	%	$	77,269			16.9	%
Land gross margin		4,168			38.8			(225,023	)		(1,827	)		4,009			21.5
Other homebuilding gross margin		(20,841	)		—			(53,834	)		—			(74,066	)		—
Total homebuilding gross margin	$	19,568			8.0	%	$	(243,875	)		(95.7	)%	$	7,212			1.5	%

61

Impairment by segment and type for the years ended December 31, 2010, 2009 and 2008 were as follows. These impairments were primarily attributable to lower home prices driven by increased incentives and price reductions required in response to weak demand and economic conditions, including record foreclosures, high unemployment, lower consumer confidence and tighter mortgage credit standards. In the fourth quarter of 2009, as the housing market experienced some stabilization, albeit at significantly lower levels than before the current downturn, inventory impairment significantly diminished in 2010.

	Years Ended December 31,
	2010		2009		2008		% Change  2009-2010			% Change  2008-2009
	(Dollars in thousands)
Impairment by segment:
California South	$	51,099	$	123,900	$	130,598		(59	)%		(5	)%
California North		81		71,281		232,103		(100	)		(69	)
Mountain West/Other		22,711		55,125		75,691		(59	)		(27	)
Total impairment	$	73,891	$	250,306	$	438,392		(70	)%		(43	)%
Impairment by type:
Inventory	$	72,629	$	219,846	$	403,279		(67	)%		(45	)%
Joint venture		1,262		30,460		35,113		(96	)		(13	)
Total impairment	$	73,891	$	250,306	$	438,392		(70	)%		(43	)%

Selling, General and Administrative Expense

Three and Nine Months Ended September 30, 2011 vs. Three and Nine Months Ended September 30, 2010

Selling, general and administrative expense for the three and nine months ended September 30, 2011 and 2010 was as follows:

	Three Months Ended September 30,									Nine Months Ended September 30,
	2011			2010			%  Change			2011			2010			%  Change
	(Dollars in thousands)
Total homebuilding revenues	$	156,974		$	124,442			26	%	$	345,442		$	421,864			(18	)%
Selling expense	$	11,141		$	10,262			9	%	$	30,529		$	33,564			(9	)%
% of total homebuilding revenues		7.1	%		8.2	%		(13	)%		8.8	%		8.0	%		10	%
General and administrative expense	$	9,136		$	7,801			17	%	$	25,624		$	25,893			(1	)%
% of total homebuilding revenues		5.8	%		6.3	%		(8	)%		7.4	%		6.1	%		21	%
Total selling, general and administrative expense	$	20,277		$	18,063			12	%	$	56,153		$	59,457			(6	)%
% of total homebuilding revenues		12.9	%		14.5	%		(11	)%		16.3	%		14.1	%		16	%

Selling Expense

For the three months ended September 30, 2011, selling expense was $11.1 million compared to $10.3 million for the three months ended September 30, 2010. This increase was primarily attributable to more homes closed and the corresponding increase in the variable components of selling expense, primarily commissions and model home amortization costs.

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For the nine months ended September 30, 2011, selling expense was $30.5 million compared to $33.6 million for the nine months ended September 30, 2010. This decrease was primarily attributable to fewer homes closed and the corresponding decrease in the variable components of selling expense, primarily sales commissions and model home amortization costs.

General and Administrative Expense

For the three months ended September 30, 2011, general and administrative expense was $9.1 million compared to $7.8 million for the three months ended September 30, 2010. This increase was primarily due to the inclusion of two projects contributed to the Company from JFSCI and lower management fees charged to Unconsolidated Joint Ventures.

For the nine months ended September 30, 2011, general and administrative expense was $25.6 million compared to $25.9 million for the nine months ended September 30, 2010. This decrease was primarily attributable to continued workforce and general and administrative expense reductions to better align our operations with weak housing market conditions, offset by the inclusion of two projects contributed to the Company from JFSCI and lower management fees charged to Unconsolidated Joint Ventures.

2010 vs. 2009 and 2009 vs. 2008

Selling, general and administrative expense for the years ended December 31, 2010, 2009 and 2008 was as follows:

	Years Ended December 31,
	2010			2009			2008			% Change 2009-2010			% Change 2008-2009
	(Dollars in thousands)
Total homebuilding revenues	$	638,439		$	610,511		$	1,084,834			5	%		(44	)%
Selling expense	$	46,665		$	48,949		$	98,537			(5	)%		(50	)%
% of total homebuilding revenues		7.3	%		8.0	%		9.1	%		(9	)%		(12	)%
General and administrative expense	$	32,440		$	29,459		$	64,832			10	%		(55	)%
% of total homebuilding revenues		5.1	%		4.8	%		6.0	%		6	%		(20	)%
Total selling, general and administrative expense	$	79,105		$	78,408		$	163,369			1	%		(52	)%
% of total homebuilding revenues		12.4	%		12.8	%		15.1	%		(3	)%		(15	)%

Selling Expense

In 2010, selling expense was $46.7 million compared to $48.9 million in 2009. This decrease was primarily attributable to the continued workforce and selling and marketing expense reductions to better align our operations with the weak housing market conditions.

In 2009, selling expense was $48.9 million compared to $98.5 million in 2008. This decrease was primarily attributable to fewer homes closed and continued workforce and selling and marketing expense reductions to better align our operations with the weak housing market conditions.

General and Administrative Expense

In 2010, general and administrative expense was $32.4 million compared to $29.5 million in 2009. This increase was primarily attributable to an increase in compensation costs, partially offset by continued workforce and general and administrative expense reductions to better align our operations with the weak housing market conditions.

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In 2009, general and administrative expense was $29.5 million compared to $64.8 million in 2008. This decrease was primarily attributable to continued workforce and general and administrative expense reductions to better align our operations with the weak housing market conditions.

Equity in Income (Loss) from Joint Ventures

Equity in income (loss) from joint ventures represents our share of income (loss) from Unconsolidated Joint Ventures accounted for under the equity method. Our Unconsolidated Joint Ventures are generally involved in real property development.

Three and Nine Months Ended September 30, 2011 vs. Three and Nine Months Ended September 30, 2010

For the three months ended September 30, 2011, equity in income (loss) from joint ventures was $(0.2) million compared to $1.6 million for the three months ended September 30, 2010. For the nine months ended September 30, 2011, equity in income (loss) from joint ventures was $(0.7) million compared to $8.7 million for the nine months ended September 30, 2010. For the three and nine months ended September 30, 2011, there were no significant earnings or losses from unconsolidated joint ventures. For the three months ended September 30, 2010, income from joint ventures primarily related to a $1.6 million reversal of a prior accrual due to the release of an obligation. In addition, for the nine months ended September 2010, $6.7 million of income from joint ventures related to the reallocation of income among partners in a joint venture.

2010 vs. 2009 and 2009 vs. 2008

In 2010, equity in income (loss) from joint ventures was $8.6 million compared to $(35.1) million in 2009. This increase was primarily attributable to a $2.4 million reversal of a prior accrual related to one joint venture due to the release of obligations and $6.7 million of income related to the reallocation of income among partners in a joint venture. In 2010, these results included a $1.3 million charge for our share of Unconsolidated Joint Venture impairments compared to $30.5 million in 2009.

In 2009, equity in income (loss) from joint ventures was $(35.1) million compared to $(43.6) million in 2008. This decrease was primarily attributable to a $30.5 million charge for our share of Unconsolidated Joint Venture impairments in 2009 compared to a $35.1 million charge for our share of Unconsolidated Joint Venture impairments in 2008.

Loss on Debt Extinguishment

Concurrent with the payoff of the Secured Facilities on May 10, 2011, an $88.4 million loss on debt extinguishment was recorded for the $65.0 million write-off of the Secured Facilities discount, which increased the Secured Facilities principal to its face value, $779.6 million, and the $23.4 million write-off of prepaid professional and loan fees incurred in connection with the Secured Facilities.

Loss from Disposition of Joint Ventures

In 2008, loss from disposition of joint ventures was $167.8 million, which was comprised of a $167.6 million loss from the restructuring of three joint ventures with CalPERS and a $0.2 million loss on a $0.1 million sale of our 1% interest in a homebuilding Unconsolidated Joint Venture in North Carolina.

Interest and Other Income (Expense), Net

Interest and other income (expense), net is comprised of interest income, interest expense, loan modification fee write-offs, gains (losses) on investments and other income (expense). Interest income is primarily from related party notes receivables. Interest expense is interest incurred and not capitalized. In 2011 and 2010, most interest incurred was capitalized to inventory and some expensed. In 2009 and 2008, all interest incurred was capitalized to inventory.

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Three and Nine Months Ended September 30, 2011 vs. Three and Nine Months Ended September 30, 2010

For the three and nine months ended September 30, 2011 and 2010, interest and other income (expense), net was as follows:

	Three Months Ended September 30,									Nine Months Ended September 30,
	2011			2010			%    Change			2011			2010			%    Change
	(Dollars in thousands)
Interest and other income (expense), net:
Interest income	$	879		$	1,119			(21	)%	$	2,357		$	4,117			(43	)%
Interest (expense)		(4,310	)		(1,636	)		(163	)		(12,636	)		(5,158	)		(145	)
Loan modification fee (write-off) recovery		—			(2,655	)		100			645			(23,569	)		103
Gain (loss) on investments		130			50			160			539			4,444			(88	)
Other income (expense)		(365	)		(4,612	)		92			(480	)		(1,880	)		74
Total interest and other income (expense), net	$	(3,666	)	$	(7,734	)		53	%	$	(9,575	)	$	(22,046	)		57	%

For the three months ended September 30, 2011, interest and other income (expense), net was $(3.7) million compared to $(7.7) million for the three months ended September 30, 2010. This decrease in expense was primarily attributable to a $2.7 million write-off in 2010 of professional fees in connection with the modification and extension of our Secured Facilities and $3.6 million of pre-acquisition cost write-offs, partially offset by a $2.7 million interest expense increase. The interest expense increase was primarily attributable to higher interest incurred and fewer assets qualifying for interest capitalization resulting in the expensing of interest. The increase in interest incurred was a result of a higher effective interest rate associated with our notes payable and increased amortization of loan modification fees.

For the nine months ended September 30, 2011, interest and other income (expense), net was $(9.6) million compared to $(22.0) million for the nine months ended September 30, 2010. This decrease in expense was primarily attributable to a $23.6 million write-off in 2010 of professional fees in connection with the modification and extension of our Secured Facilities, partially offset by a $7.5 million interest expense increase and $3.9 million lower gains on marketable securities.

2010 vs. 2009 and 2009 vs. 2008

For the years ended December 31, 2010, 2009 and 2008, interest and other income (expense), net was as follows:

	Years Ended December 31,
	2010			2009			2008			% Change  2010-2009			% Change  2009-2008
	(Dollars in thousands)
Interest and other income (expense), net:
Interest income	$	4,699		$	11,289		$	4,281			(58	)%		164	%
Interest (expense)		(8,558	)		—			—			(100	)		—
Loan modification fee (write-off)		(25,747	)		—			—			(100	)		—
Gain (loss) on investments		4,664			2,839			(16,380	)		64			117
Vistancia Transaction debt extinguishment		—			33,104			—			(100	)		—
Other income (expense)		6,183			(27,270	)		(18,322	)		123			(49)
Total interest and other income (expense), net	$	(18,759	)	$	19,962		$	(30,421	)		(194	)%		166	%

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In 2010, interest and other income (expense), net was $(18.8) million compared to $20.0 million in 2009. This decrease in income was primarily attributable to a $25.7 million write-off in 2010 of professional fees in connection with the modification and extension of our Secured Facilities, $33.1 million of income from the Vistancia Transaction debt extinguishment in 2009, $6.6 million of lower interest income from maintaining lower cash balances in interest bearing accounts and an $8.6 million increase in interest expense from higher interest incurred and fewer assets qualifying for interest capitalization, partially offset by an $18.4 million write-off of accounts receivable and other costs in 2009 and $15.1 million of income from the deferred gain amortization related to the PIC Transaction in 2010. The increase in interest incurred was a result of a higher effective interest rate on our long-term notes payable and increased amortization of loan modification fees.

In 2009, interest and other income (expense), net was $20.0 million compared to $(30.4) million in 2008. This increase in income was primarily attributable to a $19.2 million lower net loss on marketable securities, a $7.0 million increase in interest income from maintaining higher cash balances in interest bearing accounts, $33.1 million of income from the Vistancia Transaction debt extinguishment in 2009 and $12.3 million less restructuring costs in 2009, partially offset by an $18.4 million write-off of accounts receivable and other costs in 2009.

Income Tax Benefit (Expense)

At September 30, 2011 and December 31, 2010, net deferred tax assets were $40.7 million and $48.8 million, respectively, which primarily related to available loss carryforwards, inventory and marketable securities impairments, housing and land inventory basis differences and income recognition timing differences from our investment in joint ventures. At September 30, 2011 and December 31, 2010, deferred tax asset valuation fully reserved the net deferred tax asset due to the inherent uncertainty of future income. To the extent eligible taxable income exists, which allows tax benefits of these deferred tax assets to be utilized, the effective tax rate may be reduced, subject to certain limitations under Internal Revenue Code Section 382, by reducing the valuation allowance and offsetting a portion of taxable income. However, it is unlikely all of these net deferred tax assets will be realized.

Three and Nine Months Ended September 30, 2011 vs. Three and Nine Months Ended September 30, 2010

For the three months ended September 30, 2011, income tax benefit (expense) was $2.9 million compared to $(8.5) million for the three months ended September 30, 2010. For the nine months ended September 30, 2011, income tax benefit (expense) was $3.9 million compared to $(10.0) million for the nine months ended September 30, 2010. These decreases were primarily attributable to decreased taxable income and a decrease in the deferred tax asset valuation allowance.

2010 vs. 2009 and 2009 vs. 2008

In 2010, income tax benefit (expense) was $3.6 million compared to $45.2 million in 2009. This decrease was primarily attributable to decreased losses of SHI and its subsidiaries compared to prior year and the reduction of certain deferred tax assets previously reserved.

In 2009, income tax benefit (expense) was $45.2 million compared to $35.0 million in 2008. This increase was primarily attributable to the loss from the Vistancia Transaction.

Net (Income) Loss Attributable to Non-Controlling Interests

We consolidate joint ventures when we have a controlling interest or, absent a controlling interest, can substantially influence its business. Net (income) loss attributable to non-controlling interests represents the share of income attributable to the parties having a non-controlling interest.

Three and Nine Months Ended September 30, 2011 vs. Three and Six Months Ended June 30, 2010

For the three months ended September 30, 2011, net (income) loss attributable to non-controlling interests was $(0.3) million compared to $0 million for the three months ended September 30, 2010. For the nine months

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ended September 30, 2011, net (income) loss attributable to non-controlling interests was $(0.7) million compared to $(6.2) million for the nine months ended September 30, 2010. In June 2010, a $(6.5) million charge related to the non-realization of a non-controlling interest’s deficit capital balance was recorded. There were no significant activities for the three months ended September 30, 2011 and 2010, and for the nine months ended September 30, 2011.

2010 vs. 2009 and 2009 vs. 2008

In 2010, net (income) loss attributable to non-controlling interests was $(4.9) million compared to $30.7 million in 2009. In 2010, these results included a $(6.5) million charge related to non-realization of a non-controlling interest’s deficit capital balance, partially offset by $1.9 million of impairment charges attributable to non-controlling interests.

In 2009, net (income) loss attributable to non-controlling interests was $30.7 million compared to $14.8 million in 2008. In 2009, these results included a $32.1 million charge from the Vistancia Transaction. In 2008, these results included a $17.9 million impairment for a homebuilding joint venture, partially offset by $(3.1) million in income from operations.

SELECTED HOMEBUILDING OPERATIONAL DATA

Homes Sales Orders and Active Selling Communities

Home sales orders are contracts executed with homebuyers to purchase homes and are stated net of cancellations. Except where market conditions or other factors justify increasing available unsold home inventory, construction of a home typically begins when a sales contract for that home is executed. Therefore, recognition of a home sales order usually represents the beginning of the home’s construction cycle. Accordingly, homebuilding construction expenditures and, ultimately, homebuilding revenues and cash flow, are dependent on the timing and magnitude of home sales orders.

Active selling community is a designation of a sales office that advertises, markets and sells homes for a new home community. Sales offices in communities near the end of their sales cycle are not designated as an active selling community. Active selling community is a designation similar to a store or sales outlet and is used to measure home sales order results on a per active selling community basis. Presentation of home sales orders per active selling community is a means of assessing sales growth or reductions across communities with a common analytical measurement. The average number of active selling communities for a particular period represents the aggregate number of active selling communities in operation at the end of each month in such period divided by the number of months in such period.

Three and Nine Months Ended September 30, 2011 vs. Three and Nine Months Ended September 30, 2010

For the three and nine months ended September 30, 2011 and 2010, home sales orders, net of cancellations, were as follows:

	Three Months Ended September 30,							Nine Months Ended September 30,
	2011		2010		% Change			2011		2010		% Change
Home sales orders, net:
California South		100		87		15	%		356		354		1	%
California North		55		35		57			159		169		(6	)
Mountain West/Other		133		139		(4	)		529		538		(2	)
Total consolidated		288		261		10			1,044		1,061		(2	)
Unconsolidated Joint Ventures		24		28		(14	)		87		116		(25	)
Total home sales orders, net		312		289		8	%		1,131		1,177		(4	)%

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For the three and nine months ended September 30, 2011 and 2010, active selling communities were as follows:

	Three Months Ended September 30,							Nine Months Ended September 30,
	2011		2010		% Change			2011		2010		% Change
Average number of active selling communities:
California South		25		21		19	%		23		23		0	%
California North		16		13		23			14		14		—
Mountain West/Other		38		47		(19	)		41		46		(11	)
Total consolidated		79		81		(2	)		78		83		(6	)
Unconsolidated Joint Ventures		14		8		75			14		8		75
Total average number of active selling communities		93		89		4	%		92		91		1	%

For the three and nine months ended September 30, 2011, total consolidated home sale orders, net of cancellations, were 288 and 1,044, respectively, compared to 261 and 1,061, respectively, for the three and nine months ended September 30, 2010. The increase for the three months ended September 30, 2011 was primarily attributable to the expiration of the federal homebuyer tax credit which stimulated higher sales orders prior to June 30, 2010. The decrease for the nine months ended September 30, 2011 was primarily attributable to downturns in the homebuilding industry, lower consolidated active selling communities and the federal homebuyer tax credit which stimulated higher sales orders and homes closed in 2010.

For the three and nine months ended September 30, 2011, the average number of consolidated active selling communities was 79 and 78, respectively, compared to 81 and 83, respectively, for the three and nine months ended September 30, 2010. For the three and nine months ended September 30, 2011, consolidated home sales orders per active selling community were 3.6 and 3.2, respectively, compared to 13.3 and 12.8, respectively, for the three and nine months ended September 30, 2010.

2010 vs. 2009 and 2009 vs. 2008

For the years ended December 31, 2010, 2009 and 2008 home sales orders, net of cancellations, were as follows:

	Years Ended December 31,
	2010		2009		2008		% Change 2009-2010			% Change 2008-2009
Home sales orders, net:
California South		430		616		773		(30	)%		(20	)%
California North		211		272		363		(22	)		(25	)
Mountain West/Other		675		820		978		(18	)		(16	)
Total consolidated		1,316		1,708		2,114		(23	)		(19	)
Unconsolidated Joint Ventures		143		284		311		(50	)		(9	)
Total home sales orders, net		1,459		1,992		2,425		(27	)%		(18	)%

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For the years ended December 31, 2010, 2009 and 2008, active selling communities were as follows:

	Years Ended December 31,
	2010		2009		2008		% Change 2009-2010			% Change 2008-2009
Average number of active selling communities:
California South		23		30		43		(23	)%		(30	)%
California North		13		17		23		(24	)		(26	)
Mountain West/Other		46		47		48		(2	)		(2	)
Total consolidated		82		94		114		(13	)		(18	)
Unconsolidated Joint Ventures		9		10		20		(10	)		(50	)
Total average number of active selling communities		91		104		134		(13	)%		(22	)%

In 2010, consolidated home sales orders were 1,316 compared to 1,708 in 2009, and in 2010, our average number of consolidated active selling communities was 82 compared to 94 in 2009. In 2010, our consolidated home sales orders per consolidated active selling community were 16.0 compared to 18.2 in 2009.

In 2009, consolidated home sales orders were 1,708 compared to 2,114 in 2008, and in 2009, our average number of consolidated active selling communities was 94 compared to 114 in 2008. In 2009, consolidated home sales orders per consolidated active selling community were 18.2 compared to 18.5 in 2008.

Sales Order Backlog and Cancellation Rates

Sales order backlog represents homes sold and under contract to be built, but not closed. Backlog sales value is the revenue anticipated to be realized at closing. A home is sold when a sales contract is signed by the seller and buyer and upon receipt of a prerequisite deposit. A home is closed when all conditions of escrow are met, including delivery of the home, title passage, and appropriate consideration is received and collection of associated receivables, if any, is reasonably assured. A sold home is classified “in backlog” during the time between its sale and close. During that time, construction costs are generally incurred to complete the home except where market conditions or other factors justify increasing available unsold home inventory. Backlog is therefore an important performance measurement in analysis of cash outflows and inflows. However, because sales order contracts can be cancelled by the buyer in certain circumstances, not all homes in backlog will result in closings.

Three and Nine Months Ended September 30, 2011 vs. Three and Nine Months Ended September 30, 2010

At September 30, 2011 and 2010, sales order backlog was as follows:

	Homes				Sales Value				ASP
	September 30,				September 30,				September 30,
	2011		2010		2011		2010		2011		2010
					(In thousands)				(In thousands)
Backlog:
California South		229		247	$	118,107	$	127,059	$	516	$	514
California North		119		90		60,888		32,318		512		359
Mountain West/Other		334		321		116,070		107,725		348		336
Total consolidated		682		658		295,065		267,102		433		406
Unconsolidated Joint Ventures		29		25		10,423		7,712		359		308
Total backlog		711		683	$	305,488	$	274,814	$	430	$	402

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Homes are sold pursuant to sales contracts, which are generally accompanied by sales deposits. Purchasers are permitted to cancel sales contracts if they fail to qualify for financing or under other circumstances. For the three and nine months ended September 30, 2011 and 2010, cancellation rates were as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
Cancellation rates:
California South		32	%		35	%		25	%		28	%
California North		18			19			19			16
Mountain West/Other		25			19			18			13
Total consolidated		27	%		25	%		21	%		19	%
Unconsolidated Joint Ventures		25			15			23			21
Total cancellation rates		26	%		24	%		21	%		19	%

2010 vs. 2009 and 2009 vs. 2008

At December 31, 2010, 2009 and 2008, sales order backlog was as follows:

	Homes						Sales Value						ASP
	December 31,						December 31,						December 31,
	2010		2009		2008		2010		2009		2008		2010		2009		2008
							(In thousands)						(In thousands)
Backlog:
California South		118		211		80	$	61,174	$	109,502	$	45,759	$	518	$	519	$	572
California North		76		103		54		35,958		49,441		23,064		473		480		427
Mountain West/Other		212		265		187		70,187		82,515		72,094		331		311		386
Total consolidated		406		579		321		167,319		241,458		140,917		412		417		439
Unconsolidated Joint Ventures		22		45		37		7,310		13,409		11,798		332		298		319
Total backlog		428		624		358	$	174,629	$	254,867	$	152,715	$	408	$	408	$	427

For the years ended December 31, 2010, 2009 and 2008, cancellation rates were as follows:

	Years Ended December 31,
	2010			2009			2008
Cancellation rates:
California South		28	%		24	%		33	%
California North		15			16			25
Mountain West/Other		14			18			31
Total consolidated		19			20			31
Unconsolidated Joint Ventures		21			18			36
Total cancellation rates		19	%		20	%		31	%

Land and Homes in Inventory

Inventory is comprised of housing projects under development, land under development, land held for future development, deposits and pre-acquisition costs. As land is acquired and developed, and homes are constructed, the underlying costs are capitalized to inventory. As homes and land transactions close, these costs are relieved from inventory and charged to cost of sales.

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As land is acquired and developed, each parcel is assigned a lot count. For parcels of land, an estimated number of lots are added to inventory once entitlement occurs. Occasionally, when the intended use of a parcel changes, lot counts are adjusted. As homes and land are sold, lot counts are reduced. Lots are categorized as (i) those owned, (ii) those controlled (which includes a contractual right to purchase) or (iii) those owned or controlled through Unconsolidated Joint Ventures. The status of each lot is identified by land held for development, land under development, lots available for construction, homes under construction, completed homes and models. Homes under construction and completed homes are also classified as sold or unsold.

At September 30, 2011, December 31, 2010 and December 31, 2009, total lots owned or controlled were as follows:

	September 30, 2011		December 31, 2010		% Change from December 31, 2010			December 31, 2009		% Change from December 31, 2009
Lots owned or controlled by segment:
California South		2,244		2,281		(2	)%		2,322		(3	)%
California North		4,337		3,443		26			3,746		16
Mountain West/Other		11,708		10,836		8			11,014		6
Total consolidated		18,289		16,560		10			17,082		7
Unconsolidated Joint Ventures		6,076		7,867		(23	)		7,191		(16	)
Total lots owned or controlled		24,365		24,427		0	%		24,273		0	%
Lots owned or controlled by ownership type:
Lots owned		10,141		9,260		10	%		10,358		(2	)%
Lots optioned or subject to contract		8,148		7,300		12			6,724		21
Joint venture lots		6,076		7,867		(23	)		7,191		(16	)
Total lots owned or controlled		24,365		24,427		0	%		24,273		0	%

At September 30, 2011, total consolidated lots owned or controlled increased 10% from December 31, 2010 and 7% from December 31, 2009. From December 31, 2010 and December 31, 2009, the increase in the California South and California North segments was attributable to contributions of two projects from JFSCI in May 2011 as a partial pay down of the loan receivable from JFSCI, offset by house closings. From December 31, 2010 and December 31, 2009, the increase in the Mountain West/Other segment was due to the distribution of land in April 2011 from an Unconsolidated Joint Venture.

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At September 30, 2011, December 31, 2010 and December 31, 2009, total homes under construction and completed homes were as follows:

	September  30, 2011		December  31, 2010		%  Change from December 31, 2010			December  31, 2009		% Change from December 31, 2009
Homes under construction:
Sold		479		194		147	%		348		38	%
Unsold		158		89		78			124		27
Total consolidated		637		283		125			472		35
Unconsolidated Joint Ventures		27		40		(33	)		392		(93	)
Total homes under construction		664		323		106	%		864		(23	)%
Completed homes:(a)
Sold(b)		67		41		63	%		29		131	%
Unsold		87		77		13			58		50
Total consolidated		154		118		31			87		77
Unconsolidated Joint Ventures		29		22		32			6		383
Total completed homes		183		140		31	%		93		97	%

^(a)  Excludes model homes.

^(b)  Sold but not closed.

Our inventory balance is comprised primarily of residential land that is in varying degrees of development and includes finished lots, land under development and land held for future development. Our business is primarily the sale of finished homes but includes acquisition and sale of lots and land in various stages of development. We frequently revise our business plan in response to market changes and as opportunities for such acquisitions and sales arise. Based on our internal projections, the expected delivery timeframes for our inventory balance at September 30, 2011 were as follows:

	Delivery of inventory balance by period
	Total		Less Than 1 Year		1 – 3 Years		3 – 5 Years		5 – 10 Years		After 10 Years
	(In thousands)
California South	$	301,244	$	108,843	$	115,613	$	64,898	$	10,293	$	1,597
California North		217,380		72,180		65,362		43,878		35,485		475
Mountain West/Other		357,613		124,183		82,042		44,380		67,757		39,251
Total consolidated inventory	$	876,237	$	305,206	$	263,017	$	153,156	$	113,535	$	41,323

LIQUIDITY AND CAPITAL RESOURCES

Operating and other short-term cash liquidity needs are funded from our homebuilding operations primarily through home closings and land sales, net of the underlying expenditures to fund these operations. We do not have a revolving credit facility to fund our short-term cash liquidity needs. At September 30, 2011, cash and cash equivalents were $209.0 million, restricted cash was $13.8 million and total debt was $752.3 million, compared to cash and cash equivalents of $166.9 million, restricted cash of $11.7 million and total debt of $730.0 million at December 31, 2010. Restricted cash includes cash used as collateral for potential obligations paid by the Company’s bank, customer deposits temporarily restricted in accordance with regulatory requirements, and cash used in lieu of bonds.

Based on our financial condition, we believe our cash from operations will be sufficient to provide for our cash requirements in the next twelve months. In evaluating this sufficiency, we considered the expected cash

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flow to be generated by our homebuilding operations and our current cash position, compared to our anticipated cash requirements for scheduled interest payments on the Secured Notes, land purchase commitments, joint venture funding requirements and other cash operating expenses. We also continually monitor current and expected operational requirements to evaluate and determine the use and amount of our cash needs which includes, but is not limited to, the following disciplines:

• Strategic land acquisitions that meet our investment and marketing standards, including the quick turn of assets;

• Strict control and limitation of unsold home inventory and avoidance of excessive and untimely use of cash;

• Pre-qualification of homebuyers, timely commencement of home construction thereon and avoidance of cancellations and creation of unsold inventory;

• Reduced construction cycle times, prompt closings of homes and improved cash flow thereon; and

• Maintenance of sufficient cash that, depending on market conditions, will be available to acquire land and increase our active selling communities.

In 2009, we filed a petition with the United States Tax Court (the “Tax Court”) regarding our use of the completed contract method (“CCM”) of accounting for our homebuilding operations. During 2010 and 2011 we engaged in formal and informal discovery with the IRS. We expect the Tax Court will schedule a trial for mid-2012, though it has not yet formally done so. The resolution, either through settlement or adjudication, of this matter may require us to make payments (a) from SHI to the IRS and the applicable state taxing authorities for its income tax liability and interest and (b) from SHLP to its partners pursuant to the Tax Distribution Agreement for their liability attributable to SHLP’s income taxes and interest. We expect that our position will prevail, but in the event of a final adjudication contrary to our position, the total amount of the SHI’s payment to the IRS and applicable state taxing authorities could be up to $59 million and the required distributions to SHLP’s partners pursuant to the Tax Distribution Agreement could be up to $101 million.

The indenture governing the notes restricts SHLP’s ability to make distributions to its partners pursuant to the Tax Distribution Agreement in excess of an amount specified by the indenture (such maximum amount of collective distributions referred to as the “Maximum CCM Payment”), unless SHLP receives a cash equity contribution from JFSCI in the amount of such excess. The initial Maximum CCM Payment is $70.0 million, which amount will be reduced by the amount of any payments made by SHI in connection with any resolution of our dispute with the IRS regarding our use of CCM and the amount of any payments made by SHLP on certain guarantee obligations described in the indenture. See “Description of the Notes – Limitations on Restricted Payments.” Payments of CCM-related tax liabilities by SHLP pursuant to the Tax Distribution Agreement or by SHI will not impact our Consolidated Fixed Charge Coverage Ratio (as defined below) or our ability to incur additional indebtedness under the terms of the indenture governing the notes.

SHLP and SHI expect to pay any CCM-related tax liability from existing cash, cash from operations and, to the extent SHLP is required by the Tax Distribution Agreement to pay amounts in excess of the Maximum CCM Payment, from cash equity contributions by JFSCI. However, cash from homebuilding operations may be insufficient to cover such payments. See “Risk Factors—The IRS has disallowed certain income recognition methodologies. If we are unsuccessful in appealing this decision, we could become subject to a substantial tax liability from previous years” and “Risk Factors—Under our Tax Distribution Agreement, we are required to make distributions to our equity holders from time to time based on their ownership in SHLP, which is a limited partnership and, under certain circumstances, those distributions may occur even if SHLP does not have taxable income.”

We are unable to extend our evaluation of the sufficiency of our liquidity beyond twelve months, and we cannot assure you in the future our homebuilding operations will generate sufficient cash flow to enable us to grow our business, service our indebtedness, make payments toward land purchase commitments, or fund our

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joint ventures. For more information, see “Risk Factors—Our ability to generate sufficient cash or access other limited sources of liquidity to operate our business and service our debt depends on many factors, some of which are beyond our control” and “Risk Factors—We have a significant number of contingent liabilities, and if any are satisfied by us, could have a material adverse effect on our liquidity and results of operations.”

The following tables present cash provided by (used in) operating, investing and financing activities:

	Nine Months Ended September 30,
	2011			2010
	(In thousands)
Cash provided by (used in):
Operating activities	$	(29,416	)	$	(122,724	)
Investing activities		110,804			36,777
Financing activities		(39,226	)		25,538
Net increase (decrease) in cash	$	42,162		$	(60,409	)

	Years Ended December 31,
	2010			2009			2008
	(In thousands)
Cash provided by (used in):
Operating activities	$	(75,048	)	$	93,294		$	155,959
Investing activities		46,056			16,604			(265,307	)
Financing activities		(7,210	)		(112,443	)		173,080
Net increase (decrease) in cash	$	(36,202	)	$	(2,545	)	$	63,732

Cash from Operating Activities

For the nine months ended September 30, 2011, cash provided by (used in) operating activities was $(29.4) million compared to $(122.7) million for the nine months ended September 30, 2010. For the nine months ended September 30, 2011, cash (used in) operating activities was primarily attributable to a $(36.2) million increase in inventory, the result of new home construction starts and land acquisitions in the California South and Mountain West/Other segments. For the nine months ended September 30, 2010, cash (used in) operating activities included a decrease in payables and other liabilities, which was primarily attributable to an $(86.0) million insurance premium payment to JFSCI and third-party insurance carriers pursuant to a series of transactions in December 2009, whereby, through PIC, workers’ compensation, general liability and certain completed operations risks were novated or reinsured. In addition, cash used in operating activities included a $(39.9) million increase in inventory, the result of new home construction starts and land acquisitions in all our homebuilding segments.

In 2010, cash provided by (used in) operating activities was $(75.0) million compared to $93.3 million in 2009. The decrease was primarily attributable to $(145.6) million of higher land acquisition and construction costs; an $(86.2) million payment of premiums to third-party insurance companies to reinsure general liability and completed operations loss exposure; $(15.3) million of loan fees and deposits in lieu of letters of credit; $(15.6) million of prepaid completed operations insurance premiums; $(10.0) million of lower income tax refunds; $(28.1) million of lower proceeds from accounts receivables, receivables from related parties and deposits; and the absence of $(67.5) million of proceeds from the Vistancia Transaction in 2009, partially offset by $27.9 million of higher homebuilding revenues, $93.3 million of lower payment of liabilities to related parties; $64.8 million of lower payment of accounts payable and accrued liabilities; and a $20.9 million decrease in restricted cash requirements.

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In 2009, cash provided by (used in) operating activities was $93.3 million compared to $156.0 million in 2008. The decrease was primarily attributable to $(474.3) million of lower homebuilding revenues; $(87.9) million of higher payment of liabilities to related parties; $(30.0) million of lower proceeds from accounts receivables, primarily escrow and notes receivables; $(26.3) million of lower proceeds from receivables from related parties; a $(28.0) million increase in restricted cash requirements; $(20.1) of loan modification fees and prepaid expenses; and $(30.0) million of higher payment of accounts payable and accrued liabilities, partially offset by $469.2 million of lower land acquisition and construction costs; $68.9 million of lower selling, general and administrative cash expense; $29.0 million of lower income tax payments, and $67.5 million of proceeds from the Vistancia Transaction.

Cash from Investing Activities

For the nine months ended September 30, 2011, cash provided by (used in) investing activities was $110.8 million compared to $36.8 million for the nine months ended September 30, 2010. For the nine months ended September 30, 2011, cash provided by investing activities was primarily attributable to $107.9 million of collections on promissory notes receivables from related parties, primarily JFSCI, whereby in May 2011, concurrent with issuance of the Secured Notes, JFSCI partially paid down these promissory notes. In June and August 2011, JFSCI also made prepayments on its installment loan payable to the Company. In September 2011, we also sold fixed assets in Highlands Ranch, Colorado, comprised of three buildings and related improvements and land, for $14.4 million cash to a related party, of which $1.5 million was recorded as owners’ contributions. See “Cash from Financing Activities”, below. Proceeds from collections on promissory notes receivables were offset by $(16.4) million of cash contributions to unconsolidated joint ventures, which were used by the unconsolidated joint venture to pay off debt. For the nine months ended September 30, 2010, cash provided by investing activities was primarily attributable to $52.1 million of proceeds from the sale of marketable securities, which were used to partially fund payment of the insurance premiums described in Cash from Operating Activities above. These proceeds were partially offset by $(18.0) million of cash contributions to Unconsolidated Joint Ventures, primarily to a joint venture to paydown its debt and release the Company as a guarantor on the debt, and $(5.1) million property and equipment purchases.

In 2010, cash provided by (used in) investing activities was $46.1 million compared to $16.6 million in 2009. The increase was primarily attributable to $57.4 million of higher net proceeds from purchases and sales of marketable securities, partially offset by $(10.6) million from property and equipment purchases; $(4.5) million of net investments in joint ventures; and $(12.6) million of lower proceeds from sales of property and equipment sales.

In 2009, cash provided by (used in) investing activities was $16.6 million compared to $(265.3) million in 2008. The increase was primarily attributable to net contributions to Unconsolidated Joint Ventures in 2008. In 2009, cash provided by investing activities included $12.6 million of proceeds from sales of golf courses and $17.4 million of net borrowings from related parties, primarily comprised of cash management receivables from JFSCI and a write down of certain loans made to Shea Management LLC and Shea Properties Management Company, Inc. In 2009, cash provided by investing activities also included $(10.1) million of net contributions to Unconsolidated Joint Ventures. In 2008, cash used in investing activities included $(310.7) million of contributions to Unconsolidated Joint Ventures, primarily to $(152.4) million to Shea Capital I, LLC, $(20.5) million to Shea Capital II, LLC, $(77.9) million to Shea Mountain House, LLC, and $(31.3) million to Tonner Hills SSP, LLC and $(58.4) million of loans to related parties, offset by $44.9 million of distributions from Unconsolidated Joint Ventures, primarily $34.1 million from Riverpark Legacy, LLC, $45.1 million of proceeds from the sale of our investment in Shea Capital II, LLC and $7.7 million of proceeds from sales of golf courses.

Cash from Financing Activities

For the nine months ended September 30, 2011, cash provided by (used in) financing activities was $(39.2) million compared to $25.5 million for the nine months ended September 30, 2010. For the nine months ended September 30, 2011, cash (used in) financing activities was primarily attributable to a $(20.0) million

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principal prepayment of the Secured Facilities in January 2011 and the $(779.6) million payoff of the Secured Facilities in May 2011, which was primarily funded by $750.0 million of Secured Notes. In addition, the Company recorded a $1.5 million owners’ contribution, which represented the consideration received in excess of net book value from the sale of fixed assets to a related party. For the nine months ended September 30, 2010, cash provided by financing activities was primarily attributable to $12.6 million of borrowings for letters of credit presented and a $12.5 million owners’ contribution.

In 2010, cash provided by (used in) financing activities was $(7.2) million compared to $(112.4) in 2009. The increase was primarily attributable to, in 2010, a $(25.0) million principal payment on the Secured Facilities and $5.4 million of borrowings on the revolving line of credit and, in 2009, the $(112.8) million payoff of the promissory note in the Vistancia Transaction. In addition, in 2010, the owners made a $12.5 million contribution.

In 2009, cash provided by (used in) financing activities was $(112.4) million compared to $173.1 million in 2008. The decrease was primarily attributable to, in 2009, the $(112.8) million payoff of the promissory note in the Vistancia Transaction and, in 2008, $220.0 million of borrowings on the revolving line of credit, partially offset by $(26.7) million of principal payments on the private placement debt and term loans and a $(16.5) million principal payment on a bank financed promissory note.

Notes Payable

At September 30, 2011, December 31, 2010 and December 31, 2009, notes payable were as follows:

	September 30, 2011		December 31, 2010		December 31, 2009
	(In thousands)
Notes payable:
Senior secured notes	$	750,000	$	—	$	—
Senior secured bank credit facility		—		215,650		—
Senior secured term loans		—		458,295		—
Senior secured subordinated notes payable		—		54,106		—
Other secured promissory notes		2,328		1,954		17
Unsecured revolving bank line of credit		—		—		220,000
Unsecured private placement debt		—		—		440,000
Unsecured term loans		—		—		85,000
Total notes payable	$	752,328	$	730,005	$	745,017

On November 16, 2010, SHLP and JFSCI, as borrowers, executed loan modifications and extensions to its unsecured revolving bank line of credit, unsecured private placement debt and unsecured term loans, resulting in the effective exchange of such indebtedness for new senior secured notes payable and senior secured subordinated notes payable (the “Secured Facilities”). The Secured Facilities included the securitization of the notes by the Company’s assets, the release of J.F. Shea Construction, Inc., a related party, as a guarantor, and issuance of $80.0 million of additional principal.

In accordance with ASC 470, the Secured Facilities were accounted for as a debt modification, which required the $80.0 million of additional principal be recorded as interest expense over the term of the notes and the Secured Facilities be recorded net of related discount or premium. The carrying value of the Secured Facilities was unchanged as a result of the modification. Accordingly, the amortization of the discount or premium increased the effective interest rate of our Secured Facilities, and therefore interest incurred, for the nine months ended September 30, 2011.

On May 10, 2011, 8.625% senior secured notes were issued in the aggregate principal amount of $750.0 million (the “Secured Notes”) and the outstanding obligations of the Secured Facilities were paid. Principal and interest paid under the Secured Facilities was $779.6 million and $2.5 million, respectively. In

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connection with payment of the Secured Facilities, all payable-in-kind interest, $5.0 million of principal and certain fees were waived. In addition, of $19.1 million of then outstanding letters of credit, $4.0 million was returned and $15.1 million was paid by the Company, with $14.5 million reimbursed by JFSCI for its share of the letters of credit paid by the Company.

Concurrent with the payoff of the Secured Facilities, an $88.4 million loss on debt extinguishment was recognized for the $65.0 million write-off of the Secured Facilities discount, which increased the Secured Facilities principal to its face value, $779.6 million, and the $23.4 million write-off of prepaid professional and loan fees incurred in connection with the Secured Facilities.

The Secured Notes were issued pursuant to Rule 144A and Regulation S, with registration rights. The Secured Notes bear interest at 8.625% paid semi-annually on May 15 and November 15, and do not require principal payments until they mature on May 15, 2019. At September 30, 2011, there was $25.5 million of accrued interest.

In May 2011, concurrent with issuance of the Secured Notes, through a $75.0 million cash payment and $41.5 million contribution of assets, the receivable from JFSCI was paid down by JFSCI and converted to a $38.9 million term note receivable from JFSCI, bearing 4% interest, payable in equal quarterly installments and maturing May 15, 2019. In June 2011 and August 2011, JFSCI elected to make prepayments, including interest, of $7.7 million and $6.6 million, respectively, and apply these prepayments to future installments such that JFSCI would not be required to make a payment until February 2014.

The indenture governing the Secured Notes contains covenants that limit, among other things, our ability to incur additional indebtedness (including the issuance of certain preferred stock), pay dividends and distributions on our equity interests, repurchase our equity interests, retire unsecured or subordinated notes more than one year prior to their maturity, make investments in subsidiaries and joint ventures that are not restricted subsidiaries that guarantee the notes, sell certain assets, incur liens, merge with or into other companies, expand into unrelated businesses, and enter into certain transactions with our affiliates.

The indenture governing the Secured Notes provides that we and our restricted subsidiaries may not incur or guarantee the payment of any indebtedness (other than certain specified types of permitted indebtedness) unless, immediately after giving effect to such incurrence or guarantee and the application of the proceeds therefrom, the Consolidated Fixed Charge Coverage Ratio (as defined in the indenture governing the Secured Notes) would be at least 2.0 to 1.0. “Consolidated Fixed Charge Coverage Ratio” is defined in the indenture governing the Secured Notes as the ratio of (i) our Consolidated Cash Flow Available for Fixed Charges (as defined in the indenture governing the Secured Notes) for the prior four full fiscal quarters, to (ii) our aggregate Consolidated Interest Expense (as defined in the indenture governing the Secured Notes) for such prior four full fiscal quarters, in each case giving pro forma effect to certain transactions as specified in the indenture governing the Secured Notes. At September 30, 2011, our Consolidated Fixed Charge Coverage Ratio, determined as specified in the indenture governing the Secured Notes, was 0.86.

CONTRACTUAL OBLIGATIONS, COMMERCIAL COMMITMENTS AND OFF-BALANCE SHEET ARRANGEMENTS

Contractual Obligations

Our primary contractual obligations are payments under notes payable, operating leases and purchase obligations. Purchase obligations primarily represent land purchase and option contracts, including specific performance requirements that may require us to purchase land when a land seller meets certain obligations, and purchase obligations for water system connection rights. At September 30, 2011, material changes to contractual obligations since December 31, 2010 included payoff of the Secured Facilities and issuance of $750.0 million of Secured Notes in May 2011.

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At September 30, 2011, future estimated payments under existing contractual obligations, including estimated future cash payments, are as follows:

	Payments due by period
	Total		Less than 1 Year		1 – 3 Years		4 – 5 Years		After 5 Years
	(In thousands)
Contractual obligations:
Long-term debt principal payments	$	752,328	$	1,929	$	399	$	—	$	750,000
Long-term debt interest payments		518,472		65,624		129,411		129,375		194,062
Operating leases		10,859		3,260		3,828		2,062		1,709
Purchase obligations(1)		261,969		69,652		94,541		71,620		26,156
Total contractual obligations	$	1,543,628	$	140,465	$	228,179	$	203,057	$	971,927

(1) Comprised of $222.3 million of land purchase and option contracts, and $39.7 million water system connection rights purchase obligations.

We expect to fund contractual obligations in the ordinary course of business with existing cash resources, cash flows generated from operations and issuance of new debt as market conditions permit.

Land Purchase and Option Contracts

In the ordinary course of business, we enter into land purchase and option contracts to procure land for construction of homes. These contracts typically require a cash deposit and the purchase is often contingent on satisfaction of certain requirements by land sellers, including securing property and development entitlements. We utilize option contracts as a method of acquiring large tracts of land in smaller parcels to better manage financial and market risk of holding land and to reduce use of funds. Option contracts generally require a non-refundable deposit for the right to acquire lots over a specified period of time at a predetermined price. However, the purchase price may not be determinable and payable until the land or lots are sold. In such instances, an estimated purchase price is not included in the total remaining purchase price. At our discretion, we generally have rights to terminate our obligations under purchase and option contracts by forfeiting our cash deposit or repaying amounts drawn under our letter of credit with no further financial responsibility to the land seller. However, purchase contracts can contain specific performance clauses that require us to purchase a specified number of lots at predetermined prices upon satisfaction of certain requirements by the seller and Company.

Use of option contracts is dependent on the willingness of land sellers, availability of capital, housing market conditions and geographic preferences. Options may be more difficult to obtain from land sellers in stronger housing markets and are more prevalent in certain geographic regions.

At September 30, 2011, we had $15.0 million in option contract deposits on land with a total remaining purchase price, excluding land subject to option contracts that do not specify a purchase price, of $222.3 million, compared to $7.9 million and $132.5 million, respectively, at December 31, 2010. At September 30, 2011, $95.7 million of the $222.3 million remaining purchase price on such option contracts was subject to specific performance clauses, consistent with December 31, 2010. These specific performance option contracts were reflected in the applicable community’s future cash flow projections, which serve as the basis for the community’s impairment evaluation. For the three and nine months ended September 30, 2011 and for the year ended December 31, 2010, no impairments were recorded at communities with specific performance option contracts.

At December 31, 2010, we had $7.9 million in option contract deposits on land with a total remaining purchase price, excluding land subject to option contracts that do not specify a purchase price, of $132.5 million, compared to $7.6 million and $151.3 million, respectively, at December 31, 2009. At December 31, 2010,

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$95.7 million of the $132.5 million remaining purchase price on such option contacts was subject to specific performance clauses, compared to $111.0 million of the $151.3 million total remaining purchase price on option contracts at December 31, 2009. These specific performance option contracts were reflected in the applicable community’s future cash flow projections, which serve as the basis for the community’s impairment evaluation. For the years ended December 31, 2010 and 2009, no impairments were recorded at communities with specific performance option contracts.

At December 31, 2009, we had $7.6 million in option contract deposits on land with a total remaining purchase price, excluding land subject to option contracts that do not specify a purchase price, of $151.3 million, compared to $8.8 and $153.3 million, respectively, at December 31, 2008. At December 31, 2009, $111.0 million of the $151.3 million remaining purchase price on such option contracts was subject to specific performance clauses, compared to $111.3 million of the $153.3 million total remaining purchase price on option contracts at December 31, 2008. These specific performance option contracts were reflected in the applicable community’s future cash flow projections, which serve as the basis for the community’s impairment evaluation. For the years ended December 31, 2009 and 2008, no impairments were recorded at communities with specific performance option contracts.

Water System Connection Rights

In certain consolidated homebuilding projects, we have contractual obligations to purchase and receive water system connection rights which, at September 30, 2011, were $39.7 million. These water system connection rights are held and then transferred to homebuyers upon closing of their home or transferred upon the sale of land to the respective buyer. These water system connection rights can also be sold or leased but generally only within the local jurisdiction.

Land Development and Homebuilding Joint Ventures

We enter into land development and homebuilding joint ventures for the following purposes:

• leveraging our capital base;

• managing financial and market risks of holding land;

• establishing strategic alliances;

• accessing lot positions; and

• expanding market share.

These joint ventures typically obtain secured acquisition, development and construction financing, each designed to reduce use of funds. In response to weak homebuilding market conditions, the number of joint ventures in which we participate and their underlying debt have significantly decreased.

At September 30, 2011, total Unconsolidated Joint Ventures’ notes payable were $105.8 million and included $56.9 million of bank and seller financing notes payable secured by real property and $48.9 million of notes payables with joint ventures’ partners, of which $15.4 million was secured by real property. At December 31, 2010, total Unconsolidated Joint Ventures’ notes payable were $126.3 million and included $77.4 million of bank and seller financing notes payable secured by real property and $48.9 million of notes payable to joint ventures’ partners, of which $15.4 million was secured by real property. In addition, at September 30, 2011 and December 31, 2010, we had an indirect 12.3% effective ownership in a joint venture that had bank notes payable secured by real property of $7.2 million, in which we have not provided guarantees.

At September 30, 2011 and December 31, 2010, of the $56.9 million and $77.4 million in our Unconsolidated Joint Ventures’ outstanding bank and seller financing secured notes payable, respectively, we provided guarantees on a joint and several basis for one secured note payable which had an outstanding balance

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of $11.6 million and $19.5 million at September 30, 2011 and December 31, 2010, respectively. These guarantees include, but are not limited to, project completion and loan-to-value maintenance guarantees. In addition, we have an indemnification agreement from our joint venture partner for 90% of this secured note payable’s outstanding balance of $11.6 million and $19.5 million, respectively. No liabilities were recorded for these guarantees as the fair value of secured real estate assets exceeded the outstanding notes payable. We have not provided guarantees on bank and seller financing secured notes payable of $45.3 million and $57.9 million, respectively, or on notes payable to joint ventures’ partners of $48.9 million and $48.9 million, respectively.

Despite recent reductions in the size of our joint venture portfolio, we may be required to use our funds for obligations of these joint ventures, such as:

• loans (including to replace expiring loans, to satisfy loan re-margin and land development and construction completion obligations or to satisfy environmental indemnity obligations);

• development and construction costs;

• indemnity obligations to surety providers;

• land purchase obligations; and

• dissolutions (including satisfaction of joint venture indebtedness through repayment or the assumption of such indebtedness, payments to our partners in connection with the dissolution, and the remaining costs to complete).

Guarantees, Surety Obligations and Other Contingencies

At December 31, 2009, in addition to guarantees on our joint ventures’ outstanding borrowings, we guaranteed, on a joint and several basis, certain secured development loans of related parties in which we had no ownership interest. The guarantees were partial or contingent guarantees that included, but not limited to, project completion guarantees and loan-to-value maintenance guarantees. At December 31, 2009, these loans had a $62.5 million aggregate outstanding principal balance and no liability was recorded for these guarantees. At June 30, 2010, the majority of these loans were modified and we were released as a guarantor. At September 30, 2011 and December 31, 2010, the remaining unconditional loan-to-value maintenance guarantee issued, on a joint and several basis, was for a secured development loan for Shea/Baker Ranch Associates, LLC, a related party in which we have no ownership interest. At September 30, 2011 and December 31, 2010, the loan had a $25.4 million outstanding principal balance. A liability was not recorded for this guarantee as the fair value of the secured real estate assets exceeded the outstanding notes payable.

Joint and several non-recourse (“bad boy”) guarantees were issued for secured permanent financing loans of related parties in which we have no ownership interest. The bad boy guarantee may become a liability for us upon a voluntary bankruptcy filing by the related party borrower or the occurrence of other “bad” acts, including fraud or a material misrepresentation by the related party borrower. At December 31, 2009, these loans had a $183.3 million outstanding principal balance. In June 2010, we were released as a guarantor from two of these loans. At September 30, 2011 and December 31, 2010, the remaining three loans had a $46.4 million and $47.3 million outstanding principal balance, respectively. These loans have maturity dates between December 2011 and September 2012. A liability was not recorded for these guarantees as the probability of payment on these guarantees is remote.

At December 31, 2010, we had an $83.0 million letter of credit facility, which was reduced by $18.5 million of outstanding letters of credit issued by JFSCI. On May 10, 2011, concurrent with issuance of the Secured Notes and payoff of the Secured Facilities, this facility was canceled and we entered into a new $75.0 million letter of credit facility. At September 30, 2011, outstanding letters of credit against the new letter of credit facility was $4.5 million.

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We are required to provide surety bonds that guarantee completion of certain infrastructure that serves our homebuilding projects. At September 30, 2011, we had a $70.8 million exposure in connection with $179.2 million of surety bonds issued for our projects. At December 31, 2010, we had a $77.5 million exposure in connection with $180.7 million of surety bonds issued for our projects. At December 31, 2009, we had a $110.4 million exposure in connection with $264.4 million of surety bonds issued for our projects.

We also provided indemnification for bonds issued by Unconsolidated Joint Ventures and other related party projects in which we have no ownership interest. At September 30, 2011, we had a $29.3 million exposure in connection with $69.0 million of surety bonds issued for Unconsolidated Joint Venture projects, and a $3.7 million exposure in connection with $7.7 million of surety bonds issued for related party projects. At December 31, 2010, we had a $44.6 million exposure in connection with $80.2 million of surety bonds issued for Unconsolidated Joint Venture projects, and a $9.4 million exposure in connection with $14.1 million of surety bonds issued for related party projects. At December 31, 2009, we had a $53.2 million exposure in connection with $104.7 million of surety bonds issued for Unconsolidated Joint Venture projects, and a $14.0 million exposure in connection with $23.6 million of surety bonds issued for related party projects.

Certain of our consolidated and joint ventures’ homebuilding projects utilize and may continue to utilize community facility district, metro-district and other local government bond financing programs to fund construction or acquisition of infrastructure improvements. Interest and principal on these bonds are typically paid from taxes and assessments levied on homeowners following the sale of new homes within the project. From time to time we enter into credit support arrangements where we are required to make interest and principal payments on these bonds if the taxes and assessments levied on homeowners are insufficient to cover such obligations. Furthermore, reimbursement of these payments to us is dependent on the district or local government’s ability to generate sufficient tax and assessment revenues from the sale of new homes.

CRITICAL ACCOUNTING POLICIES

The preparation of condensed consolidated financial statements requires us to make estimates and judgments that affect reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates and judgments, including those that impact our most critical accounting policies. We base our estimates and judgments on historical experience and various other assumptions believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. We believe accounting policies related to the following accounts or activities are those most critical to the portrayal of our financial condition and results of operations and require the most significant judgments and estimates.

Inventory

Inventories are stated at cost, unless the carrying amount is determined not to be recoverable, in which case inventories are written down to fair value. Quarterly, we review our real estate assets at each community for indicators of impairment. Our real estate assets include projects actively selling and projects under development or held for future development. Indicators of impairment include, but are not limited to, significant decreases in local housing market values and selling prices of comparable homes, significant decreases in gross margins and sales absorption rates, costs in excess of budget, and actual or projected cash flow losses.

Quarterly, we perform a detailed budget and cash flow review of our real estate assets to determine whether the estimated remaining undiscounted future cash flows of the project are more or less than the asset’s carrying value. If the undiscounted cash flows are more than the asset’s carrying value, no impairment adjustment is required. However, if the undiscounted cash flows are less than the asset’s carrying value, the asset is deemed impaired and is written down to its fair value. These impairment evaluations require us to make estimates and assumptions regarding future conditions, including timing and amounts of development costs and sales prices of real estate assets, to determine whether expected future undiscounted cash flows will be sufficient to recover the asset’s carrying value.

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When estimating undiscounted cash flows of a community, we make various assumptions, including: (i) expected sales prices and sales incentives to be offered, including the number of homes available, pricing and incentives being offered by us or builders in other communities, and future sales price adjustments based on market and economic trends; (ii) expected sales pace and cancellation rates based on local housing market conditions, competition and historical trends; (iii) costs expended to date and expected to be incurred, including, but not limited to, land and land development costs, home construction costs, interest costs, indirect construction and overhead costs, and selling and marketing costs; (iv) alternative product offerings that may be offered that could have an impact on sales pace, sales price and/or building costs; and (v) alternative uses for the property.

Many assumptions are interdependent and a change in one may require a corresponding change to other assumptions. For example, increasing or decreasing sales absorption rates has a direct impact on the estimated per unit sales price of a home, the level of time sensitive costs (such as indirect construction, overhead and carrying costs), and selling and marketing costs (such as model maintenance costs and advertising costs). Depending on the underlying objective of the community, assumptions could have a significant impact on the projected cash flow analysis. For example, if our objective is to preserve operating margins, our cash flow analysis will be different than if the objective is to increase sales. These objectives may vary significantly from community to community and over time.

If assets are considered impaired, impairment is determined by the amount the asset’s carrying value exceeds its fair value. Fair value is determined based on estimated future cash flows discounted for inherent risks associated with real estate assets or other valuation techniques. These discounted cash flows are impacted by expected risk based on estimated land development, construction and delivery timelines; market risk of price erosion; uncertainty of development or construction cost increases; and other risks specific to the asset or market conditions where the asset is located when assessment is made. These factors are specific to each community and may vary among communities. The discount rate used in determining each asset’s fair value depends on the community’s projected life and development stage. We generally use discount rates ranging from 10% to 25%, subject to perceived risks associated with the community’s cash flow streams relative to its inventory.

Completed Operations Claim Costs

We maintain, and require our subcontractors to maintain, general liability insurance which includes coverage for completed operations losses and damages. Most of our subcontractors carry this insurance through our “rolling wrap-up” insurance program, where our risks and risks of participating subcontractors working on our projects are insured through a set of master policies.

We record expenses and liabilities related to the estimated costs of completed operations claims when received in the ordinary course of business. We also record expenses and liabilities for estimated costs of potential completed operations claims based upon aggregated loss experience, which includes an estimate of completed operations claims incurred but not reported and is actuarially estimated using individual case-basis valuations and statistical analysis. These estimates make up our entire reserve and are subject to a high degree of variability due to uncertainties such as trends in completed operations claims related to our markets and products built, changes in claims reporting and settlement patterns, third party recoveries, insurance industry practices, insurance regulations and legal precedent. Because state regulations vary, completed operations claims are reported and resolved over an extended period, sometimes exceeding twelve years. As a result, actual costs may differ significantly from estimates.

Completed operations claims reserves primarily represent claims for property damage to completed homes and projects outside of our one-to-two year warranty period. Specific terms and conditions of completed operations warranties vary depending on the market in which homes are closed.

The actuarial analyses that determined these incurred but not reported claims consider various factors, including frequency and severity of losses, which are based on our historical claims experience supplemented by

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industry data. The actuarial analyses of these claims and reserves also consider historical third party recovery rates and claims management expenses. Due to the inherent uncertainty related to each of these factors, periodic changes to such factors based on updated relevant information could result in actual costs to differ significantly from estimated costs.

In accordance with our underlying completed operations insurance policies, these completed operations claims costs are recoverable from our subcontractors or insurance carriers. Effective December 2009, completed operations claims through July 31, 2009 are insured with third-party insurance carriers and, effective February 2011, completed operations claims commencing August 1, 2009 are insured with an affiliate insurance carrier.

Revenues

Revenues from housing and other real estate sales are recognized in accordance with Accounting Standards Codification (“ASC”) 360 when the respective units are closed. Housing and other real estate sales are closed when all conditions of escrow are met, including delivery of the home or other real estate asset, title passage, appropriate consideration is received and collection of associated receivables, if any, is reasonably assured. Sales incentives are a reduction of revenues when the respective unit is closed.

Income Taxes

SHLP is treated as a partnership for income tax purposes. As a limited partnership, we are is subject to certain minimal state taxes and fees; however, taxes on income or losses realized by us are generally the obligation of the Partners and their owners.

SHI and PIC are C corporations. Federal and state income taxes are provided for these entities in accordance with the provisions of ASC 740. The provision for, or benefit from, income taxes is calculated using the asset and liability method, under which deferred tax assets and liabilities are recorded based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which differences are expected to reverse. Deferred tax assets are evaluated to determine whether a valuation allowance should be established based on its determination of whether it is more likely than not some or all of the deferred tax asset will not be realized. The ultimate realization of deferred tax assets depends primarily on generation of future taxable income during the periods in which those temporary differences become deductible. Judgment is required in determining future tax consequences of events that have been recognized in the consolidated financial statements and/or tax returns. Differences between anticipated and actual outcomes of these future tax consequences could have a material impact on the consolidated financial position or results of operations.

RECENT ACCOUNTING PRONOUNCEMENTS

In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, (“ASU 2011-04”). ASU 2011-04 amends ASC 820, Fair Value Measurements (“ASC 820”), providing a consistent definition and measurement of fair value, as well as similar disclosure requirements between U.S. GAAP and International Financial Reporting Standards. ASU 2011-04 changes certain fair value measurement principles, clarifies the application of existing fair value measurement and expands the ASC 820 disclosure requirements, particularly for Level 3 fair value measurements. ASU 2011-04 will be effective for the Company’s fiscal year beginning January 1, 2012. The Company is currently evaluating the potential impact of adopting this guidance on its consolidated financial statements.

In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income (“ASU 2011-05”). ASU 2011-05 requires the presentation of comprehensive income in either (1) a continuous statement of comprehensive income or (2) two separate but consecutive statements. ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of changes in equity.

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ASU 2011-05 will be effective for the Company’s fiscal year beginning January 1, 2012. The Company believes the adoption of ASU 2011-05 concerns disclosure and presentation only and will not have a material impact on its consolidated financial position or results of operations.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk primarily from interest rate fluctuations. We have historically incurred both fixed-rate and variable-rate debt. For fixed-rate debt, changes in interest rates generally affect the fair market value of the debt instrument, but not our earnings or cash flow. Conversely, for variable-rate debt, changes in interest rates generally do not affect the fair market value of the debt but do affect our earnings and cash flow. We do not have an obligation to prepay fixed-rate debt prior to maturity and, as a result, interest rate risk and changes in fair market value should not have a significant impact on such debt until we refinance.

On May 10, 2011, existing Secured Facilities were paid off from $750.0 million of Secured Notes that bear interest at a fixed rate of 8.625%. No principal payments are due until maturity on May 15, 2019. We currently have no other material indebtedness outstanding.

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BUSINESS

Overview

We are one of the largest private homebuilders in the United States. We design, build and market single-family detached and attached homes across various geographic markets in California, Arizona, Colorado, Washington, Nevada and Florida. We serve a broad customer base including entry, move-up, luxury and active adult home buyers. We have been recognized by industry professionals and our homebuyers for quality, customer service and craftsmanship, as evidenced by receipt of some of the homebuilding industry’s most prominent awards, including being named as “Builder of the Year” in 2007 by Professional Builder magazine and one of “America’s Best Builders” in 2005 by the National Association of Homebuilders and Builder magazine. In February 2011, Shea Homes was honored as one of 40 brands in the country to be named a J.D. Power “Customer Service Champion” and is the only homebuilder to receive this honor.

Our operating results are aggregated into three reportable segments:

• California South, comprised of the results of our communities in Los Angeles, Ventura, Orange County, Inland Empire and San Diego;

• California North, comprised of the results of our communities in northern and central California; and

• Mountain West/Other, comprised of the results of our communities in Arizona, Colorado, Washington, Nevada and Florida.

Our communities are grouped into these segments based on similar economic and other characteristics, including product types, production processes, suppliers, subcontractors, jurisdictional and political environments, land availability and values, and underlying demand and supply.

Since its founding in 1881 in Portland, Oregon, the Shea family of companies has grown but remained privately held by the Shea family. The Shea family began building homes in 1968 through JFSCI, and in 1989, homebuilding under the Shea Homes brand was moved to the newly-formed SHLP, an entity under the broader umbrella of JFSCI. In all, the Shea Homes brand has enjoyed a 40-plus year legacy of consistent family management and support.

We operate under three brands that reflect our value proposition: homes designed to meet the needs of our customers, with standard energy-efficient features, built in an environmentally-responsible manner.

• Shea Homes, our flagship brand, targets first-time and move-up buyers. Each segment builds and markets homes under the Shea Homes brand;

• Trilogy, master-planned communities designed and built to meet the needs and active lifestyles of “baby boomer” generation. These communities combine quality homes with diverse resort-like amenities in each segment; and

• SPACES, our newest brand, targets 25-40 year-old buyers in each segment with contemporary, practical homes that have flexible floor plans and stylish, energy-efficient features at an affordable price. We have opened SPACES communities in all of our segments.

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History

In 1881, John F. Shea established a small plumbing business in Portland, Oregon. From those modest beginnings, the fourth generation of the Shea family is now leading Shea Homes.

Since its formation over 40 years ago, Shea Homes has expanded significantly through acquisitions, developments and joint ventures to become one of the most well-regarded homebuilders in the markets in which it competes:

1968: Residential homebuilding operations began in southern California;

1970: Residential homebuilding operations began in northern California;

1985: Residential homebuilding operations began in San Diego;

1989: Acquired Knoell Homes and residential homebuilding operations began in Arizona;

1996: Residential homebuilding operations began in Denver and a portfolio of assets in southern and northern California was acquired from Chevron Land;

1997: Purchased Mission Viejo Company and its land holdings in southern California and Colorado from Philip Morris;

1998: Purchased UDC Homes, Inc. and launched the Trilogy brand;

2001: Residential homebuilding operations began in Washington state;

2006: Acquired homebuilding land, commercial land and income properties that comprised the Denver Tech Center;

2007: Residential homebuilding operations began in Florida;

2009: Launched the SPACES brand; and

2010: Residential homebuilding operations began in Nevada.

Nearly 100% of SHLP is beneficially owned by the Shea family through direct ownership and through the family’s ownership of various Shea entities. The Shea family ownership interests are shared by 20 families, consisting of the families of each of John F. Shea, Mary Shea and Peter O. Shea and the families of their children. See “Security Ownership of Certain Beneficial Owners and Management.”

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Markets and Products

For the nine months ended September 30, 2011, we operated an average of 78 consolidated active selling communities in California, Arizona, Colorado, Washington, Nevada and Florida. When determining markets to enter, we evaluate various factors, including local economic and real estate conditions, historical and projected population and job growth trends, number of housing starts, building lot availability and price, housing inventory, climate, customer profile, regional raw material costs, competitive environment and home sales rates.

Within each community, we utilize a product mix depending on market conditions and opportunities. In determining product mix in each community, we consider demographic trends, demand for a particular type of product, margins, timing and economic strength of the market. While remaining responsive to market opportunities, we have focused, and intend to continue to focus, our core homebuilding business primarily on first-time and move-up buyers offering single-family detached and attached homes.

We offer extensive design options that, in conjunction with our sophisticated building systems, allow us to produce homes with features that customers desire while maintaining efficient construction cycle times. We strive to maximize vendor standardization across our product lines by using national accounts for appliances (Whirlpool) and plumbing fixtures (Delta). In addition, our in-house and outside architectural teams seek to create innovative designs that can be efficiently produced across our multiple product lines.

Brands

We build homes under three brands: Shea Homes, Trilogy and SPACES.

Shea Homes, with its “Caring Since 1881” tag line, referencing the Shea family legacy in the construction business, is our namesake brand. Shea Homes branded homes are stylishly designed and include energy-efficient features intended to meet the needs of customers across multiple market segments. We believe our unique floor plans and elevations, combined with attractive features and amenities, differentiate Shea Homes branded homes from our competitors’ homes. Under this brand, we have built new homes and developed master-planned communities for thousands of families. We built active adult homes under both our Shea Homes and Trilogy brands.

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Trilogy master-planned communities are designed and built to meet the needs and active lifestyles of the “baby boomer” generation. Trilogy communities are resort-oriented, offering a new choice in living to those looking for a lifestyle revolving around wellness, continued learning and a sense of community. Trilogy’s architectural product design and amenities reflect changing needs of its residents, including business services, high-end clubs and a diverse range of recreational choices.

SPACES, our newest brand, offers homes designed to appeal to 25-40 year-old buyers, which we believe will be a strong market segment as the housing market recovers. SPACES homes are designed to meet priorities set by their target customers: contemporary homes with flexible floor plans, stylish features and efficient and resource-saving fixtures and equipment at an affordable price. SPACES homes include energy-saving materials and construction that reduce the energy required to heat and cool home interiors. SPACES homes’ construction documents and plans are drawn by our in-house architectural team, allowing us to maintain design and specification consistency and leverage suppliers across segments to lower construction costs.

Land Acquisition and Development

We have a disciplined and structured land acquisition process. Each acquisition must be approved by our land committee, which is composed of members of senior management and directors. The committee reviews potential new projects and option deposit funds are placed at risk only if the committee votes in favor of purchasing the land. As part of this process, the committee reviews due diligence information provided by our land acquisition teams, typically including market, environmental and site planning studies of undeveloped properties and an overall risk and financial analysis. We believe our current land supply will support operations in our Colorado market over a three to four year period. All of our remaining markets (with the exception of our small Washington and Florida markets) are expected to acquire inventory to meet expected demand.

We typically purchase land only after substantially all of the necessary governmental development approvals or entitlements have been obtained so that development or construction may begin as and when market conditions dictate. The term “entitlements” refers to the right, for the duration of the term of the entitlements, to develop a specific number of residential lots without the need for further public hearings or discretionary local government approvals. Entitlements generally give the developer the right to obtain building permits upon compliance with conditions that are ordinarily within the developer’s control. Although entitlements are usually obtained before we purchase land, we are still required to secure a variety of other governmental approvals and obtain permits prior to and during development and construction. The process of obtaining such approvals and permits can be costly and can substantially delay the development cycle.

We acquire land through purchases and option contracts. Deposits made in connection with entering into option contracts are generally refundable until the necessary entitlements and zoning, including plan approval and in some cases engineering plan approval, is obtained, at which point they become non-refundable. Purchases are generally financed through our cash flow from operations. Option contracts allow us to control lots and land without incurring the risks of land ownership or financial commitments other than, in some circumstances, a non-refundable deposit. We also enter into option contracts with third parties, including our affiliates, to purchase finished lots before home construction begins. These option contracts may require a certain number of purchases per quarter. We have the right to decline to exercise future purchases and to cancel our future rights to lots, forfeiting only the deposits held by the sellers at that time, with exception of our project known as Trilogy Central Coast. At September 30, 2011, our total remaining obligation to purchase land at Trilogy Central Coast is $95.7 million to be paid in the next 5 years.

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At September 30, 2011, December 31, 2010 and December 31, 2009, total lots owned or controlled were as follows:

	September 30, 2011		December 31, 2010		% Change from December 31, 2010			December 31, 2009		% Change from December 31, 2009
Lots owned or controlled by segment:
California South		2,244		2,281		(2	)%		2,322		(3	)%
California North		4,337		3,443		26			3,746		16
Mountain West/Other		11,708		10,836		8			11,014		6
Total consolidated		18,289		16,560		10			17,082		7
Unconsolidated Joint Ventures		6,076		7,867		(23	)		7,191		(16	)
Total lots owned or controlled		24,365		24,427		0	%		24,273		0	%
Lots owned or controlled by ownership type:
Lots owned		10,141		9,260		10	%		10,358		(2	)%
Lots optioned or subject to contract		8,148		7,300		12			6,724		21
Joint venture lots		6,076		7,867		(23	)		7,191		(16	)
Total lots owned or controlled		24,365		24,427		0	%		24,273		0	%

Once we acquire undeveloped land, we generally begin development through contractual agreements with consultants and our TradePartners^®. These activities include site planning and engineering and constructing roads, sewer, water, utility and drainage systems and, in certain instances, recreational amenities. For additional information regarding our land position, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Selected Homebuilding Operational Data—Land and Homes in Inventory.”

Joint Ventures

Unconsolidated Joint Ventures

We operate unconsolidated homebuilding and land development joint ventures (“Unconsolidated Joint Ventures”) with independent and affiliated parties in which we do not have a controlling interest. These joint ventures allow us to acquire attractive land positions, expand market opportunities, manage our risk profile and leverage our capital base. Most Unconsolidated Joint Ventures are with financial partners, where we have a 5-15% ownership interest and receives promoted returns, which returns increase our share of profits beyond our ownership interest. In addition, we collect fees as reimbursement of our costs to manage the venture and its properties.

In recent years, we significantly reduced our exposure in certain Unconsolidated Joint Ventures. In April 2011, through our Consolidated Joint Venture, Shea Colorado, LLC we entered into transactions with the joint venture partner of two Unconsolidated Joint Ventures in Colorado, in which we own a 50% ownership interest in each, SB Meridian Villages, LLC (SBMV) and TCD Bradbury LLC (TCDB). First, we assigned our membership interest in SBMV to the joint venture partner for $4.5 million, which resulted in a $0.5 million gain. Second, we contributed $11.5 million cash to TCDB and received $15.4 million of land and a $0.6 million secured promissory note payable, and the joint venture partner received $12.2 million and $6.5 million of land and cash, respectively. TCDB then paid off a bank note payable that was secured by the land distributed to the TCDB partners. In May 2008, we restructured three joint ventures we owned with CalPERS where CalPERS purchased our entire interest in two joint ventures, Shea Capital I, LLC and Shea Mountain House, LLC, and we purchased CalPERS’ entire interest in the third joint venture, Shea Capital II, LLC, resulting in a $167.6 million loss.

In addition, for the years ended December 31, 2010, 2009 and 2008, we wrote down our investment in Unconsolidated Joint Ventures by $1.3 million, $30.5 million and $35.1 million, respectively, a result of

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inventory impairments incurred by these joint ventures. For the nine months ended September 30, 2011, there were no impairments on our investments in Unconsolidated Joint Ventures. For the nine months ended September 30, 2010, we wrote down our investment in Unconsolidated Joint Ventures by $1.3 million, a result of inventory impairments incurred by these joint ventures.

Our Unconsolidated Joint Ventures obtain secured acquisition, development and construction financing primarily from third party lenders. At September 30, 2011, debt to these lenders was $56.9 million, of which SHLP issued loan-to-value maintenance, project completion and environmental hazard liability guarantees on $11.6 million. In addition, SHLP and SHI issued $71.8 million of loan-to-value maintenance and/or non-recourse exception guarantees (pursuant to which SHLP and SHI may be liable if the respective borrower engages in certain prohibited acts) for joint ventures owned by other Shea Family Owned Companies in which SHLP and SHI have no ownership interest. If these guarantees are triggered, SHLP and SHI could become liable for payment of this debt.

At September 30, 2011, the book value of our investment in Unconsolidated Joint Ventures was $29.4 million, which includes $0.5 million of liabilities in excess of its investment in certain joint ventures.

Consolidated Joint Ventures

We consolidate joint ventures when we have a controlling ownership interest or, absent a controlling interest, can substantially influence its business (“Consolidated Joint Ventures”). At September 30, 2011, we conducted business primarily in two Consolidated Joint Ventures, Vistancia, LLC (83.3% ownership) and Shea Colorado, LLC (58% ownership).

In August 2009, our Consolidated Joint Venture, Vistancia, LLC, entered into the Vistancia Transaction, where Vistancia, LLC contributed substantially all its land to four single member LLCs and sold 90% of its interest in these LLCs to an unrelated third party for $67.5 million, resulting in a $195.7 million pre-tax loss, of which $32.1 million was attributable to non-controlling interests. As a result of the Vistancia Transaction, assets of Vistancia, LLC are comprised of a 10% investment in these single member LLCs and the homebuilding activities of its wholly-owned subsidiaries, Vistancia Construction, LLC and Vistancia Marketing, LLC.

Shea Colorado, LLC is a joint venture with Shea Properties II, LLC, a Shea affiliate, whose assets consist primarily of real estate, 50% ownership interests in Unconsolidated Joint Ventures and notes receivables from these Unconsolidated Joint Ventures.

We have also recorded impairments on the real estate assets in Consolidated Joint Ventures. For the years ended December 31, 2010 and 2008, these impairments were $4.6 million and $61.8 million, respectively, of which $1.9 million and $17.9 million, respectively, were attributable to non-controlling interests. For the year ended December 31, 2009, there were no impairments on the real estate assets in Consolidated Joint Ventures. In addition, for the year ended December 31, 2010, we recorded a $6.5 million charge for the non-realization of a non-controlling interest’s deficit capital balance. For the nine months ended September 30, 2011 and 2010, there were no impairments on the real estate assets in Consolidated Joint Ventures.

Marketing and Sales

We believe we have established a valuable brand, which has a reputation for high quality construction, innovative design and strong customer service. We believe our reputation helps generate interest in each new project we undertake. We have positioned ourselves as the “homebuilder who cares” and believe our approach drives customer satisfaction, increases referrals and improves brand recognition.

We utilize a variety of marketing platforms, including website, internet and mobile applications, customer information centers, advertisements, newspapers, magazines and brochures, direct mail, billboards and fully decorated model units. We focus on being at the forefront of technological advances in products and how we

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communicate information to the marketplace. We have success with Facebook, Twitter and blogs, and in November 2009, we became the first national builder to launch an application for Apple’s iPhone and iPod Touch devices. We also maintain a state-of-the-art website that allows potential customers to insert their existing furniture into our floor plans, and benefit from an exclusive industry non-compete agreement with our website design firm.

Model homes play an important role in our marketing. Consequently, we focus on creating an attractive atmosphere at each model home. We use local third-party design specialists for interior decorations, which vary within models based upon characteristics of targeted homebuyers. At September 30, 2011, we owned 208 model homes throughout our communities. In addition, we have home design service centers which offer a wide range of customization options to satisfy individual customer tastes.

To sell homes, we employ commissioned sales agents who are licensed real estate agents where required by law. We also utilize independent brokers and, for their services, pay a market-based commission based on the price of the home.

Customer purchase deposit requirements vary amongst markets based on customs and practices and are influenced by the financing program utilized by the consumer. Total base purchase price deposits range from $500 to more than $70,000 and can represent less than 1% to more than 24% of the house purchase price (excluding options). Additional purchase deposits are required for options and upgrades and can be as high as 65% of the option price. Generally, higher deposit percentages are required for large option orders. For example, a customer may be required to make a 20% deposit for standard options but would be required to deposit as much as 100% of the purchase price for unusual or significant levels of options. Most sales contracts stipulate (in accordance with applicable laws) when customers cancel their contracts following the satisfaction of all contingencies, we have the right to retain their earnest money and option deposits; however, we may elect to refund certain deposits based on special circumstances. Our sales contracts also include a financing contingency which permits customers to cancel and receive a refund of their deposits if they cannot obtain mortgage financing at prevailing or specified interest rates within a specified period. Our contracts may include other contingencies, such as the sale of an existing home. Our cancellation rate as a percentage of home sales orders averaged approximately 21% from 1997-2006 before the downturn in the homebuilding industry. Though this rate increased to a high of 31% in 2008, it returned to 20% in 2009. In 2010, our cancellation rate was 19%. For the nine months ended September 30, 2011, our cancellation rate was 21%.

To reduce the risk of unsold inventory, we have formalized our approval process of home construction starts. Generally, customers must have approved financing, no contingencies tied to sale of an existing home, and an appropriate deposit before a construction of a home begins. Depending on market conditions in each community, we may begin construction on a limited number of homes when no signed sales contract exists to have inventory available for buyers who immediately need a home. In addition, we use various sales incentives, such as payment of certain homebuyer costs to entice new home sales. Use of incentives and speculative construction is dependent on local economic and competitive market conditions.

Backlog

Sales order backlog represents homes sold and under contract to be built, but not closed. We recognize revenue on homes under sales contracts when the sale has closed. Home sales are closed when all conditions of escrow are met, including delivery of the home, title passage, and appropriate consideration is received and collection of associated receivables, if any, is reasonable assured. At September 30, 2011, we had a backlog of 682 units with a sales value of $295.1 million.

Seasonality

Historically, the homebuilding industry experiences seasonal fluctuations. We typically experience the highest new home sales orders activity in spring and summer, although this activity is also highly dependent on

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the number of active selling communities, timing of new community openings and other market factors. Since it typically takes three to eight months to construct a new home, we deliver more homes in the second half of the year as spring and summer home sales orders convert to home deliveries. Because of this seasonality, home starts, construction costs and related cash outflows have historically been highest from April to October, and the majority of cash receipts from home closings occur during the second half of the year.

Further, in contrast to this historical seasonal pattern, weakness in homebuilding market conditions during the last five years has distorted our results. Also, in 2010, expiration of the federal homebuyer tax credit impacted the timing of our construction activities and home sales order and closing volumes. Although we may experience our seasonal pattern in the future, given current market conditions, we make no assurances as to when or whether this pattern will recur.

Consumer Financial Services

We provide certain financial services to our homebuyers through:

• Shea Insurance Services, Inc., an entity 100% owned by SHI that provides insurance brokerage services; and

• Shea Financial Services, Inc., an entity 100% owned by SHI that provides management services to Shea Mortgage, Inc. (a related company).

Construction

As the general contractor for our communities, we employ subcontractors that meet our requirements for becoming what we refer to as our TradePartners^®. These requirements include quality and workplace safety standards and participation in training programs. We typically hire TradePartners^® on a community-by-community basis to complete construction at a fixed price. Occasionally, we enter into longer-term contracts or national account agreements (exclusive or non-exclusive) with suppliers or manufacturers if we can obtain more favorable terms or receive rebates based upon product usage. Our construction managers and field superintendents coordinate and schedule the activities of TradePartners^® and suppliers and subject their work to quality and cost controls.

We do not maintain significant inventories of construction materials, except for work-in-process materials for homes under construction. When possible, we negotiate price and volume discounts with manufacturers and suppliers to take advantage of production volume and regional purchasing capabilities, including with such parties as Delta, for plumbing fixtures, and Whirlpool, for appliances. Prices for these goods and services may fluctuate due to various factors, including supply and demand shortages that may be beyond the control of our vendors.

Quality Control and Warranty Programs

We view positive customer relations and adherence to stringent quality control standards as fundamental to our continued success. We believe our quality assurance programs help improve production efficiency, reduce warranty costs and increase customer satisfaction and referrals. Our commitment to product quality includes a comprehensive checkpoint evaluation at key points in the construction process, continuous improvement based on a direct feedback loop with our TradePartners^®, and our participation in TradePartners^® councils to discuss industry practices, solve problems and distribute information in an effort to build better homes.

We offer our customers a one-or two-year limited warranty for our homes and typically provide ongoing customer service support for up to twelve years. The specific terms and conditions of these warranties vary depending on the market in which a home is sold. Additionally, post-closing, we proactively provide one-, five-and eleven-month customer care home visits. On-site customer care personnel coordinate with TradePartners^® to service the homes.

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We record a reserve of approximately 1.0% to 2.0% of the home sales price to cover warranty and customer service expenses, although this allowance is subject to adjustment in special circumstances. Our historical experience is warranty and customer service expenses generally fall within the amount of this allowance. We believe our reserves are adequate to cover the ultimate resolution of potential liabilities associated with known and anticipated warranty and customer service related claims and litigation.

Insurance Coverage

We obtain workers compensation insurance, commercial general liability insurance, and certain insurance for completed operations losses and damages with respect to our homebuilding operations from unrelated third-party insurance providers. Policies covering these items are written at various coverage levels but include a self-insured retention or deductible ranging from $0.5 million to $25.0 million. We also have retention liability insurance from affiliated entities to insure these retentions or deductibility. See “Certain Relationships and Related Party Transactions—Supplemental Insurance Coverage and PIC Transaction.”

We require TradePartners^® be insured for workers compensation, commercial general liability and completed operations losses and damages, and most of our TradePartners^® carry this insurance through our “rolling wrap-up” insurance program, whereby our risk and risks of participating TradePartners^® on our projects are insured through a set of master policies.

Competition and Market Factors

Development and sale of residential properties is highly competitive and fragmented. We compete for sales on the basis of a number of interrelated factors, including location, reputation, amenities, design, quality and price, with a number of large and small homebuilders, including some homebuilders with nationwide operations. We also compete for sales with resales of existing homes and against available rental housing. We believe we compare favorably to other builders in the markets we operate, as evidenced by our market share.

The demand for new housing is affected by consumer confidence and prevailing economic conditions, including employment, interest rates and state and federal home ownership legislative policies. Other factors affect the housing industry and demand for new homes, including availability of labor and materials and increases in costs thereof, changes in costs of home ownership, such as property taxes and energy costs, changes in consumer preferences, demographic trends and availability of and changes in mortgage financing programs.

Government Regulation and Environmental Matters

The homebuilding industry is subject to extensive and complex regulations. We and our subcontractors must comply with various federal, state and local laws and regulations, including zoning, density and development requirements, building, environmental, advertising and real estate sales rules and regulations. These requirements affect the development process, building materials and building designs of our properties. Moreover, we are dependent on state and local authorities to obtain building permits and other approvals to complete our development projects. The time to obtain these permits and other approvals affects the carrying costs of unimproved property acquired for the purpose of development and construction, and the continued effectiveness of granted permits is subject to changes in policies, rules and regulations, and their interpretation and application. Though government agencies have imposed fees to defray some costs of certain government services relating to land development and home building, government approval and fee structures have not had a material adverse effect on our development activities. However, in the future, there is no assurance these requirements and fees will not have a material adverse effect on us.

In addition, some state and local governments in our markets have approved, and others may approve, slow-growth or no-growth initiatives that could adversely impact land availability and building opportunities. Substantially all of our land is entitled and, therefore, the moratoriums generally would only adversely affect us

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if they arose from health, safety and welfare issues such as insufficient water or sewage facilities. Nevertheless, approval of these initiatives could adversely affect our ability to build and sell homes in the affected markets or could require satisfaction of additional administrative and regulatory requirements, which could delay or increase the costs of our homebuilding operations.

Our homebuilding operations are also subject various local, state and federal statutes, ordinances, rules and regulations concerning land use and protection of health, safety and the environment. The particular impact and requirements of environmental laws for each site vary greatly according to location, environmental condition and the present and former uses of the site and adjoining properties. Complying with such laws may result in delays, cause us to incur substantial compliance and other costs or prohibit or severely restrict development in certain environmentally sensitive regions or areas. To date, such compliance has not had a material adverse effect on our operations, although in the future it may have such an effect.

We typically conduct limited environmental due diligence reviews prior to the acquisition of undeveloped properties. With respect to finished lots we acquire from other developers, we generally do not conduct environmental due diligence separate from that already performed by the selling developer. Prior to development, we undertake extensive site planning activities as appropriate for each community, which may include design and implementation of stormwater management plans, wetlands delineation and mitigation plans, perennial stream flow determinations, erosion and sediment control plans and archeological, cultural and endangered species surveys. We may be required to obtain permits or other approvals for our operations, particularly in environmentally sensitive areas, such as wetlands. Infrastructure projects impacting public health and the environment, such as construction of drainfields or connection to public sewer lines, and drilling of wells or connection to municipal water supplies, may be subject to inspection and approval by local authorities. We also could incur cleanup costs and obligations with respect to environmental conditions at our properties, including, under some environmental laws, conditions resulting from the operations of prior site owners or operators, or at properties where we have disposed of wastes. Although no assurances can be given, we are not aware of obligations or liabilities arising out of environmental conditions in any of our existing developments that are likely to materially and adversely affect us.

Employees

At September 30, 2011, we employed 526 people, of whom 271 were executive management, office and administrative personnel, 109 were sales representatives and 146 were involved in construction. No employees are covered by collective bargaining agreements. Employees of certain TradePartners^® are represented by labor unions or are subject to collective bargaining arrangements. We believe relations with our employees and TradePartners^® are satisfactory.

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PROPERTIES

We lease 189,251 square feet of office space in various locations from related and unrelated parties. All rents were at market rates at the time of lease execution. We have satellite offices in Aliso Viejo, California; Corona, California; Livermore, California; San Diego, California; Scottsdale, Arizona; and Denver, Colorado. The total square footage leased from related parties is 121,034 and comprises offices in Aliso Viejo, Livermore, San Diego and Denver. Our corporate office is in Walnut, California, approximately 35 miles east of Los Angeles, California. JFSCI leases this office from a related party and we bear 59% of its total cost. For information about land owned or controlled by us for use in our homebuilding activities, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Selected Homebuilding Operational Data—Land and Homes in Inventory.”

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LEGAL PROCEEDINGS

Lawsuits, claims and proceedings have been or may be instituted or asserted against us in the normal course of business, including actions brought on behalf of various classes of claimants. We are also subject to local, state and federal laws and regulations related to land development activities, house construction standards, sales practices, employment practices and environmental protection. As a result, we are subject to periodic examinations or inquiry by agencies that administer these laws and regulations.

We record a reserve for potential legal claims and regulatory matters when they are probable of occurring and a potential loss is reasonably estimable. We accrue for these matters based on facts and circumstances specific to each matter and revise these estimates when necessary. In such cases, there may exist an exposure to loss in excess of amounts accrued. In view of the inherent difficulty of predicting the outcome of legal claims and related contingencies, we generally cannot predict their ultimate resolution, related timing or eventual loss. While their outcome cannot be predicted with certainty, we believe we have appropriately reserved for these claims or matters. However, to the extent the liability arising from their ultimate resolution exceeds their recorded reserves, we could incur additional charges that could be significant.

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MANAGEMENT

Executive Officers

The names, ages and positions of the executive officers of SHLP as of the date of this prospectus are set forth below:

Name	Age	Position(s)
Bert Selva	49	President and Chief Executive Officer
Bruce Varker	59	Chief Financial Officer
Layne Marceau	48	President—Northern California
Buddy Satterfield	58	President—Arizona
Rick Andreen	46	President—Trilogy brand

Directors

The names and ages of the directors of J.F. Shea Construction Management, Inc., which is the ultimate general partner of SHLP, as of the date of this prospectus are set forth below:

Name	Age	Position(s)
John F. Shea	85	Director
Peter O. Shea	76	Director
Peter Shea, Jr.	44	Director
John C. Morrissey	53	Director
James G. Shontere	64	Director

Bert Selva. Mr. Selva has served as President and Chief Executive Officer since 2002. Previously, he served as President of our Colorado homebuilding operations, which he was instrumental in founding. Before joining us in 1996, Mr. Selva served as a senior executive with KB Home from 1994 to 1996. He previously served as Chief Financial Officer of Signature Homes. Mr. Selva holds an M.B.A. from UCLA and a B.S. from the University of Southern California. Mr. Selva serves on the Executive Committee of the Lusk Center for Real Estate at the University of Southern California and is Chairman of the National Advisory Board of HomeAid America.

Bruce Varker. Mr. Varker has served as Chief Financial Officer since joining us in 1994. Previously, he served as Chief Financial Officer of Bramalea California, Inc. from 1984 to 1994, and as Chief of Financial Services at William Lyon Company from 1981 to 1984. Mr. Varker holds a B.S. from the University of Maryland.

Layne Marceau. Mr. Marceau has served as President of our northern California homebuilding operations since 2000. Previously, he was Chief Financial Officer of our southern California homebuilding operations. Before joining us in 1995, Mr. Marceau was a real estate consultant and auditor at the accounting firm of Deloitte & Touche. Mr. Marceau holds an M.B.A. from the University of California, Irvine and a B.S. from the University of California, San Diego. Mr. Marceau has served on the boards of HomeAid of northern California since 1995 and the Livermore Performing Arts Center since 2007.

Buddy Satterfield. Mr. Satterfield has served as President of our Arizona homebuilding operations since 1996. Previously, he served as Vice President of Sales and Marketing. Before joining us in 1991, Mr. Satterfield served as the Vice President of Sales and Marketing for Estes Homes. Mr. Satterfield holds a B.S. from The University of Phoenix. Mr. Satterfield serves on the board of the Home Builders Association of Central Arizona.

Rick Andreen. Mr. Andreen has served as President of our Trilogy brand since joining us in 1999. Previously, Mr. Andreen served as President of the active adult group of Pulte Homes from 1995 to 1999, and as Operations Manager for Centex Homes from 1989 to 1995. Mr. Andreen holds a B.S. from the University of Oklahoma. Mr. Andreen serves on the board of Circle the City, a Phoenix, Arizona based non-profit.

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John F. Shea. Mr. Shea has been a member of the Board of Directors of the general partner of SHLP since SHLP’s formation in 1989. He is currently Chairman of the Board for JFSCI after serving as its President and CEO until 2005. Mr. Shea holds a B.C.E. from the University of Southern California.

Peter O. Shea. Mr. Shea has been a member of the Board of Directors of the general partner of SHLP since SHLP’s formation in 1989. He is currently Executive Vice President of JFSCI and President of J.F. Shea Construction, Inc. Mr. Shea holds a B.B.A. from the University of California, Berkeley and a B.C.E. from the University of Southern California.

Peter Shea, Jr. Mr. Shea has been a member of the Board of Directors of the general partner of SHLP since 2005. He also serves as President and Chief Executive Officer of JFSCI. Previously, he served as Chief Operating Officer of JFSCI for three years, prior to which he was Vice President of J.F. Shea Construction, Inc. Mr. Shea holds a B.S. in Civil Engineering from the University of California, Berkeley. He serves on the boards of Fidelity National Title and the Beavers, a nationwide construction engineering association.

John C. Morrissey. Mr. Morrissey has been a member of the Board of Directors of the general partner of SHLP since 2005. He is currently Executive Vice President of JFSCI and Managing Director of Shea Ventures. Prior to joining Shea in 2003, Mr. Morrissey was a partner at the law firm Bingham McCutchen LLP. He received his B.A. in Economics from Yale College. He received a degree in Philosophy, Politics & Economics from Oxford University. He earned his J.D. degree from the University of Chicago Law School.

James G. Shontere. Mr. Shontere has been a member of the Board of Directors of the general partner of SHLP since SHLP’s formation in 1989. He has served as Chief Financial Officer of JFSCI since 1987, where he also serves as Corporate Secretary and is a member of the Board of Directors. Previously, Mr. Shontere served as Chief Financial Officer of a privately held manufacturer/distributor, prior to which he served as director of accounting for Taco Bell, a division of PepsiCo. Mr. Shontere holds both a B.A. and an M.B.A. from the University of Southern California. He serves on the board of CalTax, a business advisory board to the California state government.

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EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

The following Compensation Discussion and Analysis describes material elements of compensation for our executive officers. When we refer to “named executive officers” in this section, we mean our five executive officers listed in the Summary Compensation Table: Bert Selva, President and CEO, Bruce Varker, Chief Financial Officer, Buddy Satterfield, President—Arizona, Rick Andreen, President—Trilogy brand, and Layne Marceau, President—Northern California.

Compensation Objectives

The objective of our compensation program for our named executive officers is to provide an appropriate level of compensation to attract, retain, and motivate highly skilled and experienced executives. The program is designed to provide a combination of fixed and variable pay components that will result in compensation that recognizes both individual performance and our overall performance.

Elements of Executive Compensation

Our executive compensation program consists of several components, including base salaries, cash bonuses, limited perquisites, deferred compensation plan and retirement benefits.

In addition, an affiliate of SHLP develops and manages income properties, and in the past the named executive officers have been recipients of grants of minority interests in certain properties which were developed by this affiliate. There were no such grants in 2010.

Determination of Executive Compensation

Our directors determine the amount and type of compensation to be paid to the named executive officers. Our President makes recommendations and is part of the approval process with respect to the amount and type of compensation to be paid to the other named executive officers. Our directors have not created a formal compensation committee and have not historically engaged compensation consultants to assist them with determination of compensation for the executives.

Base Salaries

Base salaries are intended to provide a level of stability to our named executive officers’ annual compensation package, as they are fixed at the beginning of each compensation year. Annually, base salaries are reviewed and our directors may consider factors including levels of experience, responsibilities and personal and company performance. There were no base salary adjustments made in 2010.

Cash Bonuses

Cash bonuses for our named executive officers are paid on a purely discretionary basis in amounts determined annually by the Board of Directors of J.F. Shea Construction Management, Inc., which is the ultimate general partner of SHLP. Performance factors considered by the directors in determining cash bonuses to be paid to our named executive officers include:

• Company pre-tax profits;

• pre-tax profits and selling, general and administrative expenses of homebuilding communities under the management of each executive officer, where applicable;

• homes closed in homebuilding communities under the management of each executive officer, where applicable;

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• customer service scores; and

• the average number of repairs identified in homebuyer inspections at closing.

The board of directors does not assign specific targets or weight these performance factors in determining cash bonuses to be paid to our named executive officers.

In a normal operating environment, cash bonuses would not be paid to our named executive officers if the Company incurred a pre-tax loss for the applicable year. However, notwithstanding our pre-tax loss in 2010, in recognition of a difficult operating environment that adversely impacted operating results for homebuilders, the board of directors elected to exercise its discretion and pay cash bonuses to our named executive officers in the amounts stated in the Summary Compensation Table below. The board of directors views these cash bonuses as a retention tool and believes the amounts were appropriate given the expertise and experience of our named executive officers are valuable assets of the Company that cannot easily be replaced. The operating environment for homebuilders continues to be difficult, and our board of directors may continue to exercise its discretion to pay annual cash bonuses to our named executive officers in future periods, notwithstanding any pre-tax loss realized by the Company in such periods.

Non-Qualified Deferred Compensation Plan

JFSCI, on our behalf, maintains a non-qualified Deferred Compensation Plan. The plan covers employees whose total annual compensation is at least $110,000 and who are selected by the committee that administers the plan. This plan is designed to allow participants to accumulate additional pre-tax savings.

Retirement Savings Plan

JFSCI, on our behalf, maintains a 401(k) Retirement Savings Plan that includes a profit sharing component covering all eligible employees, including our named executive officers. The plan includes employer participation in accordance with provisions of Section 401(k) of the Internal Revenue Code. The plan allows participants to make pre-tax contributions. On a discretionary basis, we may match employee contributions up to 5% of the employee’s salary. The profit sharing portion of the plan is discretionary and non-contributory, allowing us to make additional contributions of up to 5% of the employee’s salary. Amounts contributed to the plan are deposited into a trust fund administered by independent trustees. For the year ended December 31, 2010, there were no matching 401(k) contributions or profit sharing contributions.

Employment Agreements; Severance

The Company has not entered into employment agreements with any of the named executive officers, and none of the named executive officers are entitled to severance or change in control payments in connection with a termination of employment or a change in control.

Limited Perquisites

Our named executive officers, in addition to their base pay, generally receive an automobile allowance and use of a company-provided gas card. These amounts are included below in the Summary Compensation Table in the “All Other Compensation” column.

Tax Considerations

In determining which elements of compensation are to be paid, and how they are weighted, we consider whether a particular form of compensation will be deductible under Section 162(m) of the U.S. Internal Revenue

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Code of 1986, as amended (the “Code”). Section 162(m) generally limits the deductibility of compensation paid to our named executive officers (other than the Chief Financial Officer) to $1 million during any fiscal year unless such compensation is “performance-based” under Section 162(m). As a privately-held company, we have not historically been subject to the limitations under Section 162(m). Our compensation program is intended to maximize the deductibility of the compensation paid to our named executive officers to the extent we determine it is in our best interests.

Summary Compensation Table

The following table sets forth a summary of the compensation paid or accrued during the year ended December 31, 2010 to our Chief Executive Officer, Chief Financial Officer and the next three most highly compensated named executive officers. For a discussion of material factors related to named executive officer compensation see “Compensation Discussion and Analysis” above:

	Year		Salary		Bonus		All Other Compensation(1)		Total Compensation
Bert Selva President and Chief Executive Officer		2010	$	425,000	$	400,000	$	12,498	$	837,498
		2011		425,000		400,000		12,671		837,671
Bruce Varker Chief Financial Officer		2010		232,000		175,000		13,243		420,243
		2011		232,000		175,000		13,084		420,084
Buddy Satterfield President—Arizona		2010		242,000		200,000		10,521		452,521
		2011		242,000		200,000		10,955		452,955
Rick Andreen President—Trilogy brand		2010		242,000		200,000		10,060		452,060
		2011		242,000		200,000		9,673		451,673
Layne Marceau President—Northern California		2010		231,000		200,000		11,726		442,726
		2011		231,000		200,000		11,297		442,297

⁽¹⁾  All Other Compensation consists of costs incurred by us in providing each named executive officer with an automobile allowance, use of a company-provided gas card and phone allowance (for Mssrs. Marceau and Andreen, only).

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Non-Qualified Deferred Compensation Table

The following table sets forth a summary of our non-qualified Deferred Compensation Plan paid or accrued during the year ended December 31, 2010 to our Chief Executive Officer, Chief Financial Officer and the next three most highly compensated named executive officers. For a discussion of material factors related to named executive officer compensation see “Compensation Discussion and Analysis” above:

	Year		Executive Contributions		Registrant Contributions		Aggregate Earnings		Aggregate  Withdrawals/  Distributions			Aggregate Balance
Bert Selva President and Chief Executive Officer		2010	$	—	$	—	$	—	$	(294,650	)	$	—
		2011		—		—		—		—			—
Bruce Varker Chief Financial Officer		2010		—		—		—		—			—
		2011		—		—		—		—			—
Buddy Satterfield President—Arizona		2010		—		—		4,472		—			62,708
		2011		—		—		7,038		—			69,746
Rick Andreen President—Trilogy brand		2010		—		—		—		—			—
		2011		—		—		—		—			—
Layne Marceau President—Northern California		2010		—		—		—		(137,819	)		—
		2011		—		—		—		—			—

JFSCI, on our behalf, maintains a non-qualified Deferred Compensation Plan. The plan allows participants to defer up to 80% of base salary, 80% of commissions and 100% of bonus in a deferral account. Deferred amounts may be invested in a variety of investment funds. On behalf of each participant, on a discretionary basis, we may contribute to a separate account comprised of investment funds that correspond to such participant’s deferral account. The plan is designed to comply with Section 409A of the Internal Revenue Code. Deferred amounts may be distributed to each participant upon a separation from service, death, disability, on a scheduled withdrawal date, or with committee approval in the event of an unforeseen emergency. For the year ended December 31, 2010 and the nine months ended September 30, 2011, we made no contributions under the plan.

Director Compensation

Members of SHLP’s Board of Directors are members of the Shea family and/or employees of JFSCI. These directors receive no additional compensation for their service on the Board, however, as employees of JFSCI, their costs, including compensation, are included in the allocation of shared services costs to us for corporate services provided by JFSCI.

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Ownership interests in SHLP are held in three classes: Class B, Class C and Class D. Profit allocations to the capital accounts of holders of these interests are only made following restoration of losses from prior periods.

Class C interests have rights that are similar to common equity ownership. Holders of Class C interests are allocated 99% of SHLP’s profits, after allocation of profits to holders of Class B and Class D interests in accordance with the preferred allocations described below. SHLP’s outstanding Class C interests are the only interests that carry voting rights.

Holders of Class B interests are allocated a preferred interest in any SHLP profits, which is based on a floating interest rate applied to their capital account, but no other share of profits. Holders of Class D interests are allocated a preferred interest in any SHLP profits, which is based on a fixed 7% interest rate applied to their capital account. Holders of Class D interests also receive a non-preferred allocation equal to 1% of any remaining SHLP profits after the Class B and Class D preferred allocations described above.

The following table sets forth the percentage of SHLP’s Class C limited partnership interests that are held by each person who is or is deemed to be a beneficial owner of such limited partnership interests. No executive officer of SHLP or Shea Homes Funding Corp. beneficially owns any of SHLP’s outstanding limited partnership interests.

SHLP owns 100% of the outstanding common stock of Shea Homes Funding Corp. The mailing address of each owner listed below is c/o Shea Homes Limited Partnership, 655 Brea Canyon Road, Walnut, CA 91789.

SHLP is effectively controlled by members of the Shea family, including John Shea, Mary Shea (wife of Edmund Shea—deceased) and Peter Shea.

Name of Beneficial Owner	Percentage Beneficial Ownership(1)
Direct Owners
J.F. Shea, L.P.(2)		20.83%
Orlando Road LLC(3)(6)		33.52
Virginia Road LLC(4)(7)		20.30
Bay Front Drive LLC(5)(8)		12.94
Tahoe Partnership I(9)		3.42
The John F. Shea Family Trust		3.13
Shea Investments(9)		3.08
Balboa Partners(9)		2.78
Indirect Owners
John and Dorothy Shea(3)		57.48%
Mary Shea(4)		41.13
Peter and Carolyn Shea(5)		33.77
The descendants of John and Dorothy Shea(6)		33.52
The descendants of Mary Shea(7)		20.30
The descendants of Peter and Carolyn Shea(8)		12.94
JFS Management, LP(10)		20.83

(1) Beneficial ownership is determined in accordance with Section 13 of the Exchange Act and the rules promulgated thereunder. Accordingly, if an individual or entity is a member of a “group” which has agreed to act together for the purpose of acquiring, holding, voting or disposing of membership interests, such individual or entity is deemed to be the beneficial owner of the membership interests held by all members of the group. Further, if an individual or entity has or shares the power to vote or dispose of membership interests held by another entity, beneficial ownership of the interests held by such entity may be attributed to such other individuals or entities.

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(2) J.F. Shea, LP directly owns 20.83% of Shea Homes Limited Partnership’s outstanding limited partnership interests and is in turn 96.00% owned by JFSCI and 4.00% owned by JFS Management, LP. JFSCI is in turn 46.07% owned by the John F. Shea Family Trust, 25.54% owned by the E&M Shea Revocable Trust, 16.49% owned by the Peter and Carolyn Shea Revocable Trust, 3.93% owned by certain trusts for the benefit of the children of John F. Shea, 4.46% owned by certain trusts for the benefit of the children of Edmund Shea and 3.51% owned by certain trusts for the benefit of the children of Peter Shea.

(3) John and Dorothy Shea, as beneficiaries of the John F. Shea Family Trust, directly own 3.13% of Shea Homes Limited Partnership’s outstanding limited partnership interests and are deemed to beneficially own 20.83% of Shea Homes Limited Partnership’s outstanding limited partnership interests through the trust’s indirect ownership interest in J.F. Shea, LP and 33.52% of Shea Homes Limited Partnership’s outstanding limited partnership interests through the trust’s direct ownership interest in Orlando Road LLC.

(4) Mary Shea, as beneficiary of the E&M Shea Revocable Trust, is deemed to beneficially own 20.83% of Shea Homes Limited Partnership’s outstanding limited partnership interests through the trust’s indirect ownership interest in J.F. Shea, LP and 20.30% of Shea Homes Limited Partnership’s outstanding limited partnership interests through the trust’s direct ownership interest in Virginia Road LLC.

(5) Peter and Carolyn Shea, as beneficiaries of the Peter & Carolyn Shea Revocable Trust, are deemed to beneficially own 20.83% of Shea Homes Limited Partnership’s outstanding limited partnership interests through the trust’s indirect ownership interest in J.F. Shea, LP and 12.94% of Shea Homes Limited Partnership’s outstanding limited partnership interests through the trust’s direct ownership interest in Bay Front Drive, LLC.

(6) The descendants of John and Dorothy Shea, including children and grandchildren, as beneficiaries of the 1996 Dorothy Shea Trust, can be considered a “group” as such term is used in Section 13(d)(3) of the Exchange Act and are deemed to beneficially own 33.52% of Shea Homes Limited Partnership’s outstanding limited partnership interests through the trust’s direct ownership interest in Orlando Road LLC.

(7) The descendants of Mary Shea, including children and grandchildren, as beneficiaries of the 1996 Mary Shea Trust, can be considered a “group” as such term is used in Section 13(d)(3) of the Exchange Act and are deemed to beneficially own 20.30% of Shea Homes Limited Partnership’s outstanding limited partnership interests through the trust’s direct ownership interest in Virginia Road LLC.

(8) The descendants of Peter and Carolyn Shea, including children and grandchildren, as beneficiaries of the 1996 Carolyn Shea Trust, can be considered a “group” as such term is used in Section 13(d)(3) of the Exchange Act and are deemed to beneficially own 12.94% of Shea Homes Limited Partnership’s outstanding limited partnership interests through the trust’s direct ownership interest in Bay Front Drive, LLC.

(9) Tahoe Partnership I, Shea Investments and Balboa Partners are investment entities owned by the Shea family.

(10) JFS Management, LP is deemed to beneficially own 20.83% of Shea Homes Limited Partnership’s outstanding limited partnership interests through its ownership interests in J.F. Shea, LP. JFS Management, LP is in turn 50.00% owned by Shea Management LLC and 50.00% owned by J.F. Shea Construction Management, Inc. Shea Management LLC is owned 11.00% by Peter Shea Jr., 6.00% by John Morrissey, 3.75% by Jim Shea, and 79.25% by certain employees of Shea Management LLC and certain of the executive officers of SHLP. J.F. Shea Construction Management, Inc. is 33.33% owned by the 1996 Dorothy Shea Trust, 33.33% owned by the 1996 Mary Shea Trust and 33.33% owned by the 1996 Carolyn Shea Trust.

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

The Shea Family of Companies

SHLP and SHI are part of the Shea Family Owned Companies. The Shea family consists primarily of John Shea, Sr., Mary Shea (wife of his cousin, Edmund Shea, Jr.—deceased) and his cousin, Peter Shea, and their 17 children. While John and Peter Shea actively participate in strategic management decisions for the Shea family companies, day-to-day management decisions with respect to the Shea family companies are made by Peter Shea, Jr. and John Morrissey, who serve as directors of J.F. Shea Construction Management, Inc., which is the ultimate general partner of SHLP.

The Shea Family Owned Companies are operated in three major groups: homebuilding, heavy construction and commercial property development and management. Much of the Shea Family Owned Companies’ business has traditionally been operated and managed through JFSCI, with each of the homebuilding, heavy construction, and commercial property businesses providing management, administrative, financial and credit support to one another. Over the past several years, the Shea family and our management have made a series of changes to the business and operating structure of the Shea Family Owned Companies so that, currently:

• the Shea family homebuilding business is owned and operated primarily through SHLP, SHI and their respective subsidiaries;

• the Shea family heavy construction business is owned and operated primarily through JFSCI; and

• the Shea family commercial development and management operation is owned and operated primarily through Shea Properties LLC and Shea Properties II, LLC.

Transactions with JFSCI and Other Beneficial Owners of SHLP Partnership Interests

Cash Management Services Provided by JFSCI

Until August 2011, we participated in a centralized cash management function operated by JFSCI, whereby net cash flows from operations were transferred daily with JFSCI and resulted in related party transactions and monetary transfers to settle amounts owed. In August 2011, we ceased participation in this function and performed it independently. The resultant receivables and payables are stated in the consolidated financial statements as receivables from related parties, net or payables to related parties.

Administrative Services Provided by JFSCI

SHLP and SHI, along with certain other Shea Family Owned Companies, receive certain administrative services from JFSCI, including management, legal, tax, information technology, facilities, accounting, treasury and human resources. This sharing and resultant allocation of costs is based on reasonable and customary practices, is governed by written agreement and requires related party transactions and monetary transfers to settle amounts owed between entities. For these services, SHLP and SHI pay JFSCI a reasonable fee based on time spent by JFSCI employees on SHLP and SHI related work. For the three and nine months ended September 30, 2011, we recognized $4.2 million and $11.5 million, respectively, of general and administrative expenses arising from corporate services provided by JFSCI. For the years ended December 31, 2010, 2009 and 2008, we recognized $14.4 million, $14.1 million and $22.3 million, respectively, of general and administrative expenses arising from corporate services provided by JFSCI.

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JFSCI Note Receivable

Included in receivables from related parties, net are interest bearing note receivables from JFSCI, as follows:

At December 31,	JFSCI (net)		Highest Monthly Ending Balance
	(In thousands)
2010	$	177,011	$	195,629
2009		192,335		276,849
2008		197,558		228,406
At September 30,
2011		25,130		166,050
2010		186,765		195,629

These net note receivables from JFSCI result primarily from participation in JFSCI’s centralized cash management function. Previously, the net note receivable from JFSCI was unsecured and due on demand, and in May 2011, through a series of transactions, was converted to a $38.9 million unsecured term note receivable, bearing 4% interest, payable in equal quarterly installments and maturing May 15, 2019. In June 2011 and August 2011, JFSCI elected to make prepayments, including accrued interest, of $7.7 million and $6.6 million, respectively, and apply these prepayments to future installments such that JFSCI would not be required to make a payment until February 2014. For the nine months ended September 30, 2011, the net note receivable from JFSCI earned $1.1 million of interest.

At December 31, 2010, the net note receivable from JFSCI accrued interest at Prime minus 2.05% (1.2%), and at December 31, 2009 and 2008, at a rate ranging from Prime minus 2.05% (1.2%) to 3.25%. At September 30, 2011, the net note receivable from JFSCI accrued interest at 4%, and at September 30, 2010, at Prime minus 2.05% (1.2%).

Non-Interest Bearing Receivables and Payables

The Company and certain other Shea Family Owned Companies, primarily JFSCI, also engage in specific transactions with third parties on behalf of each other that primarily relate to employee payroll and payment of subcontractor and supplier invoices. The resultant receivables and payables are non-interest bearing and due on demand. Prior to 2009, the accounts payables and receivables resulting from such transactions were allowed to offset but the ultimate settlement of net amounts was not regularly performed due to the immateriality of the amounts. Beginning in 2009, payroll is funded when paid and the receivables and payables resulting from subcontractor and supplier invoice payments are settled monthly.

At December 31, 2010, 2009 and 2008, non-interest-bearing receivables from related parties, including JFSCI, were approximately $2.4 million, $0.9 million and $12.0 million, respectively. During the years ended December 31, 2010, 2009 and 2008, the highest month-end balance of non-interest-bearing receivables from related parties, including JFSCI, was $5.8 million, $53.6 million and $92.3 million, respectively.

At September 30, 2011 and 2010, non-interest bearing receivables from related parties, including JFSCI, were approximately $3.7 million and $1.1 million, respectively. During the nine months ended September 30, 2011 and 2010, the highest month-end balance of non-interest-bearing receivables from related parties, including JFSCI, was $14.0 million and $5.8 million, respectively.

At December 31, 2010, 2009 and 2008, non-interest-bearing payables to related parties, including JFSCI, which primarily result from payments made on our behalf by such parties, were $9.2 million, $7.5 million and $99.2 million, respectively.

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At September 30, 2011 and 2010, non-interest-bearing payables to related parties, including JFSCI, which primarily result from payments made on our behalf by such parties, were $0.1 million and $3.9 million, respectively.

Tax Distribution Agreement

SHLP, the partners of SHLP, and the direct and indirect holders of all beneficial interests in SHLP, entered into an agreement (the “Tax Distribution Agreement”) which requires SHLP to distribute cash payments to its partners for taxes incurred by such partners (or their direct or indirect holders) for their ownership interest in SHLP. Under the Tax Distribution Agreement, SHLP is required to make distributions to its partners quarterly or annually if the aggregate income tax liability of the SHLP partners (or their direct or indirect holders) with respect to allocations of income to such persons for periods commencing on or after January 1, 2011, at any time exceeds amounts previously distributed to such persons after January 1, 2011 (excluding for this purpose certain distributions otherwise permitted pursuant to the Indenture). The aggregate income tax liability of the SHLP partners (or their direct or indirect holders) is determined on a notional basis by multiplying the income allocated to such partners (or their direct or indirect holders) for tax purposes by the highest aggregate marginal combined federal, state and local income tax rates applicable to such income. Under the Tax Distribution Agreement, SHLP is also required to make distributions to its partners to pay the adjusted income tax liability of the SHLP partners (or their direct or indirect holders) as a result of an adjustment to items of income, gain, loss, or deduction of SHLP upon the resolution of any tax proceeding of SHLP or any entity treated as a “pass-through” entity under U.S. federal income tax principles in which SHLP has an ownership interest, including the CCM proceeding. Such adjusted income tax liability of the SHLP partners (or their direct or indirect holders) is determined by multiplying the increase in income (or reduction of loss) allocated to such partners (or their direct or indirect holders) for tax purposes basis by the highest aggregate marginal combined federal, state and local income tax rates applicable to such income or loss.

General Contractor Services

SHLP, SHI and J.F. Shea Construction Management, Inc., the ultimate general partner of SHLP, hold contractor’s licenses in various jurisdictions and use their licenses to build homes on behalf of their wholly-owned subsidiaries. These companies do not charge a fee for performing such contracting services.

In 2010, SHLP acquired a new project in north Las Vegas, Nevada. Because neither SHLP nor SHI currently holds contractor’s licenses in Nevada, JFSCI, which holds a contractor’s license in Nevada, is the general contractor on this project. JFSCI does not receive fees for this service. Costs of the project are paid by SHLP.

In Florida, J.F. Shea Construction Management, Inc. holds the contractor’s license and acts as general contractor for SHLP homes built in that state. J.F. Shea Construction Management, Inc. does not receive fees for this service. All project costs in Florida are paid by SHLP, SHI or their subsidiaries.

Transactions with Unconsolidated Joint Ventures and Other Shea Family Owned Companies

Notes Receivable from Unconsolidated Joint Ventures

SHLP and its subsidiaries had note receivables, including accrued interest, from Unconsolidated Joint Ventures as follows:

	Amount Outstanding at
Borrower	September 30, 2011		September 30, 2010		December 31, 2010		December 31, 2009		December 31, 2008
					(In thousands)
TCD Bradbury LLC	$	14,986	$	14,602	$	14,582	$	14,404	$	13,858
Meridian-MB Investments, LLC		10,052		9,722		9,805		9,414		8,937
AGS Jubilee, LLC		404		—		430		—		—
AGS Home Builder I, LP		—		—		—		299		1,503
Total	$	25,442	$	24,324	$	24,817	$	24,117	$	24,298

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These note receivables result from loans extended by SHLP and its consolidated subsidiaries to the Unconsolidated Joint Ventures named above. At September 30, 2011, these note receivables bore interest ranging from 4.17% to 8% and mature from July 2013 through June 2020. The note receivable from Meridian-MB Investments, LLC is secured by real property, and the note receivable from AGS Jubilee, LLC earns additional interest to achieve a 17.5% internal rate of return, subject to available cash flows of the joint venture, and can be repaid prior to June 2020.

Notes Receivable from Shea Family Owned Companies

SHLP and its subsidiaries also had note receivables from the following Shea Family Owned Companies which they have no ownership interest:

	Amount Outstanding at
Borrower	September 30, 2011			September 30, 2010			December 31, 2010			December 31, 2009			December 31, 2008
							(In thousands)
Shea Management LLC	$	2,130		$	2,062		$	2,079		$	2,013		$	1,942
Shea Properties Management Company, Inc.		10,572			10,749			10,817			10,484			10,290
Shea Baker Ranch, LLC		2,049			—			—			—			—
Shea Properties II, LLC		6,509			—			—			—			—
Shea Properties LLC		—			203			204			201			—
River Oaks Associates, LLC		—			4,739			—			4,696			4,641
Subtotal		21,260			17,753			13,100			17,394			16,873
Valuation reserve(1)		(12,680	)		(12,812	)		(12,896	)		(12,563	)		—
Total	$	8,580		$	4,941		$	204		$	4,831		$	16,873

(1) In 2009, SHLP recorded reserves in the full amount of the note receivables from Shea Management LLC and Shea Properties Management Company, Inc. due to uncertainty of collection. In June 2011, Shea Properties Management Company, Inc. paid the accrued interest for 2010 and 2011. Therefore, current interest from Shea Properties Management Company, Inc. is not reserved.

These note receivables result from loans extended by SHLP and its consolidated subsidiaries to the Shea Family Owned Companies named above. At September 30, 2011, these notes were unsecured, bore interest ranging from Prime less .75% (2.5%) to 4.2%, and mature from November 2012 through April 2021.

General Contractor Services

Shea Homes at Montage, LLC, a Shea family-owned entity that develops residential property in Livermore, California, does not hold a contractor’s license and SHLP, the general contractor, receives fees equal to 4.5% of house revenue. For the years ended December 31, 2010, 2009 and 2008, SHLP received $1.1 million, $1.8 million and $0.2 million of fees, respectively, and for the four months ended April 30, 2011 and nine months ended September 30, 2010, received $0.3 million and $0.8 million of fees, respectively. Project costs are paid by Shea Homes at Montage, LLC. In May 2011, Shea Homes at Montage, LLC was contributed to SHI and is included in the consolidated financial statements.

Guarantees and Other Credit Support

At September 30, 2011, SHLP had $11.6 million of potential liabilities pursuant to guarantees of joint venture debt in which SHLP and/or its subsidiaries hold an ownership interest, and $71.8 million of potential liabilities pursuant to guarantees with respect to financings of other Shea Family Owned Companies’ projects in which SHLP and/or its subsidiaries have no ownership interest, including $46.4 million of guarantees for “bad boy” acts of affiliated borrowers, such as voluntary bankruptcy, fraud or material misrepresentation, and $25.4 million of guarantees on debt of Shea/Baker Ranch Associates, LLC. See “Description of Other Indebtedness.”

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SHLP and/or its subsidiaries provided indemnification for bonds issued by Unconsolidated Joint Ventures and other Shea Family Owned Companies. At September 30, 2011, we had $29.3 million of exposure on $69.0 million of surety bonds issued by Unconsolidated Joint Ventures and $3.7 million of exposure on $7.7 million of surety bonds issued by other Shea Family Owned Companies.

In addition, we may issue letters of credit under its letter of credit facility on behalf of our Unconsolidated Joint Ventures. At September 30, 2011, we had $0.6 million of outstanding letters of credit on behalf of Unconsolidated Joint Ventures.

Management of Joint Ventures

We are the managing member for several Unconsolidated Joint Ventures, including Riverpark Legacy, LLC and Marina Community Partners, LLC, in which one of our joint venture partners is Shea Properties LLC, a related company.

For our services, we receive a management fee from Unconsolidated Joint Ventures as reimbursement for direct and overhead costs incurred by us on behalf of the joint ventures. Fees from joint ventures representing reimbursement of our costs are recorded as a reduction to general and administrative expense. Fees from joint ventures representing profit are recorded to revenues. For the years ended December 31, 2010, 2009 and 2008, $4.5 million, $4.5 million and $7.7 million, of management fees, respectively, were offset against general and administrative expenses, and $1.6 million, $0.5 million and $2.4 million of management fees, respectively, were included in revenues. For the nine months ended September 30, 2011 and 2010, $2.5 million and $3.7 million of management fees, respectively, were offset against general and administrative expenses, and $1.2 million and $1.0 million of management fees, respectively, were included in revenues.

Pursuant to management and development contracts with CalPERS, Shea Capital I, LLC and Shea Mountain House, LLC, homebuilding and land development entities, respectively, owned by CalPERS in which SHLP previously had an ownership interest, pay us a management fee as reimbursement for direct and overhead costs incurred by us on their behalf. Fees from joint ventures representing reimbursement of our costs are recorded as a reduction to general and administrative expense. Fees from joint ventures representing profit are recorded to revenues. For the years ended December 31, 2010, 2009 and 2008, $3.7 million, $4.3 million and $8.5 million of management fees, respectively, were offset against general and administrative expenses, and $0.9 million, $1.0 million and $0.6 million of management fees, respectively, were included in revenues. For the nine months ended September 30, 2011 and 2010, $2.9 million and $2.8 million of management fees, respectively, were offset against general and administrative expenses, and $0.2 million and $1.1 million of management fees, respectively, were included in revenues.

Vistancia Transaction

In August 2009, our Consolidated Joint Venture, Vistancia, LLC, contributed substantially all of its land to four single member LLCs and sold 90% of its interest in these LLCs to an unrelated third party for $67.5 million. The cash consideration from the Vistancia Transaction and contributions from the partners of Vistancia, LLC were used to pay down the principal loan balance that was secured by the underlying land, which outstanding balance with accrued interest was $107.9 million. The resultant unpaid principal of $33.1 million was canceled by the creditor bank. As a result, SHLP incurred a $195.7 million pre-tax loss, of which $228.8 million, including $38.3 million of interest expense, was included in cost of sales, offset by $33.1 million of other income from the debt cancellation. Of the $195.7 million loss, $32.1 million was attributable to non-controlling interests.

Supplemental Insurance Coverage and PIC Transaction

We require TradePartners^® be insured for workers compensation, commercial general liability and completed operations losses and damages, and most TradePartners^® carry this insurance through our “rolling

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wrap-up” insurance program, where our risks and risks of participating TradePartners^® working on our projects are insured through a set of master policies. These policies carry material retentions, which are our responsibility. Through retention liability policies, we obtain supplemental insurance for these “rolling wrap-up” programs from affiliated entities. Prior to July 2007, PIC provided this insurance. Since August 2007, this insurance has been provided by Orlando Insurance Company, Inc., Virginia Insurance Company, Inc. and Bay Front Insurance Company, Inc., each wholly-owned by the Shea family.

From December 2009 to February 2010, PIC made $86.2 million in insurance premium payments to certain third-party insurance carriers (including, in part through JFSCI) whereby PIC either novated or reinsured its workers’ compensation, commercial general liability and certain completed operations risks, in each case, with third-party insurance carriers (the “PIC Transaction”). This premium payment was partially funded from the sale of PIC’s marketable securities. PIC will remain in business until the reinsured claims and matching reinsurance receivables are processed, which we estimate will occur in the next 7-10 years. As a result of the PIC Transaction, PIC’s financial exposure is limited to (i) the portion of PIC’s original policy limits not reinsured and (ii) to the extent of the reinsurance policies, the creditworthiness of its reinsurers, which are highly rated by AM Best and/or have sufficient loss reserves funded in trusts.

Real Property Transactions

In the ordinary course of business, we may enter into lot purchase agreements with Shea Family Owned Companies to facilitate land development. At September 30, 2011, we were not party to such agreements.

In September 2011, we sold fixed assets in Highlands Ranch, Colorado, comprised of three buildings and related improvements and land, to Shea Properties II, LLC, a related party. The consideration received was $14.4 million cash and a $6.5 million note receivable at 4.2% interest, payable in equal monthly installments and maturing August 2016. The $1.5 million of consideration received in excess of net book value was recorded as an equity contribution.

In April 2011, through our consolidated joint venture Shea Colorado, LLC, we entered into transactions with the joint venture partner of two Unconsolidated Joint Ventures in Colorado, in which we own a 50% ownership interest in each, SB Meridian Villages, LLC (SBMV) and TCD Bradbury LLC (TCDB). First, we assigned our membership interest in SBMV to our joint venture partner for $4.5 million, resulting in a $0.5 million gain. Second, we contributed $11.5 million cash to TCDB and received $15.4 million of land and a $0.6 million secured promissory note payable, and the joint venture partner received $12.2 million and $6.5 million of land and cash, respectively. TCDB then paid off a bank note payable that was secured by the land distributed to the TCDB partners.

In March 2009, we sold a housing project and related land in northern California to a related party, RVCP, LLC, for $0.1 million. For the year ended December 31, 2008, we recorded a $72.8 million inventory impairment for this property. We manage this property for a fee.

On December 20, 2007, we sold land and an adjoining apartment building in Irvine, California, to a wholly-owned subsidiary of Shea Properties Management Company, Inc., a related party, for $52.2 million and incurred a $3.3 million loss. In 2009, as a condition of sale, the fair value of the building and land at completion was revalued, resulting in a $4.8 million purchase price increase, which was included in our revenues for the year ended December 31, 2009.

SHLP and its subsidiaries and joint ventures lease office space under non-cancelable operating leases from the following entities in which the Shea family holds an ownership interest: Shea Center Livermore, LLC, Treena Street Partners, Highlands Ranch Shea Center II, LLC, Reunion Village, LLC and Highlands Ranch Commerce Center, LLC. The leases are for terms of five to ten years and generally provide renewal options for terms up to an additional five years.

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At September 30, 2011, future minimum rental payments under related-party operating leases were as follows:

Payments Due By Year	September 30, 2011
	(In thousands)
2011	$	640
2012		2,365
2013		1,600
2014		1,442
2015 and thereafter		1,178
Total	$	7,225

For the years ended December 31, 2010, 2009 and 2008, related-party rental expense was $0.9 million, $0.9 million and $2.6 million, respectively. For the nine months ended September 30, 2011 and 2010, related-party rental expense was $0.6 million and $0.6 million, respectively.

Use of the Shea Homes Brand

Most of the Shea family homebuilding business under the Shea Homes brand is owned and operated by SHLP, SHI and their subsidiaries. However, some homebuilding businesses and projects under the Shea Homes brand are, and will continue to be, owned and operated by legal entities that are owned and controlled by the Shea family separately from SHLP and SHI. These legal entities are not Guarantors and their assets are not pledged as collateral for the notes. The homebuilding projects owned and operated by these legal entities include:

• Shea/Baker Ranch Associates, LLC—Unentitled land owned in southern Orange County, California by a joint venture between the Shea family and the Baker family, which was the original landowner. Presently, the Shea/Baker joint venture is entitling land for residential development.

• Shea Homes North Carolina—Builds homes in North Carolina and South Carolina under the Shea Homes brand and shares a website with SHLP and SHI. Shea Homes North Carolina also contracts with JFSCI for certain management and administrative services. Shea Homes North Carolina is based in Charlotte, North Carolina and is owned and operated by children and nephews of John Shea and Mary Shea.

• Shea Mortgage, Inc.—A related entity that arranges mortgage origination options for customers, helping to ensure customers secure financing for their home purchases. Although closely related to the homebuilding operation, Shea Mortgage, Inc. is owned directly by members of the Shea family and is not a Guarantor of the notes. Shea Financial Services, Inc., an entity 100% owned by SHI, provides management services to Shea Mortgage, Inc.

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DESCRIPTION OF OTHER INDEBTEDNESS

Letter of Credit Facility

In conjunction with the issuance of the outstanding notes on May 20, 2011, the Company entered into a letter of credit facility with Credit Suisse AG (acting through one or more of its branches or affiliates) acting as the sole administrative agent thereunder, for purposes of (i) backstopping or replacing letters of credit outstanding under the Company’s existing letter of credit facility and (ii) supporting obligations of the Company and its subsidiaries and their respective joint ventures. The letter of credit facility provides for the issuance of an aggregate principal of $75.0 million in letters of credit for the account of the Company (or for the joint account of the Company and any subsidiary or joint venture thereof) at the interest rate described below.

The Security Documents and the Intercreditor Agreement provide that the Company’s obligations under the letter of credit facility are secured on a Pari-Passu basis with the notes, but will have the benefit of repayment priority upon enforcement against the collateral, as described under “Description of the Notes—Liens with Respect to the Collateral—Intercreditor Agreement.” The Guarantors of the notes also guarantee the Company’s obligations under the letter of credit facility, which contains customary events of default and covenants substantially similar to those set forth in the Indenture. The letter of credit facility also subjects the Company to certain additional affirmative covenants relating to, among other things, delivery of notices regarding certain events, performance of obligations and compliance with laws.

The letter of credit facility provides that, upon the disbursement of any amount in respect of a letter of credit issued thereunder, unless the Company reimburses the disbursement in full on the date such disbursement is made, the unpaid amount thereof will bear interest at a rate per annum equal to an Alternative Base Rate, as defined in the letter of credit facility agreement, plus a specified margin (the “LC Interest Rate”); except all overdue amounts under the letter of credit facility will bear interest at the LC Interest Rate plus an additional margin.

The letter of credit facility will mature, and the commitments thereunder will terminate, on the date that is three years after the date on which the conditions precedent to the effectiveness of the letter of credit facility are satisfied (the “Maturity Date”). However, the letter of credit facility and the commitments thereunder may be extended and will terminate on the date that is one year after the Maturity Date, subject to the payment by the Company of a specified extension fee on the then-outstanding commitments under the letter of credit facility.

Guarantees of Affiliate Debt

SHLP issued loan-to-value maintenance, project completion and environment hazard liability guarantees to third-party lenders in connection with $11.6 million of outstanding debt of AGS Home Builder I, LP, an Unconsolidated Joint Venture in which SHLP has an effective 9.1% ownership interest through a 69% investment in SFHB 1, LLC and a 71% investment in Shea Riverpark Developers, LLC, which in turns holds a 31% investment in SFHB 1, LLC; SFHB 1, LLC holds a 10% investment in AGS Home Builder I, LP. The investment percentage as computed is (69% * 10%) + (71% * 31% * 10%) = 9.1%. SHLP’s joint venture partners, certain investment funds managed by Angelo Gordon, are contractually obligated to reimburse SHLP for 90% of any amounts required to be paid under these guarantees. SHLP’s total potential liability in relation to such debt could, however, exceed 10% of any amounts required to be paid under these guarantees if such investment funds are unable to satisfy their contractual obligations to SHLP.

SHLP issued loan-to-value maintenance and environmental hazard liability guarantees, on a joint and several basis, to third-party lenders in connection with $25.4 million of outstanding debt of Shea/Baker Ranch Associates, LLC, in which SHLP has no ownership interest and is 50% owned by a Shea Family Owned Company. If any of the circumstances triggering these guarantees were to occur, SHLP could become liable for the obligations of Shea/Baker Ranch Associates, LLC under this debt facility. The loan matures June 30, 2013.

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SHLP and SHI issued the following guarantees in permanent financings for stabilized projects of other Shea Family Owned Companies in which SHLP and SHI have no ownership interest. Each of these guarantees is limited to “bad boy” guarantees that may trigger liability to SHLP and/or SHI if there is a voluntary bankruptcy filing by the related party borrower or other “bad” acts occur, including acts constituting fraud or a material misrepresentation by the related party borrower. These loans have maturity dates between December 2011 and September 2012.

Borrower	September 30, 2011
	(In thousands)
Shea Center Baldwin Park(1)	$	2,697
Wildcat Shopping Center, LLC(2)		12,127
Club Laguna, LLC(2)		31,553
Total	$	46,377

(1) SHLP, SHI and JFSCI have issued joint and several “bad boy” guarantees

(2) SHLP and JFSCI have issued joint and several “bad boy” guarantees

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DESCRIPTION OF THE NOTES

You can find the definitions of certain terms used in this description under the subheading “—Definitions of Certain Terms Used in the Indenture.” In this description, the term “Issuers” refers only to SHLP and Shea Homes Funding Corp., and not to any of their subsidiaries.

The exchange notes will be issued under an indenture (the “Indenture”) dated as of May 10, 2011 by and among the Issuers, the Guarantors and Wells Fargo Bank, National Association, as trustee (the “Trustee”). The terms of the exchange notes are identical in all material respects to the terms of the outstanding notes, except the exchange notes will not contain transfer restrictions and holders of exchange notes will no longer have any registration rights and we will not be obligated to pay Additional Interest as described in the registration rights agreement. We refer to exchange notes and outstanding notes (to the extent not exchanged for exchange notes) in this section as the “Notes.”

The terms of the exchange notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (the “TIA”). The following description is a summary of the material provisions of the Indenture. It does not restate the Indenture in its entirety. We urge you to read the Indenture because it, and not this description, defines your rights as holders of the Notes. Copies of the Indenture are available as set forth under “Where You Can Find More Information.” Certain defined terms used in this description but not defined below under “—Definitions of Certain Terms Used in the Indenture” have the meanings assigned to them in the Indenture.

The registered holder of any Note will be treated as the owner of it for all purposes. Only registered holders will have rights under the Indenture.

Brief Description of the Notes

The exchange notes will be, and the outstanding notes are:

• senior obligations of the Issuers;

• guaranteed on a senior basis by each Guarantor;

• secured by an equal and ratable security interest with all existing and future Pari-Passu Lien Obligations of the Company (including the LC Facility Obligations), in the Collateral that is subject only to those Liens permitted by the Indenture and the Security Documents, but in the event of enforcement of the Lien securing the Notes, any liabilities in respect of our $75.0 million letter of credit facility will be repaid prior to the repayment of the Notes and any Additional Pari-Passu Lien Obligations secured on a pari-passu basis with the Notes;

• senior in right of payment to any future Subordinated Indebtedness of the Issuers;

• effectively subordinated to any existing and future Indebtedness of either of the Issuers or any Guarantor that is secured by assets that do not constitute Collateral, to the extent of the value of such assets; and

• effectively subordinated to any existing and future Indebtedness of Subsidiaries of the Company that are not Guarantors.

Principal, Maturity and Interest

The Issuers will issue the exchange notes initially with a maximum aggregate principal amount of $750.0 million. The Issuers will issue the exchange notes in minimum denominations of $2,000 and any integral multiple of $1,000 in excess thereof. The exchange notes will mature on May 15, 2019. Subject to compliance with the covenant described under “Certain Covenants—Limitations on Indebtedness,” the Issuers will be permitted to issue additional Notes from time to time (the “Additional Notes”) without the consent of the holders of the Notes. The Notes and the Additional Notes, if any, will be treated as a single class for all purposes of the Indenture, including waivers, amendments, redemptions and offers to purchase. Unless the context otherwise requires, for all purposes of the Indenture and this “Description of the Notes,” references to the Notes include the outstanding notes, the exchange notes, and any Additional Notes actually issued.

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Interest on the Notes accrues at the rate of 8.625% per annum and is payable semiannually in arrears on May 15 and November 15, commencing on November 15, 2011. The Issuers will make each interest payment to the Holders of record of the Notes on the immediately preceding May 1 and November 1.

Interest on the Notes accrues from the most recent date to which interest has been paid or, if no interest has been paid, from and including the Issue Date. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months.

Holders whose outstanding notes are exchanged for exchange notes will not receive a payment in respect of interest accrued but unpaid on such outstanding notes from the most recent interest payment date up to but excluding the settlement date. Instead, interest on the exchange notes received in exchange for such outstanding notes will (i) accrue from the last date on which interest was paid on such outstanding notes and (ii) accrue at the same rate as and be payable on the same dates as interest was payable on such outstanding notes. However, if any interest payment occurs prior to the settlement date on any outstanding notes already tendered for exchange in the exchange offer, the holder of such outstanding notes will be entitled to receive such interest payment.

Ranking

The Notes are general recourse secured obligations of the Issuers. The Notes rank senior in right of payment to all existing and future Indebtedness of either the Company or the Corporate Issuer that is, by its terms, expressly subordinated in right of payment to the Notes and rank pari-passu in right of payment with all existing and future Indebtedness of either the Company or the Corporate Issuer that is not so subordinated, effectively senior to all unsecured Indebtedness to the extent of the value of the Collateral securing the Notes and effectively junior to any obligations of either the Company or the Corporate Issuer that are secured by a Lien senior in priority to the Lien securing the Notes or that are secured by assets that are not part of the Collateral securing the Notes, to the extent of the value of such assets. The Guarantees are general recourse secured obligations of the Guarantors. The Guarantees rank senior in right of payment to all existing and future Indebtedness of the Guarantors that is, by its terms, expressly subordinated in right of payment to the Guarantees and rank pari-passu in right of payment with all existing and future Indebtedness of the Guarantors that is not so subordinated, effectively senior to all unsecured Indebtedness of the Guarantors to the extent of the value of the Collateral securing the Guarantees and effectively junior to any obligations of any Guarantor that are secured by a Lien senior in priority to the Lien securing the Guarantees or that are secured by assets that are not part of the Collateral securing the Guarantees, to the extent of the value of such assets. In addition, the Indenture permits the Issuers and the Guarantors to grant certain “Permitted Liens,” some of which, as a matter of law or contract, may have priority claims over the Collateral. In addition, in the event of enforcement of the Lien securing the Notes, any liabilities in respect of the letter of credit facility will be repaid prior to the repayment of the Notes and any Additional Pari-Passu Lien Obligations secured on a pari-passu basis with the Notes.

At September 30, 2011, we had $752.3 million of secured Indebtedness outstanding (primarily comprised of $750.0 million in Notes) and no senior secured Indebtedness outstanding. The Intercreditor Agreement provides that, upon an enforcement event or insolvency proceeding, proceeds from such Collateral will be applied first to satisfy such letter of credit obligations and then to satisfy our obligations with respect to the Notes and any Additional Pari-Passu Lien Obligations secured on a pari-passu basis with the Notes.

Security

General

The Notes and the Guarantees are secured by Liens (the “Pari-Passu Liens”) granted by the Issuers, the initial Guarantors and any future Guarantor on substantially all of the assets of the Issuers and the Guarantors (whether now owned or hereafter arising or acquired) other than Excluded Property (defined below), which Pari-Passu Liens are subject to Permitted Liens and other encumbrances described in the Indenture and the Security Documents (collectively, the “Collateral”). The Pari-Passu Liens are shared with the lenders under the letter of

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credit facility, which also have the benefit of a priority allocation of enforcement proceeds. No Person other than the Holders of Notes may have a security interest in any of the Collateral except holders of Permitted Liens. Some of the types of Permitted Liens have priority with respect to the Collateral by operation of law, and some of the types of Permitted Liens pertaining to certain real estate will be granted priority by agreement with us in the ordinary course of our real estate development business.

The Collateral does not include (collectively, the “Excluded Property”) (a) except to secure the LC Facility Obligations, any pledges of stock of a Guarantor to the extent that Rule 3-16 of Regulation S-X under the Securities Act requires or would require (or is replaced with another rule or regulation, or any other law, rule or regulation is adopted, that would require) the filing with the Commission of separate financial statements of such Guarantor that are not otherwise required to be filed, but only to the extent necessary to not be subject to such requirement, (b) personal property where the cost of obtaining a security interest or perfection thereof exceeds its benefits (as reasonably determined by the Company’s Governing Body in a resolution delivered to the Collateral Agent), (c) real property subject to a Lien securing Indebtedness Incurred for the purpose of financing the acquisition thereof (to the extent the creation of additional security interests in such property is prohibited by contract), (d) assets, with respect to which any applicable law or contract (including certain profit and price participation arrangements) prohibits the creation or perfection of security interests therein, or that otherwise results in a default, waiver or termination of rights or privileges arising under such law or contract, (e) all trademarks, trade names and other intellectual property bearing the name “Shea” or a variant thereof (provided that the Holders of Notes shall have a non-exclusive license to use such intellectual property in connection with the exercise of remedies upon an Event of Default), (f) cash collateral supporting (1) deductible, retention and other obligations to insurance carriers, (2) reimbursement claims in respect of letters of credit and surety providers, (3) contingent claims arising in respect of community facility district, metro-district, Mello-Roos, subdivision improvement bonds and similar obligations arising in the ordinary course of business of a homebuilder and (4) cash management services, (g) equity interests in joint ventures with respect to which the agreements governing such joint ventures prohibit the creation or perfection of security interests in such equity interests, (h) any leasehold interests in real property, (i) any real property in a community under development with a dollar amount of investment as of the most recent quarter end (as determined in accordance with GAAP) of less than $2.0 million or with less than 10 lots remaining unsold (to the extent the Company does not create a Pari-Passu Lien in such property), (j) deposit accounts and securities accounts with an aggregate balance for all such excluded accounts not to exceed $2.0 million in aggregate amount, or established solely for purposes of funding payroll, trust and other compensation benefits to employees and (k) all vehicles covered by a certificate of title.

If (i) property (other than Excluded Property) is acquired by either the Company, the Corporate Issuer or a Guarantor that is not automatically subject to a perfected security interest under the Security Documents, (ii) certain property initially classified as Excluded Property no longer qualifies as Excluded Property or (iii) a Restricted Subsidiary becomes a Guarantor, then the applicable Issuer or Guarantor will, as soon as practical after such property is acquired or is no longer classified as Excluded Property, or in the case of clause (iii), as soon as practical after such Restricted Subsidiary becomes a Guarantor, grant Liens in such property (or, in the case of a Restricted Subsidiary that becomes a Guarantor, all of its assets except Excluded Property) in favor of the Collateral Agent, cause the Liens to be duly perfected and deliver such certificates and opinions in respect thereof as required by the Indenture, the Intercreditor Agreement or the Security Documents.

In addition, the Indenture permits the Issuers and the Guarantors to grant additional Liens under specified circumstances, including certain additional Liens on the Collateral that may rank equally with the Liens securing the Notes or, in certain circumstances, senior to such Liens. See “—Ranking” and the definition of “Permitted Liens.”

The Collateral is pledged to Wells Fargo Bank, N.A. as collateral agent (together with any successor, the “Collateral Agent”), for the benefit of the Trustee, the Holders of the Notes, the lenders under the letter of credit facility and any future holders of Pari-Passu Lien Obligations.

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At September 30, 2011, the aggregate book value of the real property that constitutes part of the Collateral was approximately $793.6 million, which does not include the impact of inventory investments, home deliveries or impairments thereafter and which may differ from the appraised value. In addition, cash that constitutes a part of the Collateral was approximately $193.0 million as of September 30, 2011. Subsequent to such date, cash uses include general business operations and real estate and other investments. The incremental value of the stock of Guarantors that would constitute a part of the Collateral securing the Notes is not meaningful because the underlying assets of such Guarantors have been separately pledged as Collateral. The fair market value of the Collateral is subject to fluctuations based on factors that include, among others, the condition of the homebuilding industry, our ability to implement our business strategy, the ability to sell the Collateral in an orderly sale, general economic conditions, the availability of buyers and similar factors. The amount to be received upon a sale of the Collateral would be dependent on numerous factors, including but not limited to the actual fair market value of the Collateral at such time and the timing and the manner of the sale. By its nature, portions of the Collateral may be illiquid and may have no readily ascertainable market value. Likewise, there can be no assurance that the Collateral will be saleable, or, if saleable, that there will not be substantial delays in its liquidation. To the extent that Liens (including Permitted Liens), rights or easements granted to third parties encumber assets located on property owned by either of the Issuers or any of the Guarantors, including the Collateral, such third parties may exercise rights and remedies with respect to the property subject to such Liens that could adversely affect the value of the Collateral and the ability of the Collateral Agent, the Trustee or the Holders of the Notes to realize or foreclose on Collateral. In the event of a foreclosure, liquidation, bankruptcy or similar proceeding, we cannot assure you that the proceeds from any sale or liquidation of the Collateral would be sufficient to pay our obligations under the Notes. If the proceeds of any of the Collateral were not sufficient to repay all amounts due on the Notes, the Holders of the Notes (to the extent not repaid from the proceeds of the sale of the Collateral) would have only an unsecured claim against the remaining assets of the Issuers and the Guarantors.

Liens with Respect to the Collateral

Priority

The terms of the Security Documents and the Intercreditor Agreement establish the relative priority among (1) the lenders under the letter of credit facility, (2) the Trustee and the holders of the Notes with respect to the security interest in the Collateral that is created by the Security Documents and secures the Notes Obligations and (3) the creditors extending credit to either of the Issuers or any Guarantor under any Additional Pari-Passu Lien Obligations that are permitted to be incurred under the Indenture and as to which either Issuer or such Guarantor, as applicable, may incur a Permitted Lien. The Security Documents and the Intercreditor Agreement provide that all obligations under the Notes, the LC Facility Obligations and any Additional Pari-Passu Lien Obligations are secured equally and ratably by a Pari-Passu Lien on the Collateral, but any liabilities in respect of the letter of credit facility will be repaid prior to the repayment of the Notes and any Additional Pari-Passu Lien Obligations secured on a pari-passu basis with the Notes, as described under “—Intercreditor Agreement.” The Security Documents and the Intercreditor Agreement also authorize and instruct the Collateral Agent to subordinate the Pari-Passu Lien under certain circumstances, as described under “—Intercreditor Agreement.”

Security Documents

On the Issue Date, the Issuers, the Guarantors, the Trustee, the administrative agent under the letter of credit facility and the Collateral Agent entered into the Security Documents establishing the terms of the security interests and Liens that secure the Notes, other than those Security Documents that were to be delivered within 90 days of the Issue Date. These security interests secure the payment and performance when due of all of the Obligations of the Issuers under the Notes, the Indenture, the letter of credit facility and the Security Documents. The Security Documents and the Collateral are administered by the Collateral Agent for the benefit of all holders of Pari-Passu Lien Obligations (including the LC Facility Obligations, the Notes Obligations and any Additional Pari-Passu Lien Obligations).

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Subject to the terms of the Security Documents, the Issuers and the Guarantors will have the right to remain in possession and retain exclusive control of the Collateral securing the Notes (except as set forth in the Security Documents), to freely operate the Collateral and to collect, invest and dispose of any income from the Collateral.

The lenders under the letter of credit facility and the Trustee have, and by accepting a Note each holder thereof will be deemed to have:

• irrevocably appointed the Collateral Agent to act as its agent under the Security Documents and the Intercreditor Agreement; and

• irrevocably authorized the Collateral Agent to (1) perform the duties and exercise the rights, powers and discretions that are specifically given to it under the Security Documents, the Intercreditor Agreement or other documents to which it is a party, together with any other incidental rights, powers and discretions and (2) execute each document expressed to be executed by the Collateral Agent on its behalf.

Intercreditor Agreement

Generally

On May 10, 2011, the Trustee and the Collateral Agent entered into an Intercreditor Agreement (as the same may be amended, restated, supplemented or otherwise modified from time to time, the “Intercreditor Agreement”) with the Administrative Agent under the letter of credit facility.

The Intercreditor Agreement provides for the priorities and other relative rights among the Pari-Passu Lien Secured Parties, including, among other things, that:

(1) notwithstanding the date, time, method, manner or order of grant, attachment or perfection of any Liens on the Collateral securing the Notes and the other Pari-Passu Lien Obligations, the Liens securing all Pari-Passu Lien Obligations shall be of equal priority; provided, however, that any liabilities in respect of the letter of credit facility will be repaid prior to the repayment of the Notes and any Additional Pari-Passu Lien Obligations secured on a pari-passu basis with the Notes; and

(2) the Obligations in respect of the Notes and the other Pari-Passu Lien Obligations may be increased, extended, renewed, replaced, restated, supplemented, restructured, refunded, refinanced or otherwise amended from time to time (including, without the consent of the Holders, to add other parties holding Pari-Passu Lien Obligations permitted to be Incurred under the Indenture, the letter of credit facility and the Intercreditor Agreement), in each case, to the extent permitted by the Pari-Passu Lien Documents.

Enforcement of the Security

The lenders under the letter of credit facility are represented under the Intercreditor Agreement by the Administrative Agent and the Holders are represented under the Intercreditor Agreement by the Trustee. In the future, to the extent that the Company or any Restricted Subsidiary incurs Additional Pari-Passu Lien Obligations, the Company will designate such Additional Pari-Passu Lien Obligations as such under the Intercreditor Agreement by providing notice to such effect, together with an Officers’ Certificate certifying that such Additional Pari-Passu Lien Obligations (and the Liens associated therewith) have been incurred in compliance with the Indenture (and the other Pari-Passu Lien Documents), to the Collateral Agent. Upon such designation, the designated agent of the holders of such Additional Pari-Passu Lien Obligations shall deliver a joinder to the Intercreditor Agreement, thereby acknowledging that the terms of the Intercreditor Agreement shall be applicable to such holders. Under the Intercreditor Agreement, each of the Trustee, the Administrative Agent and each such designated agent of Additional Pari-Passu Lien Obligations shall be an “Authorized Representative” with respect to the applicable class of Pari-Passu Lien Obligations; in addition, the Administrative Agent under the letter of credit facility, in its capacity as the Authorized Representative of the holders of the LC Facility Obligations, shall be the “LC Facility Representative.”

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The Intercreditor Agreement contains procedures with respect to the coordination of instructions from the LC Facility Representative, acting as representative of the holders of the LC Facility Obligations, and the “Applicable Authorized Representative” (as defined below under “—Applicable Authorized Representative”), acting as representative for the particular class of Specified Pari-Passu Lien Obligations for which the Applicable Authorized Representative is the Authorized Representative (and not as representative of any other holders of Specified Pari-Passu Lien Obligations), with respect to the security interests in the Collateral. If (a) any Event of Default under the Indenture (or any event of default under the Pari-Passu Lien Document for which the Applicable Authorized Representative is the Authorized Representative) or an event of default under the documentation relating to LC Facility Obligations shall have occurred and be continuing, (b) an insolvency proceeding with respect to either of the Issuers or any Guarantor is occurring or (c) the LC Facility Obligations have been accelerated pursuant to applicable law, the Collateral Agent shall act in relation to the Collateral in accordance with the instructions of (i) on or prior to the date of the Discharge of LC Facility Obligations, the LC Facility Representative and the Applicable Authorized Representative, and (ii) after the date of the Discharge of LC Facility Obligations, the Applicable Authorized Representative. Any Person entitled to instruct the Collateral Agent to exercise any right or remedy with respect to the Collateral may give or refrain from giving instructions to the Collateral Agent to exercise or refrain from exercising the Collateral as it sees fit in accordance with the other provisions of the Security Documents and the Intercreditor Agreement.

Subject to the next succeeding paragraph, before giving any instructions to the Collateral Agent to exercise any right or remedy under the Security Documents and the Intercreditor Agreement with respect to the Collateral, the LC Facility Representative and the Applicable Authorized Representative will consult with one another and with the Collateral Agent in good faith, with a view to coordinating those instructions, for a period of up to 45 days or such shorter period as the LC Facility Representative and the Applicable Authorized Representative may agree.

The LC Facility Representative and the Applicable Authorized Representative shall not be obligated to consult in accordance with the immediately preceding paragraph if the LC Facility Representative and the Applicable Authorized Representative determine in good faith that to enter into such consultation and thereby delay the commencement of enforcement of the Collateral could reasonably be expected to have a material adverse effect on (A) their ability to enforce any of the security interests in the Collateral or (B) the realization of any proceeds of any enforcement of the security interests in the Collateral. If the instructions given to the Collateral Agent by the LC Facility Representative or the Applicable Authorized Representative conflict with the instructions given to the Collateral Agent by the other party: (i) the Collateral Agent shall promptly notify the LC Facility Representative and Applicable Authorized Representative and (ii) following such notification, the LC Facility Representative and such Applicable Authorized Representative shall consult with one another in good faith over the course of at least 15 days (the “Consultation Period”) with a view to resolving the conflict in such instructions, provided that the Consultation Period shall end immediately if the LC Facility Representative and the Applicable Authorized Representative determine in good faith that such consultation and thereby the delay in the enforcement of the security interest in the Collateral could reasonably be expected to have a material adverse effect on (A) their ability to enforce any of the security interests in the Collateral or (B) the realization of any proceeds of any enforcement of the security interests in the Collateral.

If, following the end of the Consultation Period, the Collateral Agent has not received consistent instructions from the LC Facility Representative and the Applicable Authorized Representative, the Collateral Agent shall enforce the security interests in the Collateral in accordance with the instructions of the LC Facility Representative.

Applicable Authorized Representative

As of the Issue Date, the Trustee is the Applicable Authorized Representative. The Trustee (or any successor Applicable Authorized Representative) will remain as such until such time as either (i) the Notes (or the applicable class of Specified Pari-Passu Lien Obligations represented by the then-Applicable Authorized Representative) do not represent the largest class of Specified Pari-Passu Lien Obligations (determined based on

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the aggregate principal amount of Indebtedness under such class of Specified Pari-Passu Lien Obligations then outstanding, taking into account the accretion of original issue discount with respect to any such Indebtedness issued at a discount) (a “Larger Holder Event”) or (ii) the occurrence of a Non-Controlling Authorized Representative Enforcement Date (such earlier date, the “Applicable Authorized Representative Change Date”). Following an Applicable Authorized Representative Change Date, either (x) in the event that a Larger Holder Event has occurred, the Authorized Representative under the largest class of Specified Pari-Passu Lien Obligations then outstanding and (y) in the event that a Non-Controlling Authorized Representative Enforcement Date has occurred, the Major Non-Controlling Authorized Representative, will become the Applicable Authorized Representative.

As of any date, the “Major Non-Controlling Authorized Representative” is the Authorized Representative of the second largest class of Specified Pari-Passu Lien Obligations then outstanding (determined on the same basis as described above for determining the largest class of Specified Pari-Passu Lien Obligations then outstanding). The “Non-Controlling Authorized Representative Enforcement Date” is the date that is 90 days (throughout which 90-day period the applicable Authorized Representative was the Major Non-Controlling Authorized Representative) after the occurrence of both (a) an event of default under the terms of the applicable class of Specified Pari-Passu Lien Obligations and (b) the Collateral Agent’s and each other Authorized Representative’s receipt of written notice from that Authorized Representative certifying that (i) such Authorized Representative is the Major Non-Controlling Authorized Representative and that an event of default with respect to the class of Specified Pari-Passu Lien Obligations represented by the Major Non-Controlling Authorized Representative has occurred and is continuing and (ii) such class of Specified Pari-Passu Lien Obligations is currently due and payable in full (whether as a result of acceleration thereof or otherwise) in accordance with the terms of that class of Specified Pari-Passu Lien Obligations; provided, however, that the Non-Controlling Authorized Representative Enforcement Date shall be stayed and shall not occur and shall be deemed not to have occurred with respect to any Collateral (1) at any time the Collateral Agent (pursuant to instructions from the LC Facility Representative or the Applicable Authorized Representative) has commenced and is pursuing any enforcement action with respect to such Collateral with reasonable diligence in light of the then-existing circumstances or (2) at any time the Company or any other grantor that has granted a security interest in such Collateral is then a debtor under or with respect to (or otherwise subject to) any insolvency or liquidation proceeding.

Subject to the discussion set forth under “—Enforcement of the Security” above, the (i) LC Facility Representative and the Applicable Authorized Representative or (ii) the Applicable Authorized Representative, as applicable, will have the sole right to instruct the Collateral Agent to act or refrain from acting with respect to the Collateral, and the Collateral Agent will not follow any instructions with respect to such Collateral from any other Person. No Authorized Representative of any Specified Pari-Passu Lien Obligations secured by the Collateral (other than the Applicable Authorized Representative) will instruct the Collateral Agent to commence any judicial or non-judicial foreclosure proceedings with respect to, seek to have a trustee, receiver, liquidator or similar official appointed for or over, attempt any action to take possession of, exercise any right, remedy or power with respect to, or otherwise take any action to enforce its interests in or realize upon, or take any other action available to it in respect of, the Collateral. Other than with respect to the application of proceeds resulting from realization upon the Collateral, the Collateral Agent, acting on the instructions of the LC Facility Representative or the Applicable Authorized Representative, may deal with the Collateral as if the LC Facility Obligations and the class of Specified Pari-Passu Lien Obligations then represented by the Applicable Authorized Representative were the only classes of Pari-Passu Lien Obligations outstanding. No Authorized Representative of any class of Specified Pari-Passu Lien Obligations (other than the Applicable Authorized Representative) may contest, protest or object to any foreclosure proceeding or action brought by the Collateral Agent (acting on the instructions of the LC Facility Representative and the Applicable Authorized Representative). The Collateral Agent, the LC Facility Representative and each other Authorized Representative will agree that it will not accept any Lien on any Collateral for the benefit of any Pari-Passu Lien Secured Parties (other than funds deposited for the discharge or defeasance of an applicable class of Pari-Passu Lien Obligations) other than pursuant to the Security Documents and the Intercreditor Agreement. Each Pari-Passu Lien Secured Party, including the Holders of the Notes by acceptance thereof, will be deemed to have agreed that it will not

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contest or support any other Person in contesting, in any proceeding (including any insolvency or liquidation proceeding), the perfection, priority, validity or enforceability of a Lien granted pursuant to the Security Documents, or any of the provisions of the Security Documents or the Intercreditor Agreement.

None of the Pari-Passu Lien Secured Parties may institute any suit or assert in any suit, bankruptcy, insolvency or other proceeding any claim against the Collateral Agent or any other Pari-Passu Lien Secured Party seeking damages from or other relief by way of specific performance, instructions or otherwise with respect to any Collateral. In addition, none of the Pari-Passu Lien Secured Parties may seek to have any Collateral or any part thereof marshaled upon any foreclosure or other disposition of such Collateral. If any Pari-Passu Lien Secured Party obtains possession of any Collateral or realizes any proceeds or payment in respect thereof, in each case, as a result of the enforcement of remedies, at any time prior to the discharge of each class of Pari-Passu Lien Obligations, then it must hold such Collateral, proceeds or payment in trust for the other Pari-Passu Lien Secured Parties and promptly transfer such Collateral, proceeds or payment to the Collateral Agent to be distributed in accordance with the provisions of the Intercreditor Agreement.

In addition, the Pari-Passu Lien Secured Parties shall authorize and instruct the Collateral Agent to execute and deliver such lien subordination, non-disturbance, attornment and other similar agreements as the Company may from time to time request so long as the Company certifies to the Collateral Agent that the Lien or other encumbrance proposed to be made senior in priority to the Lien held by the Collateral Agent is permitted to be incurred under the Pari-Passu Lien Documents and is a Permitted Priority Lien, as defined in the Indenture.

Application of Proceeds; Post-Petition Interest

The Intercreditor Agreement provides that the net proceeds from any sale, disposition or other realization of the Collateral upon the enforcement of the security for the Pari-Passu Lien Obligations (including for these purposes distributions of cash, securities or other property on account of the value of the Collateral in a bankruptcy case of either of the Issuers or any of the Guarantors) shall be applied to any LC Facility Obligations prior to any application to any Specified Pari-Passu Lien Obligations (including the Notes Obligations).

Subject to the rights of the holders of any Permitted Priority Liens, proceeds received upon a realization of the Collateral will be applied as follows:

first, to the payment of all costs and expenses incurred by the Collateral Agent in connection with the collection of proceeds or sale of any Collateral or otherwise in connection with the Security Documents and the Intercreditor Agreement, including all court costs and the fees and expenses of its agents and legal counsel, the repayment of all advances made by the Collateral Agent on behalf of either of the Issuers or any Guarantor and any other costs or expenses incurred in connection with the exercise of any right or remedy of any of the Pari-Passu Lien Secured Parties;

second, to the payment of any Obligations in respect of any expense reimbursements or indemnities then due to any of the Authorized Representatives, in their capacities as such;

third, to the payment of all LC Facility Obligations on a pro rata basis based on the respective amounts of LC Facility Obligations then outstanding; and

fourth, to the payment of any Specified Pari-Passu Lien Obligations (including the Notes Obligations) on a pro rata basis based on the respective amounts of such Specified Pari-Passu Lien Obligations then outstanding.

In a bankruptcy case of either of the Issuers or any Guarantor, the holders of the LC Facility Obligations will be entitled to receive all Post-Petition Interest accruing thereon, whether or not allowable in such bankruptcy case, prior to the Holders of the Notes receiving any payments in respect of the Notes Obligations. If it is held that the claims with respect to the LC Facility Obligations and the Specified Pari-Passu Lien Obligations constitute only one secured class (rather than separate classes for the LC Facility Obligations and the Specified Pari-Passu Lien Obligations), all distributions in such bankruptcy case shall be made as if there were separate

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classes of claims, with the effect being that, to the extent that the aggregate value of the Collateral is sufficient (for this purpose ignoring all Specified Pari-Passu Lien Obligations), the holders of the LC Facility Obligations shall be entitled to receive, in addition to amounts distributed to them in respect of principal, pre-petition interest and other claims, all amounts owing in respect of Post-Petition Interest before any distribution is made in respect of the Specified Pari-Passu Lien Obligations. The Collateral Agent, the Trustee and the Holders of the Notes agree to turn over to the holders of the LC Facility Obligations amounts otherwise received or receivable by them to the extent necessary to effectuate the intent of the foregoing, even if such turnover has the effect of reducing their claim or recovery.

Release of Liens

Under the Intercreditor Agreement, if at any time the Applicable Authorized Representative forecloses upon or otherwise exercises remedies against any Collateral, then (whether or not any insolvency or liquidation proceeding is pending at the time) the Liens in favor of the Collateral Agent for the benefit of the Trustee and the holders of the Notes and each other class of Pari-Passu Secured Parties upon such Collateral will automatically be released and discharged. However, any proceeds of any Shared Collateral realized therefrom will be applied as described under “—Intercreditor Agreement.”

The Security Documents, the Intercreditor Agreement and the Indenture provide that the Pari-Passu Liens securing the Guarantee of any Guarantor will be automatically released when such Guarantor’s Guarantee is released in accordance with the terms of the Indenture. In addition, the Pari-Passu Liens securing the Notes will be released:

(a) upon discharge of the Indenture or defeasance of the Notes as set forth below under “—Discharge and Defeasance of Indenture,”

(b) upon payment in full of principal, interest and all other Obligations on the Notes issued under the Indenture,

(c) with the consent of the requisite Holders of the Notes in accordance with the provisions under “—Amendment, Supplement and Waiver,” including consents obtained in connection with a tender offer or exchange offer for, or purchase of, Notes, and

(d) in connection with any disposition of Collateral to any Person other than the Company, the Corporate Issuer or any Guarantor (but excluding any transaction subject to “Certain Covenants—Limitations on Mergers, Consolidations and Sales of Assets” where the recipient is required to become the obligor on the Notes or a Guarantee) that is permitted by the Indenture (with respect to the Lien on such Collateral).

To the extent applicable, the Issuers will comply with Section 313(b) of the TIA, relating to reports, and Section 314(d) of the TIA, relating to the release of property and to the substitution therefor of any property to be pledged as Collateral for the Notes. Any certificate or opinion required by Section 314(d) of the TIA may be made by Officers of the Issuers except in cases where Section 314(d) requires that such certificate or opinion be made by an independent engineer, appraiser or other expert, who shall be reasonably satisfactory to the Trustee. Notwithstanding anything to the contrary herein, the Issuers and the Guarantors will not be required to comply with all or any portion of Section 314(d) of the TIA if they determine, in good faith based on advice of counsel (which may be internal counsel), that under the terms of that section and/or any interpretation or guidance as to the meaning thereof of the Commission and its staff, including “no-action” letters or exemptive orders, all or any portion of Section 314(d) of the TIA is inapplicable to the released Collateral. Without limiting the generality of the foregoing, certain no-action letters issued by the Commission have permitted an indenture qualified under the TIA to contain provisions permitting the release of collateral from Liens under such indenture in the ordinary course of the issuer’s business without requiring the issuer to provide certificates and other documents under Section 314(d) of the TIA. In addition, under interpretations provided by the Commission, to the extent that a release of a Lien is made without the need for consent by the Holders or the Trustee, the provisions of Section 314(d) may be inapplicable to the release.

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No Impairment of the Security Interests

Neither of the Issuers nor any of the Guarantors are permitted to take any action, or knowingly or negligently omit to take any action, which action or omission would reasonably be expected to materially impair the security interest with respect to the Collateral for the benefit of the Collateral Agent, the Trustee and the Holders of the Notes.

The Indenture provides that any actions taken in compliance with (or otherwise contemplated by) the Indenture, the Intercreditor Agreement and the Security Documents, including without limitation, any release of Collateral in accordance with the provisions thereof, will be deemed not to impair the security under the Indenture, and that any engineer, appraiser or other expert may rely on such provision in delivering a certificate requesting release so long as all other provisions of the Indenture with respect to such release have been complied with.

The Guarantees

Each of the Guarantors have guaranteed on a joint and several basis all of the Issuers’ obligations under the Notes and the Indenture, including the Issuers’ obligations to pay principal, premium, if any, and interest with respect to the Notes. The obligations of each Guarantor are limited to the maximum amount which, after giving effect to all other contingent and fixed liabilities of such Guarantor and after giving effect to any collections from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under its Guarantee or pursuant to its contribution obligations under the Indenture, will result in the obligations of such Guarantor under its Guarantee not constituting a fraudulent conveyance or fraudulent transfer under federal or state law. Each Guarantor that makes a payment or distribution under a Guarantee shall be entitled to a contribution from each other Guarantor in an amount pro rata, based on the net assets of each Guarantor, determined in accordance with GAAP. Except as provided in “Certain Covenants” below, the Company is not restricted from selling or otherwise disposing of any of the Guarantors.

The initial Guarantors are all of the direct and indirect wholly-owned Subsidiaries of the Company on the Issue Date (other than (1) Partners Insurance Company and (2) any other wholly owned Subsidiary of the Issuers that is prohibited from becoming a Guarantor as a result of any requirement of law, rule or regulation binding on such Subsidiary or as a result of an existing contractual limitation when a waiver is not reasonably able to be obtained), Vistancia Marketing, LLC and Vistancia Construction, LLC. After the Issue Date, additional wholly-owned Subsidiaries of the Issuers (other than any wholly owned Subsidiary that is prohibited from becoming a Guarantor as a result of any requirement of law, rule or regulation binding on such Subsidiary) may from time to time become Guarantors to the extent required by the covenant described under “—Certain Covenants—Future Guarantors.” All Guarantors of the Notes also guarantee the Company’s obligations under the letter of credit facility.

The Indenture provides that if all or substantially all of the assets of any Guarantor or all of the Equity Interests of any Guarantor is sold (including by consolidation, merger, issuance or otherwise) or disposed of (including by liquidation, dissolution or otherwise) by the Company or any of its Subsidiaries, or, unless the Company elects otherwise, if any Guarantor is designated an Unrestricted Subsidiary in accordance with the terms of the Indenture, then such Guarantor (in the event of a sale or other disposition of all of the Equity Interests of such Guarantor or a designation as an Unrestricted Subsidiary) or the Person acquiring such assets (in the event of a sale or other disposition of all or substantially all of the assets of such Guarantor) shall be deemed automatically and unconditionally released and discharged from any of its obligations under the Indenture without any further action on the part of the Trustee or any Holder of the Notes.

An Unrestricted Subsidiary that is a Guarantor shall be deemed automatically and unconditionally released and discharged from all obligations under its Guarantee upon notice from the Company to the Trustee to such effect, without any further action required on the part of the Trustee or any Holder.

A sale of assets or Equity Interests of a Guarantor may constitute an Asset Disposition subject to the “Limitations on Asset Dispositions” covenant described under “—Certain Covenants.”

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Optional Redemption

The Notes are redeemable, in whole or in part, at the option of the Issuers only as set forth below.

At any time or from time to time prior to May 15, 2015, the Issuers are entitled at their option to redeem all or a portion of the Notes at a redemption price equal to 100% of the principal amount of the Notes plus the Applicable Premium as of, and accrued and unpaid interest to, the redemption date (subject to the right of Holders on the relevant record date to receive interest due on the relevant interest payment date).

At any time or from time to time on and after May 15, 2015, the Issuers will be entitled at their option to redeem all or a portion of the Notes at the redemption prices (expressed in percentages of principal amount on the redemption date), plus accrued and unpaid interest to the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date), if redeemed during the 12-month period commencing on May 15 of the years set forth below:

Period	Redemption Price
2015		104.313%
2016		102.156%
2017 and thereafter		100.000%

In addition, at any time prior to May 15, 2014, the Issuers are entitled at their option on one or more occasions to redeem the Notes (which includes Additional Notes, if any) in an aggregate principal amount not to exceed 35% of the aggregate principal amount of the Notes (which includes Additional Notes, if any) originally issued at a redemption price (expressed as a percentage of principal amount) of 108.625%, plus accrued and unpaid interest to the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date), with the net cash proceeds from one or more Equity Offerings; provided, however, that

(1) at least 65% of such aggregate principal amount of Notes (which includes Additional Notes, if any) remains outstanding immediately after the occurrence of each such redemption (other than the Notes held, directly or indirectly, by the Company or Affiliates of the Company); and

(2) each such redemption occurs within 60 days after the date of the consummation of the related Equity Offering.

“Applicable Premium” means with respect to a Note at any redemption date, the excess of (A) the present value at such redemption date of (1) the redemption price of such Note on May 15, 2015 (such redemption price being described in the third paragraph in this “—Optional Redemption” section exclusive of any accrued interest) plus (2) all required remaining scheduled interest payments due on such Note through May 15, 2015 (but excluding accrued and unpaid interest to the redemption date), computed using a discount rate equal to the Adjusted Treasury Rate, over (B) the principal amount of such Note on such redemption date.

“Adjusted Treasury Rate” means, with respect to any redemption date, (i) the yield, under the heading which represents the average for the immediately preceding week, appearing in the most recently published statistical release designated “H.15(519)” or any successor publication which is published weekly by the Board of Governors of the Federal Reserve System and which establishes yields on actively traded United States Treasury securities adjusted to constant maturity under the caption “Treasury Constant Maturities,” for the maturity corresponding to the Comparable Treasury Issue (if no maturity is within three months before or after May 15, 2015, yields for the two published maturities most closely corresponding to the Comparable Treasury Issue shall be determined and the Adjusted Treasury Rate shall be interpolated or extrapolated from such yields on a straight line basis, rounding to the nearest month) or (ii) if such release (or any successor release) is not published during the week preceding the calculation date or does not contain such yields, the rate per year equal to the semi-annual equivalent yield to maturity of the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such redemption date, in each case calculated on the third Business Day immediately preceding the redemption date, plus 0.50%.

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“Comparable Treasury Issue” means the United States Treasury security selected by the Quotation Agent as having a maturity comparable to the remaining term of the Notes from the redemption date to May 15, 2015, that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of a maturity most nearly equal to May 15, 2015.

“Comparable Treasury Price” means, with respect to any redemption date, if clause (ii) of the Adjusted Treasury Rate is applicable, the average of three, or such lesser number as is obtained by the Trustee, Reference Treasury Dealer Quotations for such redemption date.

“Quotation Agent” means the Reference Treasury Dealer selected by the Issuers after consultation with the Trustee.

“Reference Treasury Dealer” means Credit Suisse Securities (USA) LLC and two other primary U.S. Government securities dealers in New York City (each, a “Primary Treasury Dealer”), and their respective successors and assigns; provided, however, that if any such entity ceases to be a Primary Treasury Dealer, the Company shall substitute therefor another Primary Treasury Dealer.

“Reference Treasury Dealer Quotations” means with respect to each Reference Treasury Dealer and any redemption date, the average, as determined by the Trustee, of the bid and asked prices for the Comparable Treasury Issue, expressed in each case as a percentage of its principal amount, quoted in writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m., New York City time, on the third business day immediately preceding such redemption date.

Selection and Notice

If less than all of the Notes are to be redeemed at any time, the Trustee will select Notes for redemption on a pro rata basis, by lot or by such other method as the Trustee in its sole discretion shall deem appropriate and fair. Notice of each redemption must be mailed by first-class mail to each Holder’s registered address, not less than 30 nor more than 60 days prior to the applicable redemption date.

No Notes of $2,000 in original principal amount or less shall be redeemed in part. Notices of redemption may not be conditional.

If any Note is to be redeemed in part only, the notice of redemption that relates to that Note shall state the portion of the principal amount thereof to be redeemed. A new Note in principal amount equal to the unredeemed portion of the original Note will be issued in the name of the Holder thereof upon cancellation of the original Note. Notes called for redemption become due on the date fixed for redemption. On and after the redemption date, interest ceases to accrue on Notes or portions of them called for redemption.

Mandatory Redemption; Offers to Purchase; Open Market Purchases

The Issuers are not required to make any mandatory redemption or sinking fund payments with respect to the Notes. However, under certain circumstances, the Issuers may be required to offer to purchase Notes as described under “Certain Covenants—Change of Control” and “Certain Covenants—Limitations on Asset Dispositions.” In addition, the Issuers may at any time and from time to time purchase Notes in the open market or otherwise.

Certain Covenants

The following is a summary of certain covenants that are contained in the Indenture. Such covenants are applicable (unless waived or amended as permitted by the Indenture) so long as any of the Notes are outstanding or until discharge of the Indenture or the Notes are defeased pursuant to provisions described under “Discharge and Defeasance of Indenture.”

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Change of Control

In the event that there shall occur a Change of Control, each Holder of the Notes shall have the right, at such Holder’s option, to require the Issuers to purchase all or any part of such Holder’s Notes (a “Change of Control Offer”) on a date (the “Repurchase Date”) that is no later than 90 days after notice of the Change of Control, at 101.0% of the principal amount thereof plus accrued and unpaid interest, if any, to the Repurchase Date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date).

On or before the thirtieth day after any Change of Control, the Issuers are obligated to mail or cause to be mailed to all Holders of record of the Notes with a copy to the Trustee, a notice stating (i) that a Change of Control has occurred and each Holder has a right to require the Issuers to purchase such Holder’s Notes at 101.0% of the principal amount thereof plus accrued and unpaid interest, if any, to the Repurchase Date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date), (ii) the Repurchase Date, (iii) the date by which the repurchase right must be exercised, and (iv) the procedure which the Holder must follow to exercise such right. To exercise such right, the Holder of such Note must deliver, at least ten days prior to the Repurchase Date, written notice to the Issuers (or an agent designated by the Issuers for such purpose) of the Holder’s exercise of such right, together with the Note with respect to which the right is being exercised, duly endorsed for transfer; provided, however, that if mandated by applicable law, a Holder may be permitted to deliver such written notice nearer to the Repurchase Date than may be specified by the Issuers.

The Issuers will comply with applicable law, including Section 14(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 14e-1 thereunder, if applicable, if the Issuers are required to give a notice of a right of repurchase as a result of a Change of Control. To the extent that the provisions of any securities laws or regulations conflict with the provisions of the covenant described hereunder, the Issuers shall comply with the applicable securities laws and regulations and shall not be deemed to have breached their obligations under the covenant described hereunder by virtue thereof.

With respect to any disposition of assets, the phrase “all or substantially all” as used in the Indenture (including in the definition of “Change of Control”) varies in meaning according to the facts and circumstances of the subject transaction, has no clearly established meaning under New York law (which governs the Indenture) and is subject to judicial interpretation. Accordingly, in certain circumstances, upon a sale of less than all of the assets of the Company, there may be a degree of uncertainty in ascertaining whether a particular transaction would involve a disposition of “all or substantially all” of the assets of the Company, and therefore it may be unclear as to whether a Change of Control has occurred and whether the Holders have the right to require the Issuers to repurchase Notes.

None of the provisions relating to a repurchase upon a Change of Control is waivable by the Governing Body of either of the Issuers. The Company could, in the future, enter into certain transactions, including certain recapitalizations of the Company, that would not result in a Change of Control, but would increase the amount of Indebtedness outstanding at such time or otherwise affect the Company’s capital structure or credit ratings. Restrictions on our ability to Incur additional Indebtedness are contained in the covenants described under “Certain Covenants—Limitations on Indebtedness” and “Certain Covenants—Limitations on Liens.” Such restrictions in the Indenture can be waived only with the consent of the Holders of a majority in principal amount of the Notes then outstanding. Except for the limitations contained in such covenants, however, the Indenture does not contain any covenants or provisions that may afford Holders of the Notes protection in the event of a highly leveraged transaction.

The Indenture requires the payment of money for Notes or portions thereof validly tendered to, and accepted for payment by, the Issuers pursuant to a Change of Control Offer. In the event that a Change of Control has occurred under the Indenture, a change of control may also have occurred under the instruments governing the Company’s other Indebtedness or instruments that the Company enters into to govern any future Indebtedness

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permitted to be Incurred under the Indenture. If a Change of Control were to occur, there can be no assurance that the Issuers would have sufficient funds to pay the purchase price for all the Notes and amounts due under other Indebtedness that the Company may be required to repurchase or repay or that the Company or the other Guarantors would be able to make such payments. In the event that the Issuers were required to purchase outstanding Notes pursuant to a Change of Control Offer, the Company expects that it would need to seek third-party financing to the extent the Issuers do not have available funds to enable them to meet their purchase obligations. However, there can be no assurance that the Company would be able to obtain such financing.

Failure by the Issuers to purchase the Notes when required upon a Change of Control will constitute an Event of Default with respect to the Notes.

The Change of Control purchase feature of the Notes may in certain circumstances make more difficult or discourage a sale or takeover of the Company and, thus, the removal of incumbent management. We have no present intention to engage in a transaction involving a Change of Control, although it is possible that we could decide to do so in the future.

Limitations on Indebtedness

The Indenture provides that the Company will not, and will not cause or permit any Restricted Subsidiary to, directly or indirectly, create, incur, assume, become liable for or guarantee the payment of (collectively, “Incur”) any Indebtedness (including Acquired Indebtedness) unless, immediately after giving effect thereto and the application of the proceeds therefrom, the Consolidated Fixed Charge Coverage Ratio on the date thereof would be at least 2.0 to 1.0 (any such Indebtedness Incurred pursuant to this paragraph being herein referred to as “Coverage Indebtedness”).

The provisions described in the immediately-preceding paragraph will not apply to the Incurrence of any of the following items of Indebtedness (collectively, “Permitted Indebtedness”):

(1) Indebtedness of the Company or any Guarantor under letters of credit not in excess of $75.0 million aggregate principal amount outstanding at any one time; provided, however, that such $75.0 million shall be reduced to the extent such letters of credit are drawn upon and the use of proceeds thereof constitute Investments (other than Permitted Investments described in clauses (3), (8), (9) and (10) of the definition thereof);

(2) Indebtedness with respect to the Notes (and Exchange Notes) and Guarantees thereof, other than Additional Notes;

(3) Indebtedness (other than Indebtedness described in clauses (1) and (2) above) outstanding on the Issue Date after giving effect to the anticipated use of proceeds from the sale of the Notes;

(4) Indebtedness owed to and held by the Company, the Corporate Issuer or a Restricted Subsidiary; provided, however, that (A) any subsequent issuance or transfer of any Equity Interests which results in any such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any subsequent transfer of such Indebtedness (other than to the Company, the Corporate Issuer or a Restricted Subsidiary) shall be deemed, in each case, to constitute the Incurrence of such Indebtedness by the obligor thereon and (B) if the Company or the Corporate Issuer is the obligor on such Indebtedness, such Indebtedness is expressly subordinated to the prior payment in full in cash of all obligations with respect to the Notes;

(5) Indebtedness of the Company or any Restricted Subsidiary under any Interest Protection Agreements in a notional amount no greater than the outstanding principal amount (at the time the related Interest Protection Agreement is entered into) of the Indebtedness being hedged;

(6) Purchase Money Indebtedness and Capitalized Lease Obligations Incurred by the Company or any Restricted Subsidiary in connection with the acquisition of equipment and fixtures or other property in an aggregate principal amount outstanding at any one time (including all Refinancing Indebtedness Incurred to

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Refinance any Indebtedness Incurred pursuant to this clause (6)) not to exceed $10.0 million (which amount shall not include any obligations that would not be required to be classified or accounted for as Capital Lease Obligations in accordance with GAAP as of March 31, 2011, without giving effect to any changes therein after the Issue Date);

(7) to the extent a portion of the Notes (other than Additional Notes) are redeemed or repurchased and retired, Indebtedness of the Company or any Guarantor in an aggregate amount (including all Refinancing Indebtedness Incurred to Refinance any Indebtedness Incurred pursuant to this clause (7)) not to exceed the lesser of (x) 75% of the aggregate principal amount of the Notes so redeemed or repurchased and retired and (y) $100.0 million;

(8) Indebtedness of the Company or any Guarantor which, together with all other Indebtedness Incurred under this clause (8), including all Indebtedness Incurred to Refinance any Indebtedness Incurred under this clause (8), does not exceed $25.0 million aggregate principal amount outstanding at any one time;

(9) all obligations under any arrangement (including (x) adjustments to land purchase price and (y) profit participations) by which future payments are due to the sellers of real property acquired by either of the Issuers or any Restricted Subsidiary after a specified period of time following such acquisition or at the time of the subsequent sale of the subject real property, which future payments (i) are based on the subsequent sale price of the subject real property, the allocated costs of developing the subject real property or an amount specified at the time of such acquisition and (ii) may include fixed minimum amounts in respect of such arrangements and true-up payments;

(10) Refinancing Indebtedness Incurred by the Company or any Guarantor in respect of (i) any Coverage Indebtedness or (ii) any Permitted Indebtedness Incurred pursuant to clause (2) or (3) or this clause (10);

(11) bank overdrafts arising in the ordinary course of business;

(12) obligations under an agreement with any government authority, adjoining (or common masterplan) landowner or seller of real property, in each case entered into in the ordinary course of business in connection with the acquisition of real property, to entitle, develop or construct infrastructure thereupon;

(13) Indebtedness deemed to exist pursuant to the terms of a joint venture agreement as a result of the failure of the Company or any Restricted Subsidiary to make a required capital contribution therein; provided, however, that the only recourse on such Indebtedness is limited to the Company’s or such Restricted Subsidiary’s equity interests in the related joint venture;

(14) obligations relating to, and guarantees and pledges of assets Incurred in the ordinary course of business in respect of, (x) surety bonds and (y) payments due in respect of community facility district, metro-district, Mello-Roos, subdivision improvement and similar bonding requirements;

(15) repayment guarantees that constitute Investments made pursuant to the JV Payment Basket; provided, however, that, after giving effect to such guarantees, the Company could invest least $1.00 in a Restricted Investment pursuant to clause (M) of the second paragraph under the covenant described in “—Limitations on Restricted Payments”;

(16) Indebtedness that is Non-Recourse Indebtedness with respect to the Company and the Restricted Subsidiaries;

(17) any guarantee by the Company or any Guarantor of any Coverage Indebtedness or any Permitted Indebtedness (other than Permitted Indebtedness incurred pursuant to clause (13) or (16) above); provided, however, that in the event such Indebtedness that is being guaranteed is subordinated to the Notes or a Guarantee, as the case may be, then the related guarantee shall be subordinated in right of payment to the Notes or such Guarantee, as the case may be; and

(18) any Indebtedness Incurred by the Corporate Issuer as a co-issuer or co-guarantor of such Indebtedness with the Company.

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For purposes of determining compliance with this covenant:

(1) in the event that an item of Indebtedness (or any portion thereof) meets the criteria of more than one of the types of Indebtedness permitted above, the Issuers, in their sole discretion, will classify such item of Indebtedness (or any portion thereof) at the time of Incurrence and will only be required to include the amount and type of such Indebtedness in one of the categories of Permitted Indebtedness or as Coverage Indebtedness;

(2) the Company will be entitled to divide and classify an item of Indebtedness in more than one of the types of Indebtedness permitted above; and

(3) any Permitted Indebtedness originally classified as Incurred pursuant to one of the clauses in the immediately preceding paragraph (other than pursuant to clause (1)) may later be reclassified by the Company such that it will be deemed as having been Incurred as Coverage Indebtedness or as Permitted Indebtedness pursuant to another clause in the immediately preceding paragraph, as applicable, to the extent that such reclassified Indebtedness could be Incurred pursuant thereto at the time of such reclassification.

The Indenture also provides that the Company will not, and will not cause or permit any Guarantor to, directly or indirectly, Incur any Indebtedness that purports to be by its terms (or by the terms of any agreement governing such Indebtedness) subordinated to any other Indebtedness of the Company or of such Guarantor, as the case may be, unless such Indebtedness is also by its terms (or by the terms of any agreement governing such Indebtedness) made expressly subordinated to the Notes or the Guarantee of such Guarantor, as the case may be, to the same extent and in the same manner as such Indebtedness is subordinated to such other Indebtedness of the applicable Issuer or such Guarantor, as the case may be.

Limitations on Restricted Payments

The Indenture provides that the Company will not, and will not cause or permit any Restricted Subsidiary to, directly or indirectly, make any Restricted Payment unless:

(1) no Default shall have occurred and be continuing at the time of or immediately after giving effect to such Restricted Payment;

(2) immediately after giving effect to such Restricted Payment, the Company could Incur at least $1.00 of Coverage Indebtedness pursuant to the “Limitations on Indebtedness” covenant; and

(3) immediately after giving effect to such Restricted Payment, the aggregate amount of all Restricted Payments (including the Fair Market Value of any non-cash Restricted Payment) declared or made on or after the Issue Date (other than those Restricted Payments described in clauses (C) through (M) of the next paragraph) does not exceed the sum of:

(a) 50% of the Consolidated Net Income of the Company on a cumulative basis during the period (taken as one accounting period) from and including the first day of the Company’s fiscal quarter during which the Issue Date occurs and ending on the last day of the Company’s fiscal quarter immediately preceding the date of such Restricted Payment (or in the event such Consolidated Net Income shall be a deficit, minus 100% of such deficit), plus

(b) 100% of the aggregate net cash proceeds of and the Fair Market Value of any Property or other asset received by the Company from (1) any capital contribution to the Company after the Issue Date or any issue or sale after the Issue Date of any Qualified Equity Interests and (2) the issue or sale after the Issue Date of any Indebtedness or other securities of the Company convertible into or exercisable for Qualified Equity Interests that have been so converted or exercised, plus

(c) in the case of a distribution on or disposition or repayment of any Restricted Investment, an amount (to the extent not included in the calculation of Consolidated Net Income referred to in (a)) equal to the lesser of (x) the return of capital with respect to such Investment (including by dividend,

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distribution or sale of Equity Interests) and (y) the amount of such Investment that was treated as a Restricted Payment, in either case, less the cost of the disposition or repayment of such Investment (to the extent not included in the calculation of Consolidated Net Income referred to in (a)), plus

(d) with respect to any Unrestricted Subsidiary that is redesignated as a Restricted Subsidiary after the Issue Date in accordance with the definition of Unrestricted Subsidiary (so long as the designation of such Subsidiary as an Unrestricted Subsidiary was treated as a Restricted Payment made after the Issue Date, and only to the extent not included in the calculation of Consolidated Net Income referred to in (a)), an amount equal to the lesser of (x) the proportionate interest of the Company or any Restricted Subsidiary in an amount equal to the excess of (I) the total assets of such Unrestricted Subsidiary, valued on an aggregate basis at the lesser of book value and Fair Market Value thereof, over (II) the total liabilities of such Unrestricted Subsidiary, determined in accordance with GAAP, and (y) the Designation Amount at the time of such Unrestricted Subsidiary’s designation as an Unrestricted Subsidiary.

The foregoing provisions will not prohibit:

(A) the payment of any dividend or redemption of any Equity Interests or Subordinated Indebtedness within 60 days after the date of declaration thereof or call for redemption if, at such date of declaration or call for redemption, such payment or redemption was permitted by the provisions of the preceding paragraph as of the date of declaration (and the payment itself will be deemed to have been paid on such date of declaration);

(B) any Restricted Payment made in exchange for, or out of the net proceeds of the substantially concurrent sale of, Qualified Equity Interests;

(C) the purchase, repayment, redemption, repurchase, defeasance or other acquisition or retirement for value by the Company of any Subordinated Indebtedness of the Corporate Issuer, the Company or any Restricted Subsidiary in exchange for, or out of proceeds of, Refinancing Indebtedness Incurred as permitted by and in compliance with the covenant described under “Limitations on Indebtedness”;

(D) Restricted Investments after the Issue Date not to exceed an aggregate amount (net of any returns of capital with respect to such Investments (including by dividend, distribution or sale)) of $10.0 million;

(E) Restricted Investments after the Issue Date in joint ventures not to exceed an aggregate amount (net of any returns of capital with respect to such Investments (including by dividend, distribution or sale)) of $100.0 million; provided, however, that, at the time any such Investment is made, the net book value of the Company’s inventory (including “work-in-progress” inventory, land held for development and land held for sale) and cash securing the Notes and any other Pari-Passu Lien Obligations is at least 275% of the aggregate principal amount of the Notes then outstanding plus the aggregate amount of such other Pari-Passu Lien Obligations;

(F) Restricted Payments made after the Issue Date in respect of Specified Obligations not to exceed $70.0 million; provided, however, that such Restricted Payments may exceed $70.0 million to the extent that the Company receives a cash equity contribution from JFSCI in the amount of such excess within 10 Business Days following such Restricted Payment;

(G) Tax Distributions (other than payments with respect to Specified Obligations);

(H) the purchase, repayment, redemption, repurchase, defeasance or other acquisition or retirement for value of Subordinated Indebtedness of the Company, the Corporate Issuer or any Restricted Subsidiary with the proceeds of the offering of the Notes as described in the Offering Circular dated as of May 3, 2011;

(I) the declaration and payment of dividends to holders of any class or series of Disqualified Equity Interests of the Company or any of its Restricted Subsidiaries issued in accordance with and to the extent permitted by the covenant described under “Certain Covenants—Limitations on Indebtedness”; provided, however, that, at the time of payment of such dividend, no Default shall have occurred and be continuing (or result therefrom);

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(J) repurchases of Equity Interests deemed to occur upon exercise of equity options or warrants if such Equity Interests represent a portion of the exercise price of such options or warrants;

(K) Restricted Payments that are made with Excluded Contributions;

(L) the repurchase, redemption or other acquisition or retirement for value of any Subordinated Indebtedness pursuant to provisions similar to those described under the captions “Certain Covenants—Change of Control” and “Certain Covenants—Limitations on Asset Dispositions;” provided, however, that all Notes tendered by Holders in connection with a Change of Control Offer or Asset Sale Offer, as applicable, have been purchased, redeemed, defeased or acquired for value; or

(M) Restricted Investments after the Issue Date in joint ventures (other than amounts expended in respect of Specified Obligations) in an amount not to exceed an aggregate amount (net of any returns of capital with respect to such Investments (including by dividend, distribution or sale)) of $70.0 million (any Investment made pursuant to this clause (M) being an Investment made pursuant to the “JV Payment Basket”).

For purposes of determining the aggregate and permitted amounts of Restricted Payments made, the amount of any guarantee of any Investment in any Person that was initially treated as a Restricted Payment and which was subsequently terminated or expired, net of any amounts paid by either of the Issuers or any Restricted Subsidiary in respect of such guarantee, shall be deducted.

Limitations on Transactions with Affiliates

The Indenture provides that the Company will not, and will not cause or permit any Restricted Subsidiary to, make any loan, advance, guarantee or capital contribution to, or for the benefit of, or sell, lease, transfer or otherwise dispose of any property or assets to or for the benefit of, or purchase or lease any property or assets from, or enter into or amend any contract, agreement or understanding with, or for the benefit of, (i) any Affiliate of the Company, (ii) any Affiliate of any of the Company’s Subsidiaries, (iii) any holder of 10% or more of the Common Equity of the Company or (iv) any Affiliates of such holders (collectively, “Affiliated Persons”), in a single transaction or series of related transactions (each, an “Affiliate Transaction”), except for any Affiliate Transaction the terms of which are at least as favorable as the terms which could reasonably be obtained by the Company or such Restricted Subsidiary, as the case may be, in a comparable transaction made on an arm’s-length basis with Persons who are not Affiliated Persons.

In addition, the Issuers will not, and will not cause or permit any Restricted Subsidiary to, enter into an Affiliate Transaction:

(1) in the case of transfers of real property involving more than $10.0 million, unless the consideration paid in respect thereof exceeds the greatest of not less than three Independent Valuations, and

(2) in all other cases:

(A) having a value of more than $2.0 million unless the terms of such Affiliate Transaction are set forth in writing and a majority of the Company’s Governing Body has determined in good faith that the criterion set forth in the immediately preceding paragraph has been satisfied, and

(B) having a value of more than $5.0 million unless the terms of such Affiliate Transaction are set forth in writing and the Company has received a written opinion from an Independent Qualified Party to the effect that such Affiliate Transaction is fair, from a financial standpoint, to the Company and its Restricted Subsidiaries or is not less favorable to the Company and its Restricted Subsidiaries than could reasonably be expected to be obtained at the time in an arm’s-length transaction with a Person who is not an Affiliated Person.

The Indenture also provides that notwithstanding the foregoing, an Affiliate Transaction will not include:

(1) any contract, agreement or understanding with, or for the benefit of, or plan for the benefit of, employees of the Company or its Subsidiaries generally (in their capacities as such) that has been approved by the Governing Body of the Company,

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(2) Equity Interests issuances to directors, officers and employees of the Company or its Subsidiaries pursuant to plans approved by the holders of Equity Interests of the Company,

(3) any Permitted Investment (other than Permitted Investments described in clause (3)(b) of the definition of “Permitted Investments”) or Restricted Payment permitted under the “Limitations on Restricted Payments” covenant,

(4) any transaction between or among the Company and one or more Restricted Subsidiaries or between or among Restricted Subsidiaries; provided, however, no such transaction shall involve any other Affiliated Person (other than an Unrestricted Subsidiary to the extent the applicable amount constitutes a Restricted Payment permitted by the Indenture),

(5) any transaction between one or more Restricted Subsidiaries and one or more Unrestricted Subsidiaries where all of the payments to, or other benefits conferred upon, such Unrestricted Subsidiaries are substantially contemporaneously dividended, or otherwise distributed or transferred without charge, to the Company or a Restricted Subsidiary,

(6) any Affiliate Transactions consummated in accordance with written agreements existing on the Issue Date with Affiliates, or entities in which an Affiliate owns an interest, including amendments thereto, that are no more favorable to the Affiliate in any material respect than the terms existing on the Issue Date;

(7) the payment of reasonable and customary fees to, and indemnity provided on behalf of, officers, directors, employees or consultants of the Company, the Corporate Issuer or any Restricted Subsidiary; and

(8) any transaction with an Affiliate that is a joint venture in which the Company or any Restricted Subsidiary has a direct or indirect equity interest so long as the other joint venture partners not constituting Affiliates of the Company approve the subject transaction.

Limitations on Asset Dispositions

The Indenture provides that the Company will not, and will not cause or permit any Restricted Subsidiary to, make any Asset Disposition unless:

(a) the Company (or such Restricted Subsidiary, as the case may be) receives consideration at the time of such Asset Disposition at least equal to the Fair Market Value thereof (or at least 90% of the Fair Market Value thereof in the case of a Sale/Leaseback Transaction of a model house), and

(b) not less than 70% of the consideration received by the Company (or such Restricted Subsidiary, as the case may be) is in the form of cash, Cash Equivalents and Marketable Securities.

The amount of (i) any Indebtedness (other than any Subordinated Indebtedness) of the Company or any Restricted Subsidiary that is actually assumed by the transferee in such Asset Disposition (provided that the Company or Restricted Subsidiary, as the case may be, making the Asset Disposition is released from its obligations with respect to such Indebtedness), (ii) any notes or other obligations received by the Issuers or any Restricted Subsidiary which are immediately converted into cash and (iii) the Fair Market Value of any Property or other asset (including Equity Interests of any Person that will be a Restricted Subsidiary following receipt thereof) received that are used or useful in a Real Estate Business (provided that to the extent that the assets disposed of in such Asset Disposition were Collateral, such property or assets are pledged as Collateral under the Security Documents substantially contemporaneously with such sale, to the extent required to do so pursuant to such Security Documents), shall be deemed to be consideration required by clause (b) above for purposes of determining the percentage of such consideration received by the applicable Issuer or Restricted Subsidiary.

The Net Cash Proceeds of an Asset Disposition shall, within one year of such Asset Disposition, at the Company’s election, (a) be used by the Company or a Restricted Subsidiary to invest in assets (including Equity Interests of any Person that is or will be a Restricted Subsidiary following investment therein) used or useful in the Real Estate Business of the Company and the Restricted Subsidiaries (provided that to the extent that the assets disposed of in such Asset Disposition were Collateral, such assets are pledged as Collateral under the

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Security Documents to the extent required to do so pursuant to such Security Documents, (b) be used to permanently prepay or permanently repay any (1) Indebtedness which had been secured by the assets sold in the relevant Asset Disposition or (2) Indebtedness of a Restricted Subsidiary that is not a Guarantor, to the extent the assets sold were not Collateral, or (c) be applied to make an offer to purchase Notes and, if the Company or a Restricted Subsidiary elects or is required to do so, to repay, purchase or redeem any other Pari-Passu Lien Obligations (or cash collateralize letters of credit that constitute Pari-Passu Lien Obligations Incurred in connection with Indebtedness Incurred pursuant to clause (1) of the definition of Permitted Indebtedness or a Credit Facility) and, if the Company or a Restricted Subsidiary elects or is required to do so and the assets disposed of were not Collateral, repay, purchase or redeem any unsubordinated Indebtedness (on a pro rata basis if the amount available for such repayment, purchase, redemption or cash collateralization is less than the aggregate amount of (i) the principal amount of the Notes tendered in such offer to purchase, (ii) the lesser of the principal amount, or accreted value, of such other Pari-Passu Lien Obligations tendered or to be repaid, redeemed, repurchased or cash collateralized and (iii) the lesser of the principal amount, or accreted value, of such unsubordinated Indebtedness tendered or to be repaid, repurchased or redeemed, plus, in each case, accrued interest to the date of repayment, purchase or redemption) at 100% of the principal amount or accreted value thereof, as the case may be, plus accrued and unpaid interest, if any, to the date of repurchase, repayment or redemption. Pending any such application under this paragraph, Net Cash Proceeds may be used to temporarily reduce Indebtedness or otherwise be invested in any manner not prohibited by the Indenture.

Any Net Cash Proceeds from the Asset Disposition that are not invested or applied as provided and within the time period set forth in the preceding paragraph (which will include the Fair Market Value of any Cash Equivalents and Marketable Securities received in connection with such Asset Disposition which have not been converted into cash) will be deemed to constitute “Excess Proceeds.” When the aggregate amount of Excess Proceeds exceeds $10.0 million, the Issuers shall make an offer to all Holders of the Notes and, if required by the terms of any Indebtedness that is pari-passu with the Notes (“Pari-Passu Indebtedness”), to the holders of such Pari-Passu Indebtedness (an “Asset Sale Offer”), to purchase the maximum aggregate principal amount (or accreted value, as applicable) of the Notes and such Pari-Passu Indebtedness that is an integral multiple of $1,000 that may be purchased out of the Excess Proceeds at an offer price in cash in an amount equal to 100% of the principal amount (or accreted value, as applicable) thereof, plus accrued and unpaid interest to the date fixed for the closing of such offer, in accordance with the procedures set forth in the Indenture. The Issuers will commence an Asset Sale Offer with respect to Excess Proceeds within ten Business Days after the date that Excess Proceeds exceed $10.0 million by delivering the notice required pursuant to the terms of the Indenture, with a copy to the Trustee.

To the extent that the aggregate amount of Notes and such Pari-Passu Indebtedness tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Issuers may use any remaining Excess Proceeds for general corporate purposes, subject to the other covenants contained in the Indenture. If the aggregate principal amount of Notes and the Pari-Passu Indebtedness surrendered by holders thereof exceeds the amount of Excess Proceeds, the Notes and such Pari-Passu Indebtedness will be purchased on a pro rata basis based on the principal amount (or accreted value, as applicable) of the Notes and such Pari-Passu Indebtedness tendered. Upon completion of any such Asset Sale Offer, the amount of Excess Proceeds shall be reduced by the amount of such Asset Sales Offer.

The Issuers will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws or regulations are applicable in connection with the repurchase of the Notes pursuant to an Asset Sale Offer. To the extent that the provisions of any securities laws or regulations conflict with the provisions of the Indenture, the Issuers will comply with the applicable securities laws and regulations and shall not be deemed to have breached their obligations described in the Indenture by virtue thereof.

Limitations on Liens

The Indenture provides that the Company will not, and will not cause or permit any Restricted Subsidiary to, create, Incur or suffer to exist any Liens, other than Permitted Liens, on any of their respective Properties.

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Limitation on Sale/Leaseback Transactions

The Indenture provides that the Company will not, and will not permit any Restricted Subsidiary to, enter into any Sale/Leaseback Transaction with respect to any property unless:

(1) the Company or such Restricted Subsidiary would be entitled to (A) Incur Indebtedness in an amount equal to the Attributable Debt with respect to such Sale/Leaseback Transaction pursuant to the covenant described under “—Limitations on Indebtedness” and (B) create a Lien on such property securing such Attributable Debt without equally and ratably securing the Notes pursuant to the covenant described under “—Limitation on Liens”;

(2) the net proceeds received by the Company or any Restricted Subsidiary in connection with such Sale/Leaseback Transaction are at least equal to the Fair Market Value of such property (or at least 90% of such Fair Market Value in the case of a Sale/Leaseback Transaction of a model house); and

(3) the Company applies the proceeds of such transaction in compliance with the covenant described under “—Limitations on Asset Dispositions.”

Limitations on Restrictions Affecting Restricted Subsidiaries

The Indenture provides that the Company will not, and will not cause or permit any Restricted Subsidiary to, create, assume or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to:

(1) pay dividends or make any other distributions on its Equity Interests or any other interest or participation in, or measured by, its profits, owned by the Company, the Corporate Issuer or any other Restricted Subsidiary, or pay interest on or principal of any Indebtedness owed to the Company or any other Restricted Subsidiary,

(2) make loans or advances to the Company, the Corporate Issuer or any other Restricted Subsidiary, or

(3) transfer any of its property or assets to the Company, the Corporate Issuer or any other Restricted Subsidiary.

The Indenture provides, notwithstanding the foregoing, that the encumbrances and restrictions referenced in the preceding clauses (1), (2) or (3) will not apply to:

(a) encumbrances or restrictions existing under or by reason of applicable law, including judicial or regulatory actions,

(b) contractual encumbrances or restrictions in effect at or entered into on the Issue Date,

(c) any restrictions or encumbrances arising under (A) Acquired Indebtedness or (B) appearing in any agreements acquired or assumed in connection with the acquisition of Property; provided, however, that such encumbrance or restriction applies only to either the assets that were subject to the restriction or encumbrance at the time of the acquisition or the obligor on such Indebtedness and its Subsidiaries prior to such acquisition,

(d) any Permitted Lien, or any other agreement restricting the sale or other disposition of property, if such Permitted Lien or agreement does not expressly restrict the ability of a Subsidiary of the Company to pay dividends or make or repay loans or advances prior to default thereunder,

(e) reasonable and customary borrowing base covenants set forth in agreements evidencing Indebtedness otherwise permitted by the Indenture,

(f) customary non-assignment provisions in leases, licenses, encumbrances, contracts or similar assets entered into or acquired in the ordinary course of business,

(g) any restriction with respect to a Restricted Subsidiary imposed pursuant to an agreement entered into for the sale or disposition of all or substantially all of the Equity Interests or assets of such Restricted Subsidiary pending the closing of such sale or disposition,

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(h) encumbrances or restrictions existing under or by reason of (A) the Indenture, the Notes or the Guarantees, (B) the letter of credit facility or (C) the definitive agreements governing any other Pari-Passu Indebtedness permitted to be Incurred subsequent to the Issue Date in accordance with the “Limitations on Indebtedness” covenant; provided, however, that in the case of clause (C), (x) either (i) the encumbrance or restriction applies only in the event of and during the continuance of a payment default or a default with respect to a financial covenant contained in such definitive agreements or (ii) the Company determines at the time any such Pari-Passu Indebtedness is Incurred (and at the time of any modification of the terms of any such encumbrance or restriction) that any such encumbrance or restriction will not materially affect the Company’s or any Restricted Subsidiary’s ability to make principal or interest payments on the Notes and any other Indebtedness that is an obligation of the Company or any Restricted Subsidiary, as applicable, and (y) the encumbrance or restriction is not materially more disadvantageous to the holders of the Notes than is customary in comparable financings or agreements (as determined by the Company in good faith),

(i) purchase money obligations that impose restrictions on the property so acquired of the nature described in clause (3) of this covenant,

(j) Liens permitted under the Indenture securing Indebtedness that limit the right of the debtor to dispose of the assets subject to such Lien,

(k) provisions with respect to the disposition or distribution of assets or property in joint venture agreements, assets sale agreements, stock sale agreements and other similar agreements,

(l) customary provisions of any franchise, distribution or similar agreements,

(m) restrictions on cash or other deposits or net worth imposed by contracts entered into in the ordinary course of business,

(n) any encumbrances or restrictions existing under (A) development agreements or other contracts entered into with municipal entities, agencies or sponsors in connection with the entitlement or development of real property or (B) agreements for funding of infrastructure, including in respect of the issuance of community facility district bonds, metro district bonds, mello-roos bonds and subdivision improvement bonds, and similar bonding requirements arising in the ordinary course of business of a homebuilder;

(o) any encumbrances or restrictions contained in any joint venture agreement entered into by the Company or any of its Restricted Subsidiaries, to the extent binding upon the assets of the relevant joint venture, together with any encumbrances or restrictions contained in any agreement entered into by any such joint venture; and

(p) any encumbrance or restrictions of the type referred to in clauses (1), (2) or (3) of this covenant imposed by any amendments, modifications, restatements, renewals, supplements, replacements or Refinancings of the contracts, instruments or obligations referred to in clauses (b), (c), (h) and (i) of this covenant; provided, however, that such amendments, modifications, restatements, renewals, supplements, replacements or Refinancings are, in the good faith judgment of the Company’s Governing Body, no more restrictive in any material respect with respect to such dividend and other payment restrictions than those contained in the dividend or other payment restrictions prior to such amendment, modification, restatement, renewal, supplement, replacement or Refinancing.

Limitations on Mergers, Consolidations and Sales of Assets

The Indenture provides that neither of the Issuers nor any of the Guarantors will consolidate or merge with or into, or sell, lease, convey or otherwise dispose of all or substantially all of its assets (including, without limitation, by way of liquidation or dissolution), or assign any of its obligations under the Notes, the Guarantees or the Indenture (as an entirety or substantially as an entirety in one transaction or in a series of related transactions), to any Person (in each case other than in a transaction in which the Company, the Corporate Issuer or a Guarantor is the survivor of a consolidation or merger, or the transferee in a sale, lease, conveyance or other disposition, liquidation or dissolution) unless:

(1) the Person formed by or surviving such consolidation or merger (if other than the Company, the Corporate Issuer or the Restricted Subsidiary as the case may be), or to which such sale, lease, conveyance

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or other disposition or assignment will be made (collectively, the “Successor”), is a corporation or other legal entity organized and existing under the laws of the United States or any state thereof or the District of Columbia, and the Successor assumes by supplemental indenture in a form reasonably satisfactory to the Trustee all of the obligations of the Company, the Corporate Issuer or the Restricted Subsidiary, as the case may be, under the Notes or a Guarantee, as the case may be, and the Indenture, the Intercreditor Agreement and the Security Documents,

(2) immediately after giving effect to such transaction, no Default has occurred and is continuing, and

(3) immediately after giving effect to such transaction, the Company (or its Successor) could Incur at least $1.00 of Coverage Indebtedness pursuant to the “Limitations on Indebtedness” covenant.

The foregoing provisions shall not apply to:

(a) a transaction involving the sale or disposition of Equity Interests of a Guarantor, or the consolidation or merger of a Guarantor, or the sale, lease, conveyance or other disposition of all or substantially all of the assets of a Guarantor, that in any such case results in such Guarantor being released from its Guarantee as provided under “The Guarantees” above, or

(b) a transaction the purpose of which is to change the state of incorporation of the Company, the Corporate Issuer or any Restricted Subsidiary,

(c) a liquidation or dissolution of any Restricted Subsidiary, other than the Corporate Issuer, or

(d) a sale, lease, conveyance or other disposition of all or substantially all of the assets of any Restricted Subsidiary in connection with the sale or wind-down of retail or other land sales by such Restricted Subsidiary.

Reports to Holders of Notes

The Indenture provides that the Company will (i) furnish to the Trustee, (ii) upon request, furnish to Holders and prospective holders of the Notes and (iii) prior to the earlier of (a) consummation of the Exchange Offer and (b) 360 days after the Issue Date, make publicly available on its website, a copy of all of the information and reports referred to in clauses (1) and (2) below within the time periods specified in the Commission’s rules and regulations applicable to the filing of the related reports:

(1) the description of the business of the Company and all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K if the Company were required to file such Forms, including a “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and, with respect to the annual information only, a report on the annual financial statements by the Company’s certified independent accountants; and

(2) all current reports that would be required to be filed with the Commission on Form 8-K if the Company were required to file such reports.

After the earlier of (a) consummation of the Exchange Offer and (b) 360 days after the Issue Date, whether or not the Company is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company will file with the Commission, subject to the next sentence, and provide the Trustee and Holders with, such annual and other reports as are specified in Sections 13 and 15(d) of the Exchange Act and applicable to a U.S. corporation subject to such Sections, such reports to be so filed and provided at the times specified for the filings of such reports under such Sections and containing all the information, audit reports and exhibits required for such reports. The Company will not take any action for the purpose of causing the Commission not to accept any such filings. If, notwithstanding the foregoing, the Commission will not accept any of the Company’s filings for any reason, the Company will post such reports on its website within the time periods that would apply if the Company were required to file those reports with the Commission. In addition, to the extent not satisfied by the foregoing, the Company will agree that, for so long as any Notes are outstanding, it will furnish to Holders and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.

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Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee’s receipt of them will not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Corporate Issuer’s and/or the Company’s compliance with any of its covenants in the Indenture (as to which the Trustee is entitled to rely exclusively on Officers’ Certificates).

Limitation on Line of Business

The Indenture provides that the Company will not, and will not permit any Restricted Subsidiary, to engage in any business other than a Real Estate Business.

Limitation on Co-Issuer

The Corporate Issuer may not hold any material assets (other than Indebtedness owing to the Corporate Issuer by the Company or any Restricted Subsidiary and non-material Cash Equivalents), become liable for any obligations or engage in any business activities (other than treasury, cash management and activities incidental thereto); provided, however, that the Corporate Issuer may be a co-obligor or co-guarantor with respect to the Notes or any other Indebtedness or other obligations if the Company is an obligor or guarantor of such Indebtedness or obligations. The Corporate Issuer shall be a wholly-owned Subsidiary of the Company at all times. At any time after the Company or any successor to the Company is a corporation, the Corporate Issuer may merge with or consolidate into the Company or any Subsidiary of the Company.

Limitations Relating to Partners Insurance Company

The Indenture provides that the Company will not permit Partners Insurance Company (i) to engage in any business other than its existing business on the Issue Date or (ii) to Incur any Indebtedness.

Future Guarantors

The Indenture provides that the Company will cause each wholly-owned Restricted Subsidiary (other than any wholly-owned Subsidiary that is prohibited from becoming a Guarantor as a result of any requirement of law, rule or regulation binding on such Subsidiary) that Incurs any Indebtedness to, contemporaneously, (i) execute and deliver to the Trustee a supplemental indenture to the Indenture, pursuant to which such Restricted Subsidiary will guarantee payment of the Notes on the same terms and conditions as those set forth in the Indenture and applicable to the other Guarantors and (ii) execute and deliver an amendment, supplement or other instrument in respect of the Security Documents necessary to cause such Restricted Subsidiary to become a grantor thereunder and take all action required thereunder to perfect the Liens created thereunder, as well as to execute and deliver to the Trustee joinders to the Intercreditor Agreement, in each case at the time such Person becomes a Restricted Subsidiary or Guarantees any such Indebtedness, as applicable.

Collateral Requirement; Further Assurances; Costs

The Indenture provides that, on the Issue Date, the Issuers and each Guarantor shall grant Liens on all their property (other than Excluded Property) and take all appropriate steps to cause such Liens to be perfected Liens (subject to Permitted Liens), including through recordation of mortgages, entry into control agreements, filing of UCC-1 financing statements or otherwise, pursuant to, and to the extent required by, the Security Documents to be entered into on the Issue Date and the Indenture. Notwithstanding the foregoing, the requirements of this paragraph are subject to the provisions of the fourth paragraph under this “—Collateral Requirement; Further Assurances; Costs” covenant.

The Indenture provides that, if either of the Issuers or any of the Guarantors at any time grants, assumes, perfects or becomes subject to any Lien upon any of its property (other than Excluded Property) then owned or

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thereafter acquired as security for any other Pari-Passu Lien Obligation, such Issuer will, or will cause such Guarantor to, as promptly as practical (subject to the provisions of the fourth paragraph under this “—Collateral Requirement; Further Assurances; Costs” covenant):

(i) grant a Lien on such property to the Collateral Agent for the benefit of the Holders and, to the extent such grant would require the execution and delivery of a Security Document, such Issuer or such Guarantor shall execute and deliver a Security Document on substantially the same terms as the agreement or instrument executed and delivered to secure such other Pari-Passu Lien Obligations;

(ii) cause the Lien granted in such Security Document to be duly perfected in any manner permitted by law to the same extent as the Liens granted for the benefit of such other Pari-Passu Lien Obligations are perfected; and

(iii) instruct the Collateral Agent to take all action necessary in connection with the foregoing provisions of this paragraph, including as necessary under the Security Documents.

The Indenture provides that, if either of the Issuers or any Guarantor at any time after the Issue Date acquires any new property (other than Excluded Property) that is not automatically subject to a Lien under the Security Documents, or a Restricted Subsidiary becomes a Guarantor, such Issuer will, or will cause such Guarantor, subject to the requirements of the Security Documents, to as soon as practical after such property’s acquisition or it no longer being Excluded Property (subject to the provisions of the fourth paragraph under this “—Collateral Requirement; Further Assurances; Costs” covenant):

(i) grant a Lien on such property (or, in the case of a new Guarantor, all of its assets except Excluded Property) to the Collateral Agent for the benefit of the Holders (and, to the extent such grant would require the execution and delivery of a Security Document, such Issuer or such Guarantor shall execute and deliver a Security Document on substantially the same terms as the Security Documents executed and delivered on the Issue Date);

(ii) cause the Lien granted in such Security Document to be duly perfected in any manner permitted by law to the same extent as the Liens granted on the Issue Date are perfected; and

(iii) instruct the Collateral Agent to take all action necessary in connection with the foregoing provisions of this paragraph including as necessary under the Security Documents.

The Company shall deliver an Opinion of Counsel to the Trustee in respect of any Lien grant referred to by the foregoing provisions of this paragraph by a new Guarantor or with respect to real property, addressing customary matters (and containing customary exceptions) consistent with the Opinion of Counsel delivered on the Issue Date in respect of such matters; provided, however, that, an Opinion of Counsel shall not be required with respect to any mortgage or similar instrument for real property located in a jurisdiction for which an Opinion of Counsel has been previously delivered to the Trustee pursuant to the Indenture.

Notwithstanding anything to the contrary set forth in this “—Collateral Requirement; Further Assurances; Costs” covenant or elsewhere in the Indenture or any Security Document:

(i) any mortgages or similar instruments (and any related Security Documents) required to be granted pursuant to the Indenture or the Security Documents with respect to real property owned by the Issuers or a Guarantor on the Issue Date shall be granted, together with Opinions of Counsel delivered to the Trustee in respect of the enforceability and validity of such mortgages and similar instruments, addressing customary matters (and containing customary exceptions), as soon as commercially reasonable following the Issue Date, but in no event later than 90 days following the Issue Date; and

(ii) in the event that Rule 3-16 of Regulation S-X under the Securities Act requires or would require (or is replaced with another rule or regulation, or any other law, rule or regulation is adopted, which would require) the filing with the Commission of separate financial statements of a Guarantor that are not otherwise required to be filed, then the securities of such Person need not be pledged pursuant to this “—Collateral Requirement; Further Assurances; Costs” covenant and shall automatically be deemed released and to not be and to not have been part of the Collateral, but only to the extent necessary to not be

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subject to such requirement. In such event, the Security Documents may be amended or modified, without the consent of any Holder of Notes, to the extent necessary to evidence the release of Liens securing the Notes and the Guarantees on the securities that are so deemed to no longer constitute part of the Collateral.

The Issuers will bear and pay all legal expenses, filing fees, insurance premiums and other costs associated with the performance of the obligations of the Issuers and the Guarantors set forth in this “—Collateral Requirement; Further Assurances; Costs” covenant and will also pay or reimburse the Trustee and Collateral Agent for all reasonable out-of-pocket expenses, disbursements and advances incurred or made by the Trustee and Collateral Agent in connection therewith, including the reasonable compensation and expenses of the Trustee and Collateral Agent’s agents and counsel.

The Indenture provides that neither of the Issuers nor any of the Guarantors will be permitted to take any action, or knowingly or negligently omit to take any action, which action or omission would reasonably be expected to materially impair the security interest with respect to the Collateral for the benefit of the Trustee and the Holders of the Notes.

Events of Default

The following are Events of Default under the Indenture:

(1) the failure by the Issuers and the Guarantors to pay interest on any Note when the same becomes due and payable and the continuance of any such failure for a period of 30 days;

(2) the failure by the Issuers and the Guarantors to pay the principal of or premium on any Note when the same becomes due and payable at maturity, upon acceleration or otherwise;

(3) the failure by the Issuers or any Restricted Subsidiary to comply with any of its agreements or covenants in, or provisions of, the Notes, the Guarantees or the Indenture and such failure continues for the period and after the notice specified below (except in the case of a default under covenants described under “Certain Covenants—Change of Control” and “Certain Covenants—Limitations on Mergers, Consolidations and Sales of Assets,” which will constitute Events of Default with notice but without passage of time);

(4) the failure by either of the Issuers or any Restricted Subsidiary to make any principal or interest payment in an amount of $10.0 million or more, individually or in the aggregate, in respect of Indebtedness (other than Non-Recourse Indebtedness) of either of the Issuers or any Restricted Subsidiary within 30 days of such principal or interest becoming due and payable (after giving effect to any applicable grace period set forth in the documents governing such Indebtedness);

(5) a final judgment or judgments that exceed $10.0 million or more (net of insurance available to the applicable Issuer or Restricted Subsidiary and expected (in the good faith judgment of the Company) to be available to satisfy such judgment), individually or in the aggregate, for the payment of money having been entered by a court or courts of competent jurisdiction against either of the Issuers or any of the Restricted Subsidiaries and such judgment or judgments is not satisfied, bonded, stayed, annulled or rescinded within 60 days of being entered;

(6) either of the Issuers or any Restricted Subsidiary that is a Significant Subsidiary pursuant to or within the meaning of any Bankruptcy Law:

(a) commences a voluntary case,

(b) consents to the entry of an order for relief against it in an involuntary case,

(c) consents to the appointment of a Custodian of it or for all or substantially all of its property, or

(d) makes a general assignment for the benefit of its creditors;

(7) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that:

(a) is for relief against either of the Issuers or any Restricted Subsidiary that is a Significant Subsidiary as debtor in an involuntary case,

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(b) appoints a Custodian of either of the Issuers or any Restricted Subsidiary that is a Significant Subsidiary or a Custodian for all or substantially all of the property of either of the Issuers or any Restricted Subsidiary that is a Significant Subsidiary, or

(c) orders the liquidation of either of the Issuers or any Restricted Subsidiary that is a Significant Subsidiary,

and the order or decree remains unstayed and in effect for 60 days;

(8) any Guarantee of a Guarantor which is a Significant Subsidiary ceases to be in full force and effect (other than in accordance with the terms of such Guarantee and the Indenture) or is declared in any judicial proceeding to be null and void and unenforceable or found to be invalid or any Guarantor denies its liability under its Guarantee (other than by reason of release of a Guarantor from its Guarantee in accordance with the terms of the Indenture and the Guarantee); or

(9) the Liens created by the Security Documents shall at any time not constitute valid and perfected Liens on any material portion of the Collateral intended to be covered thereby (to the extent perfection by filing, registration, recordation or possession is required by the Indenture, the Intercreditor Agreement or the Security Documents) other than in accordance with the terms of the relevant Security Document, the Indenture and the Intercreditor Agreement and other than the satisfaction in full of all Obligations under the Indenture or the release or amendment of any such Lien in accordance with the terms of the Indenture, the Intercreditor Agreement or the Security Documents, or, except for expiration in accordance with its terms or amendment, modification, waiver, termination or release in accordance with the terms of the Indenture, the Intercreditor Agreement and the relevant Security Document, any of the Security Documents shall for whatever reason be terminated or cease to be in full force and effect, if in either case, such default continues for 30 days after notice, or the enforceability thereof shall be contested by the Issuers or any Guarantor.

A Default as described in subclause (3) above will not be deemed an Event of Default until the Trustee notifies the Issuers, or the Holders of at least 25% in principal amount of the then outstanding Notes notify the Issuers and the Trustee, of the Default and (except in the case of a default with respect to covenants described under “Certain Covenants—Change of Control” and “Certain Covenants—Limitations on Mergers, Consolidations and Sales of Assets”) the Issuers do not cure the Default within 60 days after receipt of the notice. The notice must specify the Default, demand that it be remedied and state that the notice is a “Notice of Default.” If such a Default is cured within such time period, it ceases to be a Default.

If an Event of Default (other than an Event of Default with respect to either of the Issuers resulting from subclauses (6) or (7) above), shall have occurred and be continuing under the Indenture, the Trustee by notice to the Issuers, or the Holders of at least 25% in principal amount of the Notes then outstanding by notice to the Issuers and the Trustee, may declare all Notes to be due and payable immediately. Upon such declaration of acceleration, the amounts due and payable on the Notes will be due and payable immediately. If an Event of Default with respect to either of the Issuers specified in subclauses (6) or (7) above occurs, such an amount will ipso facto become and be immediately due and payable without any declaration, notice or other act on the part of the Trustee and the Issuers or any Holder.

The Holders of a majority in principal amount of the Notes then outstanding by written notice to the Trustee and the Issuers may waive any Default (other than any Default in payment of principal, premium or interest) on the Notes under the Indenture. Holders of a majority in principal amount of the then outstanding Notes may rescind an acceleration and its consequence (except an acceleration due to nonpayment of principal, premium or interest on the Notes) if the rescission would not conflict with any judgment or decree, if the Issuers have paid or deposited with the Trustee a sum sufficient to pay the reasonable compensation, disbursements, expenses and advancements of the Trustee and if all existing Events of Default (other than the non-payment of accelerated principal) have been cured or waived.

The Holders may not enforce the provisions of the Indenture, the Notes or the Guarantees except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the Notes

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then outstanding may direct the Trustee in its exercise of any trust or power; provided, however, that such direction does not conflict with the terms of the Indenture. The Trustee may withhold from the Holders notice of any continuing Default (except any Default in payment of principal, premium or interest on the Notes or that resulted from the failure to comply with the covenant entitled “Change of Control”) if the Trustee determines that withholding such notice is in the Holders’ interest.

The Issuers are required to deliver to the Trustee an annual statement regarding compliance with the Indenture and include in such statement, if any officer of either of the Issuers is aware of any Default, a statement specifying such Default and what action the Issuers are taking or propose to take with respect thereto. In addition, the Issuers are required to deliver to the Trustee prompt written notice of the occurrence of any Default.

Discharge and Defeasance of Indenture

The Issuers and the Guarantors may discharge their obligations under the Notes, the Guarantees, the Indenture, the Security Documents and the Intercreditor Agreement and cause the release of all Liens on the Collateral granted under the Security Documents by irrevocably depositing in trust with the Trustee money or U.S. Government Obligations sufficient to pay principal of, premium and interest on the Notes to maturity or redemption and the Notes mature or are to be called for redemption within one year, subject to meeting certain other conditions.

The Indenture also permits the Issuers and the Guarantors to terminate all of their respective obligations under the Indenture with respect to the Notes and the Guarantees and under the Intercreditor Agreement and the Security Documents and cause the release of all Liens on the Collateral granted under the Security Documents, other than the obligation to pay interest on and the principal of and premium on the Notes and certain other obligations (“legal defeasance”), at any time by:

(1) depositing in trust with the Trustee, under an irrevocable trust agreement, money or U.S. Government Obligations in an amount sufficient to pay principal of and premium and interest on the Notes to their maturity or redemption, as the case may be, and

(2) complying with certain other conditions, including delivery to the Trustee of an opinion of counsel or a ruling received from the Internal Revenue Service, to the effect that Holders will not recognize income, gain or loss for federal income tax purposes as a result of the exercise of such right and will be subject to federal income tax on the same amount and in the same manner and at the same times as would have been the case otherwise, which opinion of counsel is based upon a change in the applicable federal tax law since the Issue Date.

In addition, the Indenture permits the Issuers and the Guarantors to terminate all of their obligations under the Indenture with respect to certain covenants and Events of Default specified in the Indenture, and the Guarantors and the Liens on the Collateral granted under the Security Documents will be released (“covenant defeasance”), at any time by:

(1) depositing in trust with the Trustee, under an irrevocable trust agreement, money or U.S. Government Obligations in an amount sufficient to pay principal of, premium and interest on the Notes to their maturity or redemption, as the case may be, and

(2) complying with certain other conditions, including delivery to the Trustee of an opinion of counsel or a ruling received from the Internal Revenue Service, to the effect that Holders will not recognize income, gain or loss for federal income tax purposes as a result of the exercise of such right and will be subject to federal income tax on the same amount and in the same manner and at the same times as would have been the case otherwise.

Notwithstanding the foregoing, no discharge, legal defeasance or covenant defeasance described above will affect the following obligations to, or rights of, the Holders of the Notes:

• rights of registration of transfer and exchange of Notes;

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• rights of substitution of mutilated, defaced, destroyed, lost or stolen Notes;

• rights of Holders of the Notes to receive payments of principal thereof, premium, if any, and interest thereon, upon the original due dates therefor, but not upon acceleration;

• rights, obligations, duties and immunities of the Trustee;

• rights of Holders of Notes that are beneficiaries with respect to property so deposited with the Trustee payable to all or any of them; and

• obligations of the Issuers or the Guarantors to maintain an office or agency in respect of the Notes.

The Issuers or the Guarantors may exercise the legal defeasance option with respect to the Notes notwithstanding the prior exercise of the covenant defeasance option with respect to the Notes. If the Issuers or the Guarantors exercise the legal defeasance option with respect to the Notes, payment of the Notes may not be accelerated due to an Event of Default with respect to the Notes. If the Issuers or the Guarantors exercise the covenant defeasance option with respect to the Notes, payment of the Notes may not be accelerated due to an Event of Default with respect to the covenants to which such covenant defeasance is applicable. However, if acceleration were to occur by reason of any Event of Default still applicable to the Notes, the realizable value at the acceleration date of the cash and U.S. Government Obligations in the defeasance trust could be less than the principal of, premium, if any, and interest then due on the Notes, in that the required deposit in the defeasance trust is based upon scheduled cash flow rather than market value, which will vary depending upon interest rates and other factors.

Transfer and Exchange

A Holder may transfer or exchange Notes only in accordance with the provisions of the Indenture. The Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Indenture.

Amendment, Supplement and Waiver

Subject to certain exceptions, the Indenture, the Notes, the Guarantees, the Intercreditor Agreement or the Security Documents may be amended or supplemented with the consent (which may include written consents obtained in connection with a tender offer or exchange offer for Notes) of the Holders of at least a majority in principal amount of the Notes then outstanding, and future compliance with any provision of the Indenture, the Notes, the Guarantees, the Intercreditor Agreement or the Security Documents may be waived (other than any continuing Default in the payment of interest on or the principal of the Notes) with the consent (which may include waivers obtained in connection with a tender offer or exchange offer for Notes) of the Holders of a majority in principal amount of the Notes then outstanding.

Without the consent of, or notice to, any Holder, the Issuers, the Guarantors, the Trustee and the Collateral Agent may amend or supplement the Indenture, the Notes, the Guarantees, the Intercreditor Agreement or the Security Documents:

(a) to cure any ambiguity, defect or inconsistency;

(b) to comply with the “Limitations on Mergers, Consolidations and Sales of Assets” covenant set forth in the Indenture;

(c) to comply with any requirements of the Commission in connection with the qualification of the Indenture under the TIA;

(d) to evidence and provide for the acceptance of appointment under the Indenture by a successor or replacement Trustee or under the Intercreditor Agreement or the Security Documents of a successor or replacement Collateral Agent;

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(e) to provide for uncertificated Notes in addition to or in place of certificated Notes;

(f) to provide for any Guarantee of the Notes;

(g) to add security to or for the benefit of the Notes and, in the case of the Security Documents, to or for the benefit of the other secured parties named therein or to confirm and evidence the release, termination or discharge of any Guarantee of or Lien securing the Notes when such release, termination or discharge is permitted by the Indenture, the Intercreditor Agreement and the Security Documents;

(h) to make any change that does not adversely affect the legal rights of any Holder;

(i) to evidence the assumption by a successor entity of either of the Issuers of the obligations of such Issuer under the Indenture and the Notes;

(j) to add covenants or new events of default for the protection of the Holders of the Notes;

(k) to conform any provision of the Indenture, the Notes, the Guarantees, the Intercreditor Agreement or the Security Documents to this “Description of the Notes” to the extent that this “Description of the Notes” was intended to be a verbatim recitation of a provision in the Indenture, the Notes, the Guarantees, the Intercreditor Agreement or the Security Documents;

(l) to provide for the issuance of Additional Notes as permitted under the Indenture; or

(m) to make any amendment to the provisions of the Indenture relating to the transfer and legending of Notes; provided, however, that (a) compliance with the Indenture as so amended would not result in Notes being transferred in violation of the Securities Act or any other applicable securities law and (b) such amendment does not materially and adversely affect the rights of Holders to transfer Notes.

In addition, the Collateral Agent and the Trustee are authorized to amend the Intercreditor Agreement and the Security Documents to add additional secured parties to the extent Liens securing Indebtedness and other Obligations held by such parties are permitted under the Indenture.

Without the consent of each Holder affected, the Issuers, the Guarantors, the Trustee and the Collateral Agent may not:

(1) reduce the amount of Notes whose Holders must consent to an amendment, supplement or waiver,

(2) reduce the rate of or extend the time for payment of interest, including default interest, on any Note,

(3) reduce the principal of or change the fixed maturity of any Note or alter the provisions (including related definitions) with respect to redemptions described under “Optional Redemption” or with respect to offers to repurchase Notes described under “Certain Covenants—Limitations on Asset Dispositions” or “Certain Covenants—Change of Control,”

(4) make any Note payable in money other than that stated in the Note,

(5) make any change in the “Waiver of Defaults by Majority of Holders” or the “Proceedings by Holders” sections set forth in the Indenture,

(6) adversely modify the ranking or priority of the Notes or any Guarantee, except for releases of Guarantees or Collateral permitted by the Indenture and the Intercreditor Agreement,

(7) release any Guarantor from any of its obligations under its Guarantee or the Indenture otherwise than in accordance with the Indenture and the Intercreditor Agreement,

(8) waive a continuing Default in the payment of principal of or interest or premium on the Notes, or

(9) effect a release of all or substantially all of the Collateral other than pursuant to the terms of the Intercreditor Agreement and the Security Documents or as otherwise permitted by the Indenture.

The right of any Holder to participate in any consent required or sought pursuant to any provision of the Indenture (and our obligation to obtain any such consent otherwise required from such Holder) may be subject to

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the requirement that such Holder shall have been the Holder of record of any Notes with respect to which such consent is required or sought as of a date identified by the Trustee in a notice furnished to Holders in accordance with the terms of the Indenture.

Neither the Issuers nor any Affiliated Entity may, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any Holder for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of the Indenture or the Notes unless such consideration is offered to all Holders and is paid to all Holders that so consent, waive or agree to amend in the time frame set forth in solicitation documents relating to such consent, waiver or agreement.

Governing Law

The Indenture, the Notes, the Guarantees, the Intercreditor Agreement and the Security Documents are governed by the laws of the State of New York.

Definitions of Certain Terms Used in the Indenture

Set forth below is a summary of certain of the defined terms used in the Indenture. Reference is made to the Indenture for the full definition of all terms used in the Indenture.

“Acquired Indebtedness” means (1) with respect to any Person that becomes a Restricted Subsidiary (or is merged into the Company, the Corporate Issuer or any Restricted Subsidiary) after the Issue Date, Indebtedness of such Person or any of its Subsidiaries existing at the time such Person becomes a Restricted Subsidiary (or is merged into the Company, the Corporate Issuer or any Restricted Subsidiary) that was not Incurred in connection with, or in contemplation of, such Person becoming a Restricted Subsidiary (or being merged into the Company, the Corporate Issuer or any Restricted Subsidiary) and (2) with respect to the Company, the Corporate Issuer or any Restricted Subsidiary, any Indebtedness expressly assumed by the Company, the Corporate Issuer or any Restricted Subsidiary in connection with the acquisition of any assets from another Person (other than the Company, the Corporate Issuer or any Restricted Subsidiary), which Indebtedness was not Incurred by such other Person in connection with or in contemplation of such acquisition. Indebtedness Incurred in connection with or in contemplation of any transaction described in clause (1) or (2) of the preceding sentence shall be deemed to have been Incurred by the Company, the Corporate Issuer or a Restricted Subsidiary, as the case may be, at the time such Person becomes a Restricted Subsidiary (or is merged into the Company, the Corporate Issuer or any Restricted Subsidiary) in the case of clause (1) or at the time of the acquisition of such assets in the case of clause (2), but shall not be deemed Acquired Indebtedness.

“Additional Pari-Passu Lien Obligations” has the meaning specified in the Intercreditor Agreement.

“Additional Pari-Passu Lien Secured Party” means the holder of any Additional Pari-Passu Lien Obligations and any Authorized Representative with respect thereto.

“Affiliate” means, when used with reference to a specified Person, any Person directly or indirectly controlling, or controlled by or under direct or indirect common control with the Person specified.

“Affiliate Obligations” means obligations of Shea Properties, LLC, Shea Properties II, LLC or any of their respective Subsidiaries (or joint ventures in which they own an interest) or other Shea-family owned entities (or joint ventures in which they own an interest, excluding, however, any of the foregoing that is a Guarantor), including development loans; provided, however, that, capital calls required to be made by the Company or its Restricted Subsidiaries to or for the benefit of a joint venture pro rata on the basis of the Company’s or a Restricted Subsidiary’s ownership in such joint venture, which capital calls are not being made to enable such joint venture to pay amounts owed under any Indebtedness, shall not be Affiliate Obligations but will be treated as Restricted Payments.

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“Asset Acquisition” means (1) an Investment by the Company, the Corporate Issuer or any Restricted Subsidiary in any other Person if, as a result of such Investment, such Person shall become a Restricted Subsidiary or shall be consolidated or merged with or into the Company, the Corporate Issuer or any Restricted Subsidiary or (2) the acquisition by the Company, the Corporate Issuer or any Restricted Subsidiary of the assets of any Person, which constitute all or substantially all of the assets or of an operating unit or line of business of such Person or which is otherwise outside the ordinary course of business.

“Asset Disposition” means:

(1) any sale, transfer, conveyance, lease or other disposition (including by way of merger, consolidation or sale and leaseback or sale of Equity Interests in any Subsidiary) (each, a “transaction”), whether in a single transaction or series of related transactions, of any Property or assets of either of the Issuers or any Restricted Subsidiary to any other Person; or

(2) the issuance or sale of Equity Interests of the Corporate Issuer or any Restricted Subsidiary, whether in a single transaction or a series of related transactions.

The term “Asset Disposition” shall not include:

(a) a transaction between either of the Issuers and any Restricted Subsidiary or a transaction between Issuers or Restricted Subsidiaries,

(b) a transaction in the ordinary course of business, including sales (directly or indirectly), Required Dedications, leases and sales and leasebacks of (A) homes, improved land and unimproved land and (B) real estate (including related amenities and improvements),

(c) a transaction involving the sale of Equity Interests of, or the disposition of assets in, an Unrestricted Subsidiary,

(d) any exchange or swap of assets (including land swaps) of either of the Issuers or any Restricted Subsidiary for assets (including Equity Interests of any Person that is or will be a Restricted Subsidiary following receipt thereof) that (x) are to be used by either of the Issuers or any Restricted Subsidiary in the ordinary course of its Real Estate Business and (y) have a Fair Market Value substantially equivalent to the Fair Market Value of the assets exchanged or swapped; provided; however; that to the extent that the assets exchanged or swapped were Collateral, the assets received are pledged as Collateral under the Security Documents substantially contemporaneously with such exchange or swap to the extent required to do so pursuant to the Security Documents,

(e) any sale, transfer, conveyance, lease or other disposition of assets and properties that is governed by the provisions set forth under “Certain Covenants—Limitations on Mergers, Consolidation and Sales of assets,”

(f) the creation of a Permitted Lien and dispositions in connection with Permitted Liens,

(g) the making of any Restricted Payment or Permitted Investment that is permitted to be made, and is made, under the covenant described under “Certain Covenants—Limitation on Restricted Payments,” or

(h) any single transaction or series of related transactions that involves property, assets or Equity Interests having a Fair Market Value of less than $1.0 million.

“Attributable Debt” in respect of a Sale/Leaseback Transaction means, as at the time of determination, the present value (discounted at the interest rate borne by the Notes, compounded annually) of the total obligations of the lessee for rental payments during the remaining term of the lease included in such Sale/Leaseback Transaction (including any period for which such lease has been extended); provided, however, that if such Sale/ Leaseback Transaction results in a Capitalized Lease Obligation, the amount of Indebtedness represented thereby will be determined in accordance with the definition of “Capitalized Lease Obligation.”

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“Baker JV” means the joint venture conducted by Shea/Baker Ranch Associates LLC, a California limited liability company.

“Bankruptcy Law” means title 11 of the United States Code, as amended, or any similar federal or state law for the relief of debtors.

“Capitalized Lease Obligations” of any Person means the obligations of such Person to pay rent or other amounts under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP, and the amount of such obligations will be the capitalized amount thereof determined in accordance with GAAP.

“Cash Equivalents” means:

(1) U.S. dollars;

(2) securities issued or directly and fully guaranteed or insured by the U.S. government or any agency or instrumentality thereof having maturities of one year or less from the date of acquisition;

(3) demand deposits, certificates of deposit and eurodollar time deposits with maturities of one year or less from the date of acquisition, bankers’ acceptances with maturities not exceeding one year and overnight bank deposits, in each case with any domestic commercial bank having capital and surplus in excess of $500 million;

(4) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (2) and (3) entered into with any financial institution meeting the qualifications specified in clause (3) above;

(5) commercial paper rated P-1, A-1 or the equivalent thereof by Moody’s or S&P, respectively, and in each case maturing within one year after the date of acquisition; and

(6) investments in money market funds substantially all of the assets of which consist of securities described in the foregoing clauses (1) through (5).

“Change of Control” means:

(1) any sale, lease or other transfer (in one transaction or a series of transactions) of all or substantially all of the consolidated assets of the Company and its Restricted Subsidiaries to any Person (other than a Restricted Subsidiary); provided, however, that a transaction where the holders of all classes of Common Equity of the Company immediately prior to such transaction own, directly or indirectly, more than 50% of all classes of Common Equity of such Person immediately after such transaction shall not be a Change of Control;

(2) a “person” or “group” (within the meaning of Section 13(d) of the Exchange Act (other than the Permitted Holders)) becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act) of Common Equity of the Company representing more than 50% of the voting power of the Common Equity of the Company;

(3) the holders of Equity Interests of the Company approve any plan or proposal for the liquidation or dissolution of the Company; provided, however, that a liquidation or dissolution of the Company which is part of a transaction described in the proviso to clause (1) above shall not constitute a Change of Control; or

(4) a change of control shall occur as defined in the instrument governing any publicly traded debt securities of the Company or the Corporate Issuer which requires the Company or the Corporate Issuer to repay or repurchase such debt securities.

“class” means (a) with respect to the Pari-Passu Lien Secured Parties, each of (i) the LC Facility Secured Parties (in their capacities as such), (ii) the holders of Notes and the Trustee (each in their capacity as such) and (iii) the Additional Pari-Passu Lien Secured Parties that become subject to the Intercreditor Agreement after the

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date of the Indenture that are represented by a common Authorized Representative (in its capacity as such for such Additional Pari-Passu Lien Secured Parties) and (b) with respect to any Pari-Passu Lien Obligations, each of (i) the LC Facility Obligations, (ii) the Notes Obligations and (iii) the Additional Pari-Passu Lien Obligations Incurred pursuant to any applicable agreement, which pursuant to any joinder agreement are to be represented under the Intercreditor Agreement by a common Authorized Representative (in its capacity as such for such Additional Pari-Passu Lien Obligations).

“Common Equity” of any Person means Equity Interests of such Person that is generally entitled to (1) vote in the election of directors of such Person or (2) if such Person is not a corporation, vote or otherwise participate in the selection of the governing body, partners, managers or others that will control the management or policies of such Person.

“Company Equity Plan” means any management equity or equity option or ownership plan or any other management or employee benefit plan of the Company or any Subsidiary of the Company.

“Consolidated Cash Flow Available for Fixed Charges” means, for any period, Consolidated Net Income for such period plus the sum of the following (but only to the extent deducted in calculating such Consolidated Net Income) for such period, but without duplication:

(1) income taxes and Tax Distributions,

(2) Consolidated Interest Expense,

(3) depreciation and amortization expenses, and

(4) all other non-cash charges (unless such non-cash charge represents an accrual of or reserve for cash expenditures in any future period), minus

all non-cash items (other than the receipt of notes receivable) increasing such Consolidated Net Income for such period.

“Consolidated Fixed Charge Coverage Ratio” means, with respect to any determination date (each, a “Transaction Date”), the ratio of (x) Consolidated Cash Flow Available for Fixed Charges for the prior four full fiscal quarters (the “Four Quarter Period”) for which financial statements are available immediately preceding the Transaction Date, to (y) the aggregate Consolidated Interest Expense for the Four Quarter Period. For purposes of this definition, “Consolidated Cash Flow Available for Fixed Charges” and “Consolidated Interest Expense” shall be calculated after giving effect on a pro forma basis for the period of such calculation to:

(1) the Incurrence or the repayment, repurchase, defeasance or other discharge (collectively, “repayment”) of any Indebtedness of the Company, the Corporate Issuer or any Restricted Subsidiary (and the application of the proceeds thereof) giving rise to the need to make such calculation, and any Incurrence or repayment of other Indebtedness (and the application of the proceeds thereof), at any time on or after the first day of the Four Quarter Period and on or prior to the Transaction Date, as if such Incurrence or repayment, as the case may be (and the application of the proceeds thereof), occurred on the first day of the Four Quarter Period, except that Indebtedness under revolving Credit Facilities shall be deemed to be the average daily balance of such Indebtedness during the Four Quarter Period (as reduced on such pro forma basis by the application of any proceeds of the Incurrence of Indebtedness giving rise to the need to make such calculation);

(2) any Asset Disposition or Asset Acquisition (including any Asset Acquisition giving rise to the need to make such calculation as a result of the Company, the Corporate Issuer or any Restricted Subsidiary (including any Person that becomes a Restricted Subsidiary as a result of any such Asset Acquisition) Incurring Acquired Indebtedness at any time on or after the first day of the Four Quarter Period and on or prior to the Transaction Date), as if such Asset Disposition or Asset Acquisition (including the Incurrence or repayment of any such Indebtedness) and the inclusion, notwithstanding clause (2) of the definition of “Consolidated Net Income,” of any Consolidated Cash Flow Available for Fixed Charges associated with

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such Asset Acquisition as if it occurred on the first day of the Four Quarter Period; provided, however, that the Consolidated Cash Flow Available for Fixed Charges associated with any Asset Acquisition shall not be included to the extent the net income so associated would be excluded pursuant to the definition of “Consolidated Net Income,” other than clause (2) thereof, as if it applied to the Person or assets involved before they were acquired; and

(3) the Consolidated Cash Flow Available for Fixed Charges and the Consolidated Interest Expense attributable to discontinued operations, as determined in accordance with GAAP, shall be excluded.

Furthermore, in calculating “Consolidated Cash Flow Available for Fixed Charges” for purposes of determining the denominator (but not the numerator) of this “Consolidated Fixed Charge Coverage Ratio,”

(a) interest on Indebtedness in respect of which a pro forma calculation is required that is determined on a fluctuating basis as of the Transaction Date (including Indebtedness actually Incurred on the Transaction Date) and which will continue to be so determined thereafter shall be deemed to have accrued at a fixed rate per annum equal to the rate of interest on such Indebtedness in effect on the Transaction Date, and

(b) notwithstanding clause (a) above, interest on such Indebtedness determined on a fluctuating basis, to the extent such interest is covered for at least one year by agreements relating to Interest Protection Agreements, shall be deemed to accrue at the rate per annum resulting after giving effect to the operation of such agreements.

“Consolidated Interest Expense” means, for any period, the total interest expense of the Company, its consolidated Restricted Subsidiaries and the Corporate Issuer (other than non-cash interest expense attributable to convertible indebtedness under Accounting Practices Bulletin 14 or any successor provision), plus, to the extent not included in such total interest expense, and to the extent Incurred by the Company, its Restricted Subsidiaries or the Corporate Issuer, without duplication:

(1) interest expense attributable to Capitalized Lease Obligations, Attributable Debt and the interest component of any deferred payment obligations;

(2) amortization of debt discount (including the amortization of original issue discount resulting from the issuance of Indebtedness at less than par) and debt issuance cost; provided, however, that any amortization of bond premium will be credited to reduce Consolidated Interest Expense unless, pursuant to GAAP, such amortization of bond premium has otherwise reduced Consolidated Interest Expense;

(3) capitalized interest;

(4) non-cash interest expense; provided, however, that any non-cash interest expense or income attributable to the movement in the mark to mark valuation of Interest Protection Agreements or other derivative instruments pursuant to GAAP shall be excluded from the calculation of Consolidated Interest Expense);

(5) commissions, discounts and other fees and charges owed with respect to letters of credit and bankers’ acceptance financing;

(6) net payments (or minus net receipts) pursuant to Interest Protection Agreements;

(7) the product of (a) all dividends accrued in respect of all Disqualified Equity Interests of the Company and all Preferred Equity Interests of the Company or any Restricted Subsidiary, in each case, held by Persons other than the Company or a Restricted Subsidiary (other than dividends payable solely in Qualified Equity Interests of the Company), times (b) a fraction of the numerator of which is one and the denominator of which is one minus the effective combined tax rate of the issuer of such Disqualified Equity Interests or Preferred Equity Interests (expressed as a decimal) for such period (as estimated by the chief financial officer of the Company in good faith);

(8) interest Incurred in connection with Investments in discontinued operations; and

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(9) interest accruing on any Indebtedness of any other Person to the extent such Indebtedness is guaranteed by (or secured by a Lien on the assets of) the Company or any Restricted Subsidiary; provided, however, that this clause (9) shall not include any interest accruing on Indebtedness (A) subject to guarantees constituting Specified Obligations of the Company or any Restricted Subsidiary or (B) of the type described in subsection (y) of clause (14) of the definition of Permitted Indebtedness.

“Consolidated Net Income” for any period means the aggregate net income (or loss) of the Company and its Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP; provided, however, that there will be excluded from such net income (loss) (to the extent otherwise included therein), without duplication:

(1) the net income (or loss) of (x) any Unrestricted Subsidiary or (y) any Person (other than a Restricted Subsidiary) in which any Person other than the Company, the Corporate Issuer or any Restricted Subsidiary has an ownership interest, except, in each case, to the extent that any such income has actually been received by the Company, the Corporate Issuer or any Restricted Subsidiary in the form of cash dividends or similar cash distributions during such period,

(2) except to the extent includable in Consolidated Net Income pursuant to the foregoing clause (1), the net income (or loss) of any Person that accrued prior to the date that (a) such Person becomes a Restricted Subsidiary or is merged with or into or consolidated with the Company, the Corporate Issuer or any of its Restricted Subsidiaries (except, in the case of an Unrestricted Subsidiary that is redesignated a Restricted Subsidiary during such period, to the extent of its retained earnings from the beginning of such period to the date of such redesignation) or (b) the assets of such Person are acquired by the Company, the Corporate Issuer or any Restricted Subsidiary,

(3) the net income of any Restricted Subsidiary that is not a Guarantor to the extent that (but only so long as) the declaration or payment of dividends or similar distributions by such Restricted Subsidiary of that income is not permitted by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary during such period; provided, however, that the net income of any such Restricted Subsidiary during such period shall be included in Consolidated Net Income up to the aggregate amount of cash actually distributed by such Restricted Subsidiary during such period to the Company or another Restricted Subsidiary as a dividend or other distribution,

(4) the gains or losses, together with any related provision for taxes, realized during such period by the Company, the Corporate Issuer or any Restricted Subsidiary resulting from (a) the acquisition of securities, or extinguishment of Indebtedness, of the Company, the Corporate Issuer or any Restricted Subsidiary or (b) any Asset Disposition by the Company, the Corporate Issuer or any Restricted Subsidiary,

(5) any extraordinary gain or loss together with any related provision for taxes, realized by the Company, the Corporate Issuer or any Restricted Subsidiary and

(6) any Tax Distributions paid during such period by the Company, the Corporate Issuer or any Restricted Subsidiary.

“control” when used with respect to any Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing.

“Credit Facilities” means, collectively, one or more credit facilities and lines of credit among or between the Company or one or more Restricted Subsidiaries and one or more lenders pursuant to which the Company or one or more Restricted Subsidiaries may Incur Indebtedness for working capital and general corporate purposes (including acquisitions), as any such facility or line of credit may be amended, restated, supplemented or otherwise modified from time to time, and includes any agreement extending the maturity of, increasing the amount of, or restructuring, all or any portion of the Indebtedness under such facility or line of credit or any

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successor facilities or lines of credit and includes any facility or line of credit with one or more lenders refinancing or replacing all or any portion of the Indebtedness under such facility or line of credit or any successor facility or line of credit.

“Currency Agreement” of any Person means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect such Person or any of its Subsidiaries against fluctuations in currency values.

“Custodian” means any receiver, trustee, assignee, liquidator or similar official under any Bankruptcy Law.

“Default” means any event, act or condition that is, or after notice or the passage of time or both would be, an Event of Default.

“Designation Amount” has the meaning provided in the definition of Unrestricted Subsidiary.

“Discharge of LC Facility Obligations” has the meaning specified in the Intercreditor Agreement.

“Disqualified Equity Interests” means any Equity Interest that, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, (1) matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the option of the holder thereof, in whole or in part, on or prior to 91 days following the final maturity date of the Notes or (2) is convertible into or exchangeable or exercisable for (whether at the option of the issuer or the holder thereof) (a) debt securities or (b) any Equity Interests referred to in (1) above, in each case, at any time prior to 91 days following the final maturity date of the Notes; provided, however, that any Equity Interests that would not constitute Disqualified Equity Interests but for provisions thereof giving holders thereof (or the holders of any security into or for which such Equity Interests are convertible, exchangeable or exercisable) the right to require the Company to repurchase or redeem such Equity Interests upon the occurrence of a change in control or asset disposition occurring prior to 91 days following the final maturity “date of the Notes shall not constitute Disqualified Equity Interests if the change in control or asset disposition provision applicable to such Equity Interests are no more favorable to such holders than the provisions described under the captions “Certain Covenants—Change of Control” or “Certain Covenants—Limitations on Asset Dispositions,” as applicable, and such Equity Interests specifically provide that the Company will not repurchase or redeem any such Equity Interests pursuant to such provisions prior to the Company’s repurchase of the Notes as are required pursuant to the provisions described under the captions “Certain Covenants—Change of Control” or “Certain Covenants—Limitations on Asset Dispositions,” as applicable.

“Equity Interests” means, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated) of or in such Person’s capital stock or other equity interests, and options, rights or warrants to purchase such capital stock or other equity interests, whether now outstanding or issued after the Issue Date, including all Disqualified Equity Interests and Preferred Equity Interests.

“Equity Offering” means any public or private sale, after the Issue Date, of Qualified Equity Interests of the Company, other than (i) public offerings registered on Form S-4 or S-8 or any successor form thereto or (ii) any issuance pursuant to employee benefit plans or otherwise in compensation to officers, directors or employees.

“Event of Default” has the meaning set forth in “Events of Default.”

“Excluded Contribution” means cash or Cash Equivalents received by the Company as capital contributions to its equity or from the issuance or sale of Qualified Equity Interests of the Company, in each case, after the Issue Date and to the extent designated at the time as an Excluded Contribution pursuant to an Officers’ Certificate of the Company.

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“Fair Market Value” means, with respect to any Property or other asset, the price (after taking into account any liabilities relating to such assets) that would be negotiated in an arm’s-length transaction for cash between a willing seller and a willing and able buyer, neither of which is under any compulsion to complete the transaction, as such price is determined in good faith by the Governing Body of the Company or a duly authorized committee thereof, as evidenced by a resolution of such Governing Body or committee; provided, however, that for purposes of clause (3)(b) under “Certain Covenants—Limitation on Restricted Payments,” if the Fair Market Value of the Property or assets in question is so determined to be in excess of $1.0 million, such determination must be confirmed by an Independent Qualified Party.

“GAAP” means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession of the United States, as in effect on the Issue Date.

“Governing Body” means, as to any Person, the board of directors of such Person or, if such Person is not a corporation or otherwise governed by a board of directors, the governing body of such Person (including in the case of a partnership, the general partner of such partnership or group otherwise exercising the authority over such Person which would generally be vested in a board of directors of a corporation); provided, however, to the extent a Person is a partnership and its general partner is itself a partnership, the Governing Body shall be the governing group of individuals with ultimate authority to control such general partner.

“guarantee” means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person: (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness of such other Person (whether arising by virtue of partnership arrangements, or by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for purposes of assuring in any other manner the obligee of such Indebtedness of the payment thereof or to protect such obligee against loss in respect thereof, in whole or in part; provided, however, that the term “guarantee” does not include (x) endorsements for collection or deposit in the ordinary course of business or (y) indemnification obligations of the Company, the Corporate Issuer or any Restricted Subsidiary entered into in the ordinary course of business. The term “guarantee” used as a verb has a corresponding meaning.

“Guarantee” means the guarantee of the Notes by each Guarantor under the Indenture.

“Guarantors” means (i) initially, the Persons that execute the Indenture as guarantors and (ii) in addition, each of the Company’s Subsidiaries that subsequently becomes a Guarantor of the Notes pursuant to the provisions of the Indenture, including in each case, their successors and assigns, in each case until released from their respective Guarantee pursuant to the Indenture.

“Holder” or “Holders of the Notes” means the Person in whose name a Note is registered in the books of the Registrar for the Notes.

“Indebtedness” means, with respect to any Person on any date of determination (without duplication):

(1) the principal in respect of (A) indebtedness of such Person for money borrowed and (B) indebtedness evidenced by notes, debentures or other similar instruments for the payment of which such Person is responsible or liable, including, in each case, any premium on such indebtedness to the extent such premium has become due and payable;

(2) all Capitalized Lease Obligations of such Person and all Attributable Debt in respect of Sale/ Leaseback Transactions entered into by such Person;

(3) all obligations of such Person issued or assumed as the deferred purchase price of property, all conditional sale obligations of such Person and all obligations of such Person under any title retention

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agreement (but excluding (A) any accounts payable or other liability to trade creditors arising in the ordinary course of business and (B) any obligation to pay a contingent purchase price as long as such obligation remains contingent);

(4) all obligations of such Person for the reimbursement of any obligor on any letter of credit, bankers’ acceptance or similar credit transaction (other than obligations with respect to letters of credit securing obligations (other than obligations described in clauses (1) through (3) above) entered into in the ordinary course of business of such Person to the extent such letters of credit are not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no later than the tenth business day following payment on the letter of credit);

(5) the amount of all obligations of such Person with respect to the redemption, repayment or other repurchase of any Disqualified Equity Interests of such Person or, with respect to any Preferred Equity Interests of any Subsidiary of such Person, the amount of such Preferred Equity Interests to be determined in accordance with the Indenture (but excluding, in each case, any accrued dividends);

(6) all guarantees by such Person of obligations of the type referred to in clauses (1) through (5) or dividends of other Persons (excluding any preferred returns payable pursuant to any joint venture documentation);

(7) all obligations of the type referred to in clauses (1) through (6) of other Persons secured by any Lien on any property or asset of such Person (whether or not such obligation is assumed by such Person), the amount of such obligation being deemed to be the lesser of the Fair Market Value of such property or assets and the amount of the obligation so secured; and

(8) to the extent not otherwise included in this definition, the obligations of such Person under Currency Agreements or Interest Protection Agreements.

Notwithstanding the foregoing, (i) in connection with the purchase by the Company, the Corporate Issuer or any Restricted Subsidiary of any business, the term “Indebtedness” will exclude post-closing payment adjustments to which the seller may become entitled to the extent such payment is determined by a final closing balance sheet or such payment depends on the performance of such business after the closing; provided, however, that, at the time of closing, the amount of any such payment is not determinable and, to the extent such payment thereafter becomes fixed and determined, the amount is paid within 30 days thereafter, (ii) guarantees constituting Specified Obligations shall not constitute Indebtedness and (iii) repayment guarantees constituting Investments made pursuant to the JV Payment Basket shall constitute Indebtedness.

The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all obligations as described above; provided, however, that in the case of Indebtedness sold at a discount, the amount of such Indebtedness at any time will be the accreted value thereof at such time.

The amount of any Preferred Equity Interests that has a fixed redemption, repayment or repurchase price will be calculated in accordance with the terms of such Preferred Equity Interests as if such Preferred Equity Interests were redeemed, repaid or repurchased on any date on which the amount of such Preferred Equity Interests are to be determined pursuant to the Indenture; provided, however, that if such Preferred Equity Interests could not be required to be redeemed, repaid or repurchased at the time of such determination, the redemption, repayment or repurchase price will be calculated as of the first date thereafter on which such Preferred Equity Interests could be required to be so redeemed, repaid or repurchased. If any Preferred Equity Interests do not have a fixed redemption, repayment or repurchase price, the amount of such Preferred Equity Interests will be their maximum liquidation value.

“Independent Qualified Party” means an accounting, appraisal, investment banking firm or consultant to Persons engaged in Real Estate Businesses of nationally recognized standing that is, in the good faith judgment of the Company, qualified to perform the task for which it has been engaged; provided, however, that such firm or consultant is not an Affiliate of the Company.

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“Independent Valuation” of real property means (x) with respect to the sale of real property by the Company, the Corporate Issuer or any Restricted Subsidiary, any amount proposed to be paid for such real property pursuant to a bona fide offer to purchase made by an unaffiliated Person and which the Company, the Corporate Issuer or the Restricted Subsidiary, as applicable, would be willing to accept or (y) any appraised value of such real property as determined by an Independent Qualified Party.

“Interest Protection Agreement” of any Person means any interest rate swap agreement, interest rate collar agreement, option or futures contract or other similar agreement or arrangement designed to protect such Person or any of its Subsidiaries against fluctuations in interest rates with respect to Indebtedness permitted to be Incurred under the Indenture and not for speculative purposes.

“Investment” in any Person means any direct or indirect advance, loan (other than advances to customers in the ordinary course of business that are recorded as accounts receivable on the balance sheet of the lender) or other extensions of credit (including by way of guarantee or similar arrangement) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition of Equity Interests, Indebtedness or other similar instruments issued by such Person (including, for the avoidance of doubt, the purchase of equity interests in joint ventures pursuant to customary buy/sell provisions contained in the agreements governing such joint ventures). If the Company, the Corporate Issuer or any Restricted Subsidiary issues, sells or otherwise disposes of any Equity Interests of a Person that is a Restricted Subsidiary such that, after giving effect thereto, such Person is no longer a Restricted Subsidiary, any Investment by the Company, the Corporate Issuer or any Restricted Subsidiary in such Person remaining after giving effect thereto will be deemed to be a new Investment at such time. The acquisition by the Company, the Corporate Issuer or any Restricted Subsidiary of a Person that holds an Investment in a third Person will be deemed to be an Investment by the Company, the Corporate Issuer or such Restricted Subsidiary, as applicable, in such third Person at such time. Except as otherwise provided for herein, the amount of an Investment shall be its Fair Market Value at the time the Investment is made and without giving effect to subsequent changes in value.

For purposes of the definition of “Unrestricted Subsidiary,” the definition of “Restricted Payment” and the covenant described under “Certain Covenants—Limitation on Restricted Payments”:

(1) “Investment” shall include the portion (proportionate to the Company’s equity interest in such Subsidiary) of the Fair Market Value of the net assets of any Subsidiary of the Company at the time that such Subsidiary is designated an Unrestricted Subsidiary; provided, however, that upon a redesignation of such Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue to have a permanent “Investment” in an Unrestricted Subsidiary equal to an amount (if positive) equal to (A) the Company’s “Investment” in such Subsidiary at the time of such redesignation less (B) the portion (proportionate to the Company’s equity interest in such Subsidiary) of the Fair Market Value of the net assets of such Subsidiary at the time of such redesignation; and

(2) any property transferred to or from an Unrestricted Subsidiary shall be valued at its Fair Market Value at the time of such transfer, in each case as determined in good faith by the Company’s Governing Body.

“Issue Date” means May 10, 2011.

“JFSCI” means J.F. Shea Co., Inc., a Nevada corporation.

“LC Facility Obligations” means the obligations of the Company pursuant to the terms of the agreement governing the letter of credit facility.

“LC Facility Secured Parties” has the meaning specified in the Intercreditor Agreement.

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“Lien” means, with respect to any Property, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such Property. For purposes of this definition, a Person shall be deemed to own, subject to a Lien, any Property which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such Property.

“Marketable Securities” means (a) equity securities that are listed on the New York Stock Exchange, the American Stock Exchange or The Nasdaq Stock Market and (b) debt securities that are rated by a nationally recognized rating agency, listed on the New York Stock Exchange or the American Stock Exchange or covered by at least two reputable market makers.

“Moody’s” means Moody’s Investors Service, Inc. or any successor to its debt rating business.

“Net Cash Proceeds” means with respect to an Asset Disposition, payments received in cash (including any such payments received by way of deferred payment of principal pursuant to a note, other obligation or installment receivable or otherwise (including any cash received upon sale, conversion or other disposition of such note, other obligation or receivable), but only as and when received), excluding any other consideration received in the form of assumption by the acquiring Person of Indebtedness or other obligations relating to the property disposed of in such Asset Disposition or received in any other non-cash form unless and until such non-cash consideration is converted into cash therefrom, in each case, net of all legal, title and recording tax expenses, commissions and other fees and expenses incurred, and all federal, state and local taxes required to be accrued as a liability under GAAP as a consequence of such Asset Disposition, and in each case net of a reasonable reserve for the after-tax cost of any indemnification or other payments (fixed and contingent) attributable to the seller’s indemnities or other obligations to the purchaser undertaken by the Company, the Corporate Issuer or any of the Restricted Subsidiaries in connection with such Asset Disposition, and net of all payments made on any Indebtedness which is secured by or relates to such Property (other than Indebtedness secured by Liens on the Collateral) in accordance with the terms of any Lien or agreement upon or with respect to such Property or which such Indebtedness must by its terms or by applicable law be repaid out of the proceeds from such Asset Disposition, and net of all contractually required distributions and payments made to minority interest holders in Restricted Subsidiaries or joint ventures as a result of such Asset Disposition.

“Non-Recourse Indebtedness” with respect to any Person means Indebtedness of such Person for which (1) the sole legal recourse for collection of principal and interest on such Indebtedness (other than in respect of customary “bad boy” guarantees) is against the specific property identified in the instruments evidencing or securing such Indebtedness and such property was acquired with the proceeds of such Indebtedness or such Indebtedness was Incurred within 90 days after the acquisition of such property and (2) no other assets may be realized upon in collection of principal or interest on such Indebtedness; provided, however, that such Indebtedness cannot serve as a basis for a cross default to any other Indebtedness. Indebtedness which is otherwise Non-Recourse Indebtedness will not lose its character as Non-Recourse Indebtedness because there is recourse for (a) environmental warranties and indemnities or (b) indemnities for and liabilities arising from fraud, misrepresentation, misapplication or non-payment of rents, profits, insurance and condemnation proceeds and other sums actually received by the obligor from secured assets to be paid to the lender, waste and mechanics’ liens.

“Notes Obligations” means Obligations in respect of the Notes, the Guarantees or the Indenture.

“Obligations” means with respect to any Indebtedness, all obligations (whether in existence on the Issue Date or arising afterwards, absolute or contingent, direct or indirect) for or in respect of principal (when due, upon acceleration, upon redemption, upon mandatory repayment or repurchase pursuant to a mandatory offer to purchase, or otherwise), premium, interest, penalties, fees, indemnification, reimbursement and other amounts payable and liabilities with respect to such Indebtedness, including all interest accrued or accruing after the commencement of any bankruptcy, insolvency or reorganization or similar case or proceeding at the contract rate (including, without limitation, any contract rate applicable upon default) specified in the relevant documentation, whether or not the claim for such interest is allowed as a claim in such case or proceeding.

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“Offering Circular” means the Confidential Offering Circular dated May 3, 2011, pursuant to which the outstanding notes were offered and sold.

“Officer” means the Chairman of the Board, the President, any Vice President, the Treasurer or the Secretary of the Company.

“Officers’ Certificate” means a certificate signed by two Officers.

“Opinion of Counsel” means a written opinion from legal counsel who is acceptable to the Trustee. The counsel may be an employee of or counsel to the Company or the Trustee.

“Pari-Passu Lien Documents” means the credit, guarantee and security documents governing the Pari-Passu Lien Obligations, including the Indenture, the letter of credit facility and the Security Documents.

“Pari-Passu Lien Obligations” means all Indebtedness secured by Pari-Passu Liens on the Collateral, as permitted by clauses (8), (9) and (10) of the definition of “Permitted Liens,” and all Obligations in respect thereof, including the Notes Obligations, the LC Facility Obligations and each class of Additional Pari-Passu Lien Obligations.

“Pari-Passu Lien Secured Parties” means (i) the LC Facility Secured Parties, (ii) the holders of the Notes and the Trustee and (iii) the Additional Pari-Passu Lien Secured Parties with respect to each class of Additional Pari-Passu Lien Obligations; provided, however, that any such Additional Pari-Passu Secured Parties are subject to the Intercreditor Agreement.

“Partners Insurance Company” means Partners Insurance Company, Inc., a Hawaii corporation, and its successors and assigns.

“Permitted Holders” means, collectively, John F. Shea, Peter O. Shea, Peter O. Shea, Jr., Mary Shea, John Morrissey and their respective family trusts, spouses, sons and daughters and lineal descendants, siblings and other familial relatives of any of them, including any corporation, limited liability companies or other entities more than 50% of the issued and outstanding equity interests of which are held, directly or indirectly, by any of the foregoing persons.

“Permitted Investment” means

(1) Cash Equivalents;

(2) guarantees (but not payments thereon) with respect to Specified Obligations;

(3) any Investment in (a) the Company or any Guarantor or (b) any Person that becomes a Guarantor as a result of such Investment or that is consolidated or merged with or into, or transfers all or substantially all of the assets of it or an operating unit or line of business to, the Company or a Guarantor;

(4) any receivables, loans or other consideration taken by either of the Issuers or any Restricted Subsidiary in connection with any asset sale otherwise permitted by the Indenture; provided that non-cash consideration received in an Asset Disposition or an exchange or swap of assets shall be pledged as Collateral under the Security Documents to the extent the assets subject to such Asset Disposition or exchange or swap of assets constituted Collateral;

(5) Investments received in connection with any bankruptcy or reorganization proceeding, or as a result of foreclosure, perfection or enforcement of any Lien or any judgment or settlement of any Person in exchange for or satisfaction of Indebtedness or other obligations or other property received from such Person, or for other liabilities or obligations of such Person created, in accordance with the terms of the Indenture;

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(6) Investments in Interest Protection Agreements permitted by the Indenture;

(7) any loan or advance to an executive officer, director or employee of the Company or any Restricted Subsidiary made in the ordinary course of business or in accordance with past practice; provided, however, that any such loan or advance exceeding $1 million shall have been approved by the Governing Body of the Company or a committee thereof consisting of disinterested members;

(8) obligations (but not payments thereon) with respect to homeowners association obligations, community facility district bonds, metro district bonds, Mello-Roos bonds and subdivision improvement bonds and similar bonding requirements arising in the ordinary course of business of a homebuilder;

(9) guarantee or indemnification obligations (other than for the payment of borrowed money) entered into in the ordinary course of business and incurred for the benefit of any adjoining landowner, seller of real property or municipal government authority (or enterprises thereof) in connection with the acquisition, entitlement and development of real property;

(10) guaranty and indemnification obligations arising in connection with surety bonds issued in the ordinary course of business;

(11) prepaid expenses, negotiable instruments held for collection and insurance, lease, utility and workers’ compensation, performance and other similar deposits made in the ordinary course of business;

(12) current Investments acquired in the ordinary course of business for cash management purposes; and

(13) guarantees and related extensions of credit constituting Permitted Indebtedness (other than indebtedness incurred pursuant to clause (15) of the definition of Permitted Indebtedness, but including, in case of clause (1) of the definition of Permitted Indebtedness, any payments made in respect of letters of credit issued pursuant to such clause) or Coverage Indebtedness.

“Permitted Liens” means

(1) Liens for taxes, assessments or governmental or quasi-government charges or claims that (a) are not yet delinquent, (b) are being contested in good faith by appropriate proceedings and as to which appropriate reserves have been established or other provisions have been made in accordance with GAAP, if required, or (c) encumber solely property abandoned or in the process of being abandoned,

(2) Liens of landlords and carriers’, warehousemen’s, mechanics’, suppliers’, materialmen’s, repairmen’s or other Liens arising in the ordinary course of business and with respect to amounts that, to the extent applicable, either (a) are not yet delinquent or (b) are being contested in good faith by appropriate proceedings and as to which appropriate reserves have been established or other provisions have been made in accordance with GAAP, if required,

(3) Liens (other than any Lien imposed by the Employer Retirement Income Security Act of 1974, as amended) Incurred or deposits made in the ordinary course of business in connection with workers’ compensation, unemployment insurance and other types of social security,

(4) Liens Incurred or deposits made to secure the performance of tenders, bids, leases, statutory obligations, surety and appeal bonds, development obligations, progress payments, government contacts, utility services, developer’s or other obligations to make on-site or off-site improvements and other obligations of like nature (exclusive of obligations for the payment of borrowed money), in each case Incurred in the ordinary course of business of the Company, the Corporate Issuer and the Restricted Subsidiaries,

(5) attachment or judgment Liens not giving rise to a Default,

(6) recorded or unrecorded easements, rights-of-way, dedications, covenants, conditions, restrictions, reservations, assessment district or similar Liens in connection with municipal or special district financing, agreements with adjoining landowners or state or local government authorities and other similar charges,

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burdens and encumbrances which do not, individually or in the aggregate, materially impair the use or development of the assets to which they relate in the ordinary course of business of the Company, the Corporate Issuer and the Restricted Subsidiaries,

(7) zoning restrictions, licenses, restrictions on the use of real property or minor irregularities in title thereto, which do not materially impair the use of such real property in the ordinary course of business of the Company, the Corporate Issuer and the Restricted Subsidiaries,

(8) Liens securing Indebtedness Incurred pursuant to clauses (1), (5) and (7) of the definition of “Permitted Indebtedness”; provided, however, that any such Liens rank pari-passu with the Notes and such Indebtedness is subject to the Intercreditor Agreement,

(9) Liens securing Indebtedness Incurred pursuant to clause (9) of the definition of “Permitted Indebtedness”; provided, however, that such Liens apply only to the property acquired in connection with the Incurrence of such Indebtedness and related properties acquired from the same seller,

(10) Liens securing (i) the Notes (other than Additional Notes) and Exchange Notes, the Guarantees thereof and other Obligations under the Indenture and the Security Documents and in respect thereof and (ii) any obligations owing to the Trustee or the Collateral Agent under the Indenture, the Intercreditor Agreement or the Security Documents,

(11) Liens securing Non-Recourse Indebtedness of the Company, the Corporate Issuer or any Restricted Subsidiary,

(12) Liens securing Indebtedness Incurred pursuant to clause (6) of the definition of “Permitted Indebtedness”; provided, however, that such Liens apply only to the property acquired in connection with the Incurrence of such Indebtedness,

(13) Liens on property or assets of the Company, the Corporate Issuer or any Restricted Subsidiary securing Indebtedness of the Company, the Corporate Issuer or any Restricted Subsidiary owing to the Company, the Corporate Issuer or one or more Restricted Subsidiaries,

(14) leases or subleases granted to others not materially interfering with the ordinary course of business of the Company, the Corporate Issuer and the Restricted Subsidiaries,

(15) any right of first refusal, right of first offer, option, contract or other agreement to sell an asset; provided, however, that such sale is not otherwise prohibited under the Indenture,

(16) any right of a lender or lenders to which the Company, the Corporate Issuer or a Restricted Subsidiary may be indebted to offset against, or appropriate and apply to the payment of such, Indebtedness any and all balances, credits, deposits, accounts or money of the Company, the Corporate Issuer or a Restricted Subsidiary with or held by such lender or lenders or its Affiliates,

(17) any pledge or deposit of cash or property in conjunction with obtaining surety, performance, completion or payment bonds and letters of credit or other similar instruments or providing earnest money obligations, escrows or similar purpose undertakings or indemnifications in the ordinary course of business of the Company, the Corporate Issuer and the Restricted Subsidiaries,

(18) Liens for homeowner and property owner association developments and assessments,

(19) Liens on deposits made in the ordinary course of business as security for the obligations of the Company, the Corporate Issuer and the Restricted Subsidiaries with respect to indemnification in respect of title insurance providers,

(20) Liens on property of a Person existing at the time such Person is merged with or into or consolidated with the Company or any Subsidiary of the Company or becomes a Subsidiary of the Company; provided, however that such Liens were in existence prior to the contemplation of such merger or consolidation or acquisition and do not extend to any assets other than those of the Person merged into or consolidated with the Company or the Subsidiary or acquired by the Company or its Subsidiaries,

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(21) Liens on property existing at the time of acquisition thereof by the Company or any Subsidiary of the Company, provided, however, that such Liens were in existence prior to the contemplation of such acquisition,

(22) Liens on specific items of inventory or other goods and proceeds of any Person securing such Person’s obligations in respect of bankers’ acceptances issued or created for the account of such Person to facilitate the purchase, shipment or storage of such inventory or other goods,

(23) Liens Incurred in the ordinary course of business to secure (i) profit and price participation arrangements and (ii) fees, taxes and carry costs on, in respect of or owing to governmental issuers (including enterprises thereof) of community facility district, Mello-Roos, metro-district or similar bonding obligations,

(24) Liens to secure any Refinancing (or successive Refinancings) as a whole, or in part, of any Indebtedness secured by any Lien referred to in the foregoing clause (9), (10), (12), (20) or (21); provided, however, that:

(A) such new Lien shall be limited to all or part of the same property and assets that secured or, under the written agreements pursuant to which the original Lien arose, could secure the original Lien (plus improvements and accessions to, such property or proceeds or distributions thereof); and

(B) the Indebtedness secured by such Lien at such time is not increased to any amount greater than the sum of (x) the outstanding principal amount or, if greater, committed amount of the Indebtedness described under clause (9), (10), (12), (20) or (21) at the time the original Lien became a Permitted Lien and (y) an amount necessary to pay any fees and expenses, including premiums, related to such Refinancing,

(25) Licenses of intellectual property granted in the ordinary course of business and not interfering in any material respect with the ordinary conduct of business of the Company or any Restricted Subsidiary,

(26) Liens of lessor, sublessor or licensor arising under any lease, sublease or license entered into by the Company or any Restricted Subsidiary in the ordinary course of business and not interfering in any material respect with the ordinary conduct of business of the Company or any Restricted Subsidiary, and covering only the Property or assets so leased, subleased or licensed,

(27) any (i) interest or title of a lessor or sublessor under any lease of a Property or asset not prohibited by the Indenture, (ii) Lien or restriction that the interest or title of such lessor or sublessor may be subject to or (iii) subordination of the interest of the lessee or sublessee under such lease to any Lien or restriction referred to in the preceding clause (ii), so long as the holder of such Lien or restriction agrees to recognize the rights of such lessee or sublessee under such lease,

(28) pledges, deposits and other Liens existing under, or required to be made in connection with, (i) earnest money obligations, escrows or similar purpose undertakings or indemnifications in connection with any purchase and sale agreement, (ii) development agreements or other contracts entered into with governmental authorities (or an entity sponsored by a governmental authority), in connection with the entitlement of real property or (iii) agreements for the funding of infrastructure, including in respect of the issuance of community facility district bonds, metro district bonds, mello-roos bonds and subdivision improvement bonds, and similar bonding requirements arising in the ordinary course of business of a homebuilder,

(29) Liens, encumbrances or other restrictions contained in any joint venture agreement entered into by the Company or any Restricted Subsidiary with respect to the equity interests issued by the relevant joint venture or the assets of such joint venture,

(30) assignments of insurance or condemnation proceeds provided to landlords (or their mortgagees) pursuant to the terms of any lease of Property leased by the Company or any Restricted Subsidiary, in each case with respect to the Property so leased, and customary Liens and rights reserved in any lease for rent or for compliance with the terms of such lease,

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(31) Liens on cash pledged to secure deductibles, retentions and other obligations to insurance providers in the ordinary course of business, and

(32) Liens securing Indebtedness described under clause (8) of the definition of Permitted Indebtedness; provided, however, that to the extent such Indebtedness constitutes Indebtedness of the type described in clause (1) of the definition of Indebtedness (other than a note evidencing the deferred purchase price of property), any such Liens rank pari-passu with the Notes and such Indebtedness is subject to the Intercreditor Agreement.

“Permitted Priority Liens” means Permitted Liens permitted by clauses (6), (9), (11), (12), (15), (18), (23), (24) (to the extent the Refinancing pertains to Indebtedness secured by Liens referred to in clause (12)), (28) and (32) (unless required pursuant to such clause (32) to rank pari-passu with the Notes) of the definition of “Permitted Liens.”

“Person” means any individual, corporation, partnership, limited liability company, joint venture, incorporated or unincorporated association, joint stock company, trust, unincorporated organization or government or any agency or political subdivision thereof.

“Post-Petition Interest” means any interest or entitlement to fees or expenses or other charges that accrues after the commencement of any bankruptcy proceeding, whether or not allowed or allowable in any such bankruptcy proceeding.

“Preferred Equity Interests” of any Person means all Equity Interests of such Person which has a preference in liquidation or with respect to the payment of dividends.

“Property” of any Person means all types of real, personal, tangible, intangible or mixed property owned by such Person, whether or not included in the most recent consolidated balance sheet of such Person and its Subsidiaries under GAAP, including Equity Interests and Indebtedness of other Persons.

“Purchase Money Indebtedness” means Indebtedness of the Company or any Restricted Subsidiary Incurred for the purpose of financing all or any part of the purchase price, or the cost of construction or improvement, of any property to be used in the ordinary course of business by the Company and the Restricted Subsidiaries; provided, however, that (1) the aggregate principal amount of such Indebtedness shall not exceed such purchase price or cost and (2) such Indebtedness shall be Incurred no later than 180 days after the acquisition of such property or completion of such construction or improvement.

“Qualified Equity Interests” of a Person means Equity Interests of such Person other than:

(i) any Disqualified Equity Interests;

(ii) any Equity Interests sold to a Subsidiary of such Person or a Company Equity Plan;

(iii) any Equity Interests financed, directly or indirectly, using funds borrowed from such Person, a Subsidiary of such Person or any Company Equity Plan or contributed, extended, advanced or guaranteed by such Person, a Subsidiary of such person or any Company Equity Plan;

(iv) any Equity Interests issued upon conversion of, or issued in exchange for, debt securities owned by any Subsidiary of such Person or Company Equity Plan;

(v) any Equity Interests issued in connection with any cash contribution made in accordance with clause (F) of the second paragraph of the covenant described in “Certain Covenants—Limitations on Restricted Payments”; and

(vi) except for purposes of the definition of “Excluded Contribution,” any Equity Interest to the extent the cash or Cash Equivalents received in connection therewith are designated as Excluded Contributions.

Unless otherwise specified, Qualified Equity Interests refer to Qualified Equity Interests of the Company.

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“Real Estate Business” means homebuilding, housing construction, real estate (including masterplan) development or construction and the sale of homes and related real estate activities, including the provision of mortgage financing or title insurance or any other business substantially related or reasonably incidental thereto.

“Refinance” means, in respect of any Indebtedness, to refinance, extend, renew, refund, repay, prepay, purchase, redeem, defease or retire, or to issue other Indebtedness in exchange or replacement for, such Indebtedness. “Refinanced” and “Refinancing” shall have correlative meanings.

“Refinancing Indebtedness” means Indebtedness that Refinances any Indebtedness of the Company, the Corporate Issuer or any Restricted Subsidiary existing on the Issue Date or Incurred in compliance with the Indenture, including Indebtedness that Refinances Refinancing Indebtedness; provided, however, that:

(1) such Refinancing Indebtedness has a Stated Maturity no earlier than the Stated Maturity of the Indebtedness being Refinanced;

(2) such Refinancing Indebtedness has a Weighted Average Life to Maturity at the time such Refinancing Indebtedness is Incurred that is equal to or greater than the Weighted Average Life to Maturity of the Indebtedness being Refinanced;

(3) such Refinancing Indebtedness has an aggregate principal amount (or if Incurred with original issue discount, an aggregate issue price) that is equal to or less than the aggregate principal amount (or if Incurred with original issue discount, the aggregate accreted value) then outstanding (plus fees and expenses, including any premium and defeasance costs) under the Indebtedness being Refinanced; and

(4) if the Indebtedness being Refinanced is subordinated in right of payment to the Notes, such Refinancing Indebtedness is subordinated in right of payment to the Notes to at least the same extent as the Indebtedness being Refinanced;

provided further, however, that Refinancing Indebtedness shall not include (A) Indebtedness of a Subsidiary that Refinances Indebtedness of the Company or the Corporate Issuer or (B) Indebtedness of the Company, the Corporate Issuer or a Restricted Subsidiary that Refinances Indebtedness of an Unrestricted Subsidiary.

“Required Dedication” means a dedication or conveyance of any Property at the direction of a governmental authority or a public utility, or pursuant to or in connection with a development agreement, or to a homeowners or condominium owners association, to (i) such governmental authority (or any designee of such governmental authority), (ii) a utility provider, (iii) a special foundation which holds land for preservation of the environment or (iv) a homeowners or condominium owners association, in any case for parks, schools, recreation centers, common community facilities, public streets, utility easements and installations, slopes or other rights-of-way or public use, in each case in the ordinary course of business (as determined by the Company in good faith and in the exercise of its reasonable commercial judgment).

“Restricted Payment” means any of the following:

(1) the declaration or payment of any dividend or any other distribution on Equity Interests of the Company, the Corporate Issuer or any Restricted Subsidiary or any payment made to the direct or indirect holders (in their capacities as such) of Equity Interests of the Company, the Corporate Issuer or any Restricted Subsidiary (other than (a) dividends or distributions payable solely in Qualified Equity Interests and (b) in the case of the Corporate Issuer or Restricted Subsidiaries, dividends or distributions payable ratably to the Company, the Corporate Issuer or a Restricted Subsidiary and each other Person entitled thereto);

(2) the purchase, redemption or other acquisition or retirement for value of any Equity Interests of the Company, the Corporate Issuer or any Restricted Subsidiary (other than a payment made to the Company, the Corporate Issuer or any Restricted Subsidiary);

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(3) any Investment (other than any Permitted Investment), including any Investment in any joint venture, any Investment in an Unrestricted Subsidiary (including by the designation of a Subsidiary of the Company as an Unrestricted Subsidiary) or any Investment in a Restricted Subsidiary that is not a Guarantor (each Investment described in this clause (3), a “Restricted Investment”);

(4) the purchase, repurchase, redemption, acquisition or retirement for value, prior to one year before the date for any scheduled maturity, sinking fund or amortization or other principal installment payment, of any Subordinated Indebtedness (other than (a) Indebtedness permitted under clause (4) of the definition of Permitted Indebtedness or (b) the purchase, repurchase, redemption, defeasance, or other acquisition or retirement of Subordinated Indebtedness purchased in anticipation of satisfying a sinking fund obligation, amortization or principal installment or final maturity, in each case due within one year of the date of purchase, repurchase, redemption, defeasance or other acquisition or retirement); and

(5) any payment by either Issuer or any Restricted Subsidiary with respect to a Specified Obligation.

“Restricted Subsidiary” means any Subsidiary of the Company which is not an Unrestricted Subsidiary, including the Corporate Issuer.

“Sale/Leaseback Transaction” means an arrangement relating to property owned by the Company or a Restricted Subsidiary on the Issue Date or thereafter acquired by the Company or a Restricted Subsidiary whereby the Company or a Restricted Subsidiary transfers such property to a Person and the Company or a Restricted Subsidiary leases it from such Person.

“S&P” means Standard & Poor’s Ratings Services, a division of The McGraw Hill Companies, Inc., a New York corporation, or any successor to its debt rating business.

“Security Documents” means the security documents granting a security interest in any assets of any Person to secure the Indebtedness and related Obligations under the Notes, the Guarantees, the letter of credit facility and any other Pari-Passu Lien Obligations, as each may be amended, restated, supplemented or otherwise modified from time to time.

“Significant Subsidiary” means any Subsidiary of the Company which would constitute a “significant subsidiary” as defined in Rule 1-02(w)(1) or (2) of Regulation S-X under the Securities Act and the Exchange Act as in effect on the Issue Date and, for purpose of determining whether an Event of Default has occurred, any group of Restricted Subsidiaries that combined would be such a Significant Subsidiary.

“Specified Obligations” means (1) interest-coverage, re-margin and completion guarantees with respect to (a) any joint venture in which either Issuer or any Restricted Subsidiary has a direct or an indirect equity interest or (b) the Baker JV, (2) customary “bad boy” guarantees, (3) guarantees of Affiliate Obligations existing on the Issue Date (and any extension, modification or replacement of such Affiliate Obligation provided that such extension, modification or replacement does not increase the obligations of the Company or any Restricted Subsidiary with respect to such Affiliate Obligations) and (4) tax payments (including interest and penalties) or Tax Distributions, as applicable, attributable to any U.S. federal income tax proceeding (whether or not still contested or subject to appeal) regarding the completed contract method (as defined in U.S. Treasury Regulation Section 1.460-4(d)) of accounting for periods prior to 2011 (other than any increase in taxes payable for periods after 2010 as a result of such proceeding).

“Specified Pari-Passu Lien Obligations” means all Pari-Passu Lien Obligations other than the LC Facility Obligations.

“Stated Maturity” means, with respect to any Indebtedness, the date specified in such Indebtedness as the fixed date on which the final payment of principal of such Indebtedness is due and payable, including pursuant to any mandatory redemption provision (but excluding any provision providing for the repurchase of such Indebtedness at the option of the holder thereof upon the happening of any contingency unless such contingency has occurred).

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“Subordinated Indebtedness” means Indebtedness subordinated in right of payment to the Notes, or the Guarantees, as the case may be, pursuant to a written agreement and includes any Indebtedness ranking equally in right of payment to the Notes or the applicable Guarantee, as the case may be, but unsecured or secured by the Collateral on a basis entirely junior to that of the Notes and the Guarantees.

“Subsidiary” of any Person means any corporation or other entity of which a majority of the Equity Interests having ordinary voting power to elect a majority of the Governing Body or other persons performing similar functions is at the time directly or indirectly owned or controlled by such Person.

“Tax Distribution Agreement” means the Tax Distribution Agreement dated as of the Issue Date between the Company, the direct and indirect holders of ownership interests in the Company and each of the Persons party to the Sixth Amended and Restated Agreement of Limited Partnership of Shea Homes Limited Partnership, dated as of April 1, 2005 (as amended, restated, supplemented or otherwise modified from time to time).

“Tax Distributions” means, so long as the Company is treated as a pass-through or disregarded entity for United States federal income tax purposes, the distributions in respect of income taxes permitted under Section 2 of the Tax Distribution Agreement as in effect on the Issue Date.

“Trustee” means the party named as such above until such time, if any, a successor replaces such party in accordance with the applicable provisions of the Indenture and thereafter means the successor serving as trustee under the Indenture in respect of the Notes.

“Unrestricted Subsidiary” means:

(1) Partners Insurance Company and its Subsidiaries and

(2) any other Subsidiary of the Company (other than the Corporate Issuer) so designated after the Issue Date by a resolution adopted by the Governing Body of the Company or a duly authorized committee thereof as provided below; provided, however, that (a) the holders of Indebtedness of such Subsidiary of the Company do not have direct or indirect recourse against the Company, the Corporate Issuer or any Restricted Subsidiary, and neither the Company, the Corporate Issuer nor any Restricted Subsidiary otherwise has liability for, or any payment obligations in respect of such Indebtedness (including any undertaking, agreement or instrument evidencing such Indebtedness), except, in each case, to the extent that (i) the amount thereof constitutes a Restricted Payment permitted by the Indenture, (ii) in the case of Non-Recourse Indebtedness, such recourse or liability is for the matters discussed in the last sentence of the definition of “Non-Recourse Indebtedness,” or (iii) such Indebtedness is a guarantee by such Subsidiary of Indebtedness of the Company, the Corporate Issuer or a Restricted Subsidiary and (b) no holder of any Indebtedness of such Subsidiary shall have a right to declare a default on such Indebtedness or cause the payment thereof to be accelerated or payable prior to its Stated Maturity as a result of a default on any Indebtedness of the Company, the Corporate Issuer or any Restricted Subsidiary.

Subject to the foregoing, the Governing Body of the Company or a duly authorized committee thereof may designate any Subsidiary to be an Unrestricted Subsidiary; provided, however, that (1) the net amount (the “Designation Amount”) then outstanding of all previous Investments by the Company and the Restricted Subsidiaries in such Subsidiary and its Subsidiaries will be deemed to be a Restricted Payment at the time of such designation and will reduce the amount available for Restricted Payments under the “Limitations on Restricted Payments” covenant set forth in the Indenture, to the extent provided therein, (2) the Company must be permitted under the “Limitations on Restricted Payments” covenant set forth in the Indenture to make the Restricted Payment deemed to have been made pursuant to clause (1), and (3) after giving effect to such designation, no Default shall have occurred or be continuing. In accordance with the foregoing, and not in limitation thereof, Investments made by any Person in any Subsidiary of such Person prior to such Person’s merger with the Company or any Restricted Subsidiary (but not in contemplation or anticipation of such merger) shall not be counted as an Investment by the Company or such Restricted Subsidiary if such Subsidiary of such Person is designated as an Unrestricted Subsidiary.

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The Governing Body of the Company or a duly authorized committee thereof may also redesignate an Unrestricted Subsidiary to be a Restricted Subsidiary; provided, however, that (1) the Indebtedness of such Unrestricted Subsidiary as of the date of such redesignation could then be Incurred under the “Limitations on Indebtedness” covenant and (2) immediately after giving effect to such redesignation and the Incurrence of any such additional Indebtedness, the Company and the Restricted Subsidiaries could Incur $1.00 of additional Coverage Indebtedness under the “Limitations on Indebtedness” covenant.

Any such designation or redesignation by the Governing Body of the Company or a committee thereof will be evidenced to the Trustee by the filing with the Trustee of a certified copy of the resolution of the Governing Body of the Company or a committee thereof giving effect to such designation or redesignation and an Officers’ Certificate certifying that such designation or redesignation complied with the foregoing conditions and setting forth the underlying calculations of such Officers’ Certificate. The designation of any Person as an Unrestricted Subsidiary shall be deemed to include a designation of all Subsidiaries of such Person as Unrestricted Subsidiaries.

“U.S. Government Obligations” means non-callable, non-payable bonds, notes, bills or other similar obligations issued or guaranteed by the United States government or any agency thereof the full and timely payment of which are backed by the full faith and credit of the United States.

“Weighted Average Life to Maturity” means, when applied to any Indebtedness or portion thereof at any date, the number of years obtained by dividing (i) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payment of principal, including, without limitation, payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment by (ii) the sum of all such payments described in clause (i)(a) above.

Concerning the Trustee

The Indenture contains certain limitations on the rights of the Trustee, should it become a creditor of the Company, to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The Trustee is permitted to engage in other transactions with the Company and its Subsidiaries; however, if it acquires any conflicting interest, it must, upon the occurrence of any Default, it must, so long as such Default has not been cured or duly waived, eliminate that conflicting interest within 90 days, apply to the Commission for permission to continue or resign.

The holders of a majority in principal amount of the Notes then outstanding will have the right to direct the Trustee, subject to certain exceptions. The Indenture provides that in case an Event of Default shall occur (which shall not be cured), the Trustee will be required, in the exercise of its power, to use the degree of care of a prudent man in the conduct of his own affairs. Subject to such provisions, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request of any holder of Notes, unless that holder shall have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense.

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BOOK-ENTRY, DELIVERY AND FORM

Exchange notes will be represented by permanent global notes in fully registered form without interest coupons (each a “global note”) and will be deposited with the Trustee as a custodian for The Depository Trust Company (“DTC”) and registered in the name of a nominee of such depositary.

The Global Notes

We expect that pursuant to procedures established by DTC (i) upon the issuance of the global notes, DTC or its custodian will credit, on its internal system, the principal amount at maturity of the individual beneficial interests represented by such global notes to the respective accounts of persons who have accounts with such depositary and (ii) ownership of beneficial interests in the global notes will be shown on, and the transfer of such ownership will be effected only through, records maintained by DTC or its nominee (with respect to interests of participants (as defined below)) and the records of participants (with respect to interests of persons other than participants). Such accounts initially will be designated by or on behalf of the Exchange Agent and ownership of beneficial interests in the global notes will be limited to persons who have accounts with DTC (“participants”) or persons who hold interests through participants. Holders may hold their interests in the global notes directly through DTC if they are participants in such system, or indirectly through organizations which are participants in such system.

So long as DTC, or its nominee, is the registered owner or holder of the Notes, DTC or such nominee, as the case may be, will be considered the sole owner or holder of the Notes represented by such global notes for all purposes under the Indenture. No beneficial owner of an interest in the global notes will be able to transfer that interest except in accordance with DTC’s procedures, in addition to those provided for under the Indenture with respect to the Notes.

Payments of the principal of, premium (if any) and interest (including additional interest) on, the global notes will be made to DTC or its nominee, as the case may be, as the registered owner thereof. None of us, the Trustee, or any paying agent will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in the global notes or for maintaining, supervising, or reviewing any records relating to such beneficial ownership interest.

We expect that DTC or its nominee, upon receipt of any payment of principal of, premium (if any) and interest (including additional interest) on the global notes, will credit participants’ accounts with payments in amounts proportionate to their respective beneficial interests in the principal amount of the global notes as shown on the records of DTC or its nominee. We also expect that payments by participants to owners of beneficial interests in the global notes held through such participants will be governed by standing instructions and customary practice, as is now the case with securities held for the accounts of customers registered in the names of nominees for such customers. Such payments will be the responsibility of such participants.

Transfers between participants in DTC will be effected in the ordinary way through DTC’s same-day funds system in accordance with DTC rules and will be settled in same day funds. If a holder requires physical delivery of a certificated security for any reason, including to sell Notes to persons in states which require physical delivery of the Notes, or to pledge such securities, such holder must transfer its interest in a global note in accordance with the normal procedures of DTC and with the procedures set forth in the Indenture.

DTC has advised us that it will take any action permitted to be taken by a Holder of Notes (including the presentation of Notes for exchange as described below) only at the direction of one or more participants to whose account the DTC interests in the global notes are credited and only in respect of such portion of the aggregate principal amount of Notes as to which such participant or participants has or have given such direction. However, if there is an Event of Default under the Indenture, DTC will exchange the global notes for certificated securities, which it will distribute to its participants and which will be legended.

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DTC has advised us as follows: DTC is a limited purpose trust company organized under the laws of the State of New York, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the Uniform Commercial Code and a “Clearing Agency” registered pursuant to the provisions of Section 17A of the Exchange Act. DTC was created to hold securities for its participants and facilitate the clearance and settlement of securities transactions between participants through electronic book-entry changes in accounts of its participants, thereby eliminating the need for physical movement of certificates. Participants include securities brokers and dealers, banks, trust companies and clearing corporations and certain other organizations. Indirect access to the DTC system is available to others such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a participant, either directly or indirectly (“indirect participants”).

Although DTC has agreed to the foregoing procedures in order to facilitate transfers of interests in the global note among participants of DTC, it is under no obligation to perform such procedures, and such procedures may be discontinued at any time. Neither we nor the Trustee will have any responsibility for the performance by DTC, its participants, or indirect participants of their respective obligations under the rules and procedures governing their operations.

Certificated Securities

Certificated securities shall be issued in exchange for beneficial interests in the global notes (i) after the occurrence and during the continuation of a Default, or (ii) if DTC is at any time unwilling or unable to continue as a depositary for the global notes or has ceased to be a clearing agency registered under the Exchange Act, and in either case, a successor depositary is not appointed by us within 120 days.

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CERTAIN MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS

The following is a summary of certain material U.S. federal income tax consequences of an exchange of the outstanding notes for the exchange of notes in the exchange offer, and the acquisition, ownership and disposition of the exchange notes (also referred to as the “notes”). It is based on provisions of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), existing and proposed Treasury regulations promulgated thereunder (the “Treasury Regulations”) and administrative and judicial interpretations thereof, all as of the date hereof and all of which are subject to change, possibly on a retroactive basis. No ruling from the IRS has been or is expected to be sought with respect to any aspect of the transactions described herein. Accordingly, no assurance can be given that the IRS will agree with the views expressed in this summary, or that a court will not sustain any challenge by the IRS in the event of litigation. The following relates only to notes acquired in this offering for an amount of cash equal to their offering price and that are held as capital assets (generally, property held for investment).

This summary does not address all of the U.S. federal income tax consequences that may be relevant to particular holders in light of their personal circumstances, or to certain types of holders that may be subject to special tax treatment (such as banks and other financial institutions, employee stock ownership plans, partnerships or other pass-through entities for U.S. federal income tax purposes, former citizens or residents of the United States, controlled foreign corporations, foreign personal holding companies, corporations that accumulate earnings to avoid U.S. federal income tax, insurance companies, tax-exempt organizations, dealers in securities, brokers, “U.S. holders” (as defined below) whose functional currency is not the U.S. dollar, persons subject to the alternative minimum tax or persons who hold the notes as a hedge or who hedge the interest rate on the notes). In addition, this summary does not include any description of the tax laws of any state, local or non-U.S. government that may be applicable to a particular holder and does not consider any aspects of U.S. federal tax law other than income taxation.

For purposes of this discussion, a “U.S. holder” is a beneficial owner of the notes that is, for U.S. federal income tax purposes:

• an individual who is a citizen or resident of the United States;

• a corporation (or other business entity treated as a corporation) created or organized in or under the laws of the United States or any state thereof or the District of Columbia;

• an estate the income of which is subject to U.S. federal income taxation regardless of its source; or

• a trust if a court within the United States can exercise primary supervision over its administration, and one or more U.S. persons have the authority to control all of the substantial decisions of that trust (or the trust was in existence on August 20, 1996, and validly elected to continue to be treated as a U.S. trust).

A “non-U.S. holder” is a beneficial owner of the notes that is an individual, corporation, estate, or trust and is not a U.S. holder.

The U.S. federal income tax treatment of a partner in a partnership (or other entity classified as a partnership for U.S. federal income tax purposes) that holds the notes generally will depend on such partner’s particular circumstances and on the activities of the partnership. Partners in such partnerships should consult their own tax advisors.

U.S. federal income tax consequences of the exchange offer to U.S. holders and non-U.S. holders

The exchange of outstanding notes for exchange notes pursuant to the exchange offer will not be a taxable transaction for U.S. federal income tax purposes. U.S. holders and non-U.S. holders will not recognize any gain or loss as a result of such exchange and will have the same adjusted issue price, tax basis, and holding period in the exchange notes as they had in the outstanding notes immediately before the exchange.

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U.S. federal income tax consequences to U.S. holders

Classification of the notes

In certain circumstances (see “Description of the Notes—Certain Covenants—Change of Control”), the notes provide for the payment of certain amounts in excess of the stated interest and principal. These contingencies could subject the notes to the provisions of the Treasury Regulations relating to “contingent payment debt instruments.” Under these regulations, however, one or more contingencies will not cause a debt instrument to be treated as a contingent payment debt instrument if, as of the issue date, each such contingency is “remote” or is considered to be “incidental.” We believe and intend to take the position that the foregoing contingencies should be treated as remote and/or incidental. Our position is binding on a holder, unless the holder discloses in the proper manner to the IRS that it is taking a different position. However, this determination is inherently factual and we can give no assurance that our position would be sustained if challenged by the IRS. A successful challenge of this position by the IRS could affect the timing and amount of a holder’s income and could cause the gain from the sale or other disposition of a note to be treated as ordinary income, rather than capital gain. This disclosure assumes that the notes will not be considered contingent payment debt instruments. Holders are urged to consult their own tax advisors regarding the potential application to the notes of the contingent payment debt regulations and the consequences thereof.

Treatment of interest

Since the outstanding notes were not issued with original issue discount, the exchange notes will not have any original issue discount. Stated interest on the notes will be treated as “qualified stated interest” (i.e., stated interest that is unconditionally payable at least annually at a single fixed rate over the entire term of the note) and will be taxable to U.S. holders as ordinary interest income as the interest accrues or is paid in accordance with the holder’s regular method of tax accounting.

Market Discount

A note that is acquired for an amount that is less than its principal amount by more than a de minimis amount (generally 0.25% of the principal amount multiplied by the number of remaining whole years to maturity), will be treated as having “market discount” equal to such difference. Unless the U.S. holder elects to include such market discount in income as it accrues, a U.S. holder will be required to treat any principal payment on, and any gain on the sale, exchange, retirement or other disposition (including a gift) of, a note as ordinary income to the extent of any accrued market discount that has not previously been included in income. In general, market discount on the notes will accrue ratably over the remaining term of the notes or, at the election of the U.S. holder, under a constant yield method. In addition, a U.S. holder could be required to defer the deduction of all or a portion of the interest paid on any indebtedness incurred or continued to purchase or carry a note unless the U.S. holder elects to include market discount in income currently. Such an election applies to all debt instruments held by a taxpayer and may not be revoked without the consent of the IRS.

Amortizable Premium

A U.S. holder who purchases a note for an amount in excess of stated principal amount will be considered to have purchased the note with “amortizable bond premium” equal to the excess. A U.S. holder may elect to amortize that premium under a constant yield method over the remaining term of the note (which will result in a corresponding decrease in the adjusted tax basis of the note) and may offset interest otherwise required to be included in respect of the note during any taxable year by the amortized amount of such premium for the taxable year. However, if the note may be redeemed at a price that is greater than its stated principal amount, special rules would apply that could result in a deferral of the amortization of a portion of the bond premium until later in the term of the note. Any election to amortize bond premium applies to all taxable debt obligations then owned and thereafter acquired by the U.S. holder and may be revoked only with the consent of the IRS. Holders that acquire a note with bond premium should consult their tax advisors regarding the manner in which such premium is calculated and the election to amortize bond premium over the life of the instrument.

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Sale, exchange or other disposition of the notes

In general, upon the sale, exchange, redemption, retirement or other taxable disposition of a note, a U.S. holder will recognize taxable gain or loss equal to the difference between (1) the amount of the cash and the fair market value of any property received on the sale or other taxable disposition (less an amount equal to any accrued and unpaid stated interest, which will be taxable as interest income as discussed above) and (2) the U.S. holder’s adjusted tax basis in the note. Gain or loss realized on the sale or other taxable disposition of a note will generally be capital gain or loss (except as provided under the market discount rule described above) and will be a long-term capital gain or loss if at the time of the disposition the U.S. holder has held the note for more than one year. For non-corporate U.S. holders, long-term capital gains are generally eligible for reduced rates of taxation. The deductibility of capital losses is subject to limitations.

Medicare tax

For taxable years beginning after December 31, 2012, a U.S. holder that is an individual or estate, or a trust that does not fall into a special class of trusts that is exempt from such tax, will be subject to a 3.8% tax on the lesser of (1) the U.S. holder’s “net investment income” for the relevant taxable year and (2) the excess of the U.S. holder’s modified adjusted gross income for the taxable year over a certain threshold (which in the case of individuals will be between $125,000 and $250,000 depending on the individual’s circumstances). Net investment income generally includes interest income and net gains from the disposition of the notes, unless such interest income or net gains are derived in the ordinary course of the conduct of a trade or business (other than a trade or business that consists of certain passive or trading activities). A U.S. holder that is an individual, estate or trust should consult its own tax advisor regarding the applicability of the Medicare tax to its income and gains in respect of its investment in the notes.

Backup withholding and information reporting

In general, a U.S. holder of the notes will be subject to backup withholding with respect to interest on the notes and the proceeds of a sale or other disposition (including a retirement or redemption) of the notes at the applicable tax rate (currently 28%), unless such holder (a) is an entity that is exempt from backup withholding and, when required, demonstrates this fact, or (b) provides the payor with its taxpayer identification number (“TIN”), certifies that the TIN provided to the payor is correct and that the holder has not been notified by the IRS that such holder is subject to backup withholding due to underreporting of interest or dividends, and otherwise complies with applicable requirements of the backup withholding rules. In addition, such payments to U.S. holders that are not exempt entities will generally be subject to information reporting requirements. A U.S. holder that does not provide the payor with its correct TIN may be subject to penalties imposed by the IRS. Backup withholding is not an additional tax. The amount of any backup withholding from a payment to a U.S. holder will be allowed as a credit against such holder’s U.S. federal income tax liability and may entitle such holder to a refund, provided that the required information is timely furnished to the IRS.

U.S. federal income tax consequences to non-U.S. holders

Treatment of interest

Subject to the discussion of backup withholding below, under the “portfolio interest exemption,” a non-U.S. holder will generally not be subject to U.S. federal income tax (or any withholding tax) on payments of stated interest on the notes that is not effectively connected with the non-U.S. holder’s trade or business, provided that:

• the non-U.S. holder does not actually or constructively own 10% or more of the capital or profits interest in SHLP;

• the non-U.S. holder is not, and is not treated as, a bank receiving interest on an extension of credit pursuant to a loan agreement entered into in the ordinary course of its trade or business;

• the non-U.S. holder is not a “controlled foreign corporation” that is related (actually or constructively) to us; and

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• certain certification requirements are met.

• Under current law, the certification requirement will be satisfied in any of the following circumstances:

• If a non-U.S. holder provides to us or our paying agent a statement on IRS Form W-8BEN (or suitable successor form), together with all appropriate attachments, signed under penalties of perjury, identifying the non-U.S. holder by name and address and stating, among other things, that the non-U.S. holder is not a U.S. person.

• If a note is held through a securities clearing organization, bank or another financial institution that holds customers’ securities in the ordinary course of its trade or business, (i) the non-U.S. holder provides such a form to such organization or institution, and (ii) such organization or institution, under penalty of perjury, certifies to us that it has received such statement from the beneficial owner or another intermediary and furnishes us or our paying agent with a copy thereof.

• If a financial institution or other intermediary that holds the note on behalf of the non-U.S. holder has entered into a withholding agreement with the IRS and submits an IRS Form W-8IMY (or suitable successor form) and certain other required documentation to us or our paying agent.

If the requirements of the portfolio interest exemption described above are not satisfied, a 30% withholding tax will apply to the gross amount of interest on the notes that is paid to a non-U.S. holder, unless either: (a) an applicable income tax treaty reduces or eliminates such tax, and the non-U.S. holder claims the benefit of that treaty by providing a properly completed and duly executed IRS Form W-8BEN (or suitable successor form) establishing qualification for benefits under the treaty, or (b) the interest is effectively connected with the non-U.S. holder’s conduct of a trade or business in the United States and the non-U.S. holder provides an appropriate statement to that effect on a properly completed and duly executed IRS Form W-8ECI (or suitable successor form).

If a non-U.S. holder is engaged in a trade or business in the United States and interest on a note is effectively connected with the conduct of that trade or business, the non-U.S. holder will be required to pay U.S. federal income tax on that interest on a net income basis generally in the same manner as a U.S. holder. If a non-U.S. holder is eligible for the benefits of an income tax treaty between the United States and its country of residence, any interest income that is effectively connected with a U.S. trade or business will be subject to U.S. federal income tax in the manner specified by the treaty and generally only will be subject to tax if such income is attributable to a permanent establishment (or a fixed base in the case of an individual) maintained by the non-U.S. holder in the United States, provided that the non-U.S. holder claims the benefit of the treaty by properly submitting an IRS Form W-8BEN. In addition, a non-U.S. holder that is treated as a foreign corporation for U.S. federal income tax purposes may be subject to a branch profits tax equal to 30% (or lower applicable treaty rate) of its earnings and profits for the taxable year, subject to adjustments, that are effectively connected with its conduct of a trade or business in the United States.

Sale, exchange or other disposition of the notes

Subject to the discussion of backup withholding below, a non-U.S. holder generally will not be subject to U.S. federal income tax (or any withholding thereof) on any gain realized by such holder upon a sale, exchange, redemption, retirement at maturity or other disposition of a note (except amounts received with respect to accrued and unpaid stated interest, which would be taxable as described above), unless:

• the non-U.S. holder is an individual who is present in the U.S. for 183 days or more during the taxable year and who has a “tax home” in the United States and certain other conditions are met; or

• the gain is effectively connected with the conduct of a U.S. trade or business of the non-U.S. holder.

If the first exception applies, the non-U.S. holder generally will be subject to U.S. federal income tax at a rate of 30% on the amount by which its U.S.-source capital gains exceed its U.S.-source capital losses. If the second exception applies, the non-U.S. holder will generally be subject to U.S. federal income tax on the net gain

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derived from the sale or other disposition of the notes in the same manner as a U.S. holder. In addition, corporate non-U.S. holders may be subject to a 30% branch profits tax on any effectively connected earnings and profits. If a non-U.S. holder is eligible for the benefits of an income tax treaty between the United States and its country of residence, the U.S. federal income tax treatment of any such gain may be modified in the manner specified by the treaty.

Information reporting and backup withholding

When required, we or our paying agent will report to the IRS and to each non-U.S. holder the amount of any interest paid on the notes in each calendar year, and the amount of U.S. federal income tax withheld, if any, with respect to these payments.

Non-U.S. holders that have provided certification as to their non-U.S. status or that have otherwise established an exemption will generally not be subject to backup withholding tax if neither we nor our agent has actual knowledge or reason to know that such certification is unreliable or that the conditions of the exemption are in fact not satisfied. However, certain information reporting may still apply with respect to interest payments even if certification is provided.

Payments of the proceeds from the sale or other disposition (including a retirement or redemption) of a note to or through a foreign office of a broker generally will not be subject to information reporting or backup withholding. However, additional information reporting, but generally not backup withholding, may apply to those payments if the broker is one of the following: (a) a U.S. person (as defined in the Code), (b) a controlled foreign corporation for U.S. federal income tax purposes, (c) a foreign person 50% or more of whose gross income from all sources for the three-year period ending with the close of its taxable year preceding the payment was effectively connected with a U.S. trade or business, or (d) a foreign partnership with specified connections to the United States.

Payment of the proceeds from a sale or other disposition (including a retirement or redemption) of a note to or through the U.S. office of a broker will be subject to information reporting and backup withholding unless the non-U.S. holder certifies as to its non-U.S. status or otherwise establishes an exemption from information reporting and backup withholding, provided that neither we nor our agent have actual knowledge or reason to know that such certification is unreliable or that the conditions of the exemption are in fact not satisfied.

Backup withholding is not an additional tax. The amount of any backup withholding from a payment to a non-U.S. holder will be allowed as a credit against such holder’s U.S. federal income tax liability and may entitle the holder to a refund, provided the required information is timely furnished to the IRS.

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CERTAIN ERISA CONSIDERATIONS

The following is a summary of certain considerations associated with the purchase of the notes by employee benefit plans that are subject to Title I of the U.S. Employee Retirement Income Security Act of 1974, as amended (“ERISA”), plans, individual retirement accounts and other arrangements that are subject to Section 4975 of the Internal Revenue Code of 1986, as amended (the “Code”) or provisions under any Federal, state, local, non-U.S. or other laws or regulations that are similar to such provisions of the Code or ERISA (collectively, “Similar Laws”), and entities whose underlying assets are considered to include “plan assets” of such plans, accounts and arrangements (each, a “Plan”).

General Fiduciary Matters

ERISA and the Code impose certain duties on persons who are fiduciaries of a Plan subject to Title I of ERISA or Section 4975 of the Code (an “ERISA Plan”) and prohibit certain transactions involving the assets of an ERISA Plan and its fiduciaries or other interested parties. Under ERISA and the Code, any person who exercises any discretionary authority or control over the administration of such an ERISA Plan or the management or disposition of the assets of such an ERISA Plan, or who renders investment advice for a fee or other compensation to such an ERISA Plan, is generally considered to be a fiduciary of the ERISA Plan.

In considering an investment in the notes of a portion of the assets of any Plan, a fiduciary should determine whether the investment is in accordance with the documents and instruments governing the Plan and the applicable provisions of ERISA, the Code or any Similar Law relating to the fiduciary’s duties to the Plan including, without limitation, the prudence, diversification, delegation of control and prohibited transaction provisions of ERISA, the Code and any other applicable Similar Laws.

Prohibited Transaction Laws

Sections 406 and 407 of ERISA and Section 4975 of the Code prohibit ERISA Plans from engaging in specified transactions involving plan assets with persons or entities who are “parties in interest,” within the meaning of Section 3(14) of ERISA, or “disqualified persons,” within the meaning of Section 4975 of the Code, unless an exemption is available. A party in interest or disqualified person who engages in a non-exempt prohibited transaction may be subject to excise taxes and other penalties and liabilities under ERISA and the Code. In addition, the fiduciary of the ERISA Plan that engages in such a non-exempt prohibited transaction may be subject to penalties and liabilities under ERISA and the Code.

The acquisition and/or holding of the notes by an ERISA Plan with respect to which we or the initial purchaser is considered a party in interest or a disqualified person may constitute or result in a direct or indirect prohibited transaction under Sections 406 and 407 of ERISA and/or Section 4975 of the Code, unless the investment is acquired and is held in accordance with an applicable statutory, class or individual prohibited transaction exemption. In this regard, the U.S. Department of Labor has issued prohibited transaction class exemptions (“PTCEs”) that may apply to the acquisition and holding of the notes. These class exemptions include, without limitation, PTCE 84-14 respecting transactions determined by independent qualified professional asset managers, PTCE 90-1 respecting insurance company pooled separate accounts, PTCE 91-38 respecting bank collective investment funds, PTCE 95-60 respecting life insurance company general accounts and PTCE 96-23 respecting transactions determined by in-house asset managers, although there can be no assurance that all of the conditions of any such exemptions will be satisfied.

Because of the foregoing, the notes should not be purchased or held by any person investing “plan assets” of any Plan, unless such purchase and holding will not constitute a non-exempt prohibited transaction under Sections 406 and 407 of ERISA and Section 4975 of the Code or a violation of any applicable Similar Laws.

Representation

Accordingly, by acceptance of a note each purchaser and holder will be deemed to have represented and warranted that either (1) it is not a Plan and no portion of the assets used to acquire or hold the notes constitutes

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assets of any Plan or (2) the purchase and holding of the notes will not constitute a non-exempt prohibited transaction under Sections 406 and 407 of ERISA or Section 4975 of the Code or a violation under any applicable Similar Laws.

The foregoing discussion is general in nature and is not intended to be all-inclusive. Due to the complexity of these rules and the penalties that may be imposed upon persons involved in non-exempt prohibited transactions, it is particularly important that fiduciaries, or other persons considering purchasing the notes on behalf of, or with the assets of, any Plan, consult with their counsel regarding the potential applicability of ERISA, Section 4975 of the Code and any Similar Laws to such investment and whether an exemption would be applicable to the purchase and holding of the notes.

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PLAN OF DISTRIBUTION

Each broker-dealer that receives exchange notes for its own account pursuant to the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of such exchange notes. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of exchange notes received in exchange for outstanding notes where such outstanding notes were acquired as a result of market-making activities or other trading activities. We have agreed that for a period of 180 days after the expiration of the exchange offer, we will make this prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. In addition, until                      2012, all dealers effecting transactions in the exchange notes may be required to deliver a prospectus.

We will not receive any proceeds from any sale of exchange notes by brokers-dealers. Exchange notes received by broker-dealers for their own account pursuant to the exchange offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the exchange notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or at negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer and/or the purchasers of any such exchange notes. Any broker-dealer that resells exchange notes that were received by it for its own account pursuant to the exchange offer and any broker or dealer that participates in a distribution of such exchange notes may be deemed to be an “underwriter” within the meaning of the Securities Act and any profit on any such resale of exchange notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The letter of transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an “underwriter” within the meaning of the Securities Act.

For a period of 180 days after the expiration of the exchange offer, we will promptly send additional copies of this prospectus and any amendment or supplement to this prospectus to any broker-dealer that requests such documents in the letter of transmittal. We have agreed to pay all expenses incident to the exchange offer, (including the expenses of one counsel for the holders of the notes), other than commissions or concessions of any brokers or dealers and will indemnify the holders of the notes (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act.

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LEGAL MATTERS

Certain legal matters with respect to the issuance and sale of the notes being offered hereby will be passed upon for us by Gibson, Dunn & Crutcher LLP, New York, New York.

EXPERTS

Ernst & Young LLP, independent registered public accounting firm, has audited our consolidated financial statements at December 31, 2010 and 2009, and for each of the three years in the period ended December 31, 2010, as set forth in their report. We have included our financial statements in the prospectus and elsewhere in the registration statement in reliance on Ernst & Young LLP’s report, given on their authority as experts in accounting and auditing.

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INDEX TO FINANCIAL STATEMENTS

UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets at September 30, 2011 (unaudited) and December 31, 2010	F-2
Unaudited Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2011 and 2010	F-3
Unaudited Consolidated Statements of Changes in Equity for the Nine Months Ended September 30, 2011 and 2010	F-4
Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2011 and 2010	F-5
Notes to Consolidated Financial Statements at September 30, 2011 (unaudited) and December  31, 2010 and for the Three and Nine Months Ended September 30, 2011 and 2010 (unaudited)	F-6
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm	F-39
Consolidated Balance Sheets at December 31, 2010 and 2009	F-40
Consolidated Statements of Operations for the Years Ended December 31, 2010, 2009 and 2008	F-41
Consolidated Statements of Changes in Equity for the Years Ended December 31, 2010, 2009 and 2008	F-42
Consolidated Statements of Cash Flows for the Years Ended December 31, 2010, 2009 and 2008	F-43
Notes to Consolidated Financial Statements at December  31, 2010 and 2009 and for the Three Years in the Period Ended December 31, 2010	F-44

F-1

Shea Homes Limited Partnership

(A California Limited Partnership)

Consolidated Balance Sheets

(In thousands)

	September 30, 2011		December 31, 2010
	(unaudited)
Assets
Cash and cash equivalents	$	209,036	$	166,874
Restricted cash		13,798		11,695
Investments		13,250		11,822
Accounts and other receivables, net		126,997		107,423
Receivables from related parties, net		62,843		204,412
Inventory		876,237		800,029
Investments in joint ventures		29,960		36,553
Property and equipment, net		1,896		18,369
Other assets, net		33,366		57,709
Total assets	$	1,367,383	$	1,414,886
Liabilities and equity
Liabilities:
Notes payable	$	752,328	$	730,005
Payables to related parties		40		9,210
Accounts payable		52,176		38,035
Other liabilities		230,556		205,323
Total liabilities		1,035,100		982,573
Equity:
SHLP equity:
Owners’ equity		301,111		406,863
Accumulated other comprehensive income		6,713		5,363
Total SHLP equity		307,824		412,226
Non-controlling interests		24,459		20,087
Total equity		332,283		432,313
Total liabilities and equity	$	1,367,383	$	1,414,886

See accompanying notes

F-2

Shea Homes Limited Partnership

(A California Limited Partnership)

Consolidated Statements of Operations

(In thousands)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
	(unaudited)
Revenues	$	157,300		$	124,604		$	346,293		$	422,856
Cost of sales		(133,645	)		(147,617	)		(301,947	)		(400,248	)
Gross margin		23,655			(23,013	)		44,346			22,608
Selling expenses		(11,141	)		(10,262	)		(30,529	)		(33,564	)
General and administrative expenses		(9,136	)		(7,801	)		(25,624	)		(25,893	)
Equity in (loss) income from joint ventures		(201	)		1,623			(696	)		8,692
Loss on debt extinguishment		—			—			(88,384	)		—
Interest and other expense, net		(3,666	)		(7,734	)		(9,575	)		(22,046	)
Loss before income taxes		(489	)		(47,187	)		(110,462	)		(50,203	)
Income tax benefit (expense)		2,851			(8,530	)		3,868			(10,027	)
Net (loss) income		2,362			(55,717	)		(106,594	)		(60,230	)
Less: Net income attributable to non-controlling interests		(264	)		(35	)		(702	)		(6,200	)
Net (loss) income attributable to SHLP	$	2,098		$	(55,752	)	$	(107,296	)	$	(66,430	)

See accompanying notes

F-3

Shea Homes Limited Partnership

(A California Limited Partnership)

Consolidated Statements of Changes in Equity

(In thousands)

	Shea Homes Limited Partnership																					Non- controlling Interests			Total Equity
	Limited Partner									General Partner			Total Owners’ Equity			Accumulated Other Comprehensive Income (Loss)			Total SHLP Equity
	Common			Preferred Series B			Preferred Series D			Common
Balance, December 31, 2009	$	118,934		$	194,240		$	109,992		$	31,286		$	454,452		$	9,398		$	463,850		$	17,356		$	481,206
Comprehensive loss:
Net (loss) income		(52,070	)		—			(668	)		(13,692	)		(66,430	)		—			(66,430	)		6,200			(60,230	)
Change in unrealized losses, net		—			—			—			—			—			(4,941	)		(4,941	)		—			(4,941	)
Total comprehensive loss																				(71,371	)		6,200			(65,171	)
Contributions from owners and non-controlling interests		—			—			12,500			—			12,500			—			12,500			762			13,262
Distributions to non-controlling interests		—			—			—			—			—			—			—			(271	)		(271	)
Balance, September 30, 2010 (unaudited)	$	66,864		$	194,240		$	121,824		$	17,594		$	400,522		$	4,457		$	404,979		$	24,047		$	429,026
Balance, December 31, 2010	$	71,830		$	194,240		$	121,892		$	18,901		$	406,863		$	5,363		$	412,226		$	20,087		$	432,313
Comprehensive loss:
Net (loss) income		(73,052	)		(14,090	)		(932	)		(19,222	)		(107,296	)		—			(107,296	)		702			(106,594	)
Change in unrealized gains, net		—			—			—			—			—			1,350			1,350			—			1,350
Total comprehensive loss																				(105,946	)		702			(105,244	)
Contributions from owners and non-controlling interests (a)		1,223			—			—			321			1,544			—			1,544			3,948			5,492
Distributions to non-controlling interests		—			—			—			—			—			—			—			(278	)		(278	)
Balance, September 30, 2011 (unaudited)	$	1		$	180,150		$	120,960		$	—		$	301,111		$	6,713		$	307,824		$	24,459		$	332,283

(a) In September 2011, the Company sold property and equipment to a related party. The $1.5 million of consideration in excess of net book value was recorded as an equity contribution from owners of the Company.

See accompanying notes

F-4

Shea Homes Limited Partnership

(A California Limited Partnership)

Consolidated Statements of Cash Flows

(In thousands)

	Nine Months Ended September 30,
	2011			2010
	(unaudited)			(unaudited)
Operating activities
Net loss	$	(106,594	)	$	(60,230	)
Adjustments to reconcile net loss to net cash used in operating activities:
Equity in loss (income) from joint ventures		696			(9,954	)
Loss on debt extinguishment		88,384			—
Write-off of professional fees in connection with debt modification		—			23,569
Net gain on sale of available-for-sale investments		(539	)		(4,443	)
Depreciation and amortization expense		7,213			7,465
Impairment of inventory		10,302			44,636
Impairment of investments in joint ventures		—			1,262
Net interest capitalized on investment in joint ventures		(465	)		(88	)
Distributions of earnings from joint ventures		650			400
Changes in operating assets and liabilities:
Restricted cash		(1,351	)		11,799
Receivables and other assets		(20,363	)		(19,003	)
Inventory		(36,153	)		(39,853	)
Payables and other liabilities		28,804			(78,284	)
Net cash used in operating activities		(29,416	)		(122,724	)
Investing activities
Proceeds from sale of available-for-sale investments		1,180			52,110
Net decrease in promissory notes from related parties		107,856			5,253
Investments in joint ventures		(16,447	)		(18,038	)
Distributions from joint ventures		7,002			2,508
Proceeds from sale of property and equipment		12,893			—
Purchases of property and equipment		(1,680	)		(5,056	)
Net cash provided by investing activities		110,804			36,777
Financing activities
Repayments on revolving lines of credit		(80,448	)		—
Borrowings on revolving lines of credit		—			12,647
Borrowings from financial institutions		750,000			—
Principal payments to financial institutions and others		(721,358	)		(100	)
Accrued interest on notes payable		1,839			—
Amortization of notes payable discount		5,527			—
Contributions from non-controlling interests		3,948			762
Distributions to non-controlling interests		(278	)		(271	)
Contributions from owners		1,544			12,500
Net cash (used in) provided by financing activities		(39,226	)		25,538
Net increase (decrease) in cash and cash equivalents		42,162			(60,409	)
Cash and cash equivalents at beginning of period		166,874			203,076
Cash and cash equivalents at end of period	$	209,036		$	142,667

See accompanying notes

F-5

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements

September 30, 2011

1. Basis of Presentation

The accompanying unaudited, consolidated financial statements include the accounts of Shea Homes Limited Partnership (“SHLP”) and its wholly-owned subsidiaries, including Shea Homes, Inc. (“SHI”) and its wholly-owned subsidiaries. The Company consolidates all joint ventures in which it has a controlling interest or other ventures in which it is the primary beneficiary of a variable interest entity (“VIE”). Material intercompany accounts and transactions are eliminated. The consolidated financial statements are prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) for interim financial information. Adjustments, consisting of normal, recurring accruals, loss reserves and deferred tax asset valuation allowance adjustments, considered necessary for a fair presentation, are included.

Certain reclassifications were made in the prior year’s consolidated financial statements to conform to classifications used in the current year.

These consolidated financial statements do not include all information and notes required by GAAP for complete financial statements and should be read in conjunction with the consolidated financial statements and accompanying notes for the year ended December 31, 2010. Unless the context otherwise requires, the terms “we”, “us”, “our” and “the Company” refer to SHLP and its subsidiaries.

Organization

SHLP, a California limited partnership, was formed January 4, 1989, pursuant to an agreement of partnership (the “Agreement”), as most recently amended January 1, 2009, by and between J.F. Shea, LP, a Delaware limited partnership, as general partner, and the Company’s limited partners who are comprised of entities and trusts, including J.F. Shea Co., Inc. (“JFSCI”), that are under the common control of Shea family members (collectively, the “Partners”). J.F. Shea, LP is 96% owned by JFSCI.

Nature of Operations

Our principal business purpose is homebuilding, which includes acquiring and developing land and constructing and selling residential homes thereon. Our principal markets are California, Arizona, Colorado, Washington, Nevada and Florida.

Partners Insurance Company, LLC (“PIC”), a captive insurance company wholly-owned by SHI, provided warranty, general liability, workers’ compensation and completed operations insurance for related companies and third-party subcontractors. Effective for the policy years commencing in 2007, PIC ceased issuing policies for these coverages. Thereafter, our warranty program became self-insured, and the general liability, workers’ compensation and completed operations (through July 31, 2009) coverages were insured by an affiliate insurance carrier for primary coverage and by third-party insurance carriers for excess coverage. In February 2011, we purchased completed operations insurance from an affiliate insurance carrier, retroactive to August 1, 2009.

Seasonality

Historically, the homebuilding industry experiences seasonal fluctuations. We typically experience the highest new home sales order activity in spring and summer, although this activity is also highly dependent on the number of active selling communities, timing of new community openings and other market factors. Since it typically takes three to eight months to construct a new home, we deliver more homes in the second half

F-6

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

September 30, 2011

of the year as spring and summer home sales orders convert to home deliveries. Because of this seasonality, home starts, construction costs and related cash outflows have historically been highest from April to October, and the majority of cash receipts from home closings occur during the second half of the year. Therefore, operating results for the three and nine months ended September 30, 2011 are not necessarily indicative of results expected for the year ended December 31, 2011.

Further, in contrast to this historical seasonal pattern, weakness in homebuilding market conditions during the last five years has distorted our results. Also, in 2010, expiration of the federal homebuyer tax credit impacted the timing of our construction activities and home sales order and closing volumes. Although we may experience our seasonal pattern in the future, given current market conditions, we make no assurances as to when or whether this pattern will recur.

Use of Estimates

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires the Company to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

2. Summary of Significant Accounting Policies

Inventory

Inventories are stated at cost, unless the carrying amount is determined not to be recoverable, in which case inventories are written down to fair value. Quarterly, we review our real estate assets at each community for indicators of impairment. Our real estate assets include projects actively selling and projects under development or held for future development. Indicators of impairment include, but are not limited to, significant decreases in local housing market values and selling prices of comparable homes, significant decreases in gross margins and sales absorption rates, costs in excess of budget, and actual or projected cash flow losses.

Annually, we perform a detailed budget and cash flow review of our real estate assets to determine whether the estimated remaining undiscounted future cash flows of the project are more or less than the asset’s carrying value. If the undiscounted cash flows are more than the asset’s carrying value, no impairment adjustment is required. However, if the undiscounted cash flows are less than the asset’s carrying value, the asset is deemed impaired and is written down to its fair value. These impairment evaluations require us to make estimates and assumptions regarding future conditions, including timing and amounts of development costs and sales prices of real estate assets, to determine whether expected future undiscounted cash flows will be sufficient to recover the asset’s carrying value.

When estimating undiscounted cash flows of a community, we make various assumptions, including: (i) expected sales prices and sales incentives to be offered, including the number of homes available, pricing and incentives being offered by us or other builders in other communities, and future sales price adjustments based on market and economic trends; (ii) expected sales pace and cancellation rates based on local housing market conditions, competition and historical trends; (iii) costs expended to date and expected to be incurred in the future, including, but not limited to, land and land development costs, home construction costs, interest costs, indirect construction and overhead costs, and selling and marketing costs; (iv) alternative product offerings that may be offered that could have an impact on sales pace, sales price and/or building costs; and (v) alternative uses for the property.

F-7

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

September 30, 2011

Many assumptions are interdependent and a change in one may require a corresponding change to other assumptions. For example, increasing or decreasing sales absorption rates has a direct impact on the estimated per unit sales price of a home, the level of time sensitive costs (such as indirect construction, overhead and carrying costs), and selling and marketing costs (such as model maintenance costs and advertising costs). Depending on the underlying objective of the community, assumptions could have a significant impact on the projected cash flow analysis. For example, if our objective is to preserve operating margins, our cash flow analysis will be different than if the objective is to increase sales. These objectives may vary significantly from community to community and over time.

If assets are considered impaired, impairment is determined by the amount the asset’s carrying value exceeds its fair value. Fair value is determined based on estimated future cash flows discounted for inherent risks associated with real estate assets or other valuation techniques. These discounted cash flows are impacted by expected risk based on estimated land development, construction and delivery timelines; market risk of price erosion; uncertainty of development or construction cost increases; and other risks specific to the asset or market conditions where the asset is located when assessment is made. These factors are specific to each community and may vary among communities. The discount rate used in determining each asset’s fair value depends on the community’s projected life and development stage. We generally use discount rates ranging from 10% to 25%, subject to perceived risks associated with the community’s cash flow streams relative to its inventory.

Completed Operations Claim Costs

We maintain, and require our subcontractors to maintain, general liability insurance which includes coverage for completed operations losses and damages. Most of our subcontractors carry this insurance through our “rolling wrap-up” insurance program, where our risks and risks of participating subcontractors working on our projects are insured through a set of master policies.

We record expenses and liabilities related to the estimated costs of completed operations claims when received in the ordinary course of business. We also record expenses and liabilities for estimated costs of potential completed operations claims based upon aggregated loss experience, which includes an estimate of completed operations claims incurred but not reported and is actuarially estimated using individual case-basis valuations and statistical analysis. These estimates make up our entire reserve and are subject to a high degree of variability due to uncertainties such as trends in completed operations claims related to our markets and products built, changes in claims reporting and settlement patterns, third party recoveries, insurance industry practices, insurance regulations and legal precedent. Because state regulations vary, completed operations claims are reported and resolved over an extended period, sometimes exceeding twelve years. As a result, actual costs may differ significantly from estimates.

Completed operations claims reserves primarily represent claims for property damage to completed homes and projects outside of our one-to-two year warranty period. Specific terms and conditions of completed operations warranties vary depending on the market in which homes are closed.

The actuarial analyses that determined these incurred but not reported claims consider various factors, including frequency and severity of losses, which are based on our historical claims experience supplemented by industry data. The actuarial analyses of these claims and reserves also consider historical third party recovery rates and claims management expenses. Due to the inherent uncertainty related to each of these factors, periodic changes to such factors based on updated relevant information could result in actual costs to differ significantly from estimated costs.

F-8

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

September 30, 2011

In accordance with our underlying completed operations insurance policies, these completed operations claims costs are recoverable from our subcontractors or insurance carriers. Effective December 2009, completed operations claims through July 31, 2009 are insured with third-party insurance carriers and, effective February 2011, completed operations claims commencing August 1, 2009 are insured with an affiliate insurance carrier.

Revenues

Revenues from housing and other real estate sales are recognized in accordance with Accounting Standards Codification (“ASC”) 360 when the respective units are closed. Housing and other real estate sales are closed when all conditions of escrow are met, including delivery of the home or other real estate asset, title passage, appropriate consideration is received and collection of associated receivables, if any, is reasonably assured. Sales incentives are a reduction of revenues when the respective unit is closed.

Income Taxes

SHLP is treated as a partnership for income tax purposes. As a limited partnership, SHLP is subject to certain minimal state taxes and fees; however, taxes on income or losses realized by SHLP are generally the obligation of the Partners and their owners.

SHI and PIC are C corporations. Federal and state income taxes are provided for these entities in accordance with the provisions of ASC 740. The provision for, or benefit from, income taxes is calculated using the asset and liability method, under which deferred tax assets and liabilities are recorded based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which differences are expected to reverse. Deferred tax assets are evaluated to determine whether a valuation allowance should be established based on its determination of whether it is more likely than not some or all of the deferred tax asset will not be realized. The ultimate realization of deferred tax assets depends primarily on generation of future taxable income during the periods in which those temporary differences become deductible. Judgment is required in determining future tax consequences of events that have been recognized in the consolidated financial statements and/or tax returns. Differences between anticipated and actual outcomes of these future tax consequences could have a material impact on the consolidated financial position or results of operations.

New Accounting Pronouncements

In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, (“ASU 2011-04”). ASU 2011-04 amends ASC 820, Fair Value Measurements (“ASC 820”), providing a consistent definition and measurement of fair value, as well as similar disclosure requirements between U.S. GAAP and International Financial Reporting Standards. ASU 2011-04 changes certain fair value measurement principles, clarifies the application of existing fair value measurement and expands the ASC 820 disclosure requirements, particularly for Level 3 fair value measurements. ASU 2011-04 will be effective for the Company’s fiscal year beginning January 1, 2012. The Company is evaluating the potential impact of adopting this guidance on its consolidated financial statements.

In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income (“ASU 2011-05”). ASU 2011-05 requires the presentation of comprehensive income in either (1) a continuous statement of comprehensive income or (2) two separate but consecutive statements. ASU 2011-05 eliminates the option to

F-9

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

September 30, 2011

present the components of other comprehensive income as part of the statement of changes in equity. ASU 2011-05 will be effective for the Company’s fiscal year beginning January 1, 2012. The Company believes the adoption of ASU 2011-05 concerns disclosure and presentation only and will not have a material impact on its consolidated financial position or results of operations.

3. Restricted Cash

Restricted cash related to the homebuilding operations included cash used as collateral for potential obligations paid by the Company’s bank, customer deposits temporarily restricted in accordance with regulatory requirements, and cash used in lieu of bonds. At September 30, 2011 and December 31, 2010, restricted cash related to homebuilding operations was $13.4 million and $11.4 million, respectively.

Restricted cash of PIC included cash held in escrow by PIC’s claim administrators. At September 30, 2011 and December 31, 2010, restricted cash of PIC was $0.4 million and $0.3 million, respectively.

4. Investments

Investments consist of available-for-sale securities and are measured at fair value, which is based on quoted market prices or cash flow models. Accordingly, unrealized gains and temporary losses on investments, net of tax, are reported as accumulated other comprehensive income (loss). Realized gains and losses are determined using the specific identification method.

At September 30, 2011 and December 31, 2010, investments were as follows:

	September 30, 2011
	Cost / Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(In thousands)
Debt securities:
Corporate obligations	$	1,021	$	161	$	—	$	1,182
Mortgage/asset-backed securities		102		7		—		109
Private debt obligations (a)		1,795		10,159		—		11,954
Total debt securities		2,918		10,327		—		13,245
Equity securities		4		1		—		5
Total investments	$	2,922	$	10,328	$	—	$	13,250

F-10

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

September 30, 2011

	December 31, 2010
	Cost / Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
Debt securities:
Corporate obligations	$	1,124	$	224	$	—		$	1,348
Mortgage/asset-backed securities		588		279		—			867
Private debt obligations (a)		1,834		7,748		—			9,582
Total debt securities		3,546		8,251		—			11,797
Equity securities		25		4		(4	)		25
Total investments	$	3,571	$	8,255	$	(4	)	$	11,822

(a) At December 31, 2009, certain private debt obligations experienced an other-than-temporary impairment and a $13.2 million impairment was recorded. Unrealized gains of private debt obligations are stated at the difference between their fair value and cost basis, net of impairment.

For the three months ended September 30, 2011 and 2010, realized gains on available-for-sale securities were $0.1 million and $0 million, respectively, which were included in interest and other expense, net. For the nine months ended September 30, 2011 and 2010, realized gains on available-for-sale securities were $0.5 million and $4.4 million, respectively, which were included in interest and other expense, net.

For the nine months ended September 30, 2011, included in accumulated other comprehensive income (loss) were $1.7 million of unrealized gains, reclassification adjustments for $0.3 million of realized gains and $(0.7) million of tax expense. For the nine months ended September 30, 2010, included in accumulated other comprehensive income (loss) were $(6.1) million of unrealized losses, reclassification adjustments for $3.5 million of realized gains and $(2.4) million of tax expense.

At September 30, 2011, the contractual maturities of debt securities classified as available-for-sale were as follows:

	September 30, 2011
	Cost		Fair Value
	(In thousands)
Due in one year or less	$	—	$	—
Due after one year through five years		258		371
Due after five years through ten years		1,255		1,419
Due after ten years		1,303		11,346
Mortgage/asset-backed securities		102		109
Total	$	2,918	$	13,245

Actual maturities may differ from contractual maturities because certain borrowers have the right to call or prepay obligations with or without penalty.

At September 30, 2011, there were no securities that were in an unrealized loss position. At December 31, 2010, there were equity securities with nominal fair value and unrealized losses that were in a continuous unrealized loss position for less than one year. We evaluated investments with unrealized losses to determine if

F-11

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

September 30, 2011

they experienced an other-than-temporary impairment. This evaluation was based on various factors, including length of time securities were in a loss position, ability and intent to hold investments until temporary losses were recovered or they mature, investee’s industry and amount of the unrealized loss. Based on these factors, at December 31, 2010, the unrealized losses were not deemed an other-than-temporary impairment.

5. Fair Value Disclosures

ASC 820, Fair Value Measurements and Disclosures, defines fair value as the price that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants at measurement date and requires assets and liabilities carried at fair value to be classified and disclosed in the following three categories:

• Level 1 — Quoted prices for identical instruments in active markets

• Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are inactive; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets at measurement date

• Level 3 — Valuations derived from techniques where one or more significant inputs or significant value drivers are unobservable in active markets at measurement date

The financial instruments measured at fair value on a recurring basis were as follows:

	September 30, 2011
Description	Level 1		Level 2		Level 3		Total
	(In thousands)
Debt securities	$	—	$	2,326	$	10,919	$	13,245
Equity securities		—		5		—		5
Total investments	$	—	$	2,331	$	10,919	$	13,250

	December 31, 2010
Description	Level 1		Level 2		Level 3		Total
	(In thousands)
Debt securities	$	—	$	3,199	$	8,598	$	11,797
Equity securities		—		25		—		25
Total investments	$	—	$	3,224	$	8,598	$	11,822

The Level 2 financial instruments are primarily debt and equity securities in which fair values were determined from quoted prices in an inactive market or for similar instruments in an active market. The Level 3 financial instruments are comprised of private debt securities where fair value was determined using a cash flow model that considered estimated interest rates, discount rates, prepayments and defaults.

F-12

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

September 30, 2011

At September 30, 2011, the summary of changes in fair value of the Level 3 financial instruments was as follows:

	Private Debt Obligations
	(In thousands)
Fair value at December 31, 2010	$	8,598
Unrealized gains, included in other comprehensive income (loss)		2,321
Fair value at September 30, 2011	$	10,919

At September 30, 2011, the non-financial instruments measured at fair value on a non-recurring basis were as follows:

	Nine Months Ended September 30, 2011 (a)		Fair Value Measurements Using						Total Losses
Description			Level 1		Level 2		Level 3
	(In thousands)
Inventory	$	9,923	$	—	$	—	$	9,923	$	(10,302	)

(a) Amount represents aggregate fair value for communities where we recorded impairments at the fair value measurement date. Net book value for these communities may have increased or decreased since the measurement date.

For the nine months ended September 30, 2011, in accordance with ASC 360, inventories with a $20.2 million net book value were written down to a $9.9 million fair value, resulting in a $(10.3) million impairment, which was included in cost of sales.

Fair values for inventories using Level 3 inputs were primarily based on estimated future cash flows discounted for inherent risk associated with each asset. These discounted cash flows were impacted by expected risk based on estimated land development, construction and delivery timelines; market risk of price erosion; uncertainty of development or construction cost increases; and other risks specific to the asset or market conditions where the asset was located when assessment was made. These factors were specific to each community and may vary among communities. The discount rate used in determining each asset’s fair value depended on the community’s projected life and development stage. We generally use discount rates ranging from 10% to 25%, subject to perceived risks associated with the community’s cash flow streams relative to its inventory.

F-13

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

September 30, 2011

At September 30, 2011 and December 31, 2010, as required by ASC 825, Financial Instruments, the following presents net book values and estimated fair values of notes payable.

	September 30, 2011				December 31, 2010
	Net Book Value		Estimated Fair Value		Net Book Value		Estimated Fair Value
	(In thousands)
$750,000 senior secured notes	$	750,000	$	626,250	$	—	$	—
Secured promissory notes	$	2,328	$	2,328	$	1,954	$	1,954
$145,000 secured bank term facility	$	—	$	—	$	135,202	$	137,315
$440,000 Series A term loan	$	—	$	—	$	360,003	$	425,488
$30,000 Series A-1 term loan	$	—	$	—	$	25,008	$	30,000
$85,000 Series B term loan	$	—	$	—	$	73,284	$	82,197
$25,000 secured subordinated loan	$	—	$	—	$	31,398	$	24,784
$20,000 secured subordinated loan	$	—	$	—	$	16,888	$	19,948
$5,000 secured subordinated loan	$	—	$	—	$	3,569	$	4,240
$75,000 secured bank revolving credit facility	$	—	$	—	$	75,000	$	75,000
Funded letters of credit	$	—	$	—	$	5,448	$	5,448
Secured Bank Exit Fee	$	—	$	—	$	2,251	$	3,241

Fair value for the senior secured notes at September 30, 2011 was based on the quoted market price at the end of the period. Estimated fair values of the outstanding secured term facility, term loans and Bank Exit Fee at December 31, 2010 were based on cash flow models discounted at market interest rates that considered underlying risks of the debt.

The Company’s other financial instruments consist primarily of cash and cash equivalents, restricted cash, accounts and other receivables, accounts payable and other liabilities. The book values of these financial instruments approximate their fair values due to their relatively short-term nature.

6. Accounts and Other Receivables, net

At September 30, 2011 and December 31, 2010, accounts and other receivables were as follows:

	September 30, 2011			December 31, 2010
	(In thousands)
Insurance receivables	$	114,149		$	102,860
Escrow receivables		6,031			1,774
Notes receivables		3,020			68
Other receivables		6,907			6,314
Reserve		(3,110	)		(3,593	)
Total accounts and other receivables, net	$	126,997		$	107,423

We record insurance receivables from insurance carriers for reimbursable claims pertaining to resultant damage and injuries from construction defects on our closed homes. At December 31, 2009, as part of the PIC Transaction (see Note 12), we insured our closed homes with third-party insurance carriers for policy years August 1, 2001 to July 31, 2009. In February 2011, we insured our closed homes with an affiliate insurance carrier retroactive to August 1, 2009.

F-14

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

September 30, 2011

We record a reserve for uncollectible receivables that are specifically identified or outstanding for more than 120 days.

7. Inventory

At September 30, 2011 and December 31, 2010, inventory was as follows:

	September 30, 2011		December 31, 2010
	(In thousands)
Model homes	$	96,738	$	91,267
Completed homes for sale		32,463		34,918
Homes under construction		159,218		78,725
Lots available for construction		300,748		308,497
Land under development		144,823		174,245
Land held for future development		126,041		104,217
Land deposits and preacquisition costs		16,206		8,160
Total inventory	$	876,237	$	800,029

Impairment

Inventory, including all captions listed above, are stated at cost, unless the carrying amount is determined to be unrecoverable, in which case inventories are written down to fair value (see Note 2).

For the three and nine months ended September 30, 2011 and 2010, inventory impairment was as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010
	(Dollars in thousands)
Inventory impairment	$	—	$	42,858	$	10,302	$	44,636
Remaining carrying value of inventory impaired at end of period	$	—	$	80,503	$	10,842	$	80,529
Projects impaired		—		6		3		9
Projects evaluated for impairment (a)		130		132		130		132

(a) Large land parcels not subdivided into communities are counted as one project. Once parcels are subdivided, the project count will increase accordingly.

Inventory impairment was included in cost of sales in the accompanying consolidated statements of operations and primarily attributable to lower home prices driven by increased incentives and price reductions required in response to weak demand and economic conditions, including record foreclosures, high unemployment, low consumer confidence and tighter mortgage credit standards.

F-15

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

September 30, 2011

Write-off of Deposits and Preacquisition Costs

Land deposits and preacquisition costs for potential acquisitions and land option contracts are included in inventory. When a potential acquisition or land option contract is abandoned, the related deposits and preacquisition costs are written off to interest and other expense, net. For the three and nine months ended September 30, 2011, write-offs of deposits and preacquisition costs were $0.1 million and $0.2 million, respectively. For the three and nine months ended September 30, 2011, there were no option lots abandoned. For the three and nine months ended September 30, 2010, charges for project abandonments and write-offs of deposits and pre-acquisition costs were $3.6 million. For the three and nine months ended September 30, 2010, there were no option lots abandoned.

Interest Capitalization

Interest is capitalized on inventory and investments in joint ventures during development and other qualifying activities. Interest capitalized as cost of inventory is included in cost of sales as related units are closed. Interest capitalized as cost of investment in joint ventures is included in equity in (loss) income as related units in the joint venture are closed.

For the nine months ended September 30, 2011 and 2010, interest incurred, capitalized and expensed was as follows:

	Nine Months Ended September 30,
	2011			2010
	(In thousands)
Total interest incurred	$	53,906		$	43,316
Interest expensed (a)	$	12,636		$	5,158
Total interest capitalized as a cost of inventory	$	40,164		$	37,398
Interest previously capitalized as a cost of inventory, included in cost of sales	$	(27,014	)	$	(31,541	)
Interest previously capitalized as a cost of inventory, transferred (to) property and equipment and/or from investments in joint ventures, net	$	(176	)	$	672
Capitalized interest in ending inventory (b)	$	118,925		$	107,546
Total interest capitalized as a cost of investments in joint ventures	$	1,105		$	760
Interest previously capitalized as a cost of investments in joint ventures, included in equity in (loss) income from joint ventures	$	(669	)	$	(269	)
Interest previously capitalized as a cost of investments in joint ventures, transferred to inventory	$	(641	)	$	(672	)
Capitalized interest in ending investments in joint ventures	$	741		$	772

(a) For the nine months ended September 30, 2011 and 2010, assets qualifying for interest capitalization did not exceed debt; therefore, non-qualifying interest was expensed and included in interest and other expense, net.

(b) Inventory impairment charges were recorded against total inventory of a community. Capitalized interest reflects the gross amount of capitalized interest as impairment charges recognized were not generally allocated to specific components of inventory.

F-16

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

September 30, 2011

8. Investments in Joint Ventures

Unconsolidated joint ventures, which we do not control but have significant influence through ownership interests generally up to 50%, are accounted for using the equity method of accounting. These joint ventures are generally involved in real property development. Earnings and losses are allocated in accordance with terms of joint venture agreements.

Distributions from joint ventures in excess of the carrying amount of our investment and losses in excess of our investment (“Deficit Distributions”) are included in other liabilities. We record Deficit Distributions since we are liable for this deficit to respective joint ventures. Deficit Distributions are offset by future earnings of, or future contributions to, joint ventures. At September 30, 2011 and December 31, 2010, Deficit Distributions were $0.5 million and $0.9 million, respectively.

For the three and nine months ended September 30, 2011, there was no impairment on investments in joint ventures. For the three months and nine months ended September 30, 2010, impairment on investments in joint ventures were $0.2 million and $1.3 million, respectively, which were included in equity in (loss) income from joint ventures. Additionally, the nine months ended September 30, 2010 included a $6.5 million charge related to the non-realization of a non-controlling interest’s deficit capital balance.

At September 30, 2011, total unconsolidated joint ventures’ notes payable were $105.8 million and included $56.9 million of bank and seller financing notes payable secured by real property and $48.9 million of notes payables with joint ventures’ partners, of which $15.4 million was secured by real property. At December 31, 2010, total unconsolidated joint ventures’ notes payable were $126.3 million and included $77.4 million of bank and seller financing notes payable secured by real property and $48.9 million of notes payable to joint ventures’ partners, of which $15.4 million was secured by real property. In addition, at September 30, 2011 and December 31, 2010, we had an indirect 12.3% effective ownership in a joint venture that had bank notes payable secured by real property of $7.2 million, in which we have not provided guarantees.

At September 30, 2011 and December 31, 2010, of the $56.9 million and $77.4 million in our unconsolidated joint ventures’ outstanding bank and seller financing secured notes payable, respectively, we provided guarantees on a joint and several basis for one secured note payable, which had an outstanding balance of $11.6 million and $19.5 million at September 30, 2011 and December 31, 2010, respectively. These guarantees include, but are not limited to, project completion and loan-to-value maintenance guarantees. In addition, we have an indemnification agreement from our joint venture partner for 90% of this secured note payable’s outstanding balance of $11.6 million and $19.5 million, respectively. No liabilities were recorded for these guarantees as the fair value of secured real estate assets exceeded the outstanding notes payable. We have not provided guarantees on bank and seller financing secured notes payable of $45.3 million and $57.9 million, respectively, or on notes payable to joint ventures’ partners of $48.9 million and $48.9 million, respectively.

9. Variable Interest Entities

ASC 810 requires a VIE to be consolidated in financial statements of a company if it is the primary beneficiary of the VIE. Accordingly, the primary beneficiary absorbs a majority of the VIE’s expected losses or receives a majority of the VIE’s expected residual return, or otherwise controls the VIE, as a result of ownership, contractual or other financial interest in the VIE. All VIEs with which we were involved at September 30, 2011 and December 31, 2010 were evaluated to determine the primary beneficiary.

F-17

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

September 30, 2011

Joint Ventures

We routinely enter into joint ventures for homebuilding activities. Investments in these joint ventures may create a variable interest in a VIE, depending on contractual terms of the arrangement. We analyze our joint ventures in accordance with ASC 810 to determine whether they are VIEs and, if so, whether we are the primary beneficiary. At September 30, 2011 and December 31, 2010, these joint ventures were not consolidated into our consolidated financial statements since they were not VIEs, or in the event that they were VIEs, we were not the primary beneficiary.

At September 30, 2011 and December 31, 2010, we have a variable interest in a joint venture which we do not hold a direct, or indirect, investment, and the joint venture was determined to be a VIE. The joint venture, Shea/Baker Ranch Associates, LLC (“Baker Ranch”), is owned 50% by an affiliate and 50% by a third-party. We issued an unconditional loan-to-value maintenance guarantee on Baker Ranch’s outstanding bank notes payable which, at September 30, 2011 and December 31, 2010, was $25.4 million. We have not recorded a liability for this obligation as the fair value of the secured real estate assets exceeded the outstanding notes payable (see Note 17).

In accordance with ASC 810, we determined we were not the primary beneficiary of Baker Ranch because we did not have the power to direct activities that most significantly impact the economic performance of Baker Ranch, such as determining or limiting the scope or purpose of the entity, selling or transferring property owned or controlled by the entity, and arranging financing for the entity.

Land Option Contracts

We enter into land option contracts to procure land for home construction. Use of land option and similar contracts allows us to reduce market risks associated with direct land ownership and development, reduces capital and financial commitments, including interest and other carrying costs, and minimizes land inventory. Under these contracts, we pay a specified deposit for the right to purchase land, usually at a predetermined price. Under the requirements of ASC 810, certain contracts may create a variable interest with the land seller.

In compliance with ASC 810, we analyzed our land option and similar contracts to determine if respective land sellers are VIEs and, if so, if we are the primary beneficiary. Although we do not have legal title to the optioned land, ASC 810 requires us to consolidate a VIE if we are the primary beneficiary. At September 30, 2011 and December 31, 2010, we determined we were not the primary beneficiary of such VIEs because we did not have the power to direct activities of the VIE that most significantly impact the VIE’s economic performance, such as selling, transferring or developing land owned by the VIE.

At September 30, 2011, we had $6.3 million of refundable and non-refundable cash deposits associated with land option contracts with unconsolidated VIEs, having a $97.5 million remaining purchase price, of which $95.7 million is subject to a specific performance clause. We also had $8.6 million of refundable and non-refundable cash deposits associated with land option contracts that were not with VIEs, having a $124.8 million remaining purchase price.

Our loss exposure on land option contracts consisted of non-refundable deposits, which were $12.7 million and $7.2 million at September 30, 2011 and December 31, 2010, respectively, and were included in inventory in the consolidated balance sheets.

F-18

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

September 30, 2011

10. Other Assets, Net

At September 30, 2011 and December 31, 2010, other assets were as follows:

	September 30, 2011		December 31, 2010
	(In thousands)
Income tax receivable	$	12,576	$	9,376
Prepaid professional fees		2,814		11,295
Prepaid loan fees		8,000		13,470
Deposits in lieu of bonds and letters of credit		5,818		5,319
Prepaid completed operations insurance		—		15,613
Other		4,158		2,636
Total other assets, net	$	33,366	$	57,709

Prepaid Professional and Loan Fees

In accordance with ASC 470, debt issuance costs and loan modification and waiver fees are capitalized to other assets. These costs and fees are amortized as interest expense over the term of the related debt. In accordance with ASC 835, interest expense is capitalized to inventory and investments in joint ventures. On May 10, 2011, the Secured Facilities (see Note 11) were paid off and $23.4 million of prepaid professional and loan fees were written off to interest and other expense, net.

Deposits in Lieu of Bonds and Letters of Credit

We may be required to make deposits in lieu of bonds with various agencies, and not in an escrow account, for our homebuilding projects. These deposits may be returned and replaced with new bonds as bonding becomes available or as the collateralization requirement decreases.

In June 2010, due to maturity of the previous unsecured bank line of credit (see Note 11), certain letters of credit were presented for payment and recorded as deposits in lieu of letters of credit. These deposits may be returned and replaced with new letters of credit or as the collateralization requirement decreases.

Prepaid Completed Operations Insurance

Since August 1, 2009, we were self-insured for our completed operations coverage. In anticipation of obtaining coverage, through December 31, 2010, $15.6 million of insurance premiums were paid to JFSCI which, in February 2011, was applied to the purchase of completed operations insurance from an affiliate insurance carrier, retroactive to August 1, 2009.

F-19

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

September 30, 2011

11. Notes Payable

At September 30, 2011 and December 31, 2010, notes payable were as follows:

	September 30, 2011		December 31, 2010
	(In thousands)
Senior secured notes payable
$750,000 senior secured notes, due May 2019 at 8.625%	$	750,000	$	—
$75,000 bank revolving credit facility, original maturity September 2015. Interest at LIBOR plus 3% to 5% (3.32% to 5.32% at December 31, 2010)		—		75,000
$145,000 bank term facility, original maturity September 2015 at 7.5%		—		135,202
Funded letters of credit against $83,000 revolving letter of credit facility, original maturity September 2015 at 7.5% (see Note 10)		—		5,448
$440,000 Series A term loan, original maturity September 2015 at 7.5%		—		360,003
$30,000 Series A-1 term loan, original maturity September 2015 at 7.5%		—		25,008
$85,000 Series B term loan, original maturity September 2017 at 8.34%		—		73,284
Senior secured subordinated notes payable
$25,000 term loan, original maturity September 2018 at 15%, PIK interest through September 2015		—		31,398
$20,000 term loan, original maturity September 2015 at 8.19% PIK interest		—		16,888
$5,000 term loan, original maturity September 2015 at 8.19% PIK interest		—		3,569
Bank Exit Fee, original maturity September 2015		—		2,251
Other secured notes payable
Promissory notes, interest ranging 1% to 6%, maturing through 2014, secured by deeds of trust on inventory		2,328		1,954
Total notes payable	$	752,328	$	730,005

On November 16, 2010, the Company and JFSCI, as borrowers, executed loan modifications and extensions to its unsecured revolving bank line of credit, unsecured private placement debt and unsecured term loans (the “Unsecured Facilities”), resulting in the effective exchange for senior secured notes payable and senior secured subordinated notes payable (the “Secured Facilities”). The Secured Facilities included the securitization of the notes by the Company’s assets, the release of J.F. Shea Construction, Inc., a related party, as a guarantor, and issuance of $80.0 million of additional principal.

In accordance with ASC 470, the present value of the cash flows under the Secured Facilities and the Unsecured Facilities were compared to determine if the Secured Facilities should be accounted for as a loan modification or extinguishment of debt. The Unsecured Facilities’ cash flows included principal payments, interest payments and additional payments for differences in interest rates between the debt instrument and the current market. The discount rate used for both the Secured Facilities and Unsecured Facilities’ cash flows to compute the present value was the effective rate of the Unsecured Facilities. As the difference in the present value of the cash flows under the Secured Facilities and the Unsecured Facilities was less than the required 10% threshold according to ASC 470, the Secured Facilities were accounted for as a debt modification, which required the $80.0 million of additional principal be recorded as interest expense over the term of the notes and the Secured Facilities be recorded net of related discount or premium. The carrying value of the Secured Facilities was unchanged as a result of the modification. At December 31, 2010, the face value of the obligation under the Secured Facilities was $800.4 million.

F-20

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

September 30, 2011

On May 10, 2011, 8.625% senior secured notes were issued in the aggregate principal amount of $750.0 million (the “Secured Notes”) and the outstanding obligations of the Secured Facilities were paid. Principal and interest paid under the Secured Facilities was $779.6 million and $2.5 million, respectively. In connection with payment of the Secured Facilities, all payable-in-kind (PIK) interest, $5.0 million of principal and certain fees were waived. In addition, of $19.1 million of then outstanding letters of credit, $4.0 million was returned and $15.1 million was paid by the Company, with $14.5 million reimbursed by JFSCI for its share of the letters of credit paid by the Company.

Concurrent with the payoff of the Secured Facilities, an $88.4 million loss on debt extinguishment was recognized for the $65.0 million write-off of the Secured Facilities discount, which increased the Secured Facilities principal to its face value, $779.6 million, and the $23.4 million write-off of prepaid professional and loan fees incurred in connection with the Secured Facilities.

The Secured Notes were issued pursuant to Rule 144A and Regulation S, with registration rights. The Secured Notes bear interest at 8.625% paid semi-annually on May 15 and November 15, and do not require principal payments until maturity on May 15, 2019. At September 30, 2011, there was $25.5 million of accrued interest.

Holders of the Secured Notes are entitled to the benefits of a registration rights agreement dated November 14, 2011 (“Registration Rights Agreement”), between us and the initial purchasers listed therein. Pursuant to the Registration Rights Agreement, we agreed to file a registration statement with the Securities Exchange Commission for an offer to exchange the Secured Notes for a new issuance of substantially identical notes issued under the Securities Act on or before 180 days after May 10, 2011, and to consummate the exchange offer registered thereby on or before 360 days after May 10, 2011. The Registration Rights Agreement provides that we will be obligated to pay additional interest with respect to the Secured Notes in the event we fail to consummate such exchange offer on or before 360 days after May 10, 2011 and in certain other limited circumstances. Such additional interest will accrue at a rate of (1) $0.05 per week per $1,000 principal amount of Secured Notes with respect to the first 90-day period immediately following a registration default (as defined in the Registration Rights Agreement) and (2) an amount equal to $0.05 per week per $1,000 principal amount of Secured Notes with respect to each subsequent 90-day period until all registration defaults have been cured. Other than the Registration Rights Agreement relating to the Secured Notes described above, we are not subject to any other registration rights agreements with respect to any notes payable.

F-21

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

September 30, 2011

12. Other Liabilities

At September 30, 2011 and December 31, 2010, other liabilities were as follows:

	September 30, 2011		December 31, 2010
	(In thousands)
Completed operations	$	114,149	$	118,473
Warranty reserves		16,080		16,238
Deferred revenue		23,523		22,799
Provisions for closed homes/communities		11,961		13,107
Deposits		14,060		7,482
Legal reserves		7,981		6,106
Accrued interest		25,543		4,680
Accrued compensation and benefits		5,029		2,971
Deficit Distributions (see Note 8)		544		878
Other		11,686		12,589
Total other liabilities	$	230,556	$	205,323

Completed Operations

Reserves for completed operations primarily represent claims for property damage to completed homes and projects outside of our one-to-two year warranty period. Specific terms and conditions of completed operations warranties vary depending on the market in which homes are closed and can range up to 12 years. Expenses and liabilities are recorded for potential completed operations claims based upon aggregated loss experience, which includes an estimate of completed operations claims incurred but not reported, and is actuarially estimated using individual case-basis valuations and statistical analysis. From August 1, 2001 to July 31, 2007, completed operations claims were insured through PIC, and from August 1, 2007 to July 31, 2009, were insured with an affiliate insurance carrier.

Since August 1, 2009, we were self-insured for completed operations coverage. Through December 31, 2010, in anticipation of obtaining coverage, $15.6 million of insurance premiums was paid to JFSCI which, in February 2011, was applied to the purchase of completed operations insurance from an affiliate insurance carrier, retroactive to August 1, 2009.

F-22

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

September 30, 2011

For the nine months ended September 30, 2011 and 2010, changes in completed operations were as follows:

	Nine Months Ended September 30,
	2011			2010
	(In thousands)
Insured completed operations
Balance, beginning of the period	$	102,860		$	133,000
Reserves provided (relieved)		3,012			(9,458	)
Insurance purchased		16,520			—
Claims paid		(8,243	)		(6,783	)
Balance, end of the period		114,149			116,759
Self-insured completed operations
Balance, beginning of the period		15,613			4,768
Reserves provided		907			7,917
Insurance purchased		(16,520	)		—
Claims paid		—			—
Balance, end of the period		—			12,685
Total completed operations	$	114,149		$	129,444

Reserves provided (relieved) for self-insured completed operations are included in cost of sales. Reserves provided (relieved) for insured completed operations are offset by changes in insurance receivables (see Note 6), however, premiums paid for insured completed operations are included in cost of sales.

In December 2009, PIC entered into a series of novation and reinsurance transactions (the “PIC Transaction”). First, PIC entered into a novation agreement with JFSCI to novate its deductible reimbursement obligations related to its workers’ compensation and general liability risks at September 30, 2009, and its completed operations claims from August 1, 2005 to July 31, 2007. Concurrently, JFSCI entered into insurance arrangements with unrelated third-party insurance carriers to insure these programs. As a result of this novation, PIC recorded a $19.2 million gain, which was deferred in these consolidated financial statements and will be recognized as income (expense) when related claims are paid or actuarial estimates are adjusted. At September 30, 2011 and December 31, 2010, the remaining deferred revenue was $15.4 million and $16.6 million, respectively. For the three and nine months ended September 30, 2011, we recognized $0.3 million and $1.2 million, respectively, of this deferral as income, which was included in interest and other expense, net. For the three and nine months ended September 30, 2010, we recognized $0.2 million and $2.3 million, respectively, of this deferral as income, which was included in interest and other expense.

Second, PIC entered into reinsurance agreements with various unrelated reinsurers that reinsures 100% of the completed operations claims coverage from August 1, 2001 to July 31, 2005. As a result of the reinsurance, the $15.6 million gain was deferred in these consolidated financial statements and will be recognized as income (expense) when the related claims are paid or actuarial estimates are adjusted. At September 30, 2011 and December 31, 2010, the remaining deferred revenue was $4.3 million and $3.2 million, respectively. For the three and nine months ended September 30, 2011, we recognized $0.4 million and $(1.1) million of this deferral as income (expense), which was included in interest and other expense, net. For the three and nine months ended September 30, 2010, we recognized $0.3 million and $4.3 million, respectively, of this deferral as income, which was included in interest and other expense, net.

F-23

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

September 30, 2011

At September 30, 2011 and December 31, 2010, completed operations claims reserves were $114.1 million and $118.5 million, respectively. For actual completed operations claims and estimates of completed operations claims incurred but not reported, we estimate and record insurance receivables under applicable policies when recovery is probable. At September 30, 2011 and December 31, 2010, insurance receivables were $114.1 million and $102.9 million, respectively (see Note 6).

Expenses, liabilities and receivables related to these claims are subject to a high degree of variability due to uncertainties such as trends in completed operations claims related to our markets and products built, claim settlement patterns and insurance industry practices. Although considerable variability is inherent in such estimates, we believe reserves for completed operations claims are adequate.

Warranty Reserve

We offer a limited one or two year warranty for our homes. The specific terms and conditions of these warranties vary depending on the market in which homes are closed. We estimate warranty costs to be incurred and record a liability and an expense to cost of sales when home revenue is recognized. We also include in our warranty reserve the uncovered losses related to the completed operations coverage, which approximates 12.5% of the total property damage. Factors affecting warranty liability include number of homes closed, historical and anticipated warranty claims, and cost per claim. We periodically assess adequacy of our warranty liabilities and adjust amounts as necessary.

For the nine months ended September 30, 2011 and 2010, changes in warranty liability were as follows:

	Nine Months Ended September 30,
	2011			2010
	(In thousands)
Balance, beginning of the period	$	16,238		$	17,792
Provision for warranties		7,399			6,067
Warranty costs paid		(7,557	)		(7,031	)
Balance, end of the period	$	16,080		$	16,828

13. Related Party Transactions

Related Party Receivables and Payables

At September 30, 2011 and December 31, 2010, receivables from related parties, net were as follows:

	September 30, 2011			December 31, 2010
	(In thousands)
Note receivables from JFSCI, net	$	25,130		$	177,011
Note receivables from unconsolidated joint ventures		25,442			24,817
Note receivables from related parties		21,260			13,100
Reserves for note receivables from related parties		(12,680	)		(12,896	)
Receivables from related parties		3,691			2,380
Total receivables from related parties, net	$	62,843		$	204,412

F-24

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

September 30, 2011

Until August 2011, we participated in a centralized cash management function operated by JFSCI, whereby net cash flows from operations were transferred daily with JFSCI and resulted in related party transactions and monetary transfers to settle amounts owed. In August 2011, we ceased participation in this function and performed it independently. JFSCI still provides corporate services to us, including management, legal, tax, information technology, facilities, accounting, treasury and human resources. This function and services require related party transactions and monetary transfers to settle amounts owed between entities. At December 31, 2010, the resultant note receivables and payables were unsecured, due on demand, and accrued interest monthly at market rates based on Prime less 2.05% (1.2% at December 31, 2010). These note receivables and payables had the right of offset due to common control of the Company and its subsidiaries and were therefore presented as a net note receivable from JFSCI. At December 31, 2010, net note receivable due from JFSCI was $177.0 million. In May 2011, concurrent with issuance of the Secured Notes, through a $75.0 million cash payment and $41.5 million contribution of assets, the receivable from JFSCI was paid down by JFSCI and converted to a $38.9 million unsecured term note receivable from JFSCI, bearing 4% interest, payable in equal quarterly installments and maturing May 15, 2019. In June 2011 and August 2011, JFSCI elected to make prepayments, including accrued interest, of $7.7 million and $6.6 million, respectively, and apply these prepayments to future installments such that JFSCI would not be required to make a payment until February 2014. At September 30, 2011, the note receivable from JFSCI, including accrued interest, was $25.1 million. Quarterly, we evaluate collectability of the note receivable from JFSCI, which includes consideration of JFSCI’s payment history, operating performance and future payment requirements under the note. Based on these criteria, and as JFSCI applied prepayments under the note to defer future installments until February 2014, we do not presently anticipate collection risks on the note receivable from JFSCI.

Notes receivables from unconsolidated joint ventures at September 30, 2011 and December 31, 2010 were $25.4 million and $24.8 million, respectively, of which $7.7 million is secured by real property. These notes from unconsolidated joint ventures bear interest ranging from 4.17% to 8% and mature from 2013 through 2020. The note receivable maturing in 2020 earns additional interest to achieve a 17.5% internal rate of return, subject to available cash flows of the joint venture, and can be repaid prior to 2020. Quarterly, we evaluate collectability of note receivables from unconsolidated joint ventures, which includes consideration of prior payment history, operating performance and future payment requirements under the applicable notes. Based on the above criteria, we do not presently anticipate collection risks on note receivables from unconsolidated joint ventures.

Note receivables from other related parties at September 30, 2011 and December 31, 2010 were $8.6 million and $0.2 million, respectively, net of related reserves of $12.7 million and $12.9 million, respectively. These notes receivables are unsecured and mature through 2021. At September 30, 2011, the notes receivable bore interest ranging from Prime less .75% (2.5%) to 4.2%, and at December 31, 2010, bore interest ranging from Prime less 2.05% (1.2%) to Prime plus 1% (4.25%). Quarterly, we evaluate the collectability of note receivables from related parties. Our evaluation includes consideration of prior payment history, operating performance and future payment requirements under the applicable notes. At December 31, 2009, based on these criteria, the note receivables from Shea Management LLC and Shea Properties Management Company, Inc. were deemed uncollectible and were fully reserved. In June 2011, Shea Properties Management Company, Inc. paid the accrued interest for 2010 and 2011. Therefore, unpaid interest in 2011 from Shea Properties Management Company, Inc. is not reserved; accrued interest prior to 2010 and the principal balance remains reserved. In addition, based on the above criteria, we do not presently anticipate collection risks on the other note receivables from related parties.

F-25

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

September 30, 2011

The Company, entities under common control and these unconsolidated joint ventures also engage in transactions on behalf of the other, such as payment of invoices and payroll. The amounts resulting from these transactions are recorded in receivables from related parties or payables to related parties, non-interest bearing and due on demand. At September 30, 2011 and December 31, 2010, these receivables were $3.7 million and $2.4 million, respectively, and these payables were $0.1 million and $9.2 million, respectively.

Real Property and Joint Venture Transactions

In September 2011, we sold fixed assets in Highlands Ranch, Colorado, comprised of three buildings and related improvements and land, to a related party. The consideration received was $14.4 million cash and a $6.5 million note receivable at 4.2% interest, payable in equal monthly installments and maturing August 2016. The $1.5 million of consideration received in excess of net book value was recorded as an equity contribution.

In April 2011, through our consolidated joint venture Shea Colorado, LLC, we entered into transactions with the joint venture partner of two unconsolidated joint ventures in Colorado, in which we own a 50% ownership interest in each, SB Meridian Villages, LLC (SBMV) and TCD Bradbury LLC (TCDB). First, we assigned our membership interest in SBMV to our joint venture partner for $4.5 million, resulting in a $0.5 million gain. Second, we contributed $11.5 million cash to TCDB and received $15.4 million of land and a $0.6 million secured promissory note payable, and the joint venture partner received $12.2 million and $6.5 million of land and cash, respectively. TCDB then paid off a bank note payable that was secured by the land distributed to the TCDB partners.

At September 30, 2011 and 2010, we were the managing member for nine and ten, respectively, unconsolidated joint ventures and received a management fee from these joint ventures as reimbursement for direct and overhead costs incurred on behalf of the joint ventures. Fees from joint ventures representing reimbursement of our costs are recorded as a reduction to general and administrative expense. Fees from joint ventures representing profit are recorded to revenues. For the three and nine months ended September 30, 2011, $0.8 million and $2.5 million of management fees, respectively, were offset against general and administrative expenses, and $0.6 million and $1.2 million of management fees, respectively, were included in revenues. For the three and nine months ended September 30, 2010, $1.4 million and $3.7 million of management fees, respectively, were offset against general and administrative expenses, and $0.3 million and $1.0 million of management fees, respectively, were included in revenues.

General and Administrative Related Party Transactions

For the three and nine months ended September 30, 2011, general and administrative expenses included $4.2 million and $11.5 million, respectively, for corporate services provided by JFSCI. For the three and nine months ended September 30, 2010, general and administrative expenses included $2.5 million and $9.8 million, respectively, for corporate services provided by JFSCI.

We lease office space from related parties under non-cancelable operating leases. Leases are for five to ten year terms and generally provide for five year renewal options. For the three and nine months ended September 30, 2011, related-party lease expense was $0.2 million and $0.6 million, respectively. For the three and nine months ended September 30, 2010, related-party lease expense was $0.2 million and $0.6 million, respectively.

F-26

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

September 30, 2011

14. Income Taxes

For the nine months ended September 30, 2011, income tax benefit was $3.9 million, primarily from the decrease in the deferred tax asset valuation allowance. At September 30, 2011, the net deferred tax asset was $40.7 million, which primarily related to available loss carryforwards, impairments of inventory and available-for-sale investments, housing inventory and land basis differences, and timing of income recognition. The $40.7 million deferred tax asset valuation allowance fully reserves the net deferred tax asset due to inherent uncertainty of future income. The deferred tax asset valuation allowance decreased from $48.8 million at December 31, 2010 due to decreases in net deferred tax assets. To the extent eligible taxable income exists, which allows tax benefits of these deferred tax assets to be utilized, the effective tax rate may be reduced, subject to certain limitations under Internal Revenue Code Section 382 (“Section 382”), by reducing the valuation allowance and offsetting a portion of taxable income.

In 2009, we filed a petition with the United States Tax Court (the “Tax Court”) regarding our position on the completed contract method for homebuilding activities by SHLP, SHI and subsidiaries. During 2010 and 2011 we engaged in formal and informal discovery with the IRS. We expect the Tax Court will schedule a trial for mid-2012, although no formal trial date has been set. We expect that our position will prevail. Accordingly, as our position is not considered an uncertain tax position in accordance with ASC 740, no liability for related taxes or interest have been recorded for SHI and its subsidiaries. Furthermore, as a limited partnership, any income taxes, interest or penalties imposed on SHLP would be the responsibility of the Partners and would not be reflected in the tax provision in these consolidated financial statements. However, in the event the Tax Court rules in favor of the IRS, SHI could be obligated to make a payment to the IRS and applicable state taxing authorities and, under the Tax Distribution Agreement, SHLP could be obligated to make a distribution to the Partners to fund their related payments to the IRS and the applicable state taxing authorities.

15. Comprehensive (Loss ) Income

The components of comprehensive (loss) income were as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
	(In thousands)
Net (loss) income	$	2,362		$	(55,717	)	$	(106,594	)	$	(60,230	)
Unrealized gains (losses) in marketable securities, net		(601	)		404			1,350			(4,941	)
Total comprehensive (loss) income	$	1,761		$	(55,313	)	$	(105,244	)	$	(65,171	)

16. Owners’ Equity

Owners’ equity consists of partners’ preferred and common capital. Common capital was comprised of limited partners with a collective 78.38% ownership and general partner with a 20.62% ownership. Preferred capital was comprised of limited partners with either series B (“Series B”) or series D (“Series D”) classification. Series B had no ownership but earned a preferred return at Prime less 2.05% (1.2% at September 30, 2011 and December 31, 2010) per annum on unreturned capital balances. At September 30, 2011 and December 31, 2010, accumulated undistributed preferred returns for Series B were $18.4 million and $17.0 million, respectively. Series D had a 1% ownership interest and earned a preferred return at 7% per annum on unreturned preferred capital balances. At September 30, 2011 and December 31, 2010, accumulated undistributed preferred returns for Series D were $37.3 million and $28.7 million, respectively.

F-27

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

September 30, 2011

Net income is allocated to Partners in a priority order that considers previously allocated net losses and preferred return considerations and, thereafter, in proportion to their respective ownership interests. Net loss is allocated to Partners generally in proportion to their ownership interests and adjusted capital account balances, and, thereafter, to the general partner.

The general partner, in its sole discretion, may make additional capital contributions or accept additional capital contributions from the limited partners. Cash distributions are made to Partners in proportion to their unpaid preferred returns and, thereafter, in proportion to their ownership interests. Distributions to Partners are made at the discretion of the general partner, including payment of personal income taxes related to the Company or other entities under control of Shea family members. Similarly, distributions to Partners from other entities under control of Shea family members, such as JFSCI, are used for payment of personal incomes taxes related to the Company and other uses.

17. Contingencies and Commitments

Lawsuits, claims and proceedings have been or may be instituted or asserted against us in the normal course of business, including actions brought on behalf of various classes of claimants. We are also subject to local, state and federal laws and regulations related to land development activities, house construction standards, sales practices, employment practices and environmental protection. As a result, we are subject to periodic examinations or inquiry by agencies that administer these laws and regulations.

We record a reserve for potential legal claims and regulatory matters when they are probable of occurring and a potential loss is reasonably estimable. We accrue for these matters based on the facts and circumstances specific to each matter and revise these estimates when necessary. At September 30, 2011 and December 31, 2010, we had reserves of $8.0 million and $6.1 million, respectively, relating to these matters. While their outcome cannot be predicted with certainty, we believe we have appropriately reserved for these claims or matters. However, to the extent the liability arising from their ultimate resolution exceeds their recorded reserves, we could incur additional charges that could be significant.

In view of the inherent difficulty of predicting the outcome of legal claims and related contingencies, we generally cannot predict their ultimate resolution, related timing or eventual loss. If our evaluations indicate loss contingencies that could be material are not probable, but are reasonably possible, we will disclose their nature with an estimate of the possible range of loss or a statement that such loss is not reasonably estimable. At September 30, 2011, the range of reasonably possible losses in excess of amounts accrued is not material.

At September 30, 2011 and December 31, 2010, in addition to guarantees on our joint venture’s outstanding borrowings, an unconditional loan-to-value maintenance guarantee was issued, on a joint and several basis, for a secured development loan for Baker Ranch, a related party in which we have no ownership interest (see Note 9). At September 30, 2011 and December 31, 2010, the loan had a $25.4 million outstanding principal balance. A liability was not recorded for this guarantee as the fair value of the secured real estate assets exceeded the outstanding notes payable.

At September 30, 2011 and December 31, 2010, joint and several non-recourse (“bad boy”) guarantees were issued for secured permanent financing loans of related parties in which we have no ownership interest. The bad boy guarantee may become a liability for us upon a voluntary bankruptcy filing by the related party borrower or the occurrence of other “bad” acts, including fraud or a material misrepresentation by the related party borrower. At September 30, 2011 and December 31, 2010, these loans had a $46.4 million and $47.3 million outstanding principal balance, respectively. These loans have maturity dates between December 2011 and September 2012. A liability was not recorded for these guarantees as the probability of payment on these guarantees is remote.

F-28

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

September 30, 2011

At December 31, 2010, we had an $83.0 million letter of credit facility, which was reduced by $18.5 million of outstanding letters of credit issued by JFSCI. On May 10, 2011, concurrent with issuance of the Secured Notes and payoff of the Secured Facilities, this facility was canceled and we entered into a new $75.0 million letter of credit facility (see Note 11). At September 30, 2011, outstanding letters of credit against the new letter of credit facility was $4.5 million.

We are required to provide surety bonds that guarantee completion of certain homebuilding projects. At September 30, 2011 and December 31, 2010, we had a $70.8 million and $77.5 million, respectively, exposure in connection with $179.2 million and $180.7 million, respectively, of surety bonds issued for our projects.

We also provided indemnification for bonds issued by unconsolidated joint ventures and other related party projects in which we have no ownership interest. At September 30, 2011 and December 31, 2010, we had a $29.3 million and $44.6 million exposure in connection with $69.0 million and $80.2 million, respectively, of surety bonds issued for unconsolidated joint venture projects, and a $3.7 million and $9.4 million exposure in connection with $7.7 million and $14.1 million, respectively, of surety bonds issued for related party projects in which we have no ownership interest.

Certain of our consolidated and joint ventures’ homebuilding projects utilize and may continue to utilize community facility district, metro-district and other local government bond financing programs to fund construction or acquisition of infrastructure improvements. Interest and principal on these bonds are typically paid from taxes and assessments levied on homeowners following the sale of new homes within the project. From time to time we enter into credit support arrangements where we are required to make interest and principal payments on these bonds if the taxes and assessments levied on homeowners are insufficient to cover such obligations. Furthermore, reimbursement of these payments to us is dependent on the district or local government’s ability to generate sufficient tax and assessment revenues from the sale of new homes.

In certain consolidated homebuilding projects, we have contractual obligations to purchase and receive water system connection rights which, at September 30, 2011 and December 31, 2010, were $39.7 million. These water system connection rights are held and then transferred to homebuyers upon closing of their home or transferred upon the sale of land to the respective buyer. These water system connection rights can also be sold or leased but generally only within the local jurisdiction.

F-29

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

September 30, 2011

18. Supplemental Disclosure to Consolidated Statements of Cash Flows

Supplemental disclosures to the consolidated statements of cash flows were as follows:

	Nine Months Ended September 30,
	2011			2010
	(In thousands)
Supplemental disclosure of cash flow information
Income taxes paid	$	59		$	4,129
Interest paid, net of amounts capitalized	$	7,825		$	5,422
Supplemental disclosure of non-cash activities
Unrealized gain (loss) on available-for-sale investments, net	$	1,350		$	(4,941	)
Reclassification of Deficit Distributions to unconsolidated joint ventures from other liabilities	$	(334	)	$	(14,647	)
Purchase of land in exchange for note payable	$	1,134		$	1,917
Contribution of net assets for payment on notes receivables from related parties	$	41,524		$	—
Distribution of land from unconsolidated joint venture	$	15,422		$	—
Distribution of note payable from unconsolidated joint venture	$	599		$	—
Transfer of land from inventory to property and equipment	$	1,838		$	—
Sale of property and equipment in exchange for note receivable from related party	$	6,500		$	—
Sale of property and equipment in exchange for relief of prepaid assets and assumption of payables, net	$	591		$	—

19. Segment Information

Our homebuilding business, which is responsible for nearly all of our operating results, constructs and sells single-family attached and detached homes designed to appeal to first-time, move-up and active adult homebuyers. Our homebuilding business also provides management services to joint ventures and other related parties. The homebuilding reportable segments conduct operations in the following locations:

• California South, comprised of the results of our communities in Los Angeles, Ventura, Orange County, Inland Empire and San Diego;

• California North, comprised of the results of our communities in northern and central California; and

• Mountain West/Other, comprised of the results of our communities in Arizona, Colorado, Washington, Nevada and Florida.

In accordance with ASC 280, Segment Reporting, these reportable segments are based on similar economic and other characteristics, including product types, production processes, suppliers, subcontractors, jurisdictional and political environments, land availability and values, and underlying demand and supply.

Our Corporate segment primarily provides management services to our operating segments, and includes the results of our captive insurance provider, which primarily administers claims that were reinsured by third-party carriers. Results of our insurance brokerage services business are also included in our Corporate segment. Results of our traditional escrow services business, which ceased operations in 2010, are included in the 2010 results of our Corporate segment.

F-30

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

September 30, 2011

The reportable segments follow the same accounting policies as our consolidated financial statements described in Note 2. Operational results of each reportable segment are not necessarily indicative of the results that would have been achieved had the reportable segment been an independent, stand-alone entity during the periods presented. As a result of certain organization changes that became effective March 31, 2011, we reclassified certain 2010 amounts to conform to the current year segment presentation.

Financial information relating to reportable segments was as follows:

	September 30, 2011		December 31, 2010
	(In thousands)
Total assets:
California South	$	357,029	$	319,692
California North		234,712		216,414
Mountain West/Other		499,967		469,746
Total homebuilding assets		1,091,708		1,005,852
Corporate		275,675		409,034
Total assets	$	1,367,383	$	1,414,886

	September 30, 2011		December 31, 2010
	(In thousands)
Inventory:
California South	$	301,244	$	267,011
California North		217,380		197,303
Mountain West/Other		357,613		335,708
Total homebuilding inventory		876,237		800,022
Corporate		—		7
Total inventory	$	876,237	$	800,029

	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010
	(In thousands)
Revenues:
California South	$	72,988	$	54,880	$	138,487	$	169,603
California North		25,656		23,178		68,069		93,670
Mountain West/Other		58,330		46,384		138,886		158,591
Total homebuilding revenues		156,974		124,442		345,442		421,864
Corporate		326		162		851		992
Total revenues	$	157,300	$	124,604	$	346,293	$	422,856

F-31

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

September 30, 2011

	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
	(In thousands)
(Loss) income before income taxes:
California South	$	4,566		$	(39,891	)	$	(9,211	)	$	(31,705	)
California North		(1,433	)		843			(3,496	)		2,640
Mountain West/Other		(3,799	)		(4,402	)		(10,064	)		(10,419	)
Total homebuilding loss before income taxes		(666	)		(43,450	)		(22,771	)		(39,484	)
Corporate		177			(3,737	)		(87,691	)		(10,719	)
Total loss before income taxes	$	(489	)	$	(47,187	)	$	(110,462	)	$	(50,203	)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010
	(In thousands)
Impairment:
California South	$	—	$	42,406	$	9,684	$	43,637
California North		—		—		—		—
Mountain West/Other		—		642		618		2,261
Total impairment	$	—	$	43,048	$	10,302	$	45,898

20. Supplemental Guarantor Information

On May 10, 2011, SHLP and Shea Homes Funding Corp., a wholly-owned subsidiary of SHLP (collectively “SHLP Corp”), issued 8.625% senior secured notes in the aggregate principal amount of $750.0 million (the “Secured Notes”) and the outstanding obligations of the Secured Facilities were paid. Certain of SHLP’s wholly-owned direct and indirect subsidiaries guarantee the Secured Notes. Vistancia Marketing, LLC and Vistancia Construction, LLC, two of our limited liability company subsidiaries that guarantee the notes, are currently organized as single member limited liability companies under Vistancia, LLC, a non-guarantor subsidiary that is 83% owned by Shea Homes Southwest, Inc. However, pursuant to the terms of the Vistancia, LLC limited liability company agreement, Shea Homes Southwest, Inc. owns 100% of the economic and voting interests in Vistancia Marketing, LLC and Vistancia Construction, LLC.

The obligations under the Secured Notes are not guaranteed by any SHLP joint venture where SHLP Corp does not own 100% of the economic interest, including those that are consolidated for financial reporting purposes, and the collateral securing the Secured Notes does not include a pledge of the capital stock of any subsidiary to the extent that such pledge would result in a requirement that SHLP Corp file separate financial statements with respect to such subsidiary pursuant to Rule 3-16 of Regulation S-X under the Securities Act. Presented herein are the condensed consolidated financial statements for the guarantor subsidiaries and non-guarantor subsidiaries.

F-32

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

September 30, 2011

Consolidating Balance Sheet

September 30, 2011

	SHLP Corp (a)		Guarantor Subsidiaries			Non-Guarantor Subsidiaries		Eliminations			Total
	(In thousands)
Assets
Cash and cash equivalents	$	80,574	$	113,113		$	15,349	$	—		$	209,036
Restricted cash		11,933		1,428			437		—			13,798
Investments		—		13,250			—		—			13,250
Accounts and other receivables, net		101,810		21,865			44,796		(41,474	)		126,997
Receivables from related parties, net		9,301		25,637			25,060		2,845			62,843
Inventory		648,571		187,379			41,688		(1,401	)		876,237
Investments in joint ventures		3,934		2,283			23,743		—			29,960
Investments in subsidiaries		706,456		97,144			101,209		(904,809	)		—
Property and equipment, net		371		1,525			—		—			1,896
Other assets, net		18,714		14,537			115		—			33,366
Total assets	$	1,581,664	$	478,161		$	252,397	$	(944,839	)	$	1,367,383
Liabilities and equity
Liabilities:
Notes payable	$	751,729	$	—		$	599	$	—		$	752,328
Payables to related parties		40		—			—		—			40
Accounts payable		41,008		11,224			492		(548	)		52,176
Other liabilities		170,249		35,341			68,018		(43,052	)		230,556
Intercompany		310,814		(338,540	)		24,156		3,570			—
Total liabilities		1,273,840		(291,975	)		93,265		(40,030	)		1,035,100
Equity:
SHLP equity:
Owners’ equity		301,111		763,423			134,673		(898,096	)		301,111
Accumulated other comprehensive income		6,713		6,713			—		(6,713	)		6,713
Total SHLP equity		307,824		770,136			134,673		(904,809	)		307,824
Non-controlling interests		—		—			24,459		—			24,459
Total equity		307,824		770,136			159,132		(904,809	)		332,283
Total liabilities and equity	$	1,581,664	$	478,161		$	252,397	$	(944,839	)	$	1,367,383

(a) Includes Shea Homes Funding Corp. since inception on April 26, 2011, which financial position at September 30, 2011 was not material.

F-33

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

September 30, 2011

Consolidating Balance Sheet

December 31, 2010

	SHLP Corp (b)		Guarantor Subsidiaries			Non-Guarantor Subsidiaries		Eliminations			Total
	(In thousands)
Assets
Cash and cash equivalents	$	99,511	$	54,393		$	12,970	$	—		$	166,874
Restricted cash		11,375		—			320		—			11,695
Investments		—		11,822			—		—			11,822
Accounts and other receivables, net		79,668		27,235			47,627		(47,107	)		107,423
Receivables from related parties, net		606		2,384			24,411		177,011			204,412
Inventory		664,403		110,426			26,840		(1,640	)		800,029
Investments in joint ventures		4,337		3,632			28,584		—			36,553
Investments in subsidiaries		697,057		88,823			91,824		(877,704	)		—
Property and equipment, net		16,780		1,589			—		—			18,369
Other assets, net		43,444		13,639			626		—			57,709
Total assets	$	1,617,181	$	313,943		$	233,202	$	(749,440	)	$	1,414,886
Liabilities and equity
Liabilities:
Notes payable	$	730,005	$	—		$	—	$	—		$	730,005
Payables to related parties		40		48			28		9,094			9,210
Accounts payable		28,989		9,012			585		(551	)		38,035
Other liabilities		141,472		39,846			72,202		(48,197	)		205,323
Intercompany		304,449		(492,384	)		20,017		167,918			—
Total liabilities		1,204,955		(443,478	)		92,832		128,264			982,573
Equity:
SHLP equity:
Owners’ equity		406,863		752,058			120,283		(872,341	)		406,863
Accumulated other comprehensive income		5,363		5,363			—		(5,363	)		5,363
Total SHLP equity		412,226		757,421			120,283		(877,704	)		412,226
Non-controlling interests		—		—			20,087		—			20,087
Total equity		412,226		757,421			140,370		(877,704	)		432,313
Total liabilities and equity	$	1,617,181	$	313,943		$	233,202	$	(749,440	)	$	1,414,886

(b) Shea Homes Funding Corp. was formed on April 26, 2011, therefore no amounts are included for any financial statement period before this date.

F-34

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

September 30, 2011

Consolidating Statement of Operations

Three Months Ended September 30, 2011

	SHLP Corp (a)			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total
	(In thousands)
Revenues	$	123,822		$	30,523		$	2,955		$	—		$	157,300
Cost of sales		(104,095	)		(28,098	)		(1,547	)		95			(133,645	)
Gross margin		19,727			2,425			1,408			95			23,655
Selling expenses		(7,140	)		(2,685	)		(1,316	)		—			(11,141	)
General and administrative expenses		(6,775	)		(1,663	)		(698	)		—			(9,136	)
Equity in (loss) income from joint ventures		(650	)		4			445			—			(201	)
Equity in income from subsidiaries		851			8,946			10,233			(20,030	)		—
Interest and other (expense) income, net		(3,915	)		441			(97	)		(95	)		(3,666	)
(Loss) income before income taxes		2,098			7,468			9,975			(20,030	)		(489	)
Income tax benefit		—			2,850			1			—			2,851
Net income		2,098			10,318			9,976			(20,030	)		2,362
Less: Net income attributable to non-controlling interests		—			—			(264	)		—			(264	)
Net income attributable to SHLP	$	2,098		$	10,318		$	9,712		$	(20,030	)	$	2,098

(a) Includes Shea Homes Funding Corp. since inception on April 26, 2011; no significant activity has occurred for the financial statement period presented above.

Consolidating Statement of Operations

Three Months Ended September 30, 2010

	SHLP Corp (b)			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total
	(In thousands)
Revenues	$	108,351		$	15,666		$	587		$	—		$	124,604
Cost of sales		(133,272	)		(13,866	)		(591	)		112			(147,617	)
Gross margin		(24,921	)		1,800			(4	)		112			(23,013	)
Selling expenses		(6,751	)		(1,849	)		(1,662	)		—			(10,262	)
General and administrative expenses		(7,708	)		504			(597	)		—			(7,801	)
Equity in income (loss) from joint ventures		1,210			558			(145	)		—			1,623
Equity in loss from subsidiaries		(10,491	)		(300	)		(791	)		11,582			—
Interest and other (expense) income, net		(7,090	)		(2,150	)		1,618			(112	)		(7,734	)
Loss before income taxes		(55,751	)		(1,437	)		(1,581	)		11,582			(47,817	)
Income tax (expense) benefit		(1	)		(8,530	)		1			—			(8,530	)
Net loss		(55,752	)		(9,967	)		(1,580	)		11,582			(55,717	)
Less: Net income attributable to non-controlling interests		—			—			(35	)		—			(35	)
Net loss attributable to SHLP	$	(55,752	)	$	(9,967	)	$	(1,615	)	$	11,582		$	(55,752	)

(b) Shea Homes Funding Corp. was formed on April 26, 2011, therefore no amounts are included for any financial statement period before this date.

F-35

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

September 30, 2011

Consolidating Statement of Operations

Nine Months Ended September 30, 2011

	SHLP Corp (a)			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total
	(In thousands)
Revenues	$	270,095		$	69,390		$	6,808		$	—		$	346,293
Cost of sales		(237,830	)		(60,284	)		(4,071	)		238			(301,947	)
Gross margin		32,265			9,106			2,737			238			44,346
Selling expenses		(19,424	)		(7,361	)		(3,744	)		—			(30,529	)
General and administrative expenses		(19,211	)		(4,617	)		(1,796	)		—			(25,624	)
Equity in (loss) income from joint ventures		(1,076	)		19			361			—			(696	)
Equity in income from subsidiaries		1,864			7,534			9,418			(18,816	)		—
Loss on debt extinguishment		(88,384	)		—			—			—			(88,384	)
Interest and other (expense) income, net		(13,327	)		2,780			1,210			(238	)		(9,575	)
(Loss) income before income taxes		(107,293	)		7,461			8,186			(18,816	)		(110,462	)
Income tax benefit (expense)		(3	)		3,884			(13	)		—			3,868
Net (loss) income		(107,296	)		11,345			8,173			(18,816	)		(106,594	)
Less: Net income attributable to non-controlling interests		—			—			(702	)		—			(702	)
Net (loss) income attributable to SHLP	$	(107,296	)	$	11,345		$	7,471		$	(18,816	)	$	(107,296	)

(a) Includes Shea Homes Funding Corp. since inception on April 26, 2011; no significant activity has occurred for the financial statement period presented above.

Consolidating Statement of Operations

Nine Months Ended September 30, 2010

	SHLP Corp (b)			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total
	(In thousands)
Revenues	$	349,722		$	70,482		$	2,652		$	—		$	422,856
Cost of sales		(339,157	)		(59,970	)		(1,455	)		334			(400,248	)
Gross margin		10,565			10,512			1,197			334			22,608
Selling expenses		(21,403	)		(6,272	)		(5,889	)		—			(33,564	)
General and administrative expenses		(20,406	)		(3,199	)		(2,288	)		—			(25,893	)
Equity in income from joint ventures		592			545			7,555			—			8,692
Equity in income (loss) from subsidiaries		(820	)		16,255			(748	)		(14,687	)		—
Interest and other (expense) income, net		(34,951	)		(6,216	)		19,455			(334	)		(22,046	)
(Loss) income before income taxes		(66,423	)		11,625			19,282			(14,687	)		(50,203	)
Income tax expense		(7	)		(9,644	)		(376	)		—			(10,027	)
Net (loss) income		(66,430	)		1,981			18,906			(14,687	)		(60,230	)
Less: Net income attributable to non-controlling interests		—			—			(6,200	)		—			(6,200	)
Net (loss) income attributable to SHLP	$	(66,430	)	$	1,981		$	12,706		$	(14,687	)	$	(66,430	)

(b) Shea Homes Funding Corp. was formed on April 26, 2011, therefore no amounts are included for any financial statement period before this date.

F-36

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

September 30, 2011

Condensed Consolidating Statement of Cash Flows

Nine Months Ended September 30, 2011

	SHLP Corp (a)			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total
	(In thousands)
Operating activities
Net cash (used in) provided by operating activities	$	15,144		$	(30,506	)	$	(1,391	)	$	(12,663	)	$	(29,416	)
Investing activities
Net decrease (increase) in promissory notes from related parties		(2,057	)		(24,902	)		(672	)		135,487			107,856
Investments in joint ventures		(500	)		(103	)		(15,844	)		—			(16,447	)
Proceeds from sale of property and equipment		12,872			21			—			—			12,893
Other investing activities		(1,680	)		2,657			5,525			—			6,502
Net cash provided by (used in) investing activities		8,635			(22,327	)		(10,991	)		135,487			110,804
Financing activities
Repayments on revolving lines of credit		(80,448	)		—			—			—			(80,448	)
Borrowings from financial institutions		750,000			—			—			—			750,000
Principal payments to financial institutions and others		(721,358	)		—			—			—			(721,358	)
Intercompany		180			111,553			11,091			(122,824	)		—
Other financing activities		8,910			—			3,670			—			12,580
Net cash (used in) provided by financing activities		(42,716	)		111,553			14,761			(122,824	)		(39,226	)
Net increase (decrease) in cash and cash equivalents		(18,937	)		58,720			2,379			—			42,162
Cash and cash equivalents at beginning of period		99,511			54,393			12,970			—			166,874
Cash and cash equivalents at end of period	$	80,574		$	113,113		$	15,349		$	—		$	209,036

(a) Includes Shea Homes Funding Corp. since inception on April 26, 2011; no significant activity has occurred for the financial statement period presented above.

F-37

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

September 30, 2011

Condensed Consolidating Statement of Cash Flows

Nine Months Ended September 30, 2010

	SHLP Corp (b)			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total
	(In thousands)
Operating activities
Net cash used in operating activities	$	(23,236	)	$	(15,496	)	$	(80,717	)	$	(3,275	)	$	(122,724	)
Investing activities
Proceeds from sale of available-for-sale investments		—			5,180			46,930			—			52,110
Investments in joint ventures		(13,533	)		(675	)		(3,830	)		—			(18,038	)
Other investing activities		(4,909	)		1,601			509			5,504			2,705
Net cash provided by (used in) investing activities		(18,442	)		6,106			43,609			5,504			36,777
Financing activities
Borrowings on revolving lines of credit		12,647			—			—			—			12,647
Contributions from owners		12,500			—			—			—			12,500
Intercompany		24,933			(27,034	)		4,330			(2,229	)		—
Other financing activities		(100	)		—			491			—			391
Net cash provided by (used in) financing activities		49,980			(27,034	)		4,821			(2,229	)		25,538
Net (decrease) increase in cash and cash equivalents		8,302			(36,424	)		(32,287	)		—			(60,409	)
Cash and cash equivalents at beginning of period		89,349			68,674			45,053			—			203,076
Cash and cash equivalents at end of period	$	97,651		$	32,250		$	12,766		$	—		$	142,667

(b) Shea Homes Funding Corp. was formed on April 26, 2011, therefore no amounts are included for any financial statement period before this date.

21. Subsequent Events

We have evaluated subsequent events through December 22, 2011, which is the issuance date of these consolidated financial statements. Other than as disclosed, these events do not have a material effect on the consolidated financial position or results of operations.

F-38

Report of Independent Registered Public Accounting Firm

The Shareholders, Board of Directors and Partners

Shea Homes Limited Partner

We have audited the accompanying consolidated balance sheets of Shea Homes Limited Partnership (the Company), a California limited partnership, as of December 31, 2010 and 2009, and the related consolidated statements of operations, changes in equity, and cash flows for each of the three years in the period ended December 31, 2010. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Shea Homes Limited Partnership at December 31, 2010 and 2009, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2010 in conformity with U. S. generally accepted accounting principles.

March 28, 2011	/s/ Ernst & Young LLP
Except for Notes 18, 20, 21, and 22, as to which the date is December 22, 2011	Los Angeles, California

F-39

Shea Homes Limited Partnership

(A California Limited Partnership)

Consolidated Balance Sheets

(In thousands)

	December 31,
	2010		2009
Assets
Cash and cash equivalents	$	166,874	$	203,076
Restricted cash		11,695		23,500
Investments		11,822		61,413
Accounts and other receivables, net		107,423		140,156
Receivables from related parties, net		204,412		222,188
Inventory		800,029		903,504
Investments in joint ventures		36,553		27,794
Property and equipment, net		18,369		8,854
Other assets, net		57,709		28,275
Total assets	$	1,414,886	$	1,618,760
Liabilities and equity
Liabilities:
Notes payable	$	730,005	$	745,017
Payables to related parties		9,210		7,538
Accounts payable		38,035		36,186
Other liabilities		205,323		348,813
Total liabilities		982,573		1,137,554
Equity:
SHLP equity:
Owners’ equity		406,863		454,452
Accumulated other comprehensive income		5,363		9,398
Total SHLP equity		412,226		463,850
Non-controlling interests		20,087		17,356
Total equity		432,313		481,206
Total liabilities and equity	$	1,414,886	$	1,618,760

See accompanying notes

F-40

Shea Homes Limited Partnership

(A California Limited Partnership)

Consolidated Statements of Operations

(In thousands)

	Years Ended December 31,
	2010			2009			2008
Revenues	$	639,566		$	611,463		$	1,078,330
Cost of sales		(609,097	)		(986,206	)		(1,317,642	)
Gross margin		30,469			(374,743	)		(239,312	)
Selling expenses		(46,665	)		(48,949	)		(98,537	)
General and administrative expenses		(32,440	)		(29,459	)		(64,832	)
Equity in income (loss) from joint ventures		8,613			(35,089	)		(43,621	)
Loss from disposition of joint ventures		—			—			(167,805	)
Interest and other (expense) income, net		(18,759	)		19,962			(30,421	)
Loss before income taxes		(58,782	)		(468,278	)		(644,528	)
Income tax benefit		3,567			45,218			35,011
Net loss		(55,215	)		(423,060	)		(609,517	)
Less: Net (income) loss attributable to non-controlling interests		(4,874	)		30,717			14,802
Net loss attributable to SHLP	$	(60,089	)	$	(392,343	)	$	(594,715	)

See accompanying notes

F-41

Shea Homes Limited Partnership

(A California Limited Partnership)

Consolidated Statements of Changes in Equity

(In thousands)

	Shea Homes Limited Partnership																				Non- controlling Interests			Total Equity
	Limited Partner								General Partner			Total Owners’ Equity			Accumulated Other Comprehensive Income (Loss)			Total SHLP Equity
	Common			Preferred Series B		Preferred Series D			Common
Balance, December 31, 2007	$	888,960		$	194,240	$	120,000		$	233,690		$	1,436,890		$	(973	)	$	1,435,917		$	54,767		$	1,490,684
Comprehensive loss:
Net loss		(466,556	)		—		(5,926	)		(122,233	)		(594,715	)		—			(594,715	)		(14,802	)		(609,517	)
Change in unrealized gains, net		—			—		—			—			—			668			668			—			668
Total comprehensive loss																			(594,047	)		(14,802	)		(608,849	)
Consolidation of subsidiary		3,616			—		46			952			4,614			—			4,614			300			4,914
Contributions from owners		—			—		34,858			—			34,858			—			34,858			—			34,858
Distributions to owners and non-controlling interests		6			—		(34,858	)		—			(34,852	)		—			(34,852	)		(2,372	)		(37,224	)
Balance, December 31, 2008		426,026			194,240		114,120			112,409			846,795			(305	)		846,490			37,893			884,383
Comprehensive loss:
Net loss		(307,092	)		—		(4,128	)		(81,123	)		(392,343	)		—			(392,343	)		(30,717	)		(423,060	)
Change in unrealized gains, net		—			—		—			—			—			9,703			9,703			—			9,703
Total comprehensive loss																			(382,640	)		(30,717	)		(413,357	)
Contributions from non-controlling interests		—			—		—			—			—			—			—			10,605			10,605
Distributions to non-controlling interests		—			—		—			—			—			—			—			(425	)		(425	)
Balance, December 31, 2009		118,934			194,240		109,992			31,286			454,452			9,398			463,850			17,356			481,206
Comprehensive (loss) income:
Net (loss) income		(47,104	)		—		(600	)		(12,385	)		(60,089	)		—			(60,089	)		4,874			(55,215	)
Change in unrealized losses, net		—			—		—			—			—			(4,035	)		(4,035	)		—			(4,035	)
Total comprehensive (loss) income																			(64,124	)		4,874			(59,250	)
Contributions from owners and non-controlling interests		—			—		12,500			—			12,500			—			12,500			975			13,475
Distributions to non-controlling interests		—			—		—			—			—			—			—			(3,118	)		(3,118	)
Balance, December 31, 2010	$	71,830		$	194,240	$	121,892		$	18,901		$	406,863		$	5,363		$	412,226		$	20,087		$	432,313

See accompanying notes

F-42

Shea Homes Limited Partnership

(A California Limited Partnership)

Consolidated Statements of Cash Flows

(In thousands)

	Years Ended December 31,
	2010			2009			2008
Operating activities
Net loss	$	(55,215	)	$	(423,060	)	$	(609,517	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Equity in (income) loss from joint ventures		(9,875	)		4,629			8,698
Loss from disposition of joint ventures		—			—			167,805
Write-off of professional fees in connection with debt modification		25,747			—			—
Net gain on sale of available-for-sale investments		(4,664	)		(3,313	)		(293	)
Net loss on change in fair value of investments		—			—			2,784
Net loss on sale of property and equipment		—			3,364			1,299
Depreciation and amortization expense		11,510			10,367			23,869
Impairment of inventory		72,629			219,846			403,278
Impairment of investments in joint ventures		1,262			30,460			35,114
Impairment of available-for-sale investments		—			504			17,391
Net interest capitalized on investments in joint ventures		(477	)		(2,249	)		(41	)
Distributions of earnings from joint ventures		400			630			937
Changes in operating assets and liabilities:
Restricted cash		11,805			(9,110	)		18,925
Receivables and other assets		(23,923	)		(87,705	)		8,214
Inventory		24,050			446,088			125,513
Payables and other liabilities		(128,297	)		(97,157	)		(48,017	)
Net cash (used in) provided by operating activities		(75,048	)		93,294			155,959
Investing activities
Purchase of available-for-sale investments		—			(63,956	)		(37,195	)
Proceeds from sale of available-for-sale investments		53,112			59,685			36,359
Proceeds from sale of held-to-maturity investments		—			2,100			4,325
Proceeds from sale of investments in joint venture		—			—			45,144
Net decrease (increase) in promissory notes from related parties		19,251			17,446			(58,412	)
Investments in joint ventures		(18,035	)		(11,493	)		(310,683	)
Distributions from joint ventures		3,406			1,382			44,877
Cash received from consolidation of joint venture and subsidiary		—			—			3,023
Purchase of property and equipment		(11,678	)		(1,124	)		(473	)
Proceeds from sale of property and equipment		—			12,564			7,728
Net cash provided by (used in) investing activities		46,056			16,604			(265,307	)
Financing activities
Borrowings on revolving lines of credit and promissory notes to related parties		5,448			—			223,113
Borrowings from financial institutions		—			—			12,146
Principal payments to financial institutions and others		(25,618	)		(113,521	)		(59,813	)
Accrued interest on notes payable		674			—			—
Amortization of notes payable discount		1,929			—			—
Contributions from non-controlling interests		975			1,503			—
Distributions to non-controlling interests		(3,118	)		(425	)		(2,372	)
Contributions from owners		12,500			—			34,858
Distributions to owners		—			—			(34,852	)
Net cash (used in) provided by financing activities		(7,210	)		(112,443	)		173,080
Net (decrease) increase in cash and cash equivalents		(36,202	)		(2,545	)		63,732
Cash and cash equivalents at beginning of year		203,076			205,621			141,889
Cash and cash equivalents at end of year	$	166,874		$	203,076		$	205,621

See accompanying notes

F-43

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements

December 31, 2010

1. Organization

Shea Homes Limited Partnership (“SHLP”), a California limited partnership, was formed on January 4, 1989, pursuant to an agreement of partnership (the “Agreement”), as most recently amended January 1, 2009, by and between J.F. Shea, LP, a Delaware limited partnership, as general partner, and the Company’s limited partners who are comprised of entities and trusts, including J.F. Shea Co., Inc. (“JFSCI”), that are under the common control of Shea family members (collectively, the “Partners”). J.F. Shea, LP is 96% owned by JFSCI.

Nature of Operations

Our principal business purpose is homebuilding, which includes acquiring and developing land and constructing and selling residential homes thereon. Our principal markets are California, Arizona, Colorado, Washington, Nevada and Florida.

We own a captive insurance company, Partners Insurance Company, Inc. (“PIC”), which provided warranty, general liability, workers’ compensation and completed operations insurance for related companies and third-party subcontractors. Effective for the policy years commencing in 2007, PIC ceased issuing policies for these coverages. Thereafter, our warranty coverage became self-insured, and the general liability, workers’ compensation and completed operations (through July 31, 2009) coverages were insured by an affiliate insurance carrier for primary coverage and by third-party insurance carriers for excess coverage. In February 2011, we purchased completed operations insurance from an affiliate insurance carrier, retroactive to August 1, 2009 (see Note 11).

Since 2006, the homebuilding industry has been adversely impacted by depressed economic and market conditions which have affected our results of operations, most notably through inventory impairment as described in Note 7. In response to these economic conditions, we reduced selling, general and administrative expenses to better align costs and revenues, slowed land acquisition, delayed land development and construction activities, and sold developed lots and land parcels. Additional similar initiatives may be required in 2011 if the downturn continues.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements include the accounts of SHLP and its wholly-owned subsidiaries, including Shea Homes, Inc. (“SHI”) and its wholly-owned subsidiaries, including PIC. The Company consolidates all joint ventures in which it has a controlling interest or other ventures in which it is the primary beneficiary of a variable interest entity (“VIE”). Material intercompany accounts and transactions are eliminated.

Unless the context otherwise requires, the terms “we”, “us”, “our” and “the Company” refer to SHLP and its subsidiaries.

Use of Estimates

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires the Company to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Estimates relate primarily to the valuation of certain real estate and reserves for self-insured risks. Actual results could differ significantly from those estimates.

F-44

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

December 31, 2010

Reclassifications

Certain reclassifications were made in the prior year’s consolidated financial statements to conform to classifications used in the current year. At December 31, 2009, deficit investment balances resulting from distributions to the Company from joint ventures in excess of the carrying amount of the investment balance were reclassified from investments in joint ventures to other liabilities. Additionally, for the year ended December 31, 2009, the corresponding changes were made to the consolidated statement of cash flows.

Cash and Cash Equivalents

All highly liquid investments (original maturities of 90 days or less) are considered to be cash equivalents. Outstanding checks on zero balance cash accounts are included in accounts payable.

Concentration of Credit Risk

Financial instruments representing concentrations of credit risk are primarily cash, cash equivalents, investments and insurance receivables.

Cash in bank exceeded the federally insured limits; cash equivalents primarily comprised of money market securities and securities backed by the U.S. government; investments were diversified throughout many industries and geographic regions; and insurance receivables were with highly rated insurers and/or collateralized. We incurred no losses on deposits of cash and cash equivalents, limited the amount of credit exposure with any one financial institution, and believed our depository institutions were financially sound and presented minimal credit risk.

Inventory

We capitalize preacquisition, land, development and other allocated costs, including interest, during development and home construction. Applicable costs incurred after development or construction is substantially complete are charged to selling, general and administrative, and other expenses as appropriate. Preacquisition costs, including non-refundable land deposits, are expensed to interest and other (expense) income, net when it is determined continuation of the respective project is not probable.

Land, development and other indirect costs are typically allocated to inventory using a methodology that approximates the relative-sales-value method. Home construction costs are recorded using the specific identification method. Cost of sales for homes closed includes the specific construction costs of each home and all applicable land acquisition, land development and related costs (both incurred and estimated to be incurred) based upon the total number of homes expected to be closed in each community. Changes to the estimated total development costs subsequent to the initial home closings in a community are generally allocated on a relative-sales-value method to the remaining homes in the community.

Inventories are stated at cost, unless the carrying amount is determined not to be recoverable, in which case inventories are written down to fair value. Quarterly, we review our real estate assets at each community for indicators of impairment. Our real estate assets include projects actively selling and projects under development or held for future development. Indicators of impairment include, but are not limited to, significant decreases in local housing market values and selling prices of comparable homes, significant decreases in gross margins and sales absorption rates, costs in excess of budget, and actual or projected cash flow losses.

F-45

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

December 31, 2010

Annually, we perform a detailed budget and cash flow review of our real estate assets to determine whether the estimated remaining undiscounted future cash flows of the project are more or less than the asset’s carrying value. If the undiscounted cash flows are more than the asset’s carrying value, no impairment adjustment is required. However, if the undiscounted cash flows are less than the asset’s carrying value, the asset is deemed impaired and is written down to its fair value. These impairment evaluations require us to make estimates and assumptions regarding future conditions, including timing and amounts of development costs and sales prices of real estate assets, to determine whether expected future undiscounted cash flows will be sufficient to recover the asset’s carrying value.

When estimating undiscounted cash flows of a community, we make various assumptions, including: (i) expected sales prices and sales incentives to be offered, including the number of homes available, pricing and incentives being offered by us or other builders in other communities, and future sales price adjustments based on market and economic trends; (ii) expected sales pace and cancellation rates based on local housing market conditions, competition and historical trends; (iii) costs expended to date and expected to be incurred in the future, including, but not limited to, land and land development costs, home construction costs, interest costs, indirect construction and overhead costs, and selling and marketing costs; (iv) alternative product offerings that may be offered that could have an impact on sales pace, sales price and/or building costs; and (v) alternative uses for the property.

Many assumptions are interdependent and a change in one may require a corresponding change to other assumptions. For example, increasing or decreasing sales absorption rates has a direct impact on the estimated per unit sales price of a home, the level of time sensitive costs (such as indirect construction, overhead and carrying costs), and selling and marketing costs (such as model maintenance costs and advertising costs). Depending on the underlying objective of the community, assumptions could have a significant impact on the projected cash flow analysis. For example, if our objective is to preserve operating margins, our cash flow analysis will be different than if the objective is to increase sales. These objectives may vary significantly from community to community and over time.

If assets are considered impaired, impairment is determined by the amount the asset’s carrying value exceeds its fair value. Fair value is determined based on estimated future cash flows discounted for inherent risks associated with real estate assets or other valuation techniques. These discounted cash flows are impacted by expected risk based on estimated land development, construction and delivery timelines; market risk of price erosion; uncertainty of development or construction cost increases; and other risks specific to the asset or market conditions where the asset is located when assessment is made. These factors are specific to each community and may vary among communities. The discount rate used in determining each asset’s fair value depends on the community’s projected life and development stage. We generally use discount rates ranging from 10% to 25%, subject to perceived risks associated with the community’s cash flow streams relative to its inventory.

Completed Operations Claim Costs

We maintain, and require our subcontractors to maintain general liability insurance which includes coverage for completed operations losses and damages. Most of our subcontractors carry this insurance through our “rolling wrap-up” insurance program, where our risks and risks of participating subcontractors working on our projects are insured through a set of master policies.

We record expenses and liabilities related to the estimated costs of completed operations claims when received in the ordinary course of business. We also record expenses and liabilities for estimated costs of

F-46

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

December 31, 2010

potential completed operations claims based upon aggregated loss experience, which includes an estimate of completed operations claims incurred but not reported and is actuarially estimated using individual case-basis valuations and statistical analysis. These estimates make up our entire reserve and are subject to a high degree of variability due to uncertainties such as trends in completed operations claims related to our markets and products built, changes in claims reporting and settlement patterns, third party recoveries, insurance industry practices, insurance regulations and legal precedent. Because state regulations vary, completed operations claims are reported and resolved over an extended period, sometimes exceeding twelve years. As a result, actual costs may differ significantly from estimates.

Completed operations claims reserves primarily represent claims for property damage to completed homes and projects outside of our one-to-two year warranty period. Specific terms and conditions of completed operations warranties vary depending on the market in which homes are closed.

The actuarial analyses that determined these incurred but not reported claims consider various factors, including frequency and severity of losses, which are based on our historical claims experience supplemented by industry data. The actuarial analyses of these claims and reserves also consider historical third party recovery rates and claims management expenses. Due to the inherent uncertainty related to each of these factors, periodic changes to such factors based on updated relevant information could result in actual costs to differ significantly from estimated costs.

In accordance with our underlying completed operations insurance policies, these completed operations claims costs are recoverable from our subcontractors or insurance carriers. Effective December 2009, completed operations claims commencing August 1, 2009 are insured with an affiliate insurance carrier.

Revenues

Revenues from housing and other real estate sales are recognized in accordance with Accounting Standards Codification (“ASC”) 360 when the respective units are closed. Housing and other real estate sales are closed when all conditions of escrow are met, including delivery of the home or other real estate asset, title passage, appropriate consideration is received and collection of associated receivables, if any, is reasonably assured. Sales incentives are a reduction of revenues when the respective unit is closed.

Income Taxes

SHLP is treated as a partnership for income tax purposes. As a limited partnership, SHLP is subject to certain minimal state taxes and fees; however, taxes on income or losses realized by SHLP are generally the obligation of the Partners and their owners.

SHI and PIC are C corporations. Federal and state income taxes are provided for these entities in accordance with the provisions of ASC 740. The provision for, or benefit from, income taxes is calculated using the asset and liability method, under which deferred tax assets and liabilities are recorded based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are evaluated to determine whether a valuation allowance should be established based on its determination of whether it is more likely than not some or all of the deferred tax asset will not be realized. The ultimate realization of deferred tax assets depends primarily on the generation of future taxable income during the periods in which those temporary differences become deductible. Judgment

F-47

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

December 31, 2010

is required in determining future tax consequences of events that have been recognized in the consolidated financial statements and/or tax returns. Differences between anticipated and actual outcomes of these future tax consequences could have a material impact on the consolidated financial position or results of operations.

Effective January 1, 2009, the Company adopted accounting guidance on how uncertain tax positions should be accounted for and disclosed in the financial statements. The guidance requires the assessment of tax positions taken or expected to be taken in the tax returns and to determine whether the tax positions are “more-likely-than-not” of being sustained upon examination by the applicable tax authority. Tax positions deemed to meet the more-likely-than-not criteria would be recorded as a tax benefit or expense in the current year. We are required to assess open tax years, as defined by the statute of limitations, for all major jurisdictions, including federal and certain states. Open tax years are those that are open for examination by taxing authorities. We have examinations in progress but believe there are no uncertain tax positions that do not meet the more-likely-than-not level of authority (see Note 15).

Advertising Costs

We expense advertising costs as incurred. For the years ended December 31, 2010, 2009 and 2008, we incurred and expensed advertising costs of $6.1 million, $4.8 million and $15.7 million, respectively.

New Accounting Pronouncements

In June 2009, the Financial Accounting Standards Board (“FASB”) revised its guidance for determining the primary beneficiary of a VIE and replaced the quantitative-based risks and rewards calculation (to determine which reporting entity has a controlling financial interest in a VIE) with an approach that identifies which reporting entity has the power to direct the activities of a VIE and has the obligation to absorb losses of the entity or the right to receive benefits from the entity. This guidance was effective January 1, 2010 and required additional disclosures about a reporting entity’s involvement with VIEs. The adoption of this guidance did not have a material impact to the Company’s consolidated financial position or results of operations.

In January 2010, the FASB issued Accounting Standards Update No. 2010-06, Improving Disclosures About Fair Value Measurements (“ASU 2010-06”), which provides amendments to ASC Subtopic No. 820-10, Fair Value Measurements and Disclosures—Overall. ASU 2010-06 requires additional disclosures and clarifications of existing disclosures for recurring and nonrecurring fair value measurements. The revised guidance was effective January 1, 2010. The adoption of this guidance did not have a material impact to the Company’s consolidated financial position or results of operations.

3. Restricted Cash

Restricted cash related to the homebuilding operations included cash used as collateral for potential obligations paid by the Company’s bank, customer deposits temporarily restricted in accordance with regulatory requirements, and cash used in lieu of bonds. At December 31, 2010 and 2009, restricted cash related to homebuilding operations was $11.4 million and $10.7 million, respectively.

At December 31, 2010, restricted cash of PIC included cash held in escrow by PIC’s claim administrators. In addition, at December 31, 2009, restricted cash included cash used as collateral for $9.8 million of JFSCI’s outstanding letters of credit. At December 30, 2009, these letters of credit were returned to JFSCI, which were

F-48

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

December 31, 2010

delivered to the issuing banks. In January 2010, these letters of credit were formally canceled by the issuing banks and the underlying cash restrictions were released. At December 31, 2010 and 2009, restricted cash related to PIC was $0.3 million and $12.8 million, respectively.

4. Investments

At December 31, 2010 and 2009, investments consist of available-for-sale securities and are measured at fair value, which is based on quoted market prices or cash flow models. Accordingly, unrealized gains and temporary losses on investments, net of tax, are reported as accumulated other comprehensive income (loss). Realized gains and losses are determined using the specific identification method.

At December 31, 2009, investments of $54.9 million were pledged to collateralize $31.1 million of JFSCI’s outstanding letters of credit. At December 30, 2009, these letters of credit were returned to JFSCI, which were delivered to the issuing banks. In January 2010, these letters of credit were formally canceled by the issuing banks and the collateralization of the underlying investments was released.

At December 31, 2010 and 2009, investments were as follows:

	December 31, 2010
	Cost / Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
Debt securities:
Corporate obligations	$	1,124	$	224	$	—		$	1,348
Mortgage/asset-backed securities		588		279		—			867
Private debt obligations (a)		1,834		7,748		—			9,582
Total debt securities		3,546		8,251		—			11,797
Equity securities		25		4		(4	)		25
Total investments	$	3,571	$	8,255	$	(4	)	$	11,822

	December 31, 2009
	Cost / Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(In thousands)
Debt securities:
U.S. government and agency obligations	$	1,866	$	10	$	—	$	1,876
Municipal obligations		4,963		218		—		5,181
Corporate obligations		31,877		2,607		—		34,484
Mortgage/asset-backed securities		6,301		645		—		6,946
Private debt obligations (a)		6,746		5,840		—		12,586
Total debt securities		51,753		9,320		—		61,073
Equity securities		262		78		—		340
Total investments	$	52,015	$	9,398	$	—	$	61,413

(a) At December 31, 2009, certain private debt obligations experienced an other-than-temporary impairment and a $13.2 million impairment was recorded. Unrealized gains of private debt obligations are stated at the difference between their fair value and cost basis, net of impairment.

F-49

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

December 31, 2010

Available-for-Sale Securities

For the years ended December 31, 2010, 2009 and 2008, realized gains on sales of available-for-sale securities were $4.7 million, $3.6 million and $0.6 million, respectively, and losses of approximately $0 million, $(0.3) million and $(0.4) million, respectively, which were included in interest and other (expense) income, net.

For the year ended December 31, 2010, included in other comprehensive income (loss) were unrealized losses of $(4.7) million, reclassification adjustments for realized gains of $3.6 million and tax expense of $(2.9) million. For the year ended December 31, 2009, included in other comprehensive income (loss) were unrealized gains of $10.0 million, reclassification adjustments for realized gains of $0.1 million and tax expense of $(0.2) million. For the year ended December 31, 2008, included in other comprehensive income (loss) were unrealized gains of $1.1 million, reclassification adjustments for realized gains of $0.1 million and tax expense of $(0.3) million.

At December 31, 2010, the contractual maturities of debt securities classified as available-for-sale were as follows:

	December 31, 2010
	Cost		Fair Value
	(In thousands)
Due in one year or less	$	—	$	—
Due after one year through five years		134		152
Due after five years through ten years		1,385		1,557
Due after ten years		1,439		9,221
Mortgage-backed securities		588		867
Total	$	3,546	$	11,797

Actual maturities may differ from the contractual maturities because certain borrowers have the right to call or prepay obligations with or without penalty.

At December 31, 2010, there were equity securities with nominal fair value and unrealized losses that were in a continuous unrealized loss position for less than one year. At December 31, 2009, there were no available-for-sale securities in an unrealized loss position.

For the years ended December 31, 2009 and 2008, we determined $12.1 million and $33.2 million, respectively, of the available-for-sale securities with unrealized losses experienced an other-than-temporary impairment. As a result, the securities were written down to their fair values and impairment charges of $(0.5) million and $(17.4) million, respectively, were recorded to interest and other (expense) income, net. This evaluation was based on various factors, including length of time securities were in a loss position, ability and intent to hold investments until temporary losses were recovered or they mature, investee’s industry and amount of the unrealized loss. At December 31, 2010, the nominal unrealized losses were not deemed as an other-than-temporary impairment based on the factors noted above.

F-50

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

December 31, 2010

Held-to-Maturity Securities

At December 31, 2008, we had a held-to-maturity security that consisted of a structured note with a cost of $5.0 million and an embedded derivative linked to U.S. Treasury Yields that had a fair value of $(2.9) million, resulting in a total fair value of $2.1 million. For the year ended December 31, 2008, the realized loss on the embedded derivative was $(2.9) million, which was included in interest and other (expense) income, net. For the year ended December 31, 2008, one held-to-maturity security matured and the realized gain of $0.1 million was included in interest and other (expense) income, net. In February 2009, the remaining held-to-maturity security matured and settled for $2.1 million.

5. Fair Value Disclosures

ASC 820, Fair Value Measurements and Disclosures, defines fair value as the price that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants at measurement date and requires assets and liabilities carried at fair value to be classified and disclosed in the following three categories:

• Level 1 – Quoted prices for identical instruments in active markets

• Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are inactive; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets at measurement date

• Level 3 – Valuations derived from techniques where one or more significant inputs or significant value drivers are unobservable in active markets at measurement date

The financial instruments measured at fair value on a recurring basis were as follows:

	December 31, 2010
Description	Level 1		Level 2		Level 3		Total
	(In thousands)
Debt securities	$	—	$	3,199	$	8,598	$	11,797
Equity securities		—		25		—		25
Total investments	$	—	$	3,224	$	8,598	$	11,822

The Level 2 financial instruments are primarily debt and equity securities in which fair values were determined from quoted prices in an inactive market or for similar instruments in an active market. The Level 3 financial instruments are comprised of private debt securities where fair value was determined using a cash flow model that considered estimated interest rates, discount rates, prepayments and defaults.

F-51

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

December 31, 2010

At December 31, 2010, the summary of changes in fair value of the Level 3 financial instruments was as follows:

	Private Debt Obligation		Auction Rate  Security			Total
	(In thousands)
Fair value at December 31, 2009	$	6,494	$	350		$	6,844
Purchases and settlements, net		—		(500	)		(500	)
Unrealized gains		2,104		—			2,104
Realized gains		—		150			150
Fair value at December 31, 2010	$	8,598	$	—		$	8,598

At December 31, 2010, the non-financial instruments measured at fair value on a non-recurring basis were as follows:

	Year  Ended December  31, 2010(a)		Fair Value Measurements Using
Description			Level 1		Level 2		Level 3		Total Losses
	(In thousands)
Inventory	$	118,172	$	—	$	2,000	$	116,172	$	(72,629	)
Investments in joint ventures		—		—		—		—		(1,262	)
Total	$	118,172	$	—	$	2,000	$	116,172	$	(73,891	)

(a) Amount represents aggregate fair value for communities and joint ventures where we recorded impairments at the fair value measurement date. Net book value for these communities and joint ventures may have increased or decreased since the measurement date.

For the year ended December 31, 2010, in accordance with ASC 360, inventories with a $190.8 million net book value were written down to an $118.2 million fair value, resulting in a $(72.6) million impairment, which was included in cost of sales. Investments in joint ventures with a $1.3 million net book value were written off, resulting in a $(1.3) million impairment, which was included in equity in income (loss) from joint ventures.

Fair values for inventory using Level 2 inputs were primarily based on contracted amounts for the respective project in an inactive market. Fair values for inventories and investments in joint ventures using Level 3 inputs were primarily based on estimated future cash flows discounted for inherent risk associated with each asset. These discounted cash flows were impacted by expected risk based on estimated land development, construction and delivery timelines; market risk of price erosion; uncertainty of development or construction cost increases; and other risks specific to the asset or market conditions where the asset was located when assessment was made. These factors were specific to each community and may vary among communities. The discount rate used in determining each asset’s fair value depended on the community’s projected life and development stage. We generally use discount rates from 10% to 25%, subject to perceived risks associated with the community’s cash flow streams relative to its inventory.

F-52

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

December 31, 2010

At December 31, 2010 and 2009, as required by ASC 825, Financial Instruments, the following presents net book values and estimated fair values of notes payable.

	December 31, 2010				December 31, 2009
	Net Book Value		Estimated Fair Value		Net Book Value		Estimated Fair Value
	(In thousands)
$145,000 secured bank term facility	$	135,202	$	137,315	$	—	$	—
$440,000 Series A term loan	$	360,003	$	425,488	$	—	$	—
$30,000 Series A-1 term loan	$	25,008	$	30,000	$	—	$	—
$85,000 Series B term loan	$	73,284	$	82,197	$	—	$	—
$25,000 secured subordinated loan	$	31,398	$	24,784	$	—	$	—
$20,000 secured subordinated loan	$	16,888	$	19,948	$	—	$	—
$5,000 secured subordinated loan	$	3,569	$	4,240	$	—	$	—
$75,000 secured bank revolving credit facility	$	75,000	$	75,000	$	—	$	—
Funded letters of credit	$	5,448	$	5,448	$	—	$	—
Secured Bank Exit Fee	$	2,251	$	3,241	$	—	$	—
Secured promissory notes	$	1,954	$	1,954	$	17	$	17
$303,000 unsecured revolving bank credit facility	$	—	$	—	$	220,000	$	217,825
$130,000 unsecured private placement debt	$	—	$	—	$	130,000	$	107,377
$150,000 unsecured private placement debt	$	—	$	—	$	150,000	$	117,116
$160,000 unsecured term loan	$	—	$	—	$	160,000	$	130,835
$75,000 unsecured term loan	$	—	$	—	$	75,000	$	73,767
$10,000 unsecured term loan	$	—	$	—	$	10,000	$	10,000

Estimated fair values of the outstanding notes payable were based on cash flow models discounted at market interest rates that considered underlying risks of the debt.

The Company’s other financial instruments consist primarily of cash and cash equivalents, restricted cash, accounts and other receivables, accounts payable and other liabilities. The book values of these financial instruments approximate their fair values due to their relatively short-term nature.

6. Accounts and Other Receivables, Net

At December 31, 2010 and 2009, accounts and other receivables were as follows:

	December 31,
	2010			2009
	(In thousands)
Insurance receivables	$	102,860		$	133,000
Escrow receivables		1,774			754
Other receivables		6,382			11,786
Reserve		(3,593	)		(5,384	)
Total accounts and other receivables, net	$	107,423		$	140,156

We record insurance receivables from insurance carriers for reimbursable claims pertaining to resultant damage and injuries from construction defects on our closed homes. At December 31, 2009, as part of the PIC Transaction (see Note 13), we insured our closed homes with third-party insurance carriers for policy years August 1, 2001 to July 31, 2009.

F-53

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

December 31, 2010

We record a reserve for uncollectible receivables that are specifically identified or outstanding for more than 120 days.

7. Inventory

At December 31, 2010 and 2009, inventory was as follows:

	December 31,
	2010		2009
	(In thousands)
Model homes	$	91,267	$	106,198
Completed homes for sale		34,918		26,372
Homes under construction		92,988		117,229
Lots available for construction		294,234		382,593
Land under development		174,245		152,265
Land held for future development		104,217		110,848
Land deposits and preacquisition costs		8,160		7,999
Total inventory	$	800,029	$	903,504

Model homes, completed homes for sale and homes under construction include all costs associated with home construction, including land, development, indirects, permits and vertical construction. Lots available for construction include costs incurred prior to home construction such as land, development, indirects and permits. Land under development includes costs incurred during site development such as land, development, indirects and permits. Land under development transfers to lots available for construction once site development is complete and is ready for vertical construction. Land is classified as held for future development if no significant development has occurred.

Impairment

Inventory, including all captions listed above, are stated at cost, unless the carrying amount is determined to be unrecoverable, in which case inventories are written down to fair value (see Note 2).

For the years ended December 31, 2010, 2009 and 2008, inventory impairment was as follows:

	Years Ended December 31,
	2010		2009		2008
	(Dollars in thousands)
Inventory impairment	$	72,629	$	219,846	$	403,279
Remaining carrying value of inventory impaired at end of year	$	92,443	$	161,425	$	168,458
Projects impaired		23		48		67
Projects evaluated for impairment (a)		132		139		173

(a) Large land parcels not subdivided into communities are counted as one project. Once parcels are subdivided, the project count will increase accordingly.

F-54

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

December 31, 2010

Inventory impairment was included in cost of sales in the accompanying consolidated statements of operations and primarily attributable to lower home prices driven by increased incentives and price reductions required in response to weak demand and economic conditions, including record foreclosures, high unemployment, lower consumer confidence and tighter mortgage credit standards. Of these impairment charges, $1.9 million, $0 million and $17.9 million were attributable to non-controlling interests.

Write-off of Deposits and Preacquisition Costs

Land deposits and preacquisition costs for potential acquisitions and land option contracts are included in inventory. When a potential acquisition or land option contract is abandoned, the related deposits and preacquisition costs are written off to interest and other (expense) income, net. For the years ended December 31, 2010, 2009 and 2008, write-offs of deposits and preacquisition costs were $3.5 million, $2.2 million and $2.7 million, respectively.

For the years ended December 31, 2010, 2009 and 2008, the number of option lots abandoned was as follows:

	Lots Abandoned
2010		106
2009		3,661
2008		—

F-55

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

December 31, 2010

Interest Capitalization

Interest is capitalized on inventory and investments in joint ventures during development and other qualifying activities. Interest capitalized as cost of inventory is included in cost of sales as related units are closed. Interest capitalized as cost of investment in joint ventures is included in equity in income (loss) as related units in the joint venture are closed.

For the years ended December 31, 2010, 2009 and 2008, interest incurred, capitalized and expensed was as follows:

	Years Ended December 31,
	2010			2009			2008
	(In thousands)
Total interest incurred	$	62,290		$	59,512		$	58,912
Interest expensed (a)	$	8,558		$	—		$	—
Total interest capitalized as a cost of inventory	$	52,583		$	57,263		$	54,690
Interest previously capitalized as a cost of inventory, included in cost of sales	$	(48,321	)	$	(78,479	)	$	(38,636	)
Interest previously capitalized as a cost of inventory, transferred from investments in joint ventures	$	672		$	—		$	—
Capitalized interest in ending inventory (b)	$	105,951		$	101,017		$	122,233
Total interest capitalized as a cost of investment in joint ventures	$	1,149		$	2,249		$	4,222
Interest previously capitalized as a cost of investment in joint ventures, included in equity in income (loss) from joint ventures	$	(484	)	$	(3,820	)	$	(7,592	)
Interest previously capitalized as a cost of investment in joint ventures, transferred to inventory	$	(672	)	$	—		$	—
Capitalized interest in ending investments in joint ventures	$	946		$	953		$	2,524

(a) For the year ended December 31, 2010, assets qualifying for interest capitalization did not exceed debt; therefore, non-qualifying interest was expensed and included in interest and other (expense) income, net.

(b) Inventory impairment charges are recorded against total inventory of a community. Capitalized interest reflects the gross amount of capitalized interest as impairment charges recognized were not generally allocated to specific components of inventory.

Model Homes Costs

Certain costs of model homes are capitalized and subsequently amortized as selling expense when the related units in the respective communities are closed. For the years ended December 31, 2010, 2009 and 2008, amortized model homes costs were $9.4 million, $9.1 million and $19.1 million, respectively.

F-56

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

December 31, 2010

8. Investments in Joint Ventures

Unconsolidated Joint Ventures

Unconsolidated joint ventures, which we do not control but have significant influence through ownership interests generally up to 50%, are accounted for using the equity method of accounting. These joint ventures are generally involved in real property development. Earnings and losses are allocated in accordance with terms of joint venture agreements.

Distributions from joint ventures in excess of the carrying amount of our investment and losses in excess of our investment (“Deficit Distributions”) are included in other liabilities. We record Deficit Distributions since we are liable for this deficit to respective joint ventures. Deficit Distributions are offset by future earnings of, or future contributions to, joint ventures. At December 31, 2010 and 2009, Deficit Distributions were $0.9 million and $15.4 million, respectively, which were included in owners’ equity in the following condensed financial information of our investments in joint ventures.

For the years ended December 31, 2010, 2009 and 2008, impairment on investments in joint ventures were $1.3 million, $30.5 million and $35.1 million, respectively, which were included in equity in income (loss) from joint ventures. Additionally, the year ended December 31, 2010 included a $6.5 million charge related to the non-realization of a non-controlling interest’s deficit capital balance.

For the years ended December 31, 2009 and 2008, included in the $30.5 million and $35.1 million of impairment on investments in joint ventures, respectively, were impairments of $3.7 million and $18.7 million, respectively, related to our investment in the joint venture, Tustin Legacy Community Partners, LLC (“Tustin Legacy”), due to inherent uncertainty of project completion and reconveyance of the underlying land to the City of Tustin, California. Included in the impairment was our share of the underlying project loan of $12.5 million and estimated liability of certain project completion costs. At December 31, 2009, this liability of $15.4 million was included in other liabilities. In June 2010, we paid $12.5 million to the note holder in satisfaction of our complete share of the project loan and was released as a guarantor with no further liability on the unpaid principal balance of $35.4 million at December 31, 2010.

In May 2008, we signed an agreement with California Public Employees’ Retirement System (“CalPERS”) to restructure three joint ventures that each holds an ownership interest (the “CalPERS Exchange”). As a result of the CalPERS Exchange, CalPERS purchased our entire interest in two joint ventures, Shea Capital I, LLC and Shea Mountain House, LLC, and we purchased CalPERS’ entire interest in Shea Capital II, LLC. We made a net cash payment of $16.0 million, which satisfied certain conditions of the CalPERS Exchange, including the fulfillment of capital obligations, a market value adjustment for lots previously purchased and payoff of a debt obligation. We also incurred a $167.6 million loss, which was included in loss from disposition of joint ventures. In addition, we consolidated Shea Capital II, LLC, which increased total assets and debt of the Company by $16.4 million and $1.0 million, respectively.

In December 2008, we sold our 1% interest in a homebuilding joint venture in North Carolina for $0.1 million, resulting in a $0.2 million loss, which was included in loss from disposition of joint ventures.

F-57

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

December 31, 2010

At December 31, 2010 and 2009, and for the years ended December 31, 2010, 2009 and 2008, condensed financial information of investments in unconsolidated joint ventures were as follows:

Balance Sheet Information

	December 31,
	2010		2009
	(In thousands)
Assets
Investments in real property	$	219,856	$	216,288
Other assets		55,243		40,730
Total assets	$	275,099	$	257,018
Liabilities and owners’ equity
Notes payable	$	126,348	$	144,246
Other liabilities		42,271		36,691
Total liabilities		168,619		180,937
Owners’ equity:
The Company		35,675		12,356
Others		70,805		63,725
Total owners’ equity		106,480		76,081
Total liabilities and owners’ equity	$	275,099	$	257,018

Income Statement Information

	Years Ended December 31,
	2010			2009			2008
	(In thousands)
Revenues	$	54,216		$	103,484		$	336,303
Expenses		(58,563	)		(180,567	)		(453,910	)
Net loss		(4,347	)		(77,083	)		(117,607	)
The Company’s share of net income (loss) (a)	$	8,613		$	(35,089	)	$	(43,621	)

(a) For the year ended December 31, 2010, we reversed a prior accrual of $2.4 million related to one joint venture due to the release of an obligation. Also during the year ended December 31, 2010, our share of net income includes an adjustment of $6.7 million to recognize additional income to correct the cumulative allocation of income previously recognized by the partners in another joint venture under the hypothetical-liquidation-at-book-value method. Based on an evaluation of the materiality of the adjustment, we concluded that correcting this error would be immaterial to any individual prior period and the cumulative error would not be material to the 2010 results or affect the financial statement trends.

At December 31, 2010, total unconsolidated joint ventures’ notes payable were $126.3 million and included $77.4 million of bank and seller financing notes payable secured by real property and $48.9 million of notes

F-58

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

December 31, 2010

payable with joint ventures’ partners, of which $15.4 million was secured by real property. At December 31, 2009, total unconsolidated joint ventures’ notes payable were $144.2 million and included $100.2 million of bank and seller financing notes payable secured by real property and $44.0 million of notes payable with joint ventures’ partners, of which $15.4 million was secured by real property. In addition, at December 31, 2010 and 2009, we had an indirect 12.3% effective ownership in a joint venture that had bank notes payable secured by real property of $7.2 million, in which we have not provided guarantees.

At December 31, 2010 and 2009, of the $77.4 million and $100.2 million in our unconsolidated joint ventures’ outstanding bank and seller financing secured notes payable, respectively, we provided guarantees on a joint and several basis for $19.5 million and $84.6 million, respectively. These guarantees include, but are not limited to, project completion and loan-to-value maintenance guarantees. In addition, we have an indemnification agreement from a joint venture partner for 90% of a secured note payable of $19.5 million and $24.4 million, respectively. We have not provided guarantees on bank and seller financing secured notes payable of $57.9 million and $15.6 million, respectively, or on notes payable to joint ventures’ partners of $48.9 million and $44.0 million, respectively.

At December 31, 2009, of the $84.6 million of guarantees on bank and seller financing secured notes payable, we included a $12.6 million liability in other liabilities for our share of the Tustin Legacy project loan, which was subsequently paid in June 2010 and we were fully released as a guarantor of the unpaid balance with no further liability. No other liabilities were recorded for these guarantees at December 31, 2010 and 2009 as the fair value of secured real estate exceeded the outstanding notes payables.

Consolidated Joint Ventures

In August 2009, through our consolidated joint venture, Vistancia, LLC, we contributed certain land under development into single member limited liability companies (“LLCs”) and sold 90% of our interest in these LLCs to an unrelated third party for $67.5 million. The cash consideration from this transaction and contributions from the partners of Vistancia, LLC were used to pay down the principal loan balance that was secured by the underlying land, which outstanding balance with accrued interest was $107.9 million. The resultant unpaid principal of $33.1 million was canceled by the creditor bank. From this transaction, we incurred a $195.7 million pre-tax loss, of which $228.8 million was included in cost of sales and $33.1 million in interest and other (expense) income, net from the debt cancellation, net of unamortized deferred loan fees. Of the $195.7 million loss, $32.1 million was attributable to non-controlling interests.

9. Variable Interest Entities

ASC 810 requires a VIE to be consolidated in the financial statements of a company if it is the primary beneficiary of the VIE. Accordingly, the primary beneficiary absorbs a majority of the VIE’s expected losses or receives a majority of the VIE’s expected residual return, or otherwise controls the VIE, as a result of ownership, contractual or other financial interest in the VIE. All VIEs with which we were involved at December 31, 2010 and 2009 were evaluated to determine the primary beneficiary.

Joint Ventures

We routinely enter into joint ventures for homebuilding activities. Investment in these joint ventures may create a variable interest in a VIE, depending on contractual terms of the arrangement. We analyze our joint ventures in accordance with ASC 810 to determine whether they are VIEs and, if so, whether we are the primary

F-59

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

December 31, 2010

beneficiary. At December 31, 2010 and 2009, these joint ventures were not consolidated into our consolidated financial statements since they were not VIEs, or in the event that they were VIEs, we were not the primary beneficiary.

At December 31, 2010 and 2009, we have a variable interest in a joint venture which we do not hold a direct, or indirect, investment, and the joint venture was determined to be a VIE. The joint venture, Shea/Baker Ranch Associates, LLC (“Baker Ranch”), is owned 50% by an affiliate and 50% by a third-party. We issued an unconditional loan-to-value maintenance guarantee on Baker Ranch’s outstanding bank notes payable which, at December 31, 2010 and 2009, was $25.4 million. We have not recorded a liability for this obligation as the fair value of the secured real estate assets exceeded the outstanding notes payable (see Note 18).

In accordance with ASC 810, we determined we were not the primary beneficiary of Baker Ranch because we did not have the power to direct activities that most significantly impact the economic performance of Baker Ranch, such as determining or limiting the scope or purpose of the entity, selling or transferring property owned or controlled by the entity, and arranging financing for the entity.

Land Option Contracts

We enter into land option contracts to procure land for home construction. Use of land option and similar contracts allows us to reduce market risks associated with direct land ownership and development, reduces capital and financial commitments, including interest and other carrying costs, and minimizes land inventory. Under these contracts, we pay a specified deposit for the right to purchase land, usually at a predetermined price. Under the requirements of ASC 810, certain contracts may create a variable interest with the land seller.

In compliance with ASC 810, we analyzed our land option and similar contracts to determine if respective land sellers are VIEs and, if so, if we are the primary beneficiary. Although we do not have legal title to the optioned land, ASC 810 requires us to consolidate a VIE if we are the primary beneficiary. At December 31, 2010 and 2009, we determined we were not the primary beneficiary of such VIEs because we did not have the power to direct activities of the VIE that most significantly impact the VIE’s economic performance, such as selling, transferring, or developing land owned by the VIE.

At December 31, 2010, we had $6.0 million of non-refundable cash deposits associated with land option contracts with unconsolidated VIEs, having a $95.7 million remaining purchase price and subject to a specific performance clause. We also had $1.9 million of refundable and non-refundable cash deposits associated with land option contracts that were not with VIEs, having a $36.8 million remaining purchase price.

Our loss exposure on land option contracts consisted of non-refundable deposits, which were $7.2 million and $6.9 million at December 31, 2010 and 2009, respectively, and were included in inventory in the consolidated balance sheets.

10. Property and Equipment, Net

Property and equipment are stated at cost, less accumulated depreciation. Repairs and maintenance costs are expensed as incurred. Depreciation is computed using accelerated and straight-line methods over periods ranging from three to 40 years.

F-60

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

December 31, 2010

At December 31, 2010 and 2009, property and equipment was as follows:

	December 31,
	2010			2009
	(In thousands)
Buildings and improvements	$	3,570		$	3,426
Machinery and equipment		270			280
Furniture and fixtures		3,624			3,921
Rental property		17,580			6,178
Golf course property		3,695			3,587
Subtotal		28,739			17,392
Less, accumulated depreciation		(10,370	)		(8,538	)
Total property and equipment, net	$	18,369		$	8,854

11. Other Assets, Net

At December 31, 2010 and 2009, other assets were as follows:

	December 31,
	2010		2009
	(In thousands)
Income tax receivable	$	9,376	$	1,818
Prepaid professional fees		11,295		19,513
Prepaid loan fees		13,470		4,494
Deposits in lieu of letters of credit		5,319		—
Prepaid completed operations insurance		15,613		—
Other		2,636		2,450
Total other assets, net	$	57,709	$	28,275

Prepaid Professional and Loan Fees

In accordance with ASC 470, debt issuance costs and loan modification and waiver fees are capitalized to other assets. These costs and fees are amortized as interest expense over the term of the related debt. In accordance with ASC 835, interest expense is capitalized to inventory and investments in joint ventures. On November 16, 2010, as part of modifications and extensions to our Unsecured Facilities (see Note 12), in accordance with ASC 470 for debt modification, $25.7 million of professional fees related to the unsecured private placement debt and unsecured term loans were expensed to interest and other (expense) income, net.

Deposits in Lieu of Letters of Credit

In June 2010, due to maturity of the unsecured bank revolving credit facility (see Note 12), $12.6 million of letters of credit collateralized by this facility were presented for payment and recorded as deposits in lieu of letters of credit. These deposits may be returned and replaced with new letters of credit or as the collateralization requirement decreases. For the year ended December 31, 2010, $7.3 million were returned to the Company, of which $7.2 million was paid to the lender through December 31, 2010 and $0.1 million in January 2011.

F-61

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

December 31, 2010

Prepaid Completed Operations Insurance

Since August 1, 2009, we were self-insured for our completed operations coverage. In anticipation of obtaining coverage, through December 31, 2010, $15.6 million of insurance premiums were paid to JFSCI which, in February 2011, was applied to the purchase of completed operations insurance from an affiliate insurance carrier, retroactive to August 1, 2009.

12. Notes Payable

At December 31, 2010 and 2009, notes payable were as follows:

	December 31,
	2010		2009
	(In thousands)
Senior secured notes payable
$75,000 bank revolving credit facility, due September 2015 at LIBOR plus 3% to 5% (3.32% to 5.32% at December 31, 2010)	$	75,000	$	—
$145,000 bank term facility, due September 2015 at 7.5%		135,202		—
Funded letters of credit against $83,000 revolving letter of credit facility, due September 2015 at 7.5% (see Note 11)		5,448		—
$440,000 Series A term loan, due September 2015 at 7.5%		360,003		—
$30,000 Series A-1 term loan, due September 2015 at 7.5%		25,008		—
$85,000 Series B term loan, due September 2017 at 8.34%		73,284		—
Senior secured subordinated notes payable
$25,000 term loan, due September 2018 at 15%, PIK interest through September 2015		31,398		—
$20,000 term loan, due September 2015 at 8.19% PIK interest		16,888		—
$5,000 term loan, due September 2015 at 8.19% PIK interest		3,569		—
Bank Exit Fee, due September 2015		2,251		—
Other secured notes payable
Promissory notes, interest at 1%, maturing through 2011, secured by deeds of trust on inventory		1,954		17
Unsecured notes payable
$303,000 bank revolving credit facility, due June 30, 2010 at Prime less 0.20% or LIBOR plus 1.65% at December 31, 2009 (3.05% or 1.90%, respectively)		—		220,000
$130,000 private placement, due August 2016 at 6.35%		—		130,000
$150,000 private placement, due November 2, 2017 at 6.09%		—		150,000
$160,000 private placement, due September 6, 2018 at 7.34%		—		160,000
Term loan, due March 2013 at 9.92%		—		75,000
Term loan, original maturity March 2009 at 9.22%		—		10,000
Total notes payable	$	730,005	$	745,017

The Company and JFSCI, as borrowers, were obligated for the repayment of the $303.0 million unsecured revolving bank line of credit, unsecured private placement debt, and the two unsecured term loans, whose combined outstanding balance was $745.0 million at December 31, 2009. We were also obligated for the repayment of secured notes payable issued in connection with seller financing of land acquisitions.

At December 31, 2009, we operated under an amended unsecured revolving bank line of credit and limited waiver/modification agreements to our unsecured private placement debt and unsecured term loans (the

F-62

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

December 31, 2010

“Unsecured Facilities”) that waived any default resulting from noncompliance with net worth, interest coverage ratio and investment in land covenants. Under these waivers, our ability to pay principal payments was prohibited and, under the bank waiver, the maximum availability and borrowing capacity were reduced to $303.0 million and $220.0 million, respectively.

On November 16, 2010 (the “Closing”), the Company and JFSCI executed loan modifications and extensions to the Unsecured Facilities, resulting in the effective exchange for senior secured notes payable and senior secured subordinated notes payable (the “Secured Facilities”). The Secured Facilities included the securitization of the notes by the Company’s assets, the release of J.F. Shea Construction, Inc., a related party, as a guarantor, and issuance of $80.0 million of additional principal.

In accordance with ASC 470, the present value of the cash flows under the Secured Facilities and the Unsecured Facilities were compared to determine if the Secured Facilities should be accounted for as a loan modification or extinguishment of debt. The Unsecured Facilities’ cash flows included principal payments, interest payments and additional payments for differences in interest rates between the debt instrument and the current market. The discount rate used for both the Secured Facilities and Unsecured Facilities’ cash flows to compute the present value was the effective rate of the Unsecured Facilities. As the difference in the present value of the cash flows under the Secured Facilities and the Unsecured Facilities was less than the required 10% threshold according to ASC 470, the Secured Facilities were accounted for as a debt modification, which required the $80.0 million of additional principal be recorded as interest expense over the term of the notes and the Secured Facilities be recorded net of related discount or premium. The carrying value of the Secured Facilities was unchanged as a result of the modification. At December 31, 2010, the face value of the obligation under the Secured Facilities was $800.4 million.

Payment and performance under the Secured Facilities are unconditionally and irrevocably guaranteed by SHLP, JFSCI, SHI, J.F. Shea, LP and Shea Homes at Montage, LLC, and their respective wholly-owned subsidiaries. J.F. Shea Construction, Inc. was released as a guarantor on February 15, 2011.

The Secured Facilities are governed by a master covenant agreement, which places certain restrictions on the amount of land acquisitions, asset sales, joint venture capital contributions, joint venture debt and guarantees for related entities and joint ventures. In addition, the Company must comply with financial covenants, such as ratios based on tangible net worth, interest coverage and inventory as a percentage of total homebuilding assets. At December 31, 2010, we were in compliance with these covenants.

Senior Secured Notes Payable

These notes replaced the original $440.0 million private placement debt, $85.0 million term loans and $220.0 million bank revolving credit facility, and the funded letters of credit, which balance was $12.6 million at Closing (see Note 11).

Senior Secured Series A

$440.0 million note, bears stated interest of 7.50% payable monthly and matures September 30, 2015. The note requires principal payments of $14.5 million at Closing, $14.5 million at December 31, 2011, $29.0 million at October 15, 2013 and $66.4 million at October 15, 2014. At December 31, 2010, the balance was $360.0 million, net of a $65.5 million discount.

F-63

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

December 31, 2010

Senior Secured Series A-1

$30.0 million note, bears stated interest of 7.50% payable monthly, matures September 30, 2015, and is payable to the holders of the Senior Secured Series A and Senior Secured Series B. At December 31, 2010, the balance was $25.0 million, net of a $5.0 million discount.

Senior Secured Series B

$85.0 million note, bears stated interest of 8.34% payable monthly and matures September 30, 2017. The note requires principal payments of $2.8 million at Closing, and estimated payments of $2.2 million at December 31, 2011, $4.3 million at October 15, 2013, and $12.0 million at October 15, 2014. The principal payments are reduced by the difference in interest rates between the Senior Secured Series A and the Senior Secured Series B. At December 31, 2010, the balance was $73.3 million, net of a $8.9 million discount.

Bank Credit Facility

The loan was modified to provide a $303.0 million bank revolving credit facility, which included a $75.0 million revolver (Bank Revolver), a $145.0 million term (Bank Term) and an $83.0 million letter of credit capacity.

The Bank Revolver bears stated interest of LIBOR plus a range of 3% to 5% on borrowings (3.32% to 5.32% at December 31, 2010), and 3.5% for the unused portion, payable monthly, with $4.4 million of capacity maturing June 30, 2014 and the balance September 30, 2015. At December 31, 2010, the balance was $75.0 million. Borrowings and repayments under the Bank Revolver are subject to certain cash balances of the Company, which may limit the amount borrowed or dictate the amount repaid.

The Bank Term bears stated interest at a range of 5.50% to 7.50% payable monthly and matures September 30, 2015. The note requires principal amortization payments of $7.7 million at Closing, $7.7 million at December 31, 2011, $15.4 million at October 15, 2013, $8.5 million at June 30, 2014 and $37.3 million at October 15, 2014. At December 31, 2010, the balance was $135.2 million, net of a $2.1 million discount.

The Bank Credit Facility provides $83.0 million of letter of credit capacity, with $4.8 million maturing June 30, 2014 and the balance September 30, 2015. In June 2010, $12.6 million of letters of credit was funded against the previous revolving letter of credit facility. At Closing and through December 31, 2010, $7.2 million was returned to the Company and paid to the bank, leaving an outstanding balance of $5.4 million at December 31, 2010, bearing interest at a range of 5.5% to 7.5% payable monthly. As the cash used in lieu of letters of credit are returned to the Company, such proceeds will pay down the outstanding balance. At December 31, 2010, we had $64.5 million of availability under our letter of credit facility.

F-64

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

December 31, 2010

The five-year payment schedule for the Senior Secured Notes Payable, excluding the Bank Revolver, was as follows:

	December 31,
Payments Due By Year	(In thousands)
2011	$	24,398
2012		—
2013		48,694
2014		124,527
2015 and thereafter		482,829
Total	$	680,448

Principal payments due in 2011, 2013 and 2014 are stated net of the difference in interest rates between the Senior Secured Series A and Senior Secured Series B. The amount of the reductions are payable on September 30, 2017.

Senior Secured Subordinated Notes Payable

Principal amounts totaling $50.0 million that are secured by the Company’s assets, subordinate to the Senior Secured Notes Payable, and payable to the holders of the Senior Secured Series A and Senior Secured Series B. In most cases, these notes payable provide for interest payable to be payment-in-kind, or PIK. To the extent the interest is PIK, it is payable through the increase of the principal amount of the note by the amount of the interest due on the then outstanding principal amount of the note.

15% Subordinated Secured Note

$25.0 million note, bears stated interest of 15%, with principal and PIK interest due September 30, 2018. PIK interest accrues quarterly through September 30, 2015 and payable monthly thereafter to maturity. Under certain conditions, the PIK interest is waived if the Secured Facility is paid off by November 16, 2012. At December 31, 2010, the balance was $31.4 million, which included PIK interest of $0.5 million and a $5.9 million premium.

8.19% Subordinated Secured Note

$20.0 million note, bears stated interest of 8.19%, with principal and PIK interest due September 30, 2015. PIK interest accrues quarterly through maturity. At the Company’s option and subject to certain restrictions, the maturity can be extended three years, bearing interest at 15% payable monthly. Under certain conditions, the PIK interest is waived if the Secured Facility is paid off by November 16, 2012. At December 31, 2010, the balance was $16.9 million, which included PIK interest of $0.2 million and a $3.3 million discount.

8.19% Subordinated Secured Refinancing Note

$5.0 million note, bears stated interest of 8.19%, with principal and PIK interest due September 30, 2015. Commencing November 16, 2012, PIK interest accrues quarterly through maturity. At the Company’s option and subject to certain restrictions, the maturity can be extended three years, bearing interest at 15% payable monthly. Under certain conditions, the principal and PIK interest are waived if the Secured Facility is paid off by November 16, 2012. At December 31, 2010, the balance was $3.6 million, net of a $1.4 million discount.

F-65

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

December 31, 2010

Bank Exit Fee

The Bank Exit Fee is payable to the holders of the Bank Credit Facility and is calculated at 29.53% of $5.0 million plus PIK interest on interest from the 8.19% Subordinated Secured Note and 8.19% Subordinated Secured Refinancing Note, commencing November 16, 2012 and maturing September 30, 2015, at which time the total Bank Exit Fee will be $4.9 million. At the Company’s option and subject to certain conditions, the Bank Exit Fee’s maturity can be extended for three years, bearing interest at 15% payable monthly. Under certain conditions, the Bank Exit Fee is waived if the Secured Facility is paid off by November 16, 2012. At December 31, 2010, the carrying value was $2.3 million.

13. Other Liabilities

At December 31, 2010 and 2009, other liabilities were as follows:

	December 31,
	2010		2009
	(In thousands)
Completed operations	$	118,473	$	137,768
Warranty reserves		16,238		17,792
Reinsurance premiums payable		—		86,165
Deferred revenue		22,799		36,976
Provisions for closed homes/communities		13,107		12,783
Deposits		7,482		12,051
Legal reserves		6,106		5,939
Accrued interest		4,680		4,578
Accrued compensation and benefits		2,971		4,446
Deficit Distributions (see Note 8)		878		15,438
Other		12,589		14,877
Total other liabilities	$	205,323	$	348,813

Completed Operations

Reserves for completed operations primarily represent claims for property damage to completed homes and projects outside of our one-to-two year warranty period. Specific terms and conditions of completed operations warranties vary depending on the market in which homes are closed and can range up to 12 years. Expenses and liabilities are recorded for potential completed operations claims based upon aggregated loss experience, which includes an estimate of completed operations claims incurred but not reported, and is actuarially estimated using individual case-basis valuations and statistical analysis. From August 1, 2001 to July 31, 2007, completed operations claims were insured through PIC, and from August 2007 to July 31, 2009, were insured with an affiliate insurance carrier.

F-66

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

December 31, 2010

For the years ended December 31, 2010, 2009 and 2008, changes in completed operations were as follows:

	Years Ended December 31,
	2010			2009			2008
	(In thousands)
Insured completed operations
Balance, beginning of the year	$	133,000		$	18,620		$	6,750
Reserves provided (relieved)		(20,683	)		9,108			11,871
Insurance purchased		—			105,729			—
Claims paid		(9,457	)		(457	)		(1	)
Balance, end of the year		102,860			133,000			18,620
Self-insured completed operations
Balance, beginning of the year		4,768			110,106			120,157
Reserves provided (relieved)		10,845			9,162			(5,110	)
Insurance purchased		—			(105,729	)		—
Claims paid		—			(8,771	)		(4,941	)
Balance, end of the year		15,613			4,768			110,106
Total completed operations	$	118,473		$	137,768		$	128,726

Reserves provided (relieved) for self-insured completed operations are included in cost of sales. Reserves provided (relieved) for insured completed operations are offset by changes in insurance receivables (see Note 6), however, premiums paid for insured completed operations are included in cost of sales.

In December 2009, PIC entered into a series of novation and reinsurance transactions (the “PIC Transaction”). First, PIC entered into a novation agreement with JFSCI to novate its deductible reimbursement obligations related to its workers’ compensation and general liability risks at September 30, 2009, and its completed operations claims from August 1, 2005 to July 31, 2007. Concurrently, JFSCI entered into insurance arrangements with unrelated third-party insurance carriers to insure these programs. As a result of this novation, PIC recorded a $36.5 million reinsurance premium payable to JFSCI. In addition, PIC recorded a $3.0 million loss related to the workers’ compensation and general liability risks, and a $19.2 million gain related to the completed operations claims, which $19.2 million gain was deferred in these consolidated financial statements and will be recognized as income (expense) when related claims are paid or actuarial estimates are adjusted. In 2010, the $36.5 million payable was paid and, for the year ended December 31, 2010, we recognized $2.6 million of this deferral as income, which was included in interest and other (expense) income, net.

Second, PIC entered into reinsurance agreements with various unrelated reinsurers for $50.5 million, of which $0.9 million was paid and $49.6 million was recorded as a reinsurance premium payable at December 31, 2009. This agreement reinsures 100% of the completed operations claims coverage from August 1, 2001 to July 31, 2005. As a result of the reinsurance, the $15.6 million gain was deferred in these consolidated financial statements and will be recognized as income (expense) when the related claims are paid or actuarial estimates are adjusted. In 2010, the $49.6 million payable was paid and, for the year ended December 31, 2010, we recognized $12.4 million of this deferral as income, which was included in interest and other (expense) income, net.

At December 31, 2010 and 2009, completed operations claims reserves were $118.5 million and $137.8 million, respectively. For actual completed operations claims and estimates of completed operations claims incurred but not reported, we estimate and record insurance receivables under applicable insurance policies when recovery is probable. At December 31, 2010 and 2009, insurance receivables were $102.9 million and $133.0 million, respectively (See Note 6).

F-67

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

December 31, 2010

Expenses, liabilities and receivables related to these claims are subject to a high degree of variability due to uncertainties such as trends in completed operations claims related to our markets and products built, claim settlement patterns and insurance industry practices. Although considerable variability is inherent in such estimates, we believe reserves for completed operations claims are adequate.

Warranty Reserves

We offer a limited one or two year warranty for our homes. The specific terms and conditions of these warranties vary depending on the market in which the homes are closed. We estimate warranty costs to be incurred and record a liability and an expense to cost of sales when home revenue is recognized. We also include in our warranty reserve the uncovered losses related to the completed operations coverage, which approximates 12.5% of the total property damage. Factors affecting warranty liability include number of homes closed, historical and anticipated warranty claims, and cost per claim. We periodically assess adequacy of our warranty liabilities and adjust amounts as necessary.

For the years ended December 31, 2010, 2009 and 2008, changes in warranty liability were as follows:

	Years Ended December 31,
	2010			2009			2008
	(In thousands)
Balance, beginning of the year	$	17,792		$	20,059		$	22,563
Provision for warranties		7,268			6,572			10,438
Warranty costs paid		(8,822	)		(8,839	)		(12,942	)
Balance, end of the year	$	16,238		$	17,792		$	20,059

14. Related Party Transactions

Related Party Receivables and Payables

At December 31, 2010 and 2009, receivables from related parties, net were as follows:

	December 31,
	2010			2009
	(In thousands)
Note receivables from JFSCI, net	$	177,011		$	192,335
Note receivables from unconsolidated joint ventures		24,817			24,117
Note receivables from related parties		13,100			17,394
Reserves for note receivables from related parties		(12,896	)		(12,563	)
Receivables from related parties		2,380			905
Total receivables from related parties, net	$	204,412		$	222,188

We participate in a centralized cash management function operated by JFSCI, whereby net cash flows from operations are transferred daily with JFSCI. JFSCI also provides corporate services to us, including management, legal, tax, information technology, facilities, accounting, treasury and human resources. This function and services require related party transactions and monetary transfers to settle amounts owed between entities. The resultant note receivables and payables are unsecured, due on demand, and accrue interest monthly at market rates based on Prime less 2.05% (1.2% at December 31, 2010 and 2009). These notes receivables and payables

F-68

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

December 31, 2010

have the right of offset due to common control of the Company and its subsidiaries and are therefore presented as a net note receivable from JFSCI. At December 31, 2010 and 2009, the net note receivable due from JFSCI was $177.0 million and $192.3 million, respectively. Quarterly, we evaluate collectability of the note receivable from JFSCI, which includes consideration of JFSCI’s payment history, operating performance and future payment requirements under the note. Based on this these criteria, and the payments applied to the note as discussed in Note 22, we do not presently anticipate collection risks on the note receivable from JFSCI.

Notes receivables from unconsolidated joint ventures at December 31, 2010 and 2009 were $24.8 million and $24.1 million, respectively, of which $7.7 million is secured by real property. These notes from unconsolidated joint ventures bear interest ranging from 4.17% to 8% and mature from 2013 through 2020. The note receivable maturing in 2020 earns additional interest to achieve a 17.5% internal rate of return, subject to available cash flows of the joint venture, and can be repaid prior to 2020. Quarterly, we evaluate collectability of note receivables from unconsolidated joint ventures, which includes consideration of prior payment history, operating performance and future payment requirements under the applicable notes. Based on the above criteria, we do not presently anticipate collection risks on note receivables from unconsolidated joint ventures.

Note receivables from other related parties at December 31, 2010 and 2009 were $0.2 million and $4.8 million, respectively, net of related reserves of $12.9 million and $12.6 million, respectively. These notes receivables are unsecured, bear interest ranging from Prime less 2.05% (1.2% at December 31, 2010 and 2009) to Prime (3.25% at December 31, 2010 and 2009), and due through 2019. Quarterly, we evaluate the collectability of note receivables from related parties. Our evaluation includes consideration of prior payment history, operating performance and future payment requirements under the applicable notes. At December 31, 2009, based on these criteria, the note receivables from Shea Management LLC and Shea Properties Management Company, Inc. were deemed uncollectible and were fully reserved. In addition, based on the above criteria, we do not presently anticipate collection risks on the other note receivables from related parties.

The Company, entities under common control and these unconsolidated joint ventures also engage in transactions on behalf of the other, such as payment of invoices and payroll. The amounts resulting from these transactions are recorded in receivables from related parties or payables to related parties, non-interest bearing and due on demand. At December 31, 2010 and 2009, these receivables were $2.4 million and $0.9 million, respectively, and these payables were $9.2 million and $7.5 million, respectively.

Real Property and Joint Venture Transactions

In March 2009, we sold a housing project and related land in northern California to a related party for $0.1 million. For the year ended December 31, 2008, we recorded a $72.8 million inventory impairment for this property. We manage this property for a fee.

On December 20, 2007, we sold land and an adjoining apartment building in Irvine, California, to a wholly-owned subsidiary of Shea Properties Management Company, Inc., a related party. In 2009, as a condition of sale, the fair value of the building and land at completion was revalued, resulting in a $4.8 million purchase price increase, which was included in revenues for the year ended December 31, 2009.

At December 31, 2010 and 2009, we were the managing member for ten and nine, respectively, unconsolidated joint ventures and received a management fee from these joint ventures as reimbursement for direct and overhead costs incurred on behalf of the joint ventures. Fees from joint ventures representing reimbursement of our costs are recorded as a reduction to general and administrative expense. Fees from joint ventures representing profit are recorded to revenues. For the years ended December 31, 2010, 2009 and 2008,

F-69

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

December 31, 2010

$4.5 million, $4.5 million and $7.7 million of management fees, respectively, were offset against general and administrative expenses, and $1.6 million, $0.5 million and $2.4 million of management fees, respectively, were included in revenues.

General and Administrative Related Party Transactions

For the years ended December 31, 2010, 2009 and 2008, general and administrative expenses included $14.4 million, $14.1 million and $22.3 million, respectively, for corporate services provided by JFSCI.

15. Income Taxes

For the years ended December 31, 2010, 2009 and 2008, major components of the income tax benefit were as follows:

	Years Ended December 31,
	2010			2009			2008
	(In thousands)
Current:
Federal	$	(1,600	)	$	(2,496	)	$	500
State		(324	)		(3,115	)		(1,662	)
Total current		(1,924	)		(5,611	)		(1,162	)
Deferred:
Federal		3,233			36,437			25,915
State		2,258			14,392			10,258
Total deferred		5,491			50,829			36,173
Total income tax benefit	$	3,567		$	45,218		$	35,011

At December 31, 2010 and 2009, the tax effects of temporary differences that give rise to significant portions of deferred taxes were as follows:

	December 31,
	2010			2009
	(In thousands)
Deferred tax assets:
Housing and land inventory basis differences	$	3,813		$	8,528
Available loss carryforwards		13,617			16,120
Impairments of inventories and investments		9,553			15,514
Income recognition		21,738			4,501
Other		120			7,830
Total deferred tax assets		48,841			52,493
Deferred tax liabilities:
Other		—			(564	)
Total deferred tax liabilities		—			(564	)
Subtotal		48,841			51,929
Valuation allowance		(48,841	)		(51,929	)
Net deferred tax assets	$	—		$	—

F-70

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

December 31, 2010

For the years ended December 31, 2010, 2009 and 2008, the effective tax rate differed from the federal statutory rate of 35% due to the following:

	Years Ended December 31,
	2010			2009			2008
	(Dollars in thousands)
Loss before taxes	$	(58,782	)	$	(468,278	)	$	(644,528	)
Income tax benefit computed at statutory rate	$	20,574		$	163,897		$	225,585
Increase (decrease) resulting from:
Non-taxable entities loss (a)		(28,143	)		(101,570	)		(195,950	)
State taxes, net of federal income tax benefit		1,968			11,688			3,573
Small insurance company election (831b)		4,356			5,435			739
Cancellation of debt income deferral		—			9,652			—
Write-off of deferred tax assets		—			(11,642	)		—
Valuation allowance for deferred tax assets		3,088			(32,706	)		(4,728	)
Other, net		1,724			464			5,792
Total income tax benefit	$	3,567		$	45,218		$	35,011
Effective tax rate		6.1	%		9.7	%		5.4	%

(a) Non-taxable entities represents income or loss related to non-controlling interests and consolidated limited partnerships and limited liability companies in which the taxable income or loss is reflected on the respective partners’ tax return.

We recognized an income tax benefit of $3.6 million, $45.2 million and $35.0 million for the years ended December 31, 2010, 2009 and 2008, respectively. These amounts represent effective tax rates of approximately 6.1% for 2010, 9.7% for 2009 and 5.4% for 2008. The difference in the effective tax rate for 2010 compared to 2009 was primarily due to losses from pass thru entities and the change in the deferred tax asset valuation allowance. The difference in the effective tax rate for 2009 compared to 2008 was primarily due to losses from non-taxable entities and the disallowance of tax benefits related to the 2009 loss as a result of a full valuation allowance and write-off of deferred tax assets.

In accordance with ASC 740, deferred tax assets are evaluated to determine if valuation allowances are required. ASC 740 requires companies to assess valuation allowances based on evidence using a “more-likely-than-not” standard. A valuation allowance was recorded to reflect the estimated amount of acquired deferred tax assets that may not be realized due to the inherent uncertainty of future income from the homebuilding activities of SHI and subsidiaries and the potential expiration of the net operating loss (the “NOL”) carryforwards. The amount of the deferred tax asset considered realizable may change in the future, depending on profitability.

For the year ended December 31, 2009, SHI and its subsidiaries had cumulative pretax losses. Based on tax strategies, and estimated future reversals of deferred tax assets and liabilities, it was more-likely-than-not that all of the net deferred tax asset of $51.9 million at December 31, 2009 would not be realized. Accordingly, for the year ended December 31, 2009, the deferred tax asset valuation allowance increased $32.7 million to fully reserve the net deferred tax asset. At December 31, 2010, our assessment of deferred tax assets was consistent with the prior year and the net deferred tax asset of $48.8 million remained fully reserved.

As a result of the change in ownership of SHI in 1998 and Foundation Administration Services Corp. in 2001, the amount of the NOL carryforwards that may be utilized in a given year to offset future taxable income is subject to an annual limitation of approximately $8.0 million pursuant to Section 382 of the Internal Revenue

F-71

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

December 31, 2010

Code. Accordingly, available NOL carryforwards have been reduced by the amount expected to expire as a result of this annual limitation. At December 31, 2010, SHI and subsidiaries had NOL carryforwards of approximately $38.0 million that expire by 2018 and are subject to annual limitations ranging from $4.5 million to $8.0 million.

In 2009, we filed a petition with the United States Tax Court (the “Tax Court”) regarding our position on the completed contract method for homebuilding activities by SHLP, SHI and subsidiaries. During 2010 and 2011 we engaged in formal and informal discovery with the IRS. We expect the Tax Court will schedule a trial for mid-2012, although no formal trial date has been set. We expect that our position will prevail. Accordingly, as our position is not considered an uncertain tax position in accordance with ASC 740, no liability for related taxes or interest have been recorded for SHI and its subsidiaries. Furthermore, as a limited partnership, any income taxes, interest or penalties imposed on SHLP would be the responsibility of the Partners and would not be reflected in the tax provision in these consolidated financial statements. However, in the event the Tax Court rules in favor of the IRS, SHI could be obligated to make a payment to the IRS and applicable state taxing authorities and, under the Tax Distribution Agreement, SHLP could be obligated to make a distribution to the Partners to fund their related payments to the IRS and the applicable state taxing authorities.

16. Owners’ Equity

Owners’ equity consists of partners’ preferred and common capital. Common capital was comprised of limited partners with a collective 78.38% ownership and general partner with a 20.62% ownership. Preferred capital was comprised of limited partners with either series B (“Series B”) or series D (“Series D”) classification. Series B had no ownership interest but earned a preferred return at Prime less 2.05% (1.2% at December 31, 2010 and 2009) per annum on unreturned capital balances. At December 31, 2010 and 2009, accumulated undistributed preferred returns for Series B were $17.0 million and $15.2 million, respectively. Series D had a 1% ownership interest and earned a preferred return at 7% per annum on unreturned preferred capital balances. At December 31, 2010 and 2009, accumulated undistributed preferred returns for Series D were $28.7 million and $18.2 million, respectively.

Net income is allocated to Partners in a priority order that considers previously allocated net losses and preferred return considerations and, thereafter, in proportion to their respective ownership interests. Net loss is allocated to Partners generally in proportion to their ownership interests and adjusted capital account balances, and, thereafter, to the general partner.

The general partner, in its sole discretion, may make additional capital contributions or accept additional capital contributions from the limited partners. Cash distributions are made to Partners in proportion to their unpaid preferred returns and, thereafter, in proportion to their ownership interests. Distributions to Partners are made at the discretion of the general partner, including payment of personal income taxes related to the Company or other entities under control of Shea family members. Similarly, distributions to Partners from other entities under control of Shea family members, such as JFSCI, are used for payment of personal incomes taxes related to the Company and other uses.

17. Retirement Savings Plan

JFSCI, on our behalf, maintains a 401(k) Retirement Savings Plan that includes a profit sharing component covering all eligible employees. The plan includes employer participation in accordance with provisions of Section 401(k) of the Internal Revenue Code. The plan allows participants to make pre-tax contributions. On a

F-72

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

December 31, 2010

discretionary basis, we may match employee contributions up to 5% of the employee’s salary. The profit sharing portion of the plan is discretionary and non-contributory, allowing us to make additional contributions of up to 5% of the employee’s salary. All amounts contributed to the plan are deposited into a trust fund administered by independent trustees. For the years ended December 31, 2010, 2009 and 2008, there were no matching 401(k) contributions or profit sharing contributions.

18. Contingencies and Commitments

Lawsuits, claims and proceedings have been or may be instituted or asserted against us in the normal course of business, including actions brought on behalf of various classes of claimants. We are also subject to local, state and federal laws and regulations related to land development activities, house construction standards, sales practices, employment practices and environmental protection. As a result, we are subject to periodic examinations or inquiry by agencies that administer these laws and regulations.

We record a reserve for potential legal claims and regulatory matters when they are probable of occurring and a potential loss is reasonably estimable. We accrue for these matters based on the facts and circumstances specific to each matter and revise these estimates when necessary. At December 31, 2010 and 2009, we had reserves of $6.1 million and $5.9 million, respectively, relating to these matters. While their outcome cannot be predicted with certainty, we believe we have appropriately reserved for these claims or matters. However, to the extent the liability arising from their ultimate resolution exceeds their recorded reserves, we could incur additional charges that could be significant.

In view of the inherent difficulty of predicting the outcome of legal claims and related contingencies, we generally cannot predict their ultimate resolution, related timing or eventual loss. If our evaluations indicate loss contingencies that could be material are not probable, but are reasonably possible, we will disclose their nature with an estimate of the possible range of loss or a statement that such loss is not reasonably estimable. At December 31, 2010, the range of reasonably possible losses in excess of amounts accrued is not material.

At December 31, 2009, in addition to guarantees on our joint ventures’ outstanding borrowings, we guaranteed, on a joint and several basis, certain secured development loans of related parties in which we had no economic interest. The guarantees were partial or contingent guarantees that included, but not limited to, project completion guarantees and loan-to-value maintenance guarantees. At December 31, 2009, these loans had a $62.5 million aggregate outstanding principal balance and no liability was recorded for these guarantees. At June 30, 2010, the majority of these loans were modified and we were released as a guarantor. At December 31, 2010, the remaining unconditional loan-to-value maintenance guarantee issued on a joint and several basis was for a secured development loan for Baker Ranch (see Note 9), which loan had a $25.4 million outstanding principal balance. A liability was not recorded for this guarantee as the fair value of the secured real estate assets exceeded the outstanding notes payable.

At December 31, 2010 and 2009, joint and several non-recourse (“bad boy”) guarantees were issued for secured permanent financing loans of related parties in which we have no ownership interest. The bad boy guarantee may become a liability for us upon a voluntary bankruptcy filing by the related party borrower or the occurrence of other “bad” acts, including fraud or a material misrepresentation by the related party borrower. At December 31, 2009, these loans had a $183.3 million outstanding principal balance. In June 2010, SHLP was released as a guarantor from two of these loans. At December 31, 2010, the remaining three loans had a $47.3 million outstanding principal balance. These loans have maturity dates between December 2011 and September 2012. A liability was not recorded for these guarantees as the probability of payment on these guarantees is remote.

F-73

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

December 31, 2010

At December 31, 2009, we were contingently liable under outstanding letters of credit aggregating $22.7 million. These letters of credit were collateralized against the bank revolving credit facility, which collateralization expired June 15, 2010 and certain letters of credit were presented and paid (see Note 11). On November 16, 2010, we executed an $83.0 million letter of credit facility, which was reduced by $18.5 million of letters of credit issued by JFSCI that were outstanding at December 31, 2010, leaving $64.5 million of availability under the letter of credit facility.

We are required to provide surety bonds that guarantee completion of certain homebuilding projects. At December 31, 2010 and 2009, we had a $77.5 million and $110.4 million, respectively, exposure in connection with $180.7 million and $264.4 million, respectively, of surety bonds issued for our projects.

We also provided indemnification for bonds issued by unconsolidated joint ventures and other related party projects in which we have no ownership interest. At December 31, 2010 and 2009, we had a $44.6 million and $53.2 million, respectively, exposure in connection with $80.2 million and $104.7 million, respectively, of surety bonds issued for unconsolidated joint venture projects, and a $9.4 million and $14.0 million, respectively, exposure in connection with $14.1 million and $23.6 million, respectively, of surety bonds issued for related party projects.

Certain of our consolidated and joint ventures’ homebuilding projects utilize and may continue to utilize community facility district, metro-district and other local government bond financing programs to fund construction or acquisition of infrastructure improvements. Interest and principal on these bonds are typically paid from taxes and assessments levied on homeowners following the sale of new homes within the project. From time to time we enter into credit support arrangements where we are required to make interest and principal payments on these bonds if the taxes and assessments levied on homeowners are insufficient to cover such obligations. Furthermore, reimbursement of these payments to us is dependent on the district or local government’s ability to generate sufficient tax and assessment revenues from the sale of new homes.

In certain consolidated homebuilding projects, we have contractual obligations to purchase and receive water system connection rights which, at December 31, 2010 and 2009, were $39.7 million and $42.7 million, respectively. These water system connection rights are held and then transferred to homebuyers upon closing of their home or transferred upon the sale of land to the respective buyer. These water system connection rights can also be sold or leased but generally only within the local jurisdiction.

We lease certain property and equipment under non-cancelable operating leases. Office leases are for terms of seven years and generally provide renewal options for terms up to an additional five years. In most cases, we expect that, in the normal course of business, leases that expire will be renewed or replaced by other leases. Equipment leases are typically for terms of three to four years.

At December 31, 2010, future minimum rental payments under operating leases, which primarily consisted of office leases having initial or remaining non-cancelable lease terms in excess of one year, were as follows:

Payments Due By Year	December 31,
	(In thousands)
2011	$	1,997
2012		1,785
2013		1,362
2014		533
2015 and thereafter		19
Total	$	5,696

F-74

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

December 31, 2010

For the years ended December 31, 2010, 2009 and 2008, rental expense was $2.1 million, $3.7 million and $5.6 million, respectively.

We also lease office space from related parties under non-cancelable operating leases. The leases are for terms of five to ten years and generally provide renewal options for terms up to an additional five years.

At December 31, 2010, future minimal rental payments under related-party operating leases were as follows:

Payments Due By Year	December 31,
	(In thousands)
2011	$	2,461
2012		2,365
2013		1,600
2014		1,442
2015 and thereafter		1,195
Total	$	9,063

For the years ended December 31, 2010, 2009 and 2008, related-party rental expense was $0.9 million, $0.9 million and $2.6 million, respectively.

For the year ended December 31, 2008, as part of a reduction in workforce, we vacated certain offices and reduced the vacancy of most other leased offices and recorded to interest and other (expense) income, net a $11.4 million charge for future lease obligation costs. The effect of this charge, beginning in 2009, was to better align the cost of office vacancy and actual usage.

19. Supplemental Disclosure to Consolidated Statements of Cash Flows

Supplemental disclosures to the consolidated statements of cash flows were as follows:

	Years Ended December 31,
	2010			2009			2008
	(In thousands)
Supplemental disclosure of cash flow information
Income taxes paid (refunded)	$	6,879		$	(10,050	)	$	18,906
Interest paid, net of amounts capitalized	$	8,696		$	—		$	—
Supplemental disclosure of noncash activities
Unrealized (loss) gain on available-for-sale investments, net	$	(4,035	)	$	9,703		$	688
Reclassification of Deficit Distributions (to) from unconsolidated joint ventures (from) to other liabilities	$	(14,560	)	$	15,438		$	—
Purchase of land in exchange for note payable	$	2,555		$	—		$	—
Deferred income on joint venture land sale to the Company	$	—		$	(112	)	$	(2,691	)
Conversion of note payable and accrued interest to non-controlling interests	$	—		$	9,102		$	—
Transfer of income producing property from inventory to property and equipment	$	—		$	6,178		$	—
Distribution of land from joint ventures to inventory	$	—		$	—		$	92,888
Purchase price adjustment to notes receivable and investment in unconsolidated joint ventures	$	—		$	—		$	8,710
Consolidation of subsidiary net assets	$	—		$	—		$	4,914
Consolidation of joint venture net assets	$	—		$	—		$	15,063

F-75

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

December 31, 2010

20. Segment Information

Our homebuilding business, which is responsible for nearly all of our operating results, constructs and sells single-family attached and detached homes designed to appeal to first-time, move-up and active adult homebuyers. Our homebuilding business also provides management services to joint ventures and other related parties. The homebuilding reportable segments conduct operations in the following locations:

• California South, comprised of the results of our communities in Los Angeles, Ventura, Orange County, Inland Empire and San Diego;

• California North, comprised of the results of our communities in northern and central California; and

• Mountain West/Other, comprised of the results of our communities in Arizona, Colorado, Washington, Nevada and Florida.

In accordance with ASC 280, Segment Reporting, these reportable segments are based on similar economic and other characteristics, including product types, production processes, suppliers, subcontractors, jurisdictional and political environment, land availability and values, and underlying demand and supply.

Our Corporate segment primarily provides management services to our operating segments, and includes the results of our captive insurance provider, which primarily administers claims that were reinsured by third-party carriers. Results of our insurance brokerage services business are also included in our Corporate segment. Results of our traditional escrow services business, which ceased operations in 2010, are included in the 2010 results of our Corporate segment.

The reportable segments follow the same accounting policies as our consolidated financial statements described in Note 2. Operational results of each reportable segment are not necessarily indicative of the results that would have been achieved had the reportable segment been an independent, stand-alone entity during the periods presented. As a result of certain organization changes that became effective March 31, 2011, we reclassified the amounts herein to conform to the current segments of the Company.

Financial information relating to reportable segments was as follows:

	December 31,
	2010		2009
	(In thousands)
Total assets:
California South	$	319,692	$	398,134
California North		216,414		235,623
Mountain West/Other		469,746		482,118
Total homebuilding assets		1,005,852		1,115,875
Corporate		409,034		502,885
Total assets	$	1,414,886	$	1,618,760

F-76

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

December 31, 2010

	December 31,
	2010		2009
	(In thousands)
Inventory:
California South	$	267,011	$	337,259
California North		197,303		209,398
Mountain West/Other		335,708		356,423
Total homebuilding inventory		800,022		903,080
Corporate		7		424
Total inventory	$	800,029	$	903,504

	Years Ended December 31,
	2010		2009		2008
	(In thousands)
Revenues:
California South	$	270,749	$	254,604	$	437,809
California North		121,951		101,034		170,913
Mountain West/Other		245,739		254,873		476,112
Total homebuilding revenues		638,439		610,511		1,084,834
Corporate		1,127		952		(6,504	)
Total revenues	$	639,566	$	611,463	$	1,078,330

	Years Ended December 31,
	2010			2009			2008
	(In thousands)
(Loss) income before taxes:
California South	$	(27,420	)	$	(138,363	)	$	(132,416	)
California North		2,334			(84,942	)		(405,288	)
Mountain West/Other		(28,214	)		(253,818	)		(75,241	)
Total homebuilding loss before taxes		(53,300	)		(477,123	)		(612,945	)
Corporate		(5,482	)		8,845			(31,583	)
Total loss before taxes	$	(58,782	)	$	(468,278	)	$	(644,528	)
	Years Ended December 31,
	2010			2009			2008
	(In thousands)
Impairment:
California South	$	51,099		$	123,900		$	130,598
California North		81			71,281			232,103
Mountain West/Other		22,711			54,926			75,691
Total homebuilding impairment		73,891			250,107			438,392
Corporate		—			199			—
Total impairment	$	73,891		$	250,306		$	438,392

F-77

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

December 31, 2010

21. Supplemental Guarantor Information

On May 10, 2011, SHLP and Shea Homes Funding Corp., a wholly-owned subsidiary of SHLP (collectively “SHLP Corp”), issued 8.625% senior secured notes in the aggregate principal amount of $750.0 million (the “Secured Notes”) and the outstanding obligations of the Secured Facilities were paid (see Note 22). Certain of SHLP’s wholly-owned direct and indirect subsidiaries guarantee the Secured Notes. Vistancia Marketing, LLC and Vistancia Construction, LLC, two of our limited liability company subsidiaries that guarantee the notes, are currently organized as single member limited liability companies under Vistancia, LLC, a non-guarantor subsidiary that is 83% owned by Shea Homes Southwest, Inc. However, pursuant to the terms of the Vistancia, LLC limited liability company agreement, Shea Homes Southwest, Inc. owns 100% of the economic and voting interests in Vistancia Marketing, LLC and Vistancia Construction, LLC.

The obligations under the Secured Notes are not guaranteed by any SHLP joint venture where SHLP Corp does not own 100% of the economic interest, including those that are consolidated for financial reporting purposes, and the collateral securing the Secured Notes does not include a pledge of the capital stock of any subsidiary to the extent that such pledge would result in a requirement that SHLP Corp file separate financial statements with respect to such subsidiary pursuant to Rule 3-16 of Regulation S-X under the Securities Act. Presented herein are the condensed consolidated financial statements for the guarantor subsidiaries and non-guarantor subsidiaries.

F-78

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

December 31, 2010

Consolidating Balance Sheet

December 31, 2010

	SHLP Corp (a)		Guarantor Subsidiaries			Non-Guarantor Subsidiaries		Eliminations			Total
	(In thousands)
Assets
Cash and cash equivalents	$	99,511	$	54,393		$	12,970	$	—		$	166,874
Restricted cash		11,375		—			320		—			11,695
Investments		—		11,822			—		—			11,822
Accounts and other receivables, net		79,668		27,235			47,627		(47,107	)		107,423
Receivables from related parties, net		606		2,384			24,411		177,011			204,412
Inventory		664,403		110,426			26,840		(1,640	)		800,029
Investments in joint ventures		4,337		3,632			28,584		—			36,553
Investments in subsidiaries		697,057		88,823			91,824		(877,704	)		—
Property and equipment, net		16,780		1,589			—		—			18,369
Other assets, net		43,444		13,639			626		—			57,709
Total assets	$	1,617,181	$	313,943		$	233,202	$	(749,440	)	$	1,414,886
Liabilities and equity
Liabilities:
Notes payable	$	730,005	$	—		$	—	$	—		$	730,005
Payables to related parties		40		48			28		9,094			9,210
Accounts payable		28,989		9,012			585		(551	)		38,035
Other liabilities		141,472		39,846			72,202		(48,197	)		205,323
Intercompany		304,449		(492,384	)		20,017		167,918			—
Total liabilities		1,204,955		(443,478	)		92,832		128,264			982,573
Equity:
SHLP equity:
Owners’ equity		406,863		752,058			120,283		(872,341	)		406,863
Accumulated other comprehensive income		5,363		5,363			—		(5,363	)		5,363
Total SHLP equity		412,226		757,421			120,283		(877,704	)		412,226
Non-controlling interests		—		—			20,087		—			20,087
Total equity		412,226		757,421			140,370		(877,704	)		432,313
Total liabilities and equity	$	1,617,181	$	313,943		$	233,202	$	(749,440	)	$	1,414,886

(a) Shea Homes Funding Corp. was formed on April 26, 2011, therefore no amounts are included for any financial statement period before this date.

F-79

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

December 31, 2010

Consolidating Balance Sheet

December 31, 2009

	SHLP Corp (b)			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total
	(In thousands)
Assets
Cash and cash equivalents	$	89,349		$	68,674		$	45,053		$	—		$	203,076
Restricted cash		10,605			—			12,895			—			23,500
Investments		—			—			61,413			—			61,413
Accounts and other receivables, net		95,781			43,498			67,306			(66,429	)		140,156
Receivables from related parties, net		(352	)		1,451			28,820			192,269			222,188
Inventory		765,716			110,456			29,464			(2,132	)		903,504
Investments in joint ventures		5,725			5,810			16,259			—			27,794
Investments in subsidiaries		685,766			161,209			92,174			(939,149	)		—
Property and equipment, net		6,701			2,150			3			—			8,854
Other assets, net		26,053			2,194			28			—			28,275
Total assets	$	1,685,344		$	395,442		$	353,415		$	(815,441	)	$	1,618,760
Liabilities and equity
Liabilities:
Notes payable	$	745,017		$	—		$	—		$	—		$	745,017
Payables to related parties		458			29			18			7,033			7,538
Accounts payable		26,898			8,669			812			(193	)		36,186
Other liabilities		164,467			53,629			198,978			(68,261	)		348,813
Intercompany		284,654			(404,054	)		(65,729	)		185,129			—
Total liabilities		1,221,494			(341,727	)		134,079			123,708			1,137,554
Equity:
SHLP equity:
Owners’ equity		454,452			727,771			192,582			(920,353	)		454,452
Accumulated other comprehensive income		9,398			9,398			9,398			(18,796	)		9,398
Total SHLP equity		463,850			737,169			201,980			(939,149	)		463,850
Non-controlling interests		—			—			17,356			—			17,356
Total equity		463,850			737,169			219,336			(939,149	)		481,206
Total liabilities and equity	$	1,685,344		$	395,442		$	353,415		$	(815,441	)	$	1,618,760

(b) Shea Homes Funding Corp. was formed on April 26, 2011, therefore no amounts are included for any financial statement period before this date.

F-80

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

December 31, 2010

Consolidating Statement of Operations

Year Ended December 31, 2010

	SHLP Corp (a)			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total
	(In thousands)
Revenues	$	531,898		$	104,231		$	3,437		$	—		$	639,566
Cost of sales		(513,842	)		(89,270	)		(6,478	)		493			(609,097	)
Gross margin		18,056			14,961			(3,041	)		493			30,469
Selling expenses		(30,682	)		(8,532	)		(7,451	)		—			(46,665	)
General and administrative expenses		(24,007	)		(5,611	)		(2,822	)		—			(32,440	)
Equity in income from joint ventures		122			472			8,019			—			8,613
Equity in income (loss) from subsidiaries		17,758			24,518			(457	)		(41,819	)		—
Interest and other (expense) income, net		(41,329	)		(5,621	)		28,684			(493	)		(18,759	)
(Loss) income before income taxes		(60,082	)		20,187			22,932			(41,819	)		(58,782	)
Income tax benefit (expense)		(7	)		4,025			(451	)		—			3,567
Net (loss) income		(60,089	)		24,212			22,481			(41,819	)		(55,215	)
Less: Net income attributable to non-controlling interests		—			—			(4,874	)		—			(4,874	)
Net (loss) income attributable to SHLP	$	(60,089	)	$	24,212		$	17,607		$	(41,819	)	$	(60,089	)

(a) Shea Homes Funding Corp. was formed on April 26, 2011, therefore no amounts are included for any financial statement period before this date.

Consolidating Statement of Operations

Year Ended December 31, 2009

	SHLP Corp (b)			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total
	(In thousands)
Revenues	$	490,645		$	115,335		$	5,483		$	—		$	611,463
Cost of sales		(539,499	)		(222,383	)		(224,884	)		560			(986,206	)
Gross margin		(48,854	)		(107,048	)		(219,401	)		560			(374,743	)
Selling expenses		(29,324	)		(10,785	)		(8,840	)		—			(48,949	)
General and administrative expenses		(16,607	)		(9,096	)		(3,756	)		—			(29,459	)
Equity in (loss) income from joint ventures		(32,060	)		(3,919	)		890			—			(35,089	)
Equity in loss from subsidiaries		(251,953	)		(155,122	)		(4,730	)		411,805			—
Interest and other (expense) income, net		(13,544	)		708			33,358			(560	)		19,962
Loss before income taxes		(392,342	)		(285,262	)		(202,479	)		411,805			(468,278	)
Income tax benefit (expense)		(1	)		47,764			(2,545	)		—			45,218
Net loss		(392,343	)		(237,498	)		(205,024	)		411,805			(423,060	)
Less: Net loss attributable to non-controlling interests		—			—			30,717			—			30,717
Net loss attributable to SHLP	$	(392,343	)	$	(237,498	)	$	(174,307	)	$	411,805		$	(392,343	)

(b) Shea Homes Funding Corp. was formed on April 26, 2011, therefore no amounts are included for any financial statement period before this date.

F-81

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

December 31, 2010

Consolidating Statement of Operations

Year Ended December 31, 2008

	SHLP Corp (c)			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total
	(In thousands)
Revenues	$	768,297		$	301,390		$	8,643		$	—		$	1,078,330
Cost of sales		(940,264	)		(338,797	)		(42,569	)		3,988			(1,317,642	)
Gross margin		(171,967	)		(37,407	)		(33,926	)		3,988			(239,312	)
Selling expenses		(59,985	)		(25,235	)		(13,317	)		—			(98,537	)
General and administrative expenses		(39,460	)		(17,521	)		(7,851	)		—			(64,832	)
Equity in loss from joint ventures		(24,741	)		(4,140	)		(14,740	)		—			(43,621	)
Equity in loss from subsidiaries		(106,566	)		(13,423	)		(1,271	)		121,260			—
Loss from disposition of joint ventures		(162,705	)		—			(5,100	)		—			(167,805	)
Interest and other (expense) income, net		(29,289	)		8,470			(5,614	)		(3,988	)		(30,421	)
Loss before income taxes		(594,713	)		(89,256	)		(81,819	)		121,260			(644,528	)
Income tax benefit (expense)		(2	)		36,077			(1,064	)		—			35,011
Net loss		(594,715	)		(53,179	)		(82,883	)		121,260			(609,517	)
Less: Net loss attributable to non-controlling interests		—			—			14,802			—			14,802
Net loss attributable to SHLP	$	(594,715	)	$	(53,179	)	$	(68,081	)	$	121,260		$	(594,715	)

(c) Shea Homes Funding Corp. was formed on April 26, 2011, therefore no amounts are included for any financial statement period before this date.

F-82

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

December 31, 2010

Condensed Consolidating Statement of Cash Flows

Year Ended December 31, 2010

	SHLP Corp (a)			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total
	(In thousands)
Operating activities
Net cash (used in) provided by operating activities	$	18,198		$	(12,661	)	$	(82,538	)	$	1,953		$	(75,048	)
Investing activities
Proceeds from sale of available-for-sale investments		—			6,182			46,930			—			53,112
Net decrease (increase) in promissory notes from related parties		—			(432	)		4,425			15,258			19,251
Investments in joint ventures		(13,706	)		(378	)		(3,951	)		—			(18,035	)
Purchase of property and equipment		(11,570	)		(108	)		—			—			(11,678	)
Other investing activities		80			2,567			759			—			3,406
Net cash provided by (used in) investing activities		(25,196	)		7,831			48,163			15,258			46,056
Financing activities
Principal payments to financial institutions and others		(25,618	)		—			—			—			(25,618	)
Contributions from owners		12,500			—			—			—			12,500
Intercompany		22,227			(9,451	)		4,435			(17,211	)		—
Other financing activities		8,051			—			(2,143	)		—			5,908
Net cash (used in) provided by financing activities		17,160			(9,451	)		2,292			(17,211	)		(7,210	)
Net (decrease) increase in cash and cash equivalents		10,162			(14,281	)		(32,083	)		—			(36,202	)
Cash and cash equivalents at beginning of year		89,349			68,674			45,053			—			203,076
Cash and cash equivalents at end of year	$	99,511		$	54,393		$	12,970		$	—		$	166,874

(a) Shea Homes Funding Corp. was formed on April 26, 2011, therefore no amounts are included for any financial statement period before this date.

F-83

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

December 31, 2010

Condensed Consolidating Statement of Cash Flows

Year Ended December 31, 2009

	SHLP Corp (b)			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total
	(In thousands)
Operating activities
Net cash provided by operating activities	$	39,649		$	47,887		$	78,322		$	(72,564	)	$	93,294
Investing activities
Purchase of available-for-sale investments		—			—			(63,956	)		—			(63,956	)
Proceeds from sale of available-for-sale investments		—			—			59,685			—			59,685
Net decrease in promissory notes from related parties		1,942			5,712			11,751			(1,959	)		17,446
Proceeds from sale of property and equipment		51			12,513			—			—			12,564
Other investing activities		(2,047	)		(2,447	)		(4,641	)		—			(9,135	)
Net cash provided by (used in) investing activities		(54	)		15,778			2,839			(1,959	)		16,604
Financing activities
Principal payments to financial institutions and others		(19	)		(684	)		(112,818	)		—			(113,521	)
Intercompany		(62,651	)		(42,573	)		30,701			74,523			—
Other financing activities		—			—			1,078			—			1,078
Net cash used in financing activities		(62,670	)		(43,257	)		(81,039	)		74,523			(112,443	)
Net (decrease) increase in cash and cash equivalents		(23,075	)		20,408			122			—			(2,545	)
Cash and cash equivalents at beginning of year		112,424			48,266			44,931			—			205,621
Cash and cash equivalents at end of year	$	89,349		$	68,674		$	45,053		$	—		$	203,076

(b) Shea Homes Funding Corp. was formed on April 26, 2011, therefore no amounts are included for any financial statement period before this date.

F-84

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

December 31, 2010

Condensed Consolidating Statement of Cash Flows

Year Ended December 31, 2008

	SHLP Corp (c)			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total
	(In thousands)
Operating activities
Net cash provided by (used in) operating activities	$	219,826		$	49,557		$	(134,979	)	$	21,555		$	155,959
Investing activities
Purchase of available-for-sale investments		—			—			(37,195	)		—			(37,195	)
Proceeds from sale of available-for-sale investments		—			—			36,359			—			36,359
Proceeds from sale of investments in joint venture		45,144			—			—			—			45,144
Net increase in promissory notes from related parties		(97	)		(5,913	)		(8,683	)		(43,719	)		(58,412	)
Investments in joint ventures		(252,005	)		(48,682	)		(9,996	)		—			(310,683	)
Distributions from joint ventures		5,434			4,740			34,703			—			44,877
Other investing activities		(95	)		8,231			6,467			—			14,603
Net cash (used in) provided by investing activities		(201,619	)		(41,624	)		21,655			(43,719	)		(265,307	)
Financing activities
Net increase in revolving lines of credit and promissory notes to related parties		220,000			—			3,113			—			223,113
Principal payments to financial institutions and others		(27,750	)		(16,794	)		(15,269	)		—			(59,813	)
Contributions from owners		34,858			—			—			—			34,858
Distributions to owners		(34,852	)		—			—			—			(34,852	)
Intercompany		(99,850	)		57,123			20,563			22,164			—
Other investing activities		—			—			9,774			—			9,774
Net cash provided by financing activities		92,406			40,329			18,181			22,164			173,080
Net increase (decrease) in cash and cash equivalents		110,613			48,262			(95,143	)		—			63,732
Cash and cash equivalents at beginning of year		1,811			4			140,074			—			141,889
Cash and cash equivalents at end of year	$	112,424		$	48,266		$	44,931		$	—		$	205,621

(c) Shea Homes Funding Corp. was formed on April 26, 2011, therefore no amounts are included for any financial statement period before this date.

F-85

Shea Homes Limited Partnership

(A California Limited Partnership)

Notes to Consolidated Financial Statements (continued)

December 31, 2010

22. Subsequent Events

In January 2011, we made a $20.0 million prepayment on our Senior Secured Notes Payable, of which $11.4 million was applied to the Senior Secured Series A, $2.2 million to the Senior Secured Series B and $6.4 million to the Bank Term.

On May 10, 2011, we issued the Secured Notes and paid the outstanding obligations of the Secured Facilities. The Secured Notes were issued pursuant to Rule 144A and Regulation S, with registration rights. The Secured Notes bear interest at 8.625% paid semi-annually on May 15 and November 15, and do not require principal payments until maturity on May 15, 2019.

The payoff of the Secured Facilities, including interest, was $782.1 million. In connection with the payment, all payable-in-kind (PIK) interest, $5.0 million of principal and certain fees were waived. In addition, of $19.1 million of the then outstanding letters of credit, $4.0 million was returned and $15.1 million was paid by the Company, with $14.5 million reimbursed by JFSCI for its share of the letters of credit paid by the Company.

Concurrent with the payoff of the Secured Facilities, an $88.4 million loss on debt extinguishment was recognized for the $65.0 million write-off of the Secured Facilities discount, which increased the Secured Facilities principal to its face value, $779.6 million, and the $23.4 million write-off of prepaid professional and loan fees incurred in connection with the Secured Facilities.

In May 2011, concurrent with issuance of the Secured Notes, through a $75.0 million cash payment and $41.5 million contribution of assets, the receivable from JFSCI was paid down by JFSCI and converted to a $38.9 million unsecured term note receivable from JFSCI, bearing 4% interest, payable in equal quarterly installments and maturing May 15, 2019. In June 2011 and August 2011, JFSCI elected to make prepayments, including accrued interest, of $7.7 million and $6.6 million, respectively, and apply these prepayments to future installments such that JFSCI would not be required to make a payment until February 2014.

In September 2011, we sold fixed assets in Highlands Ranch, Colorado, comprised of three buildings and related improvements and land, to a related party. The consideration received was $14.4 million cash and a $6.5 million note receivable at 4.2% interest, payable in equal monthly installments and maturing August 2016. The $1.5 million of consideration received in excess of net book value will be recorded as an equity contribution.

We have evaluated subsequent events through December 22, 2011, which is the issuance date of these consolidated financial statements. Other than as disclosed, these events do not have a material effect on the consolidated financial position or results of operations.

F-86

No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus. Investors must not rely on any unauthorized information or representations. This prospectus does not offer to sell or ask for offers to buy any securities other than those to which this prospectus relates and it does not constitute an offer to sell or ask for offers to buy any of the securities in any jurisdiction where it is unlawful, where the person making the offer is not qualified to do so, or to any person who cannot legally be offered the securities. The information contained in this prospectus is current only as of its date.

Until                     , 2012 (90 days after the date of this prospectus), all dealers effecting transactions in the exchange notes, whether or not participating in this distribution, may be required to deliver a prospectus. This requirement is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

Prospectus

$750,000,000

SHEA HOMES LIMITED PARTNERSHIP

SHEA HOMES FUNDING CORP.

Exchange Offer for All Outstanding

8.625% Senior Secured Notes due 2019

(CUSIP Nos. 82088K AA6 and U82091 AA4)

for new

8.625% Senior Secured Notes due 2019

that have been registered under the Securities Act of 1933

                    , 2012

PART II

Item 20. Indemnification of Directors and Officers

Shea Homes Limited Partnership

The limited partnership agreement of Shea Homes Limited Partnership (“SHLP”) provides that SHLP will indemnify and hold harmless the general partner, its affiliates, and the officers, agents, partners and employees of the general partner and its affiliates from and against any loss, expense, damage or injury suffered or sustained by them, by reason of any acts or omissions arising out of their activities on behalf of SHLP or in furtherance of the interests of SHLP, provided, that none of the general partner, or any of its affiliates, any officer, agent or employee of the general partner of any of its affiliates will be entitled to indemnification if the acts or omissions were performed or omitted fraudulently or in bad faith or constituted gross negligence or willful misconduct. The limited partnership agreement of SHLP also provides that SHLP will indemnify and hold harmless the limited partners, including, but not limited to, their trustees and beneficiaries, from and against any loss, expense, damage or injury suffered or sustained by them, by reason of any acts or omissions arising out of their activities on behalf of SHLP or in furtherance of the interests of SHLP, provided, that none of the limited partners, any of their affiliates, any officer, agent or employee of the limited partners or any of their affiliates shall be entitled to indemnification if the acts or omissions were performed or omitted fraudulently or in bad faith or constituted gross negligence or willful misconduct. Any indemnification pursuant to the limited partnership agreement of SHLP shall be only from the assets of SHLP.

SHLP also currently maintains an insurance policy which, within the limits and subject to the terms and conditions thereof, covers certain expenses and liabilities that may be incurred by directors and officers in connection with proceedings that may be brought against them as a result of an act or omission committed or suffered while acting as a director or officer of SHLP or its subsidiaries.

Shea Homes Funding Corp.

Shea Homes Funding Corp. is a Delaware corporation. Shea Homes Funding Corp.’s Certificate of Incorporation and Bylaws provide, in effect, that, to the fullest extent permitted by the Delaware General Corporation Law (“DGCL”), Shea Homes Funding Corp. will indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he or she is or was a director or an officer of the corporation or while a director or officer of the corporation is or was serving at the request of the corporation as a director, officer, employee, agent or trustee of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee, agent or trustee, or in any other capacity while serving as a director, officer, employee, agent or trustee, shall be indemnified and held harmless by the corporation to the fullest extent authorized by the DGCL, against all expense, liability and loss (including attorneys’ fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) reasonably incurred or suffered by such indemnitee in connection therewith; provided, however, that, except as an indemnitee may bring a proceeding against the corporation to enforce the indemnitee’s rights to indemnification, the Corporation shall indemnify any such indemnitee in connection with a proceeding (or part thereof) initiated by such indemnitee only if such proceeding (or part thereof) was authorized by the Board of Directors.

Section 145(a) of the DGCL provides that a Delaware corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, other than an action by or in the right of the corporation, by reason of the fact that such person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorney fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with such action,

II-1

suit or proceeding if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful.

Section 145(b) of the DGCL provides that a Delaware corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person acted in any of the capacities set forth above, against expenses actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation, unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the court shall deem proper.

Further subsections of DGCL Section 145 provide that:

(1) to the extent a present or former director or officer of a corporation has been successful on the merits or otherwise in the defense of any action, suit or proceeding referred to in subsections (a) and (b) of Section 145 or in the defense of any claim, issue or matter therein, such person shall be indemnified against expenses, including attorneys’ fees, actually and reasonably incurred by such person in connection therewith;

(2) the indemnification and advancement of expenses provided for pursuant to Section 145 shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise; and

(3) the corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person’s status as such, whether or not the corporation would have the power to indemnify such person against such liability under Section 145.

Section 145 of the DGCL makes provision for the indemnification of officers and directors in terms sufficiently broad to indemnify officers and directors of Shea Homes Funding Corp. under certain circumstances from liabilities (including reimbursement for expenses incurred) arising under the Securities Act of 1933, as amended.

In addition, Section 102(b)(7) of the DGCL provides that a corporation is restricted from relieving its directors from personal liability to such corporation or its stockholders for monetary damages for any breach of their fiduciary duty as directors (i) for a breach of the duty of loyalty, (ii) for acts or omissions not in good faith, or which involve intentional misconduct or a knowing violation of law, (iii) for willful or negligent violations of certain provisions in the DGCL imposing certain requirements with respect to stock repurchases, redemptions and dividends, or (iv) for any transactions from which the director derived an improper personal benefit.

Co-Registrants

Certain officers of Shea Homes Limited Partnership serve at the request of Shea Homes Limited Partnership as a director, officer, manager, employee or agent of the co-registrants, and thus may be entitled to indemnification under the provisions set forth above. In addition to potential indemnification by Shea Homes

II-2

Limited Partnership, the directors, officers, managers, employees and agents of the co-registrants are also entitled to indemnification and exculpation for certain monetary damages to the extent provided in the applicable co-registrant’s organizational documents or under the laws under which the co-registrants are organized as described below. The following description is qualified in its entirety by reference to the co-registrant’s organizational documents, copies of which have been filed as exhibits to this registration statement and are incorporated herein by reference.

Arizona Corporations

Mountainbrook Village Company, Shea Homes Southwest, Inc. and UDC Home Construction, Inc. are incorporated under the laws of the State of Arizona. Arizona Revised Statutes (“ARS”) § 10-851 allows a corporation, in certain circumstances, to indemnify its directors against costs and expenses (including attorneys’ fees) reasonably incurred in connection with threatened, pending or completed civil, criminal, administrative or investigative actions, suits or proceedings, in which such persons were or are parties, or are threatened to be made parties, by reason of the fact that they were or are directors of the corporation, if such persons, conduct was in good faith and either (i) in a manner they reasonably believed to be in the best interests of the corporation (if acting in an official capacity), or (ii) in a manner they reasonably believed was at least not opposed to the corporation’s best interests (in all other cases). A corporation may indemnify its directors with respect to any criminal action or proceeding if, in addition to the above conditions being met, the individual had no reasonable cause to believe his or her conduct was unlawful. Directors may not be indemnified under ARS § 10-851 in connection with a proceeding by or in the right of the corporation in which the director was adjudged liable to the corporation or in connection with any other proceeding charging improper financial benefit to the director in which the director was adjudged liable on the basis that financial benefit was improperly received by the director. In addition, under ARS § 10-202(B), a corporation’s articles of incorporation may indemnify a director for conduct for which broader indemnification has been made permissible or mandatory under other ARS provisions.

ARS § 10-202(B) provides that the articles of incorporation may set forth a provision eliminating or limiting the liability of a director to the corporation or its shareholders for money damages, and permitting or making obligatory indemnification of a director, for liability for any action taken or any failure to take any action as a director, except liability for any of the following: (a) the amount of a financial benefit received by a director to which the director is not entitled; (b) an intentional infliction of harm on the corporation or the shareholders; (c) unlawful distributions; and (d) an intentional violation of criminal law.

ARS § 10-852 provides for mandatory indemnification in certain situations such that, unless limited by its articles of incorporation, a corporation shall indemnify a director who was the prevailing party, on the merits or otherwise, in the defense of any proceeding to which the director was a party because the director is or was a director of the corporation against reasonable expenses incurred by the director in connection with the proceeding.

ARS § 10-856 provides that a corporation may indemnify its officers against costs and expenses (including attorneys’ fees) reasonably incurred in connection with threatened, pending or completed civil, criminal, administrative or investigative actions, suits or proceedings, in which such persons were or are parties, or are threatened to be made parties because the individual is or was an officer of the corporation to the same extent as a director. If the individual is an officer but not a director (or is both but is made a party to the proceeding solely because of an act or omission as an officer), a corporation may indemnify and advance expenses to the further extent as may be provided by the articles of incorporation, the bylaws, a resolution of the board of directors, or contract except for (i) liability in connection with a proceeding by or in the right of the corporation other than for reasonable expenses incurred in connection with the proceeding, or (ii) liability arising out of conduct that constitutes (a) receipt by the officer of a financial benefit to which the officer is not entitled, (b) an intentional infliction of harm on the corporation or the shareholders, or (c) an intentional violation of criminal law. An officer of a corporation who is not a director is entitled to mandatory indemnification as a prevailing party under ARS § 10-852.

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ARS § 10-850 defines a director as including an individual who is or was a director of a corporation or an individual while a director of a corporation is or was serving at the corporation’s request as a director, officer, partner, trustee, employee or agent of another corporation, partnership, joint venture or other entity.

The articles of incorporation and bylaws of Mountainbrook Village Company provide that the corporation shall indemnify any and all of its existing and former directors, officers, employees, and agents against all expenses incurred by them and each of them, including but not limited to, legal fees, judgments, penalties, and amounts paid in settlement or compromise, which may arise or be incurred, rendered, or levied in any legal action brought or threatened against any of them, other than an action by or in the right of the corporation, for or on account of any action or omission alleged to have been committed while acting within the scope of employment or service as director, officer, employee, or agent of the corporation, if he or she acted, or failed to act, or refused to act, in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful, whether or not any action is or has been filed against them and whether or not any settlement or compromise is approved by a court. Subject to the further provisions in this paragraph below, the articles of incorporation and bylaws provide that corporation shall indemnify any and all of its existing and former directors, officers, employees, and agents against all expenses incurred by them and each of them, including but not limited to, legal fees (but excluding judgments, penalties, and, except as set forth below, amounts paid in settlement or compromise), which may arise or be incurred, rendered, or levied in any legal action brought or threatened against any of them by or in the right of the corporation, for or on account of any action or omission alleged to have been committed while acting within the scope of employment or service as a director, officer, employee, or agent of the corporation, if he or she acted, or failed to act, or refused to act, in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful, whether or not any action is or has been filed against them and except that no indemnification shall be made under this sentence in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper. In connection with any action referred to in the previous sentence, if a court shall determine that indemnity for amounts paid in settlement is proper, indemnification shall be mandatory and shall be automatically extended by the corporation for the amounts so paid in settlement and for expenses, including attorneys’ fees to the extent the court deems proper. The corporation has the right to refuse indemnification in any instance in which the person to whom indemnification would otherwise have been applicable shall have unreasonably refused to permit the corporation, at its own expense and through counsel of its own choosing, to defend him or her in the action. However, indemnification against expenses, including attorneys’ fees shall be mandatory and shall be automatically extended by the corporation whether the legal action brought or threatened is by or in the right of the corporation or by any other person to the extent the director, officer, employee or agent has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to above.

The articles of incorporation of Shea Homes Southwest, Inc. provide that the corporation shall indemnify, to the extent permitted by law, any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful.

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For an action by or in the right of Shea Homes Southwest, Inc., the articles of incorporation provide that the corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys’ fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect, of any claim, issue or matter as to which such person shall have been, adjudged to be liable for negligence or misconduct in the performance of his duty to the corporation unless and only to the extent that the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability, but in view of all circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper. The indemnification provided by the Shea Homes Southwest, Inc. certificate of incorporation are not exclusive of any other rights to which those indemnified may be entitled under any bylaw, agreement, vote of members or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.

The articles of incorporation and bylaws of UDC Homes Construction, Inc. provide that the corporation shall indemnify any and all of its existing and former directors, officers, employees, and agents against all expenses incurred by them and each of them, including but not limited to, legal fees, judgments, penalties, and amounts paid in settlement or compromise, which may arise or be incurred, rendered, or levied in any legal action brought or threatened against any of them for or on account of any action or omission alleged to have been committed while acting within the scope of employment or service as director, officer, employee, or agent of the corporation, whether or not any action is or has been filed against them and whether or not any settlement or compromise is approved by a court. Indemnification shall be made by the corporation whether the legal action brought or threatened is by or in the right of the corporation or by any other person. Whenever any existing or former director, officer, employee, or agent shall report to the president of the corporation or the chairman of the corporation’s board of directors that he or she has incurred or may incur expenses, including but not limited to legal fees, judgments, penalties, and amounts paid in settlement or compromise in a legal action brought or threatened against him or her for or on account of any action or omission alleged to have been committed by him or her while acting within the scope of his or her employment or service as director, officer, employee, or agent of the corporation, the board of directors shall, at its next regular or a special meeting held within a reasonable time thereafter, determine in good faith whether, in regard to the matter involved in the action or contemplated action, such person acted, failed to act, refused to act willfully, or acted with gross negligence or with fraudulent or criminal intent. If the board of directors determines in good faith that such person did not act, fail to act, or refuse to act willfully or act with gross negligence or with fraudulent or criminal intent in regard to the matter involved in the action or contemplated action, indemnification shall be mandatory and shall be automatically extended as specified herein, provided, however, that the corporation shall have the right to refuse indemnification in any instance in which the person to whom indemnification would otherwise have been applicable shall have unreasonably refused to permit the corporation, at its own expense and through counsel of its own choosing, to defend him or her in the action.

Arizona Limited Liability Companies

Seville Golf and Country Club, LLC is a limited liability company organized under the laws of the State of Arizona. Section 29-610(A)(13) of the Arizona Limited Liability Company Act allows a limited liability company to indemnify a member, manager, employee, officer or agent or any other person. The Operating Agreement of Seville Golf and Country Club, LLC, as in effect as of the date hereof, does not provide for the indemnification of any member, manager, employee, officer or agent or any other person.

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California Corporations

Shea Financial Services, Inc. and Shea Insurance Services, Inc. are incorporated under the laws of the State of California. Section 317 of the California General Corporation Law (the “CGCL”) provides that a corporation may indemnify directors and officers who are parties or are threatened to be made parties to any proceeding (except actions by or in the right of the corporation to procure a judgment in its favor) by reason of the fact that the person is or was an agent of the corporation, against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with the proceeding if that person acted in good faith and in a manner the person reasonably believed to be in the best interests of the corporation, and, in the case of a criminal proceeding, had no reasonable cause to believe the conduct of the person was unlawful. With respect to actions by or in the right of the corporation, indemnification may not be made for any claim, issue or matter as to which such a person has been adjudged liable to the corporation, unless and only to the extent that the court in which the action is or was pending determines upon application that in view of all circumstances the person is fairly and reasonably entitled to indemnity for expenses. Section 317 of the CGCL provides that it is not exclusive of other indemnification that may be granted by a corporation’s charter, bylaws, disinterested director vote, stockholders vote, agreement or otherwise.

The bylaws of Shea Financial Services, Inc. and the bylaws of Shea Insurance Services, Inc. provide that each person who was or is made a party to or witness or other participant in or is threatened to be made a party to or witness or other participant in or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative, investigative or other, by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director or officer of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of the proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the corporation to the fullest extent authorized by the California General Corporation Law.

California Limited Liability Companies

Serenade at Natomas, LLC, Shea Homes at Montage, LLC, Shea Homes Vantis, LLC, Shea La Quinta LLC, Shea Otay Village 11, LLC, Shea Proctor Valley, LLC, Shea Rivermark Village, LLC and Trilogy Antioch, LLC Are California limited liability companies that are subject to Section 17155 of the Beverly-Killea Limited Liability Company Act, which provides that, except for a breach of certain fiduciary duties, the articles of organization or written operating agreement of a limited liability company may provide for indemnification of any person, including, without limitation, any manager, member, officer, employee or agent of the limited liability company, against judgments, settlements, penalties, fines or expenses of any kind incurred as a result of acting in that capacity. Such section also provides that the company shall have the power to purchase and maintain insurance on behalf of any manager, member, officer, employee or agent of the company against any liability asserted against or incurred by the person in that capacity or arising out of the person’s status as a manager, member, officer, employee, or agent of the company.

The limited liability company agreement of Shea Homes at Montage, LLC provides for indemnification of each member of the executive committee, each member, each officer and any members, managers, partners, stockholders, officers, directors, employees, agents, successors or assigns of any member of the executive committee against any claims, demands, damages, costs, expenses and liabilities incurred by reason of any act performed or committed in connection with the business of the company, including attorneys’ fees incurred by such indemnified person, in connection with the defense of any action based on any such act or omission, which attorney’s fees may be paid as incurred, and including all damages arising under federal and state securities laws.

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Delaware Corporations

Shea Communities Marketing Company and Shea Homes, Inc. are Delaware corporations are subject to the provisions of the DGCL described above with respect to Shea Homes Funding Corp.

The bylaws of Shea Communities Marketing Company provide that the corporation shall have the power to indemnify any person who was or is a party or threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation), by reason of the fact that he is or was a director, officer, employee or agent of the corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or plea of nolo contendere or its equivalent, shall not create a presumption that the person did not act in good faith and in such a manner which he reasonable believed to be in, or not opposed to, the best interest of the corporation, and with respect to any criminal action or proceeding, that the person had reasonable cause to believe that his conduct was unlawful. The bylaws of Shea Communities Marketing Company also provide that the corporation shall have the power to indemnify any person who was or is a party or threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or wall serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys’ fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, provided, that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the corporation, unless and only to the extent that the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability, but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the court shall deem necessary and proper. Any decision to provide indemnification pursuant to this paragraph shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is necessary and proper in the circumstance, because he has met the applicable standard of conduct set forth above.

The bylaws of Shea Homes, Inc. provide for indemnification of past and present directors, officers, employees and agents of the company to the full extent permitted by the DGCL.

Delaware Limited Liability Companies

Monty Green Holdings, LLC, Shea Brea Development, LLC, Shea Capital II, LLC, Shea Tonner Hills, LLC, SH Jubilee, LLC, SH Jubilee Management, LLC, SHI JV Holdings, LLC, SHLP JV Holdings, LLC, Vistancia Construction, LLC, Vistancia Marketing, LLC are Delaware limited liability companies. These co-registrants are subject to Section 18-108 of the Delaware Limited Liability Company Act (“DLLCA”), which provides that, subject to such standards and restrictions, if any, as are set forth in its limited liability company agreement, a Delaware limited liability company may, and shall have the power to, indemnify and hold harmless any member or manager or other person from and against any and all claims and demands whatsoever.

The limited liability company agreement of Shea Brea Development, LLC provides that the company shall, to the fullest and broadest extent permitted by law, indemnify and hold harmless each member, affiliate of a member, and any manager, partner, officer, director, attorney, agent, representative or employee of any member or affiliate of a member, against losses, damages, liabilities or expenses, of any kind or nature, incurred by it in

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connection with, or while acting (or omitting to act) on behalf of, the company. Without limiting the generality of the foregoing, the company also agrees to indemnify each indemnified person, and to save and hold him or it harmless, from and in respect of (i) all fees, costs and expenses incurred in connection with or resulting from any demand, claim, action or proceeding against such indemnified person or the company which arises out of or in any way relates to the company or its properties, business or affairs, and (ii) all such demands, claims, actions and proceedings and any losses or damages resulting therefrom, including judgments, fines and amounts paid in settlement or compromise of any such demand, claim, action or proceeding; provided, however, that this indemnity shall not extend to conduct by an indemnified person proved to constitute actual fraud or willful malfeasance. Unless the member otherwise determines, the company shall pay the expenses incurred by any indemnified person in connection with any proceeding in advance of the final disposition of such proceeding, upon receipt by the Company of an undertaking of such indemnified person to repay such payment if there shall be a final adjudication or determination that such indemnified person is not entitled to indemnification as provided herein. Notwithstanding any provision above or of any other document governing the formation, management or operation of the company to the contrary, any indemnification shall be fully subordinated to any obligations respecting the company’s property and shall not constitute a claim against the company in the event that cash flow is insufficient to pay such obligations.

The limited liability company agreements of SHI JV Holdings, LLC and SHLP JV Holdings, LLC entitle the member and its respective employees, agents, affiliates and assigns to indemnification, to the fullest extent permitted by law, from the company for any loss, damage or claim incurred by reason of any act or omission performed or omitted in good faith on behalf of the company and in a manner reasonably believed to be within the scope of authority conferred by the limited liability company agreement of SHI JV Holdings, LLC or SHLP JV Holdings, LLC, as applicable.

Colorado Corporations

Sand Creek Cattle Company, Highlands Ranch Development Corporation and Shea Properties of Colorado, Inc. are incorporated under the laws of the State of Colorado. The Colorado Business Corporation Act provides that a corporation may indemnify directors or officers made party to proceedings because the person is or was a director against liability incurred in the proceeding if (a) the person conducted himself or herself in good faith; (b) the person reasonably believed: (i) in the case of conduct in an official capacity with the corporation, that his or her conduct was in the corporation’s best interests; and (ii) in all other cases, that his or her conduct was at least not opposed to the corporation’s best interests; and (c) in the case of any criminal proceeding, the person had no reasonable cause to believe his or her conduct was unlawful. A Colorado corporation is not permitted to indemnify a director (a) in connection with a proceeding by or in the right of the corporation in which the director was adjudged liable to the corporation; or (b) in connection with any other proceeding charging that the director derived an improper personal benefit, whether or not involving action in an official capacity, in which proceeding the director was adjudged liable on the basis that he or she derived an improper personal benefit. Indemnification permitted under the Colorado Business Corporation Act in connection with a proceeding by or in the right of the corporation is limited to reasonable expenses incurred in connection with the proceeding.

The Colorado Business Corporation Act further provides that unless limited by its articles of incorporation, a corporation shall indemnify a person who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which the person was a party because the person is or was a director, against reasonable expenses incurred by the person in connection with the proceeding.

The articles of incorporation of Highlands Ranch Development Corporation and Shea Properties of Colorado, Inc. each provide that any director or officer of former director or officer of the corporation shall be indemnified by the corporation against all costs and expenses actually and reasonably incurred by him for advice or assistance concerning, or in connection with the defense of any action, suit or proceeding, civil, criminal or administrative, except in relation to the liabilities under the Securities Act of 1933, as amended, the securities laws of the State of Colorado, or other applicable securities laws, in which he is made a party by reason of being

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or having been a director or officer of the Corporation, whether or not he continues to be a director or officer at the time of incurring such costs or expenses, except costs and expenses incurred in relation to matters as to which such director or officer shall have been derelict in the performance of his duty as such director or officer (a) in a matter which shall have been subject of a suit or proceeding in which he shall have been finally adjudged in such suit or proceeding to have been derelict in the performance of his duty as such director or officer, or (b) in a matter not falling within (a) above, if either all disinterested directors of the corporation or a committee of disinterested stockholders of the corporation shall determine that he is derelict.

The articles of incorporation of Sand Creek Cattle Company provide that the corporation shall indemnify any person who is or was a director, officer, employee, fiduciary, or agent of the corporation or who is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any and all expenses (including attorneys fees) actually and reasonably incurred by him in connection with any suit or proceeding or threatened suit or proceeding, whether civil, criminal, administrative or investigative, in which the indemnified person was or is a party or threatened to be made a party by reason of the fact that he is or was a director, officer, employee, fiduciary or agent of the corporation, or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, if such person acted in good faith and in a manner he reasonably believed to be in the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any proceeding by judgment, order, settlement or conviction or upon a plea of nolo contendere or its equivalent shall not of itself create a presumption that the indemnified person did not act in good faith and in a manner which he reasonably believed to be in the best interests of the corporation or, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. Notwithstanding the foregoing, no indemnification shall be made in connection with a proceeding by or in the right of the corporation to procure a judgment in its favor in respect of any claim, issue or matter to which the indemnified person has been adjudged to be liable for negligence or misconduct in the performance of his duties to the corporation unless, and only to the extent that, the court In which such proceeding was brought determines, upon application, that despite the adjudication of liability, but in the view of all circumstances of the case, such indemnified person is fairly and reasonably entitled to indemnification for such expenses which the court deems proper. Indemnification under the above provisions shall be made by the corporation only as authorized in the specific case upon a determination that indemnification is proper in the circumstances.

Colorado Limited Liability Companies

Shea Ninth and Colorado, LLC, Tower 104 Gathering, LLC and Tower 104 Oil, LLC are organized under the laws of the State of Colorado. Section 7-80-104(1)(k) of the Colorado Limited Liability Company Act permits a company to indemnify a member or manager or former member or manager of the limited liability company as provided in Section 7-80-407. Under Section 7-80-407, a limited liability company shall reimburse a member or manager for payments made, and indemnify a member or manager for liabilities incurred by the member or manager, in the ordinary conduct of the business of the limited liability company or for the preservation of its business or property if such payments were made or liabilities incurred without violation of the member’s or manager’s duties to the limited liability company.

Florida Limited Liability Companies

Shea Victoria Gardens, LLC is organized under the laws of the State of Florida. Section 608.4229 of the Florida Limited Liability Company Act indemnifies members, managers, managing members, officers, employees, and agents subject to such standards and restrictions, if any, as are set forth in its articles of organization or operating agreement. A limited liability company may, and has the power to, but is not required to, indemnify and hold harmless any member or manager or other person from and against any and all claims and demands whatsoever. Notwithstanding the foregoing, indemnification or advancement of expenses should not be made to or on behalf of any member, manager, managing member, officer, employee, or agent if a judgment or

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other final adjudication establishes that the actions, or omissions to act, of such member, manager, managing member, officer, employee, or agent were material to the cause of action so adjudicated and constitute any of the following: (i) a violation of criminal law, unless the member, manager, managing member, officer, employee, or agent had no reasonable cause to believe such conduct was unlawful; (ii) a transaction from which the member, manager, managing member, officer, employee, or agent derived an improper personal benefit; (iii) in the case of a manager or managing member, a circumstance under which the liability provisions of Section 608.426 are applicable; or (iv) willful misconduct or a conscious disregard for the best interests of the limited liability company in a proceeding by or in the right of the limited liability company to procure a judgment in its favor or in a proceeding by or in the right of a member.

Illinois Corporations

UDC Advisory Services, Inc. is organized under the laws of the State of Illinois. Section 8.75 of the Illinois Business Corporation Act of 1983, as amended (the “IBCA”), provides for a limitation of director liability. Under Section 8.75 of the IBCA, directors and officers may be indemnified by a corporation against all expenses incurred in connection with actions (including, under certain circumstances, derivative actions) brought against such director or officer by reason of his or her status as representative, or by reason of the fact that such director or officer serves or served as a representative of another entity at the corporation’s request, so long as the director or officer acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the corporation’s best interests.

The bylaws of UDC Advisory Services, Inc. provide that the corporation shall have the power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director, officer, employee or agent of the corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment or settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interest of the corporation, and with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. The bylaws of UDC Advisory Services, Inc. also provide that the corporation shall have the power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorney’s fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interest of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the corporation unless and only to the extent that the court in which such action or suit was brought shall determine upon application that despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the court shall deem proper. To the extent that a director, officer, employee or agent of the corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to above, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by him in connection therewith. Any indemnification under the above provisions shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth above.

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Item 21. Exhibits and Financial Statement Schedules

(a) Exhibits

See the Exhibit Index attached to this registration statement and incorporated herein by reference.

(b) Financial Statement Schedules

All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission have been omitted because the required information is not applicable or because the information required has been included in the financial statements or notes thereto included herein.

Item 22. Undertakings

The undersigned registrant hereby undertakes:

To respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this Form within one business day of the receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request.

To supply by means of post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective.

To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

(i) to include any prospectus required by Section 10(a)(3) of the Securities Act;

(ii) to reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and

(iii) to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.

That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

That, for the purpose of determining liability under the Securities Act to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be

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part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.

That, for the purpose of determining liability of the registrant under the Securities Act to any purchaser in the initial distribution of the securities: The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

(i) any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;

(ii) any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;

(iii) the portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and

(iv) any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.

That, for purposes of determining any liability under the Securities Act, each filing of the registrant’s annual report pursuant to Section 13(a) or 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

II-12

SIGNATURES

Pursuant to the requirements of Securities Act of 1933, as amended, Shea Homes Limited Partnership has duly caused this amendment no. 2 to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Walnut, State of California, as of January 23, 2012.

SHEA HOMES LIMITED PARTNERSHIP

By:

Shea Homes Limited Partnership,

a California limited partnership,

its Manager

By:

J.F. Shea, L.P.,

a Delaware limited partnership,

its sole General Partner

By:

JFS Management, L.P.,

a Delaware limited partnership,

its sole General Partner

By:

J.F. Shea Construction Management, Inc.,

a California corporation,

its sole General Partner

By:	/s/ Bruce J. Varker
	Name:  Bruce J. Varker Title:  Chief Financial Officer

II-13

Pursuant to the requirements of Securities Act of 1933, as amended, this amendment no. 2 to the registration statement has been signed by the following persons on January 23, 2012 in the capacities indicated below.

Signature	Title	Date
/s/ Roberto F. Selva Roberto (Bert) F. Selva	Chief Executive Officer (Principal Executive Officer)	January 23, 2012
/s/ Bruce J. Varker Bruce J. Varker	Chief Financial Officer (Principal Financial Officer)	January 23, 2012
/s/ Andrew T. Roundtree Andrew T. Roundtree	Controller (Principal Accounting Officer)	January 23, 2012
/s/ Peter O. Shea Peter O. Shea	Director	January 23, 2012
/s/ Peter O. Shea, Jr. Peter O. Shea, Jr.	Director	January 23, 2012
/s/ John C. Morrissey John C. Morrissey	Director	January 23, 2012
/s/ James G. Shontere James G. Shontere	Director	January 23, 2012

II-14

SIGNATURES

Pursuant to the requirements of Securities Act of 1933, as amended, each of the co-registrants named below has duly caused this amendment no. 2 to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Walnut, State of California, as of January 23, 2012.

SHEA HOMES FUNDING CORP.
By:	/s/ Bruce J. Varker
	Name:  Bruce J. Varker Title:  Chief Financial Officer

Pursuant to the requirements of the Securities Act of 1933, as amended, this amendment no. 2 to the registration statement has been signed below by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Roberto F. Selva Roberto (Bert) F. Selva	Chief Executive Officer (Principal Executive Officer)	January 23, 2012
/s/ Bruce J. Varker Bruce J. Varker	Chief Financial Officer (Principal Financial Officer)	January 23, 2012
/s/ Andrew T. Roundtree Andrew T. Roundtree	Controller (Principal Accounting Officer)	January 23, 2012
/s/ Peter O. Shea, Jr. Peter O. Shea, Jr.	Director	January 23, 2012
/s/ James G. Shontere James G. Shontere	Director	January 23, 2012

II-15

SIGNATURES

Pursuant to the requirements of Securities Act of 1933, as amended, each of the co-registrants named below has duly caused this amendment no. 2 to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Walnut, State of California, as of January 23, 2012.

HIGHLANDS RANCH DEVELOPMENT CORPORATION
By:	/s/ Bruce J. Varker
	Name:  Bruce J. Varker Title:  Chief Financial Officer

Pursuant to the requirements of the Securities Act of 1933, as amended, this amendment no. 2 to the registration statement has been signed below by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Roberto F. Selva Roberto (Bert) F. Selva	Chief Executive Officer (Principal Executive Officer)	January 23, 2012
/s/ Bruce J. Varker Bruce J. Varker	Chief Financial Officer (Principal Financial Officer)	January 23, 2012
/s/ Andrew T. Roundtree Andrew T. Roundtree	Controller (Principal Accounting Officer)	January 23, 2012
/s/ Peter O. Shea Peter O. Shea	Director	January 23, 2012
/s/ Peter O. Shea, Jr. Peter O. Shea, Jr.	Director	January 23, 2012
/s/ John C. Morrissey John C. Morrissey	Director	January 23, 2012
/s/ James G. Shontere James G. Shontere	Director	January 23, 2012

II-16

SIGNATURES

Pursuant to the requirements of Securities Act of 1933, as amended, each of the co-registrants named below has duly caused this amendment no. 2 to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Walnut, State of California, as of January 23, 2012.

MONTY GREEN HOLDINGS, LLC
By:
Shea Homes Limited Partnership, a California limited partnership, its Manager
By:	/s/ Bruce J. Varker
	Name:  Bruce J. Varker Title:  Chief Financial Officer

Pursuant to the requirements of the Securities Act of 1933, as amended, this amendment no. 2 to the registration statement has been signed below by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Roberto F. Selva Roberto (Bert) F. Selva	Chief Executive Officer (Principal Executive Officer)	January 23, 2012
/s/ Bruce J. Varker Bruce J. Varker	Chief Financial Officer (Principal Financial Officer)	January 23, 2012
/s/ Andrew T. Roundtree Andrew T. Roundtree	Controller (Principal Accounting Officer)	January 23, 2012
Shea Homes Limited Partnership, A California limited Partnership, Its Manager
By:
/s/ Bruce J. Varker	Manager	January 23, 2012
Bruce J. Varker, its Chief Financial Officer

II-17

SIGNATURES

Pursuant to the requirements of Securities Act of 1933, as amended, each of the co-registrants named below has duly caused this amendment no. 2 to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Walnut, State of California, as of January 23, 2012.

MOUNTAINBROOK VILLAGE COMPANY
By:	/s/ Bruce J. Varker
	Name:  Bruce J. Varker Title:  Chief Financial Officer

Pursuant to the requirements of the Securities Act of 1933, as amended, this amendment no. 2 to the registration statement has been signed below by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Roberto F. Selva Roberto (Bert) F. Selva	Chief Executive Officer (Principal Executive Officer)	January 23, 2012
/s/ Bruce J. Varker Bruce J. Varker	Chief Financial Officer (Principal Financial Officer)	January 23, 2012
/s/ Andrew T. Roundtree Andrew T. Roundtree	Controller (Principal Accounting Officer)	January 23, 2012
/s/ Peter O. Shea Peter O. Shea	Director	January 23, 2012
/s/ Peter O. Shea, Jr. Peter O. Shea, Jr.	Director	January 23, 2012
/s/ John C. Morrissey John C. Morrissey	Director	January 23, 2012
/s/ James G. Shontere James G. Shontere	Director	January 23, 2012

II-18

SIGNATURES

Pursuant to the requirements of Securities Act of 1933, as amended, each of the co-registrants named below has duly caused this amendment no. 2 to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Walnut, State of California, as of January 23, 2012.

SAND CREEK CATTLE COMPANY
By:	/s/ Bruce J. Varker
	Name:  Bruce J. Varker Title:  Chief Financial Officer

Pursuant to the requirements of the Securities Act of 1933, as amended, this amendment no. 2 to the registration statement has been signed below by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Roberto F. Selva Roberto (Bert) F. Selva	Chief Executive Officer (Principal Executive Officer)	January 23, 2012
/s/ Bruce J. Varker Bruce J. Varker	Chief Financial Officer (Principal Financial Officer)	January 23, 2012
/s/ Andrew T. Roundtree Andrew T. Roundtree	Controller (Principal Accounting Officer)	January 23, 2012
/s/ Peter O. Shea Peter O. Shea	Director	January 23, 2012
/s/ Peter O. Shea, Jr. Peter O. Shea, Jr.	Director	January 23, 2012
/s/ John C. Morrissey John C. Morrissey	Director	January 23, 2012
/s/ James G. Shontere James G. Shontere	Director	January 23, 2012

II-19

SIGNATURES

Pursuant to the requirements of Securities Act of 1933, as amended, each of the co-registrants named below has duly caused this amendment no. 2 to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Walnut, State of California, as of January 23, 2012.

SERENADE AT NATOMAS, LLC
By:
Shea Homes, Inc., a Delaware corporation, its sole Member
By:	/s/ Bruce J. Varker
	Name:  Bruce J. Varker
	Title:  Chief Financial Officer

Pursuant to the requirements of the Securities Act of 1933, as amended, this amendment no. 2 to the registration statement has been signed below by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Roberto F. Selva Roberto (Bert) F. Selva	Chief Executive Officer (Principal Executive Officer)	January 23, 2012
/s/ Bruce J. Varker Bruce J. Varker	Chief Financial Officer (Principal Financial Officer)	January 23, 2012
/s/ Andrew T. Roundtree Andrew T. Roundtree	Controller (Principal Accounting Officer)	January 23, 2012
Shea Homes, Inc. A Delaware corporation, Its sole Member
By:
/s/ Bruce J. Varker	Member	January 23, 2012
Bruce J. Varker, its Chief Financial Officer

II-20

SIGNATURES

Pursuant to the requirements of Securities Act of 1933, as amended, each of the co-registrants named below has duly caused this amendment no. 2 to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Walnut, State of California, as of January 23, 2012.

SEVILLE GOLF AND COUNTRY CLUB LLC
By:
Shea Homes Limited Partnership, a California limited partnership, its sole Member
By:	/s/ Bruce J. Varker
	Name:  Bruce J. Varker
	Title:  Chief Financial Officer

Pursuant to the requirements of the Securities Act of 1933, as amended, this amendment no. 2 to the registration statement has been signed below by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Roberto F. Selva Roberto (Bert) F. Selva	Chief Executive Officer (Principal Executive Officer)	January 23, 2012
/s/ Bruce J. Varker Bruce J. Varker	Chief Financial Officer (Principal Financial Officer)	January 23, 2012
/s/ Andrew T. Roundtree Andrew T. Roundtree	Controller (Principal Accounting Officer)	January 23, 2012
Shea Homes Limited Partnership, A California limited Partnership, Its sole Member
By:
/s/ Bruce J. Varker	Member	January 23, 2012
Bruce J. Varker, its Chief Financial Officer

II-21

SIGNATURES

Pursuant to the requirements of Securities Act of 1933, as amended, each of the co-registrants named below has duly caused this amendment no. 2 to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Walnut, State of California, as of January 23, 2012.

SHEA BREA DEVELOPMENT, LLC
By:
Shea Homes Limited Partnership, a California limited partnership, its sole Member
By:	/s/ Bruce J. Varker
	Name:  Bruce J. Varker
	Title:  Chief Financial Officer

Pursuant to the requirements of the Securities Act of 1933, as amended, this amendment no. 2 to the registration statement has been signed below by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Roberto F. Selva Roberto (Bert) F. Selva	Chief Executive Officer (Principal Executive Officer)	January 23, 2012
/s/ Bruce J. Varker Bruce J. Varker	Chief Financial Officer (Principal Financial Officer)	January 23, 2012
/s/ Andrew T. Roundtree Andrew T. Roundtree	Controller (Principal Accounting Officer)	January 23, 2012
Shea Homes Limited Partnership, A California limited Partnership, Its sole Member
By:
/s/ Bruce J. Varker	Member	January 23, 2012
Bruce J. Varker, its Chief Financial Officer

II-22

SIGNATURES

Pursuant to the requirements of Securities Act of 1933, as amended, each of the co-registrants named below has duly caused this amendment no. 2 to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Walnut, State of California, as of January 23, 2012.

SHEA CAPITAL II, LLC
By:
Shea Homes Limited Partnership, a California limited partnership, its Manager
By:	/s/ Bruce J. Varker
	Name:  Bruce J. Varker Title:  Chief Financial Officer

Pursuant to the requirements of the Securities Act of 1933, as amended, this amendment no. 2 to the registration statement has been signed below by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Roberto F. Selva Roberto (Bert) F. Selva	Chief Executive Officer (Principal Executive Officer)	January 23, 2012
/s/ Bruce J. Varker Bruce J. Varker	Chief Financial Officer (Principal Financial Officer)	January 23, 2012
/s/ Andrew T. Roundtree Andrew T. Roundtree	Controller (Principal Accounting Officer)	January 23, 2012
Shea Homes Limited Partnership, A California limited Partnership, Its Manager
By:
/s/ Bruce J. Varker	Manager	January 23, 2012
Bruce J. Varker

II-23

SIGNATURES

Pursuant to the requirements of Securities Act of 1933, as amended, each of the co-registrants named below has duly caused this amendment no. 2 to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Walnut, State of California, as of January 23, 2012.

SHEA COMMUNITIES MARKETING COMPANY
By:	/s/ Bruce J. Varker
	Name:  Bruce J. Varker Title:  Chief Financial Officer

Pursuant to the requirements of the Securities Act of 1933, as amended, this amendment no. 2 to the registration statement has been signed below by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Roberto F. Selva Roberto (Bert) F. Selva	Chief Executive Officer (Principal Executive Officer)	January 23, 2012
/s/ Bruce J. Varker Bruce J. Varker	Chief Financial Officer (Principal Financial Officer)	January 23, 2012
/s/ Andrew T. Roundtree Andrew T. Roundtree	Controller (Principal Accounting Officer)	January 23, 2012
/s/ Peter O. Shea Peter O. Shea	Director	January 23, 2012
/s/ Peter O. Shea, Jr. Peter O. Shea, Jr.	Director	January 23, 2012
/s/ John C. Morrissey John C. Morrissey	Director	January 23, 2012
/s/ James G. Shontere James G. Shontere	Director	January 23, 2012

II-24

SIGNATURES

Pursuant to the requirements of Securities Act of 1933, as amended, each of the co-registrants named below has duly caused this amendment no. 2 to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Walnut, State of California, as of January 23, 2012.

SHEA FINANCIAL SERVICES, INC.
By:	/s/ Joel VanRyckeghen
	Name:  Joel VanRyckeghen
	Title:  Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, as amended, this amendment no. 2 to the registration statement has been signed below by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Joel VanRyckeghen Joel VanRyckeghen	Chief Executive Officer (Principal Executive Officer)	January 23, 2012
* David Hada	Chief Financial Officer (Principal Financial Officer)	January 23, 2012
/s/ Cherie Edborg Cherie Edborg	Controller (Principal Accounting Officer)	January 23, 2012
/s/ Peter O. Shea Peter O. Shea	Director	January 23, 2012
/s/ Peter O. Shea, Jr. Peter O. Shea, Jr.	Director	January 23, 2012
/s/ John C. Morrissey John C. Morrissey	Director	January 23, 2012
/s/ James G. Shontere James G. Shontere	Director	January 23, 2012

* By:	/s/ Andrew T. Roundtree
	Andrew T. Roundtree Attorney-in-Fact

II-25

SIGNATURES

Pursuant to the requirements of Securities Act of 1933, as amended, each of the co-registrants named below has duly caused this amendment no. 2 to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Walnut, State of California, as of January 23, 2012.

SHEA HOMES, INC.
By:	/s/ Bruce J. Varker
	Name:  Bruce J. Varker Title:  Chief Financial Officer

Pursuant to the requirements of the Securities Act of 1933, as amended, this amendment no. 2 to the registration statement has been signed below by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Roberto F. Selva Roberto (Bert) F. Selva	Chief Executive Officer (Principal Executive Officer)	January 23, 2012
/s/ Bruce J. Varker Bruce J. Varker	Chief Financial Officer (Principal Financial Officer)	January 23, 2012
/s/ Andrew T. Roundtree Andrew T. Roundtree	Controller (Principal Accounting Officer)	January 23, 2012
/s/ Peter O. Shea Peter O. Shea	Director	January 23, 2012
/s/ Peter O. Shea, Jr. Peter O. Shea, Jr.	Director	January 23, 2012
/s/ John C. Morrissey John C. Morrissey	Director	January 23, 2012
/s/ James G. Shontere James G. Shontere	Director	January 23, 2012

II-26

SIGNATURES

Pursuant to the requirements of Securities Act of 1933, as amended, each of the co-registrants named below has duly caused this amendment no. 2 to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Walnut, State of California, as of January 23, 2012.

SHEA HOMES AT MONTAGE, LLC
By:	/s/ Bruce J. Varker
	Name:  Bruce J. Varker Title:  Chief Financial Officer

Pursuant to the requirements of the Securities Act of 1933, as amended, this amendment no. 2 to the registration statement has been signed below by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Roberto F. Selva Roberto (Bert) F. Selva	Chief Executive Officer (Principal Executive Officer)	January 23, 2012
/s/ Bruce J. Varker Bruce J. Varker	Chief Financial Officer (Principal Financial Officer)	January 23, 2012
/s/ Andrew T. Roundtree Andrew T. Roundtree	Controller (Principal Accounting Officer)	January 23, 2012
/s/ Peter O. Shea Peter O. Shea	Director	January 23, 2012
/s/ Peter O. Shea, Jr. Peter O. Shea, Jr.	Director	January 23, 2012
/s/ John C. Morrissey John C. Morrissey	Director	January 23, 2012
/s/ James G. Shontere James G. Shontere	Director	January 23, 2012

II-27

SIGNATURES

Pursuant to the requirements of Securities Act of 1933, as amended, each of the co-registrants named below has duly caused this amendment no. 2 to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Walnut, State of California, as of January 23, 2012.

SHEA HOMES SOUTHWEST, INC.
By:	/s/ Bruce J. Varker
	Name:  Bruce J. Varker Title:  Chief Financial Officer

Pursuant to the requirements of the Securities Act of 1933, as amended, this amendment no. 2 to the registration statement has been signed below by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Roberto F. Selva Roberto (Bert) F. Selva	Chief Executive Officer (Principal Executive Officer)	January 23, 2012
/s/ Bruce J. Varker Bruce J. Varker	Chief Financial Officer (Principal Financial Officer)	January 23, 2012
/s/ Andrew T. Roundtree Andrew T. Roundtree	Controller (Principal Accounting Officer)	January 23, 2012
/s/ Peter O. Shea Peter O. Shea	Director	January 23, 2012
/s/ Peter O. Shea, Jr. Peter O. Shea, Jr.	Director	January 23, 2012
/s/ John C. Morrissey John C. Morrissey	Director	January 23, 2012
/s/ James G. Shontere James G. Shontere	Director	January 23, 2012

II-28

SIGNATURES

Pursuant to the requirements of Securities Act of 1933, as amended, each of the co-registrants named below has duly caused this amendment no. 2 to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Walnut, State of California, as of January 23, 2012.

SHEA HOMES VANTIS, LLC
By:
Shea Homes, Inc. a Delaware corporation, its sole Member
By:	/s/ Bruce J. Varker
	Name:  Bruce J. Varker Title:  Chief Financial Officer

Pursuant to the requirements of the Securities Act of 1933, as amended, this amendment no. 2 to the registration statement has been signed below by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Roberto F. Selva Roberto (Bert) F. Selva	Chief Executive Officer (Principal Executive Officer)	January 23, 2012
/s/ Bruce J. Varker Bruce J. Varker	Chief Financial Officer (Principal Financial Officer)	January 23, 2012
/s/ Andrew T. Roundtree Andrew T. Roundtree	Controller (Principal Accounting Officer)	January 23, 2012
Shea Homes, Inc. A Delaware corporation, Its sole Member
By:
/s/ Bruce J. Varker	Member	January 23, 2012
Bruce J. Varker, its Chief Financial Officer

II-29

SIGNATURES

Pursuant to the requirements of Securities Act of 1933, as amended, each of the co-registrants named below has duly caused this amendment no. 2 to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Walnut, State of California, as of January 23, 2012.

SHEA INSURANCE SERVICES, INC.
By:	/s/ Joel VanRyckeghen
	Name:  Joel VanRyckeghen
	Title:  Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, as amended, this amendment no. 2 to the registration statement has been signed below by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Joel VanRyckeghen Joel VanRyckeghen	Chief Executive Officer (Principal Executive Officer)	January 23, 2012
* David Hada	Chief Financial Officer (Principal Financial Officer)	January 23, 2012
/s/ Cherie Edborg Cherie Edborg	Controller (Principal Accounting Officer)	January 23, 2012
/s/ Peter O. Shea Peter O. Shea	Director	January 23, 2012
/s/ Peter O. Shea, Jr. Peter O. Shea, Jr.	Director	January 23, 2012
/s/ John C. Morrissey John C. Morrissey	Director	January 23, 2012
/s/ James G. Shontere James G. Shontere	Director	January 23, 2012

* By:	/s/ Andrew T. Roundtree
	Andrew T. Roundtree Attorney-in-Fact

II-30

SIGNATURES

Pursuant to the requirements of Securities Act of 1933, as amended, each of the co-registrants named below has duly caused this amendment no. 2 to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Walnut, State of California, as of January 23, 2012.

SHEA LA QUINTA LLC

By:

Shea Homes, Inc.,

a Delaware corporation,

its sole Member

By:	/s/ Bruce J. Varker
	Name:  Bruce J. Varker
	Title:  Chief Financial Officer

Pursuant to the requirements of the Securities Act of 1933, as amended, this amendment no. 2 to the registration statement has been signed below by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Roberto F. Selva Roberto (Bert) F. Selva	Chief Executive Officer (Principal Executive Officer)	January 23, 2012
/s/ Bruce J. Varker Bruce J. Varker	Chief Financial Officer (Principal Financial Officer)	January 23, 2012
/s/ Andrew T. Roundtree Andrew T. Roundtree	Controller (Principal Accounting Officer)	January 23, 2012
Shea Homes, Inc. A Delaware corporation, Its sole Member
By:
/s/ Bruce J. Varker Bruce J. Varker, its Chief Financial Officer	Member	January 23, 2012

II-31

SIGNATURES

Pursuant to the requirements of Securities Act of 1933, as amended, each of the co-registrants named below has duly caused this amendment no. 2 to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Walnut, State of California, as of January 23, 2012.

SHEA NINTH AND COLORADO, LLC

By:

Shea Homes Limited Partnership,

a California limited partnership,

its Manager

By:	/s/ Bruce J. Varker
	Name:  Bruce J. Varker
	Title:  Chief Financial Officer

Pursuant to the requirements of the Securities Act of 1933, as amended, this amendment no. 2 to the registration statement has been signed below by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Roberto F. Selva Roberto (Bert) F. Selva	Chief Executive Officer (Principal Executive Officer)	January 23, 2012
/s/ Bruce J. Varker Bruce J. Varker	Chief Financial Officer (Principal Financial Officer)	January 23, 2012
/s/ Andrew T. Roundtree Andrew T. Roundtree	Controller (Principal Accounting Officer)	January 23, 2012
Shea Homes Limited Partnership, A California limited Partnership, Its Manager
By:
/s/ Bruce J. Varker Bruce J. Varker, its Chief Financial Officer	Manager	January 23, 2012

II-32

SIGNATURES

Pursuant to the requirements of Securities Act of 1933, as amended, each of the co-registrants named below has duly caused this amendment no. 2 to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Walnut, State of California, as of January 23, 2012.

SHEA OTAY VILLAGE 11, LLC

By:

Shea Homes Limited Partnership,

a California limited partnership,

its sole Member

By:	/s/ Bruce J. Varker
	Name:  Bruce J. Varker
	Title:  Chief Financial Officer

Pursuant to the requirements of the Securities Act of 1933, as amended, this amendment no. 2 to the registration statement has been signed below by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Roberto F. Selva Roberto (Bert) F. Selva	Chief Executive Officer (Principal Executive Officer)	January 23, 2012
/s/ Bruce J. Varker Bruce J. Varker	Chief Financial Officer (Principal Financial Officer)	January 23, 2012
/s/ Andrew T. Roundtree Andrew T. Roundtree	Controller (Principal Accounting Officer)	January 23, 2012
Shea Homes Limited Partnership, A California limited Partnership, Its sole Member By:
/s/ Bruce J. Varker Bruce J. Varker, its Chief Financial Officer	Member	January 23, 2012

II-33

SIGNATURES

Pursuant to the requirements of Securities Act of 1933, as amended, each of the co-registrants named below has duly caused this amendment no. 2 to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Walnut, State of California, as of January 23, 2012.

SHEA PROCTOR VALLEY, LLC
By:
Shea Homes Limited Partnership, a California limited partnership, its sole Member
By:	/s/ Bruce J. Varker
	Name:  Bruce J. Varker
	Title:  Chief Financial Officer

Pursuant to the requirements of the Securities Act of 1933, as amended, this amendment no. 2 to the registration statement has been signed below by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Roberto F. Selva Roberto (Bert) F. Selva	Chief Executive Officer (Principal Executive Officer)	January 23, 2012
/s/ Bruce J. Varker Bruce J. Varker	Chief Financial Officer (Principal Financial Officer)	January 23, 2012
/s/ Andrew T. Roundtree Andrew T. Roundtree	Controller (Principal Accounting Officer)	January 23, 2012
Shea Homes Limited Partnership, A California limited Partnership, Its sole Member By:
/s/ Bruce J. Varker Bruce J. Varker, its Chief Financial Officer	Member	January 23, 2012

II-34

SIGNATURES

Pursuant to the requirements of Securities Act of 1933, as amended, each of the co-registrants named below has duly caused this amendment no. 2 to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Walnut, State of California, as of January 23, 2012.

SHEA PROPERTIES OF COLORADO, INC.
By:	/s/ Bruce J. Varker
	Name:  Bruce J. Varker
	Title:  Chief Financial Officer

Pursuant to the requirements of the Securities Act of 1933, as amended, this amendment no. 2 to the registration statement has been signed below by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Roberto F. Selva Roberto (Bert) F. Selva	Chief Executive Officer (Principal Executive Officer)	January 23, 2012
/s/ Bruce J. Varker Bruce J. Varker	Chief Financial Officer (Principal Financial Officer)	January 23, 2012
/s/ Andrew T. Roundtree Andrew T. Roundtree	Controller (Principal Accounting Officer)	January 23, 2012
/s/ Peter O. Shea Peter O. Shea	Director	January 23, 2012
/s/ Peter O. Shea, Jr. Peter O. Shea, Jr.	Director	January 23, 2012
/s/ John C. Morrissey John C. Morrissey	Director	January 23, 2012
/s/ James G. Shontere James G. Shontere	Director	January 23, 2012

II-35

SIGNATURES

Pursuant to the requirements of Securities Act of 1933, as amended, each of the co-registrants named below has duly caused this amendment no. 2 to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Walnut, State of California, as of January 23, 2012.

SHEA RIVERMARK VILLAGE, LLC
By:
Shea Homes Limited Partnership, a California limited partnership, its sole Member
By:	/s/ Bruce J. Varker
	Name:  Bruce J. Varker
	Title:  Chief Financial Officer

Pursuant to the requirements of the Securities Act of 1933, as amended, this amendment no. 2 to the registration statement has been signed below by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Roberto F. Selva Roberto (Bert) F. Selva	Chief Executive Officer (Principal Executive Officer)	January 23, 2012
/s/ Bruce J. Varker Bruce J. Varker	Chief Financial Officer (Principal Financial Officer)	January 23, 2012
/s/ Andrew T. Roundtree Andrew T. Roundtree	Controller (Principal Accounting Officer)	January 23, 2012
Shea Homes Limited Partnership, A California limited Partnership, Its sole Member
By:
/s/ Bruce J. Varker	Member	January 23, 2012
Bruce J. Varker, its Chief Financial Officer

II-36

SIGNATURES

Pursuant to the requirements of Securities Act of 1933, as amended, each of the co-registrants named below has duly caused this amendment no. 2 to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Walnut, State of California, as of January 23, 2012.

SHEA TONNER HILLS, LLC
By:
Shea Homes Limited Partnership, a California limited partnership, its sole Member
By:	/s/ Bruce J. Varker
	Name:  Bruce J. Varker
	Title:  Chief Financial Officer

Pursuant to the requirements of the Securities Act of 1933, as amended, this amendment no. 2 to the registration statement has been signed below by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Roberto F. Selva Roberto (Bert) F. Selva	Chief Executive Officer (Principal Executive Officer)	January 23, 2012
/s/ Bruce J. Varker Bruce J. Varker	Chief Financial Officer (Principal Financial Officer)	January 23, 2012
/s/ Andrew T. Roundtree Andrew T. Roundtree	Controller (Principal Accounting Officer)	January 23, 2012
Shea Homes Limited Partnership, A California limited Partnership, Its sole Member
By:
/s/ Bruce J. Varker	Member	January 23, 2012
Bruce J. Varker, its Chief Financial Officer

II-37

SIGNATURES

Pursuant to the requirements of Securities Act of 1933, as amended, each of the co-registrants named below has duly caused this amendment no. 2 to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Walnut, State of California, as of January 23, 2012.

SHEA VICTORIA GARDENS, LLC
By:	/s/ Bruce J. Varker
	Name:  Bruce J. Varker
	Title:  Chief Financial Officer

Pursuant to the requirements of the Securities Act of 1933, as amended, this amendment no. 2 to the registration statement has been signed below by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Roberto F. Selva Roberto (Bert) F. Selva	Chief Executive Officer (Principal Executive Officer)	January 23, 2012
/s/ Bruce J. Varker Bruce J. Varker	Chief Financial Officer (Principal Financial Officer)	January 23, 2012
/s/ Andrew T. Roundtree Andrew T. Roundtree	Controller (Principal Accounting Officer)	January 23, 2012
/s/ Peter O. Shea Peter O. Shea	Executive Committee Member	January 23, 2012
/s/ Peter O. Shea, Jr. Peter O. Shea, Jr.	Executive Committee Member	January 23, 2012
/s/ John C. Morrissey John C. Morrissey	Executive Committee Member	January 23, 2012
/s/ James G. Shontere James G. Shontere	Executive Committee Member	January 23, 2012

II-38

SIGNATURES

Pursuant to the requirements of Securities Act of 1933, as amended, each of the co-registrants named below has duly caused this amendment no. 2 to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Walnut, State of California, as of January 23, 2012.

SH JUBILEE, LLC
By:	/s/ Bruce J. Varker
	Name:  Bruce J. Varker
	Title:  Chief Financial Officer

Pursuant to the requirements of the Securities Act of 1933, as amended, this amendment no. 2 to the registration statement has been signed below by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Roberto F. Selva Roberto (Bert) F. Selva	Chief Executive Officer (Principal Executive Officer)	January 23, 2012
/s/ Bruce J. Varker Bruce J. Varker	Chief Financial Officer (Principal Financial Officer)	January 23, 2012
/s/ Andrew T. Roundtree Andrew T. Roundtree	Controller (Principal Accounting Officer)	January 23, 2012
/s/ Peter O. Shea Peter O. Shea	Executive Committee Member	January 23, 2012
/s/ Peter O. Shea, Jr. Peter O. Shea, Jr.	Executive Committee Member	January 23, 2012
/s/ John C. Morrissey John C. Morrissey	Executive Committee Member	January 23, 2012
/s/ James G. Shontere James G. Shontere	Executive Committee Member	January 23, 2012

II-39

SIGNATURES

Pursuant to the requirements of Securities Act of 1933, as amended, each of the co-registrants named below has duly caused this amendment no. 2 to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Walnut, State of California, as of January 23, 2012.

SH JUBILEE MANAGEMENT, LLC
By:	/s/ Bruce J. Varker
	Name:  Bruce J. Varker
	Title:  Chief Financial Officer

Pursuant to the requirements of the Securities Act of 1933, as amended, this amendment no. 2 to the registration statement has been signed below by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Roberto F. Selva Roberto (Bert) F. Selva	Chief Executive Officer (Principal Executive Officer)	January 23, 2012
/s/ Bruce J. Varker Bruce J. Varker	Chief Financial Officer (Principal Financial Officer)	January 23, 2012
/s/ Andrew T. Roundtree Andrew T. Roundtree	Controller (Principal Accounting Officer)	January 23, 2012
/s/ Peter O. Shea Peter O. Shea	Executive Committee Member	January 23, 2012
/s/ Peter O. Shea, Jr. Peter O. Shea, Jr.	Executive Committee Member	January 23, 2012
/s/ John C. Morrissey John C. Morrissey	Executive Committee Member	January 23, 2012
/s/ James G. Shontere James G. Shontere	Executive Committee Member	January 23, 2012

II-40

SIGNATURES

Pursuant to the requirements of Securities Act of 1933, as amended, each of the co-registrants named below has duly caused this amendment no. 2 to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Walnut, State of California, as of January 23, 2012.

SHI JV HOLDINGS, LLC
By:
Shea Homes, Inc., a Delaware corporation, its Manager
By:	/s/ Bruce J. Varker
	Name:  Bruce J. Varker
	Title:  Chief Financial Officer

Pursuant to the requirements of the Securities Act of 1933, as amended, this amendment no. 2 to the registration statement has been signed below by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Roberto F. Selva Roberto (Bert) F. Selva	Chief Executive Officer (Principal Executive Officer)	January 23, 2012
/s/ Bruce J. Varker Bruce J. Varker	Chief Financial Officer (Principal Financial Officer)	January 23, 2012
/s/ Andrew T. Roundtree Andrew T. Roundtree	Controller (Principal Accounting Officer)	January 23, 2012
Shea Homes, Inc., A Delaware corporation, Its Manager
By:
/s/ Bruce J. Varker Bruce J. Varker, its Chief Financial Officer	Manager	January 23, 2012

II-41

SIGNATURES

Pursuant to the requirements of Securities Act of 1933, as amended, each of the co-registrants named below has duly caused this amendment no. 2 to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Walnut, State of California, as of January 23, 2012.

SHLP JV HOLDINGS, LLC
By:
Shea Homes Limited Partnership, a California limited partnership, its Manager
By:	/s/ Bruce J. Varker
	Name:  Bruce J. Varker
	Title:  Chief Financial Officer

Pursuant to the requirements of the Securities Act of 1933, as amended, this amendment no. 2 to the registration statement has been signed below by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Roberto F. Selva Roberto (Bert) F. Selva	Chief Executive Officer (Principal Executive Officer)	January 23, 2012
/s/ Bruce J. Varker Bruce J. Varker	Chief Financial Officer (Principal Financial Officer)	January 23, 2012
/s/ Andrew T. Roundtree Andrew T. Roundtree	Controller (Principal Accounting Officer)	January 23, 2012
Shea Homes Limited Partnership, A California limited Partnership, Its Manager
By:
/s/ Bruce J. Varker Bruce J. Varker, its Chief Financial Officer	Manager	January 23, 2012

II-42

SIGNATURES

Pursuant to the requirements of Securities Act of 1933, as amended, each of the co-registrants named below has duly caused this amendment no. 2 to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Walnut, State of California, as of January 23, 2012.

TOWER 104 GATHERING, LLC
By:
Shea Homes Limited Partnership, a California limited partnership, its Manager
By:	/s/ Bruce J. Varker
	Name:  Bruce J. Varker
	Title:  Chief Financial Officer

Pursuant to the requirements of the Securities Act of 1933, as amended, this amendment no. 2 to the registration statement has been signed below by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Roberto F. Selva Roberto (Bert) F. Selva	Chief Executive Officer (Principal Executive Officer)	January 23, 2012
/s/ Bruce J. Varker Bruce J. Varker	Chief Financial Officer (Principal Financial Officer)	January 23, 2012
/s/ Andrew T. Roundtree Andrew T. Roundtree	Controller (Principal Accounting Officer)	January 23, 2012
Shea Homes Limited Partnership, A California limited Partnership, Its Manager
By:
/s/ Bruce J. Varker Bruce J. Varker, its Chief Financial Officer	Manager	January 23, 2012

II-43

SIGNATURES

Pursuant to the requirements of Securities Act of 1933, as amended, each of the co-registrants named below has duly caused this amendment no. 2 to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Walnut, State of California, as of January 23, 2012.

TOWER 104 OIL, LLC
By:
Shea Homes Limited Partnership, a California limited partnership, its Manager
By:	/s/ Bruce J. Varker
	Name:  Bruce J. Varker
	Title:  Chief Financial Officer

Pursuant to the requirements of the Securities Act of 1933, as amended, this amendment no. 2 to the registration statement has been signed below by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Roberto F. Selva Roberto (Bert) F. Selva	Chief Executive Officer (Principal Executive Officer)	January 23, 2012
/s/ Bruce J. Varker Bruce J. Varker	Chief Financial Officer (Principal Financial Officer)	January 23, 2012
/s/ Andrew T. Roundtree Andrew T. Roundtree	Controller (Principal Accounting Officer)	January 23, 2012
Shea Homes Limited Partnership, A California limited Partnership, Its Manager
By:
/s/ Bruce J. Varker Bruce J. Varker, its Chief Financial Officer	Manager	January 23, 2012

II-44

SIGNATURES

Pursuant to the requirements of Securities Act of 1933, as amended, each of the co-registrants named below has duly caused this amendment no. 2 to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Walnut, State of California, as of January 23, 2012.

TRILOGY ANTIOCH, LLC
By:
Shea Capital II, LLC, a Delaware limited liability company, its Manager
By:
Shea Homes Limited Partnership, a California limited partnership, its Manager
By:	/s/ Bruce J. Varker
	Name:  Bruce J. Varker
	Title:  Chief Financial Officer

Pursuant to the requirements of the Securities Act of 1933, as amended, this amendment no. 2 to the registration statement has been signed below by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Roberto F. Selva Roberto (Bert) F. Selva	Chief Executive Officer (Principal Executive Officer)	January 23, 2012
/s/ Bruce J. Varker Bruce J. Varker	Chief Financial Officer (Principal Financial Officer)	January 23, 2012
/s/ Andrew T. Roundtree Andrew T. Roundtree	Controller (Principal Accounting Officer)	January 23, 2012
Shea Capital II, LLC, A Delaware limited liability company Its Manager
By:
Shea Homes Limited Partnership, A California limited Partnership, Its manager
By:
/s/ Bruce J. Varker Bruce J. Varker, its Chief Financial Officer	Manager	January 23, 2012

II-45

SIGNATURES

Pursuant to the requirements of Securities Act of 1933, as amended, each of the co-registrants named below has duly caused this amendment no. 2 to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Walnut, State of California, as of January 23, 2012.

UDC ADVISORY SERVICES, INC.
By:	/s/ Bruce J. Varker
	Name:  Bruce J. Varker
	Title:  Chief Financial Officer

Pursuant to the requirements of the Securities Act of 1933, as amended, this amendment no. 2 to the registration statement has been signed below by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Roberto F. Selva Roberto (Bert) F. Selva	Chief Executive Officer (Principal Executive Officer)	January 23, 2012
/s/ Bruce J. Varker Bruce J. Varker	Chief Financial Officer (Principal Financial Officer)	January 23, 2012
/s/ Andrew T. Roundtree Andrew T. Roundtree	Controller (Principal Accounting Officer)	January 23, 2012
/s/ Peter O. Shea Peter O. Shea	Director	January 23, 2012
/s/ Peter O. Shea, Jr. Peter O. Shea, Jr.	Director	January 23, 2012
/s/ John C. Morrissey John C. Morrissey	Director	January 23, 2012
/s/ James G. Shontere James G. Shontere	Director	January 23, 2012

II-46

SIGNATURES

Pursuant to the requirements of Securities Act of 1933, as amended, each of the co-registrants named below has duly caused this amendment no. 2 to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Walnut, State of California, as of January 23, 2012.

UDC HOMES CONSTRUCTION, INC.
By:	/s/ Bruce J. Varker
	Name:  Bruce J. Varker
	Title:  Chief Financial Officer

Pursuant to the requirements of the Securities Act of 1933, as amended, this amendment no. 2 to the registration statement has been signed below by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Roberto F. Selva Roberto (Bert) F. Selva	Chief Executive Officer (Principal Executive Officer)	January 23, 2012
/s/ Bruce J. Varker Bruce J. Varker	Chief Financial Officer (Principal Financial Officer)	January 23, 2012
/s/ Andrew T. Roundtree Andrew T. Roundtree	Controller (Principal Accounting Officer)	January 23, 2012
/s/ Peter O. Shea Peter O. Shea	Director	January 23, 2012
/s/ Peter O. Shea, Jr. Peter O. Shea, Jr.	Director	January 23, 2012
/s/ John C. Morrissey John C. Morrissey	Director	January 23, 2012
/s/ James G. Shontere James G. Shontere	Director	January 23, 2012

II-47

SIGNATURES

Pursuant to the requirements of Securities Act of 1933, as amended, each of the co-registrants named below has duly caused this amendment no. 2 to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Walnut, State of California, as of January 23, 2012.

VISTANCIA CONSTRUCTION, LLC
By:
Shea Homes Southwest, Inc., an Arizona corporation, its Manager
By:	/s/ Bruce J. Varker
	Name:  Bruce J. Varker
	Title:  Chief Financial Officer

Pursuant to the requirements of the Securities Act of 1933, as amended, this amendment no. 2 to the registration statement has been signed below by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Roberto F. Selva Roberto (Bert) F. Selva	Chief Executive Officer (Principal Executive Officer)	January 23, 2012
/s/ Bruce J. Varker Bruce J. Varker	Chief Financial Officer (Principal Financial Officer)	January 23, 2012
/s/ Andrew T. Roundtree Andrew T. Roundtree	Controller (Principal Accounting Officer)	January 23, 2012
Shea Homes Southwest, Inc. An Arizona corporation, Its Manager
By:
/s/ Bruce J. Varker Bruce J. Varker, its Chief Financial Officer	Manager	January 23, 2012

II-48

SIGNATURES

Pursuant to the requirements of Securities Act of 1933, as amended, each of the co-registrants named below has duly caused this amendment no. 2 to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Walnut, State of California, as of January 23, 2012.

VISTANCIA MARKETING, LLC
By:
Shea Homes Southwest, Inc., an Arizona corporation, its Manager
By:	/s/ Bruce J. Varker
	Name:  Bruce J. Varker
	Title:  Chief Financial Officer

Pursuant to the requirements of the Securities Act of 1933, as amended, this amendment no. 2 to the registration statement has been signed below by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Roberto F. Selva Roberto (Bert) F. Selva	Chief Executive Officer (Principal Executive Officer)	January 23, 2012
/s/ Bruce J. Varker Bruce J. Varker	Chief Financial Officer (Principal Financial Officer)	January 23, 2012
/s/ Andrew T. Roundtree Andrew T. Roundtree	Controller (Principal Accounting Officer)	January 23, 2012
Shea Homes Southwest, Inc. An Arizona corporation, Its Manager
By:
/s/ Bruce J. Varker Bruce J. Varker, its Chief Financial Officer	Manager	January 23, 2012

II-49

EXHIBIT INDEX

Exhibit No.	Description
3.1	Certificate of Limited Partnership of Shea Homes Limited Partnership *
3.2	Agreement of Limited Partnership of Shea Homes Limited Partnership *
3.3	Certificate of Incorporation of Shea Homes Funding Corp. *
3.4	Bylaws of Shea Homes Funding Corp. *
3.5	Articles of Incorporation of Highlands Ranch Development Corporation *
3.6	Bylaws of Highlands Ranch Development Corporation *
3.7	Certificate of Formation of Monty Green Holdings, LLC *
3.8	Limited Liability Company Agreement of Monty Green Holdings, LLC *
3.9	Articles of Incorporation of Mountainbrook Village Company *
3.10	Bylaws of Mountainbrook Village Company *
3.11	Articles of Incorporation of Sand Creek Cattle Company *
3.12	Bylaws of Sand Creek Cattle Company *
3.13	Limited Liability Company Articles of Organization of Serenade at Natomas, LLC *
3.14	Operating Agreement of Serenade at Natomas, LLC *
3.15	Articles of Organization of Seville Golf and Country Club LLC *
3.16	Operating Agreement of Seville Golf and Country Club LLC *
3.17	Certificate of Formation of Shea Brea Development, LLC *
3.18	Limited Liability Company Agreement of Shea Brea Development, LLC *
3.19	Certificate of Formation of Shea Capital II, LLC *
3.20	Operating Agreement of Shea Capital II, LLC *
3.21	Certificate of Incorporation of Shea Communities Marketing Company *
3.22	Bylaws of Shea Communities Marketing Company *
3.23	Articles of Incorporation of Shea Financial Services, Inc. *
3.24	Bylaws of Shea Financial Services, Inc. *
3.25	Certificate of Incorporation of Shea Homes, Inc. *
3.26	Bylaws of Shea Homes, Inc. *
3.27	Limited Liability Company Articles of Organization of Shea Homes at Montage, LLC *
3.28	Operating Agreement of Shea Homes at Montage, LLC *
3.29	Articles of Incorporation of Shea Homes Southwest, Inc. *
3.30	Bylaws of Shea Homes Southwest, Inc. *
3.31	Articles of Organization of Shea Homes Vantis, LLC *
3.32	Operating Agreement of Shea Homes Vantis, LLC *

Exhibit Index - 1

Exhibit No.	Description
3.33	Articles of Incorporation of Shea Insurance Services, Inc. *
3.34	Bylaws of Shea Insurance Services, Inc. *
3.35	Articles of Organization of Shea La Quinta LLC *
3.36	Operating Agreement of Shea La Quinta LLC *
3.37	Articles of Organization of Shea Ninth and Colorado, LLC *
3.38	Limited Liability Company Agreement of Shea Ninth and Colorado, LLC *
3.39	Articles of Organization of Shea Otay Village 11, LLC *
3.40	Operating Agreement of Shea Otay Village 11, LLC *
3.41	Articles of Organization of Shea Proctor Valley, LLC *
3.42	Limited Liability Company Agreement of Shea Proctor Valley, LLC *
3.43	Articles of Incorporation of Shea Properties of Colorado, Inc. *
3.44	Bylaws of Shea Properties of Colorado, Inc. *
3.45	Articles of Organization of Shea Rivermark Village, LLC *
3.46	Operating Agreement of Shea Rivermark Village, LLC *
3.47	Certificate of Formation of Shea Tonner Hills, LLC *
3.48	Limited Liability Company Agreement of Shea Tonner Hills, LLC *
3.49	Articles of Organization of Shea Victoria Gardens, LLC *
3.50	Limited Liability Company Agreement of Shea Victoria Gardens, LLC *
3.51	Certificate of Formation of SH Jubilee, LLC *
3.52	Limited Liability Company Agreement of SH Jubilee, LLC *
3.53	Certificate of Formation of SH Jubilee Management, LLC *
3.54	Limited Liability Company Agreement of SH Jubilee Management, LLC *
3.55	Certificate of Formation of SHI JV Holdings, LLC *
3.56	Limited Liability Company Agreement of SHI JV Holdings, LLC *
3.57	Certificate of Formation of SHLP JV Holdings, LLC *
3.58	Limited Liability Company Agreement of SHLP JV Holdings, LLC *
3.59	Articles of Organization of Tower 104 Gathering, LLC *
3.60	Operating Agreement of Tower 104 Gathering, LLC *
3.61	Articles of Organization of Tower 104 Oil, LLC *
3.62	Operating Agreement of Tower 104 Oil, LLC *
3.63	Articles of Organization of Trilogy Antioch, LLC *
3.64	Operating Agreement of Trilogy Antioch, LLC *
3.65	Articles of Incorporation of UDC Advisory Services, Inc. *
3.66	Bylaws of UDC Advisory Services, Inc. *

Exhibit Index - 2

Exhibit No.	Description
3.67	Articles of Incorporation of UDC Homes Construction, Inc. *
3.68	Bylaws of UDC Homes Construction, Inc. *
3.69	Certificate of Formation of Vistancia Construction, LLC *
3.70	Limited Liability Company Agreement of Vistancia Construction, LLC *
3.71	Certificate of Formation of Vistancia Marketing, LLC *
3.72	Limited Liability Company Agreement of Vistancia Marketing, LLC *
4.1	Indenture, dated May 10, 2011, between and among Shea Homes Limited Partnership, Shea Homes Funding Corp., the guarantors party thereto, and Wells Fargo Bank, National Association, as Trustee *
4.2	Registration Rights Agreement, dated May 10, 2011 between and among Shea Homes Limited Partnership, Shea Homes Funding Corp., the guarantors party thereto, and Credit Suisse Securities (USA) LLC, as Initial Purchaser *
4.3	Intercreditor Agreement, dated May 10, 2011, among Shea Homes Limited Partnership, the grantors party thereto, Wells Fargo Bank, National Association and Credit Suisse AG
5.1	Opinion of Gibson, Dunn & Crutcher LLP
5.2	Opinion of Greenberg Traurig, LLP as to matters of Arizona law *
5.3	Opinion of Greenberg Traurig, LLP as to matters of Florida law *
5.4	Opinion of Greenberg Traurig, LLP as to matters of Illinois law *
10.1	Letter of Credit Facility, dated as of May 10, 2011, among Shea Homes Limited Partnership, Shea Homes Funding Corp., the subsidiary guarantors party thereto, the participants party thereto and Credit Suisse AG, including exhibits and schedules thereto
10.2	Security Agreement, dated as of May 10, 2011, between and among Shea Homes Limited Partnership, Shea Homes Funding Corp., the guarantors identified therein, Credit Suisse AG, as Administrative Agent and Wells Fargo Bank, National Association, as Collateral Agent *
10.3	Tax Distribution Agreement, dated as of May 10, 2011 *
10.4	Promissory Note, dated May 10, 2011 from J.F. Shea, Co., Inc. to Shea Homes, Inc.†
10.5	Services Agreement, dated as of May 1, 2011, among Shea Homes Limited Partnership, Shea Homes, Inc. and J.F. Shea Co., Inc.
10.6	Services Agreement, dated as of May 1, 2011, among Shea Homes Limited Partnership, Shea Homes, Inc., J.F. Shea, L.P. and J.F. Shea Construction Management, Inc.
12.1	Statement of Computation of Ratio of Earnings to Fixed Charges†
23.1	Consent of Gibson, Dunn & Crutcher LLP (included in Exhibit 5.1) *
23.2	Consent of Greenberg Traurig, LLP as to matters of Arizona law (included in Exhibit 5.2) *
23.3	Consent of Greenberg Traurig, LLP as to matters of Florida law (included in Exhibit 5.3) *
23.4	Consent of Greenberg Traurig, LLP as to matters of Illinois law (included in Exhibit 5.4) *
23.5	Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm of Shea Homes Limited Partnership
25.1	Statement of Eligibility of Trustee, Wells Fargo Bank, National Association, on Form T-1 *

Exhibit Index - 3

Exhibit No.	Description
99.1	Form of Letter of Transmittal *
99.2	Substitute Form W-9 and Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 *
99.3	Form of Notice of Guaranteed Delivery *
99.4	Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees *
99.5	Form of Letter to Clients for Use by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees *

* Previously filed on October 14, 2011

† Previously filed on December 22, 2011

Exhibit Index - 4

EX-4.3

Exhibit 4.3

EXECUTION COPY

INTERCREDITOR AGREEMENT

dated as of May 10, 2011

among

SHEA HOMES LIMITED PARTNERSHIP,

SHEA HOMES FUNDING CORP.,

the other GRANTORS party hereto,

WELLS FARGO BANK, NATIONAL ASSOCIATION

in its capacity as the Collateral Agent,

WELLS FARGO BANK, NATIONAL ASSOCIATION

as the Authorized Representative for the Indenture Secured Parties solely in its capacity

as Trustee under the Indenture,

CREDIT SUISSE AG,

as the LC Facility Authorized Representative,

and

each ADDITIONAL AUTHORIZED REPRESENTATIVE from time to time party

hereto

INTERCREDITOR AGREEMENT dated as of May 10, 2011 (as amended, supplemented or otherwise modified from time to time, this “Agreement”), among SHEA HOMES LIMITED PARTNERSHIP, a California limited partnership (the “Company”), SHEA HOMES FUNDING CORP., a Delaware corporation (the “Corporate Issuer”, and together with the Company, the “Issuers”), the other GRANTORS (as defined below) party hereto, WELLS FARGO BANK, NATIONAL ASSOCIATION, in its capacity as collateral agent for the Pari-Passu Lien Secured Parties (as defined below) (in such capacity, the “Collateral Agent”), WELLS FARGO BANK, NATIONAL ASSOCIATION, as the Authorized Representative for the Indenture Secured Parties solely in its capacity as trustee under the Indenture (as defined below) (in such capacity, the “Trustee”), CREDIT SUISSE AG, as the Authorized Representative for the LC Facility Secured Parties (in such capacity, the “LC Facility Authorized Representative”), and each Additional Authorized Representative from time to time party hereto, as the Authorized Representative for any Pari-Passu Lien Secured Parties of any other Class.

In consideration of the mutual agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Collateral Agent, the Trustee, for itself and on behalf of its Related Secured Parties, the LC Facility Authorized Representative, for itself and on behalf of its Related Secured Parties, and each Additional Authorized Representative, for itself and on behalf of its Related Secured Parties, agree as follows:

ARTICLE I

Definitions

SECTION 1.01. Certain Defined Terms. Capitalized terms used but not otherwise defined herein have the meanings assigned to such terms in the Indenture referred to below. As used in this Agreement, the following terms have the meanings specified below:

“Additional Authorized Representative” has the meaning assigned to such term in Article VI.

“Additional Authorized Representative Joinder Agreement” means a supplement to this Agreement substantially in the form of Exhibit I, appropriately completed.

“Additional Pari-Passu Lien Credit Documents” means the indentures or other agreements under which Additional Pari-Passu Lien Obligations of any Class are issued or incurred and all other notes, instruments, agreements and other documents evidencing or governing Additional Pari-Passu Lien Obligations of such Class or providing any guarantee, Lien or other right in respect thereof.

“Additional Pari-Passu Lien Obligations” means all Obligations of the Issuers and the other Grantors that shall have been designated as such pursuant to Article VI. Additional Pari-Passu Lien Obligations shall include Post-Petition Interest.

“Additional Pari-Passu Lien Secured Parties” means the holders of any Additional Pari-Passu Lien Obligations.

“Agreement” has the meaning assigned to such term in the preamble hereto.

“Applicable Authorized Representative” means, as of the Issue Date, the Trustee (in its capacity as the Authorized Representative of the Indenture Secured Parties). The Trustee (and any subsequent Applicable Authorized Representative) will remain the Applicable Authorized Representative until the earlier of (1) such time as the Notes Obligations (or the applicable Class of Specified Pari-Passu Lien Obligations represented by the then-Applicable Authorized Representative) cease to represent the largest principal amount outstanding of any Class of Specified Pari-Passu Lien Obligations, in which case the Applicable Authorized Representative shall be the Authorized Representative representing the Class of Specified Pari-Passu Lien Obligations constituting the largest principal amount outstanding of any such Class, and (2) the Non-Controlling Authorized Representative Enforcement Date, in which case the Applicable Authorized Representative shall be the Major Non-Controlling Authorized Representative.

“Authorized Representatives” means the Trustee (in its capacity as the Authorized Representative of the Indenture Secured Parties), the LC Facility Authorized Representative and each Additional Authorized Representative.

“Bankruptcy Case” has the meaning assigned to such term in Section 2.07.

“Bankruptcy Code” means Title 11 of the United States Code, as amended.

“Bankruptcy Law” means the Bankruptcy Code and any similar Federal, state or foreign law for the relief of debtors.

“Business Day” means any day that is not a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to remain closed.

“Class”, when used in reference to (a) any Pari-Passu Lien Obligations, refers to whether such Pari-Passu Lien Obligations are the Notes Obligations, the LC Facility Obligations or the Additional Pari-Passu Obligations of any Series, (b) any Authorized Representative, refers to whether such Authorized Representative is the

Trustee, the LC Facility Authorized Representative or the Additional Authorized Representative with respect to the Additional Pari-Passu Lien Obligations of any Series, (c) any Pari-Passu Lien Secured Parties, refers to whether such Pari-Passu Lien Secured Parties are the Indenture Secured Parties, the LC Facility Secured Parties or the Additional Pari-Passu Lien Secured Parties and (d) any Pari-Passu Lien Credit Documents, refers to whether such Pari-Passu Lien Credit Documents are the Notes Documents, the LC Facility Documents or the Additional Pari-Passu Lien Credit Documents with respect to Additional Pari-Passu Lien Obligations of any Series.

“Collateral” means all assets of the Grantors now or hereafter subject to a Lien created pursuant to any Pari-Passu Lien Security Document to secure any Pari-Passu Lien Obligations.

“Collateral Agent” has the meaning assigned to such term in the preamble hereto.

“Controlling Secured Parties” means, at any time with respect to any Shared Collateral, the Secured Parties of the same Class as the Authorized Representative that is the Applicable Authorized Representative with respect to such Shared Collateral at such time.

“Default” means a “Default” (or a similar event, however denominated) as defined in any Pari-Passu Lien Credit Document.

“DIP Financing” has the meaning assigned to such term in Section 2.07.

“DIP Financing Liens” has the meaning assigned to such term in Section 2.07.

“DIP Lenders” has the meaning assigned to such term in Section 2.07.

“Discharge” means, with respect to any Shared Collateral and Pari-Passu Lien Obligations of any Class (other than the LC Facility Obligations), the date on which Pari-Passu Lien Obligations of such Class are no longer secured by Liens on such Shared Collateral. The term “Discharged” shall have a corresponding meaning.

“Discharge of LC Facility Obligations” shall mean, except to the extent otherwise provided in Section 2.08, payment in full in cash (except for contingent indemnities and cost and reimbursement obligations to the extent no claim has been made) of (a) principal of and interest (including any Post-Petition Interest) and premium, if any, on all Indebtedness outstanding under the LC Facility Documents and, with respect to letters of credit outstanding thereunder, the obligations thereunder shall have been cash collateralized or other arrangements reasonably satisfactory to the Issuing Bank (as defined in the LC Facility Agreement) or applicable Participants (as defined in the LC Facility Agreement) under the LC Facility Documents in their sole discretion shall have been made with respect thereto, in each case concurrently with the termination of all commitments to issue or extend letters of credit, and (b) any other LC Facility Obligations that are due and payable or otherwise accrued and owing at or prior to the

time such principal and interest are paid; provided, however, that the Discharge of LC Facility Obligations shall be deemed not to have occurred if such payments are made with the proceeds of other LC Facility Obligations that are used to modify, extend, refinance, renew, replace or refund such LC Facility Obligations. In the event the LC Facility Obligations are modified and such modified LC Facility Obligations are paid over time or otherwise modified pursuant to Section 1129 of the Bankruptcy Code, the LC Facility Obligations shall be deemed to be discharged when the final payment is made, in cash, in respect of such Indebtedness and any Obligations pursuant to such new Indebtedness shall have been satisfied.

“Event of Default” means an “Event of Default” (or a similar event, however denominated) as defined in any Pari-Passu Lien Credit Document.

“Excluded Land Collateral” means Property (as defined in the Collateral Management Agreement) located in a designated “flood hazard area” in any Flood Insurance Rate Map published by the Federal Emergency Management Agency (or any successor agency) for the duration of such designation.

“Grantor Joinder Agreement” means a supplement to this Agreement substantially in the form of Exhibit II, appropriately completed.

“Grantors” means, at any time, the Issuers and each of their Subsidiaries that, at such time, has granted a security interest in any of its assets pursuant to any Pari-Passu Lien Security Document to secure any Pari-Passu Lien Obligations of any Class. The Persons that are Grantors on the date hereof are those Guarantors party hereto.

“Indenture” means the Indenture dated as of May 10, 2011 among the Issuers, the Trustee and the other parties thereto.

“Indenture Secured Parties” means the Persons holding Notes Obligations, including the Trustee.

“Insolvency or Liquidation Proceeding” means:

(a) any case commenced by or against any Grantor under any Bankruptcy Law, any other proceeding for the reorganization, recapitalization or adjustment or marshalling of the assets or liabilities of any Grantor, any receivership or assignment for the benefit of creditors relating to any Grantor or any similar case or proceeding relative to any Grantor or its creditors, as such, in each case whether or not voluntary;

(b) any liquidation, dissolution, marshalling of assets or liabilities or other winding up of or relating to any Grantor, in each case whether or not voluntary and whether or not involving bankruptcy or insolvency; or

(c) any other proceeding of any type or nature in which substantially all claims of creditors of any Grantor are determined and any payment or distribution is or may be made on account of such claims.

“LC Facility Agreement” means the Letter of Credit Facility Agreement dated as of May 10, 2011, among the Company, the Corporate Issuer, the Guarantors party thereto, Credit Suisse AG, as administrative agent (in such capacity, the “Administrative Agent”) and as issuing bank, and the Participants party thereto.

“LC Facility Authorized Representative” has the meaning assigned to such term in the preamble hereto.

“LC Facility Documents” means (a) the LC Facility Agreement, the Security Documents (as such term is defined in the LC Facility Agreement), the Intercreditor Agreement and any other document designated by the Administrative Agent as an LC Facility Document and (b) any other related document or instrument executed and delivered pursuant to any LC Facility Document described in clause (a) evidencing or governing any LC Facility Obligations thereunder.

“LC Facility Obligations” has the meaning assigned to such term in the Security Agreement. LC Facility Obligations shall include Post-Petition Interest.

“LC Facility Secured Parties” means the holders of any LC Facility Obligations.

“Major Non-Controlling Authorized Representative” means, with respect to any Shared Collateral, the Authorized Representative of the same Class as the Class of the Specified Pari-Passu Lien Obligations (other than the Specified Pari-Passu Lien Obligations of the same Class as the Class of the Controlling Secured Parties with respect to such Shared Collateral) secured by valid and perfected Liens on such Shared Collateral the aggregate amount of which exceeds the aggregate amount of Specified Pari-Passu Lien Obligations of any other Class (other than the Specified Pari-Passu Lien Obligations of the same Class as the Class of the Controlling Secured Parties with respect to such Shared Collateral) secured by valid and perfected Liens on such Shared Collateral.

“Non-Controlling Authorized Representative” means, at any time with respect to any Shared Collateral, any Authorized Representative (other than the LC Facility Authorized Representative) that is not the Applicable Authorized Representative at such time with respect to such Shared Collateral.

“Non-Controlling Authorized Representative Enforcement Date” means, with respect to any Non-Controlling Authorized Representative in respect of any Shared Collateral, the date that is 90 days (throughout which 90-day period such Non-Controlling Authorized Representative was the Major Non-Controlling Authorized Representative with respect to such Shared Collateral) after the occurrence of both (a) an Event of Default (under and as defined in the Pari-Passu Lien Credit Document under which such Non-Controlling Authorized Representative is the Authorized Representative) and (b) the Collateral Agent’s and each other Authorized Representative’s receipt of written notice from such Non-Controlling Authorized Representative certifying that (i) such Non-Controlling Authorized Representative is the Major Non-Controlling Authorized Representative with respect to such Shared Collateral

and that an Event of Default (under and as defined in the Pari-Passu Lien Credit Document under which such Non-Controlling Authorized Representative is the Authorized Representative) has occurred and is continuing and (ii) the Specified Pari-Passu Lien Obligations of the Class with respect to which such Non-Controlling Authorized Representative is the Authorized Representative are currently due and payable in full (whether as a result of acceleration thereof or otherwise) in accordance with the terms of the Pari-Passu Lien Credit Documents of such Class; provided, however, that the Non-Controlling Authorized Representative Enforcement Date shall be stayed and shall not occur (and shall be deemed not to have occurred for all purposes hereof) with respect to any Shared Collateral (A) at any time the Collateral Agent (pursuant to instructions from the LC Facility Representative or the Applicable Authorized Representative) has commenced and is diligently pursuing any enforcement action with respect to such Shared Collateral or (B) at any time the Grantor that has granted a security interest in such Shared Collateral is then a debtor under or with respect to (or otherwise subject to) any Insolvency or Liquidation Proceeding.

“Non-Controlling Secured Parties” means, at any time with respect to any Shared Collateral, the Specified Pari-Passu Lien Secured Parties that are not Controlling Secured Parties at such time with respect to such Shared Collateral.

“Notes” shall mean any securities issued under the Indenture.

“Notes Obligations” shall mean all Obligations in respect of the Notes or arising under the Notes Documents or any of them, including all fees and expenses of the Collateral Agent and the Trustee thereunder. Notes Obligations shall include Post-Petition Interest.

“Notes Documents” means (a) the Notes, the Indenture, the Pari-Passu Lien Security Documents and the Intercreditor Agreement and (b) any other related document or instrument executed and delivered pursuant to any Notes Document described in clause (a) evidencing or governing any Notes Obligations thereunder.

“Obligations” means with respect to any Indebtedness, all obligations (whether in existence on the Issue Date or arising afterwards, absolute or contingent, direct or indirect) for or in respect of principal (when due, upon acceleration, upon redemption, upon mandatory repayment or repurchase pursuant to a mandatory offer to purchase, or otherwise), premium, interest, penalties, fees, indemnification, reimbursement and other amounts payable and liabilities with respect to such Indebtedness, including all interest accrued or accruing after the commencement of any bankruptcy, insolvency or reorganization or similar case or proceeding at the contract rate (including, without limitation, any contract rate applicable upon default) specified in the relevant documentation, whether or not the claim for such interest is allowed as a claim in such case or proceeding.

“Pari-Passu Lien Credit Documents” means, collectively, (a) the Notes Documents, (b) the LC Facility Documents and (c) the Additional Pari-Passu Lien Credit Documents, in each case including such documents after giving effect to any increase,

extension, renewal, replacement, restatement, supplement, restructuring, repayment, refunding or Refinancing of the Pari-Passu Lien Obligations corresponding thereto in accordance with Section 2.01(c).

“Pari-Passu Lien Obligations” means (a) the Notes Obligations, (b) the LC Facility Obligations and (c) the Additional Pari-Passu Lien Obligations.

“Pari-Passu Lien Secured Parties” means (a) the Indenture Secured Parties, (b) the LC Facility Secured Parties, (c) the Additional Pari-Passu Lien Secured Parties and (d) the Collateral Agent.

“Pari-Passu Lien Security Documents” means the Security Agreement and each other agreement entered into in favor of the Collateral Agent for the purpose of securing Pari-Passu Lien Obligations of any Class.

“Person” means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity.

“Possessory Collateral” means any Shared Collateral in the possession of the Collateral Agent (or its agents or bailees), to the extent that possession thereof perfects a Lien thereon under the Uniform Commercial Code of any jurisdiction.

“Post-Petition Interest” means any interest accruing subsequent to the filing of a petition in bankruptcy, reorganization or similar proceeding at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable state, federal or foreign law.

“Proceeds” has the meaning assigned to such term in Section 2.01(b).

“Real Property Collateral Management Agreement” means the Real Property Collateral Management Agreement dated as of May 10, 2011, among the Company, the Corporate Issuer and Wells Fargo Bank, National Association, as collateral agent for the Pari-Passu Lien Secured Parties.

“Refinance” means, in respect of any Indebtedness, to refinance, extend, renew, refund, repay, prepay, purchase, redeem, defease or retire, or to issue other Indebtedness in exchange or replacement for, such Indebtedness, in whole or in part. “Refinanced” and “Refinancing” shall have correlative meanings.

“Related Secured Parties” means, with respect to the Authorized Representative of any Class, the Pari-Passu Lien Secured Parties of such Class.

“Security Agreement” shall mean the Security Agreement dated as of May 10, 2011, among the Issuers, the Grantors party thereto and the Collateral Agent, as amended and restated or otherwise modified from time to time.

“Series”, when used in reference to Additional Pari-Passu Lien Obligations, refers to such Additional Pari-Passu Lien Obligations as shall have been issued or incurred pursuant to the same indentures or other agreements and with respect to which the same Person acts as the Authorized Representative.

“Shared Collateral” means, at any time, Collateral on which the Collateral Agent shall have at such time a valid and perfected Lien for the benefit of Pari-Passu Lien Secured Parties of any two or more Classes. If Pari-Passu Lien Obligations of more than two Classes are outstanding at any time, then any Collateral shall constitute Shared Collateral with respect to Pari-Passu Lien Obligations or Pari-Passu Lien Secured Parties of any Class only if the Collateral Agent has at such time a valid and perfected Lien on such Collateral securing Pari-Passu Lien Obligations of such Class for the benefit of the Pari-Passu Lien Secured Parties of such Class.

“Specified Pari-Passu Lien Obligations” means all Pari-Passu Lien Obligations other than the LC Facility Obligations.

“Specified Pari-Passu Lien Secured Parties” means the holders of all Specified Pari-Passu Lien Obligations.

“Trustee” has the meaning assigned to such term in the preamble hereto.

“Uniform Commercial Code” means the Uniform Commercial Code as in effect from time to time in the applicable jurisdiction.

SECTION 1.02. Terms Generally. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”. The word “will” shall be construed to have the same meaning and effect as the word “shall”. Unless the context requires otherwise, (a) any definition of or reference to any agreement, instrument, other document, statute or regulation herein shall be construed as referring to such agreement, instrument, other document, statute or regulation as from time to time amended, supplemented or otherwise modified, (b) any reference herein to any Person shall be construed to include such Person’s successors and assigns, but shall not be deemed to include the subsidiaries of such Person unless express reference is made to such subsidiaries, (c) the words “herein”, “hereof” and “hereunder”, and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, Sections and Exhibits shall be construed to refer to Articles and Sections of, and Exhibits to, this Agreement and (e) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights.

SECTION 1.03. Concerning the Collateral Agent and the Authorized Representatives. (a) Each acknowledgement, agreement, consent and waiver (whether express or implied) in this Agreement made by the Collateral Agent or the Trustee, whether on behalf of itself or, in the case of the Trustee, on behalf of any other Indenture Secured Party, is made in reliance on the authority granted to the Collateral Agent or the Trustee, respectively, pursuant to the authorization thereof under this Agreement and the Indenture, respectively. It is understood and agreed that the Collateral Agent and the Trustee shall not be responsible for or have any duty to ascertain or inquire into whether any other Indenture Secured Party is in compliance with the terms of this Agreement, and no party hereto or any other Pari-Passu Lien Secured Party shall have any right of action whatsoever against the Collateral Agent or the Trustee for any failure of any other Indenture Secured Party to comply with the terms hereof or for any other Indenture Secured Party taking any action contrary to the terms hereof.

(b) Each acknowledgement, agreement, consent and waiver (whether express or implied) in this Agreement made by the Authorized Representative of any Class not referred to in paragraph (a) above, whether on behalf of itself or any of its Related Secured Parties, is made in reliance on the authority granted to such Authorized Representative pursuant to the authorization thereof under the Pari-Passu Lien Credit Documents of such Class. It is understood and agreed that any such Authorized Representative shall not be responsible for or have any duty to ascertain or inquire into whether any of its Related Secured Parties is in compliance with the terms of this Agreement, and no party hereto or any other Pari-Passu Lien Secured Party shall have any right of action whatsoever against such Authorized Representative for any failure of any of its Related Secured Parties to comply with the terms hereof or for any of its Related Secured Parties taking any action contrary to the terms hereof.

ARTICLE II

Priorities and Agreements with Respect to Shared Collateral

SECTION 2.01. Equal Priority. (a) Notwithstanding the date, time, method, manner or order of grant, attachment or perfection of any Lien on any Shared Collateral securing Pari-Passu Lien Obligations of any Class, and notwithstanding any provision of the Uniform Commercial Code of any jurisdiction, any other applicable law or any Pari-Passu Lien Credit Document, or any other circumstance whatsoever, each Authorized Representative, for itself and on behalf of its Related Secured Parties, agrees that valid and perfected Liens on any Shared Collateral securing Pari-Passu Lien Obligations of any Class shall be of equal priority with valid and perfected Liens on such Shared Collateral securing Pari-Passu Lien Obligations of each other Class.

(b) Each Authorized Representative, for itself and on behalf of its Related Secured Parties, agrees that, notwithstanding any provision of any Pari-Passu Lien Credit Document to the contrary (but subject to Sections 2.12, 2.13 and 2.14), if (i) an Event of Default shall have occurred and is continuing and such Authorized Representative or any of its Related Secured Parties is taking action to enforce rights or exercise remedies in respect of any Shared Collateral, (ii) any distribution is made in respect of any Shared Collateral in any Insolvency or Liquidation Proceeding or (iii) such Authorized Representative or any of its Related Secured Parties receives any payment with respect to

any Shared Collateral pursuant to any intercreditor agreement (other than this Agreement), then the proceeds of any sale, collection or other liquidation of any Shared Collateral obtained by such Authorized Representative or any of its Related Secured Parties on account of such enforcement of rights or exercise of remedies, and any such distributions or payments received by such Authorized Representative or any of its Related Secured Parties (all such proceeds, distributions and payments being collectively referred to as “Proceeds”), shall be applied as follows:

(1) FIRST, to the payment of all agent’s fees and collateral management fees of the Collateral Agent and all fees, costs and expenses incurred by the Collateral Agent in connection with the collection of proceeds or sale of any Collateral or otherwise in connection with the Pari-Passu Lien Security Documents, the Real Property Collateral Management Agreement and this Agreement, including all court costs, the fees and expenses of its agents and legal counsel, all amounts payable in respect of Indemnified Liabilities (as defined in the Real Property Collateral Management Agreement) to the extent such Indemnified Liabilities are matured, payable and owing to the Collateral Agent and its related Indemnified Parties (as defined in the Real Property Collateral Management Agreement), the repayment of all advances made by the Collateral Agent on behalf of either of the Issuers or any Guarantor and any other costs or expenses incurred by the Collateral Agent in connection with the exercise of any right or remedy of any of the Pari-Passu Lien Secured Parties;

(2) SECOND, to the payment of all amounts owing to Authorized Representatives (in their capacity as such);

(3) THIRD, to the payment of all LC Facility Obligations (including obligations to provide cash collateral) on a pro rata basis based on the respective amounts of LC Facility Obligations then outstanding;

(4) FOURTH, to the payment of any Specified Pari-Passu Lien Obligations (including the Notes Obligations) on a pro rata basis based on the respective amounts of such Specified Pari-Passu Lien Obligations then outstanding; and

(5) FIFTH, to the Grantors, their successors or assigns, or as a court of competent jurisdiction may otherwise direct.

(c) It is acknowledged that the Pari-Passu Lien Obligations of any Class may, subject to the limitations set forth in the Pari-Passu Lien Credit Documents, be increased, extended, renewed, replaced, restated, supplemented, restructured, repaid, refunded, Refinanced or otherwise amended or modified from time to time, all without affecting the priorities set forth in this Section 2.01 or the provisions of this Agreement defining the relative rights of the Pari-Passu Lien Secured Parties of any Class; provided, however, that upon the Refinancing of any Class of Pari-Passu Lien Obligations, the Authorized Representative of such Class shall provide prompt notice thereof to the Collateral Agent; and provided further, however, that upon the Refinancing of the LC

Facility Obligations in accordance with the terms of the LC Facility Documents, such notice shall identify the Person that shall succeed, and the parties hereto acknowledge that such identified Person shall be permitted to succeed, the LC Facility Authorized Representative in its capacity as such under this Agreement.

SECTION 2.02. Enforcement by the Collateral Agent. If (a) any Event of Default under the Indenture (or any event of default under the Pari-Passu Lien Credit Document for which the Applicable Authorized Representative is the Authorized Representative) or an Event of Default under the LC Facility Agreement shall have occurred and be continuing, (b) an Insolvency or Liquidation Proceeding with respect to either of the Issuers or any Guarantor is occurring or (c) the LC Facility Obligations have been accelerated pursuant to applicable law, the Collateral Agent shall act in relation to the Collateral in accordance with the instructions of (i) on or prior to the date of the Discharge of LC Facility Obligations, the LC Facility Authorized Representative and the Applicable Authorized Representative and (ii) after the date of the Discharge of LC Facility Obligations, the Applicable Authorized Representative.

(b) The Collateral Agent shall disregard any instructions from any other Person to exercise any right or remedy hereunder with respect to the Collateral if those instructions are inconsistent with this Agreement.

(c) Any Person entitled to instruct the Collateral Agent to exercise any right or remedy hereunder with respect to the Collateral may give or refrain from giving instructions to the Collateral Agent to exercise or refrain from exercising any right or remedy with respect to the Collateral as it sees fit in accordance with the other provisions of the Pari-Passu Lien Security Documents, the Real Property Collateral Management Agreement and this Agreement. Prior to the Discharge of LC Facility Obligations, each instruction to exercise any right or remedy with respect to the Collateral shall be accompanied by a certification by the instructing party or parties, as the case may be, that the requirements of Sections 2.02(d), 2.02(e) and 2.02(f) have been satisfied (together with such instruction, a “Certified Instruction”).

(d) Subject to paragraph (e) below, on or prior to the date of the Discharge of LC Facility Obligations, before giving any instructions to the Collateral Agent to exercise any right or remedy hereunder with respect to the Collateral, the LC Facility Authorized Representative and the Applicable Authorized Representative shall consult with one another and with the Collateral Agent in good faith, with a view to coordinating those instructions, for a period of up to 45 days or such shorter period as the LC Facility Authorized Representative and the Applicable Authorized Representative may agree (the “Initial Consultation Period”), which Initial Consultation Period shall commence, with respect to any such instruction, upon the LC Facility Authorized Representative or the Applicable Authorized Representative notifying both the Collateral Agent and the other such party that the relevant party seeks to provide a Certified Instruction to the Collateral Agent, and shall continue notwithstanding the failure of such other party to timely respond or engage in such consultation. For the avoidance of doubt, the Collateral Agent shall be entitled to rely on such notice to it (without any requirement to confirm that such notice has been given to such other party) in determining that the Initial Consultation Period has commenced.

(e) The LC Facility Authorized Representative and the Applicable Authorized Representative shall not be obligated to consult in accordance with paragraph (d) above if the LC Facility Authorized Representative and the Applicable Authorized Representative determine in good faith that to enter into such consultations and thereby delay the commencement of enforcement of the Collateral could reasonably be expected to have a material adverse effect on (A) their ability to enforce the Collateral or (B) the realization of any proceeds of any enforcement of the Collateral.

(f) The LC Facility Authorized Representative and the Applicable Authorized Representative hereby agree that shortening or eliminating the requirement of (in accordance with 2.02(d) and 2.02(e), respectively) the Initial Consultation Period with respect to any Certified Instruction is contingent upon the LC Facility Authorized Representative and the Applicable Authorized Representative jointly notifying the Collateral Agent to such effect.

(g) The Collateral Agent shall inform each Authorized Representative promptly upon receipt of any instructions under this Section 2.02 to initiate an Initial Consultation Period or Certified Instructions to exercise any right or remedy with respect to the Collateral. Prior to the Discharge of LC Facility Obligations, the Collateral Agent may rely upon any Certified Instruction in exercising any such right or remedy; provided, however, that it may not exercise any such right or remedy following its receipt of such Certified Instruction until the earlier of (a) the sixth Business Day after the date on which it has informed each Authorized Representative of such Certified Instruction under this Section 2.02 and (b) the date on which it has received a joint Certified Instruction from the LC Facility Authorized Representative and the Applicable Authorized Representative with respect to the exercise of such right or remedy.

SECTION 2.03. Competing Instructions to the Collateral Agent. (a) If (x) a Certified Instruction given to the Collateral Agent by the LC Facility Authorized Representative or the Applicable Authorized Representative conflicts with the Certified Instruction given to the Collateral Agent by the other such party or (y) the LC Facility Authorized Representative or the Applicable Authorized Representative contests any Certified Instruction by notifying the Collateral Agent prior to the sixth Business Day after receiving notice from the Collateral Agent of such Certified Instruction in accordance with Section 2.02(g): (i) the Collateral Agent shall promptly notify the LC Facility Authorized Representative and the Applicable Authorized Representative of such conflict; and (ii) following such notification, the LC Facility Authorized Representative and the Applicable Authorized Representative shall consult with one another in good faith for 15 days (the “Additional Consultation Period”) with a view to resolving such conflict; provided, however, that the Additional Consultation Period shall end immediately if the LC Facility Authorized Representative and the Applicable Authorized Representative determine in good faith (and give the Collateral Agent notice in writing prior to the commencement thereof) that such consultation and thereby the delay in the enforcement of the Collateral could reasonably be expected to have a material adverse

effect on (A) their ability to enforce any of the Collateral or (B) the realization of any proceeds of any enforcement of the Collateral; provided, however, that any such Additional Consultation Period may only be shortened to the extent that the LC Facility Authorized Representative and the Applicable Authorized Representative jointly notify the Collateral Agent to such effect.

(b) If, following the end of the Additional Consultation Period, the Collateral Agent has not received joint instructions from the LC Facility Authorized Representative and the Applicable Authorized Representative, the Collateral Agent shall enforce the Collateral in accordance with the instructions of the LC Facility Authorized Representative as evidenced in the relevant Certified Instruction, notwithstanding any outstanding dispute as to any party’s compliance with the procedural requirements pertaining to the Initial Consultation Period, which Certified Instruction the Collateral Agent shall be entitled to rely upon in taking action to enforce rights or exercise remedies in respect of any Shared Collateral.

SECTION 2.04. Actions with Respect to Shared Collateral; Prohibition on Certain Contests. (a) Notwithstanding anything to the contrary in the Pari-Passu Lien Credit Documents (other than this Agreement), (i) only the Collateral Agent shall, and shall have the right to, exercise, or refrain from exercising, any rights, remedies and powers with respect to the Shared Collateral, including any action to enforce its security interest in or realize upon any Shared Collateral and any right, remedy or power with respect to any Shared Collateral under any intercreditor agreement (other than this Agreement), and then only on the instructions of the Applicable Authorized Representative and, if on or prior to the date of the Discharge of LC Facility Obligations, the LC Facility Authorized Representative, (ii) the Collateral Agent shall not be required to, and shall not, follow any instructions or directions with respect to Shared Collateral (including with respect to any intercreditor agreement with respect to any Shared Collateral) from any Authorized Representative (or the Related Secured Parties thereof), other than the Applicable Authorized Representative and, if on or prior to the date of the Discharge of LC Facility Obligations, the LC Facility Authorized Representative, and (iii) no Authorized Representative (or any Related Secured Parties thereof), other than the Applicable Authorized Representative and, if on or prior to the date of the Discharge of LC Facility Obligations, the LC Facility Authorized Representative, shall, or shall instruct the Collateral Agent to, commence any judicial or nonjudicial foreclosure proceedings with respect to, seek to have a trustee, receiver, liquidator or similar official appointed for or over, attempt any action to take possession of, take any other action to enforce its security interest in or realize upon, or exercise any other right, remedy or power with respect to (including any right, remedy or power under any intercreditor agreement other than this Agreement) any Shared Collateral, whether under any Pari-Passu Lien Credit Document, applicable law or otherwise, it being agreed that only the Collateral Agent, acting on the instructions of the Applicable Authorized Representative (and, if on or prior to the date of the Discharge of LC Facility Obligations, the LC Facility Authorized Representative) and in accordance with the applicable Pari-Passu Lien Security Documents, the Real Property Collateral Management Agreement and this Agreement, shall be entitled to take any such actions or exercise any such rights, remedies and powers with respect to Shared Collateral. Notwithstanding the equal

priority of the Liens established under Section 2.01(a), the Collateral Agent (acting on the instructions of the Applicable Authorized Representative and, if on or prior to the date of the Discharge of LC Facility Obligations, the LC Facility Authorized Representative) may deal with the Shared Collateral as if the Class of Specified Pari-Passu Lien Obligations then represented by the Applicable Authorized Representative and, if on or prior to the date of the Discharge of LC Facility Obligations, the LC Facility Obligations, are the only Classes of Pari-Passu Lien Obligations outstanding. No Authorized Representative of any Class of Specified Pari-Passu Lien Obligations (other than the Applicable Authorized Representative), or the Related Secured Party thereof, may contest, protest or object to any foreclosure proceeding or action brought by the Collateral Agent (acting on the instructions of the Applicable Authorized Representative and, if on or prior to the date of the Discharge of LC Facility Obligations, the LC Facility Authorized Representative), or any other exercise by the Collateral Agent, the Applicable Authorized Representative, the Controlling Secured Parties, the LC Facility Authorized Representative or the LC Facility Secured Parties of any rights, remedies or powers with respect to the Shared Collateral. Nothing in this paragraph shall be construed to limit the rights and priorities of the Collateral Agent, any Authorized Representative or any other Pari-Passu Lien Secured Party with respect to any Collateral not constituting Shared Collateral.

(b) The Collateral Agent and each of the Authorized Representatives agrees that it will not accept any Lien on any asset of any Grantor securing Pari-Passu Lien Obligations of any Class for the benefit of any Pari-Passu Lien Secured Party of such Class other than a lien which the Company has certified is permitted by the Pari-Passu Lien Security Documents, the Pari-Passu Lien Credit Documents and this Agreement.

(c) Each of the Authorized Representatives agrees, for itself and on behalf of its Related Secured Parties, that neither such Authorized Representative nor its Related Secured Parties will (and each hereby waives any right to) challenge or contest or support any other Person in challenging or contesting, in any proceeding (including any Insolvency or Liquidation Proceeding), (i) the validity, attachment, creation, perfection, priority or enforceability of a Lien held by or on behalf of the Collateral Agent or any other Authorized Representative or any of its Related Secured Parties in all or any part of the Collateral, (ii) the validity, enforceability or effectiveness of any Pari-Passu Lien Obligation of any Class, any Pari-Passu Lien Security Document of any Class or the Real Property Collateral Management Agreement or (iii) the validity, enforceability or effectiveness of the priorities, rights or duties established by, or other provisions of, any Pari-Passu Security Documents, this Agreement or the Real Property Collateral Management Agreement; provided, however, that nothing in this Agreement shall be construed to prevent or impair the rights of the Collateral Agent, any Authorized Representative or any of its Related Secured Parties to enforce this Agreement.

SECTION 2.05. No Interference; Payment Over. (a) Each of the Authorized Representatives, for itself and on behalf of its Related Secured Parties, agrees that (i) neither such Authorized Representative nor its Related Secured Parties will (and each hereby waives any right to) take or cause to be taken any action the purpose of

which is, or could reasonably be expected to be, to interfere, hinder or delay, in any manner, whether by judicial proceedings or otherwise, any sale, transfer or other disposition of the Shared Collateral by the Collateral Agent, (ii) except as provided in Sections 2.02, 2.03 and 2.04, neither such Authorized Representative nor its Related Secured Parties shall have any right (A) to direct the Collateral Agent or any other Pari-Passu Lien Secured Party to exercise any right, remedy or power with respect to any Shared Collateral (including pursuant to any intercreditor agreement) or (B) to consent to the exercise by the Collateral Agent or any other Pari-Passu Lien Secured Party of any right, remedy or power with respect to any Shared Collateral, (iii) neither such Authorized Representative nor its Related Secured Parties will (and each hereby waives any right to) institute any suit or proceeding, or assert in any suit or proceeding any claim, against the Collateral Agent or any other Pari-Passu Lien Secured Party seeking damages from or other relief by way of specific performance, instructions or otherwise with respect to any Shared Collateral, and none of the Collateral Agent, the Applicable Authorized Representative or any other Pari-Passu Lien Secured Party shall be liable for any action taken or omitted to be taken by the Collateral Agent, such Applicable Authorized Representative or such other Pari-Passu Lien Secured Party with respect to any Shared Collateral in accordance with the provisions of this Agreement, and (iv) neither such Authorized Representative nor its Related Secured Parties will (and each hereby waives any right to) seek to have any Shared Collateral or any part thereof marshaled upon any foreclosure or other disposition of such Shared Collateral; provided, however, that nothing in this Agreement shall be construed to prevent or impair the rights of the Collateral Agent or any Authorized Representative or any of its Related Secured Parties to enforce this Agreement.

(b) Each Authorized Representative, on behalf of itself and its Related Secured Parties, agrees that if such Authorized Representative or any of its Related Secured Parties shall at any time after the occurrence and during the continuation of an Event of Default obtain possession of any Shared Collateral or receive any Proceeds (other than as a result of any application of Proceeds pursuant to Section 2.01(b)) at any time prior to the Discharge of LC Facility Obligations and the Discharge of Pari-Passu Lien Obligations of each other Class, (i) such Authorized Representative or its Related Secured Party, as the case may be, shall promptly inform each Authorized Representative thereof, (ii) such Authorized Representative or its Related Secured Party shall hold such Shared Collateral or Proceeds in trust for the benefit of the Pari-Passu Lien Secured Parties of any Class entitled thereto pursuant to Section 2.01 and (iii) such Authorized Representative or its Related Secured Party shall promptly transfer such Shared Collateral or Proceeds to the Collateral Agent for distribution in accordance with Section 2.01(b). Furthermore, in the event of any Insolvency or Liquidation Proceeding in which a determination is made that any Lien encumbering any Shared Collateral is not enforceable for any reason, each Authorized Representative (on behalf of itself and its Related Secured Parties) agrees that, prior to the Discharge of LC Facility Obligations and the Discharge of Pari-Passu Lien Obligations of each other Class, any distribution or recovery it may receive with respect to, or allocable to, the value of the assets intended to constitute such Shared Collateral or any proceeds thereof shall be segregated and held in trust and forthwith paid over to the Collateral Agent for the benefit of the Pari-Passu Lien Secured Parties (in accordance with Section 2.01, notwithstanding such determination) in

the same form as received, without recourse, representation or warranty (other than a representation of such Authorized Representative that it has not otherwise sold, assigned or transferred or pledged any right, title or interest in and to such distribution or recovery) but with any necessary endorsements or as a court of competent jurisdiction may otherwise direct. The Collateral Agent and each Authorized Representative, on behalf of itself and its Related Secured Parties, agrees that if the Collateral Agent or such Authorized Representative (or any of its Related Secured Parties) shall at any time, other than when an Event of Default has occurred and is continuing, obtain possession of any Shared Collateral or receive any Proceeds (other than as a result of any application of Proceeds pursuant to Section 2.01(b)) thereof, the Collateral Agent or such Authorized Representative (or its Related Secured Party), as the case may be, will convey such Shared Collateral or Proceeds, as the case may be, to the Grantors.

SECTION 2.06. Automatic Release of Liens; Amendments to Pari-Passu Lien Security Documents. (a) Notwithstanding anything to the contrary in the Pari-Passu Lien Credit Documents or Pari-Passu Lien Security Documents (but subject to the provisions of Section 11.04 of the Indenture in the case of the release of the Collateral from the Liens of the Security Documents), if at any time the Collateral Agent forecloses upon or otherwise exercises rights, remedies and powers against any Shared Collateral resulting in a disposition thereof, then (whether or not any Insolvency or Liquidation Proceeding is pending at the time) the Liens on such Shared Collateral in favor of the Collateral Agent, for the benefit of the Pari-Passu Lien Secured Parties of all Classes, will automatically be released and discharged; provided, however, that any Proceeds realized therefrom shall be applied pursuant to Section 2.01(b).

(b) Each of the Authorized Representatives, for itself and on behalf of its Related Secured Parties, acknowledges and agrees that (i) the Collateral Agent may enter into any amendment or other modification to the Real Property Collateral Management Agreement or any Pari-Passu Lien Security Document so long as the Collateral Agent receives a certificate of the Issuers stating that such amendment or other modification is permitted by the terms of the Pari-Passu Lien Credit Documents of each Class and (ii) the Collateral Agent may enter into any amendment or other modification to the Real Property Collateral Management Agreement or any Pari-Passu Lien Security Document solely as such Pari-Passu Lien Security Document relates to Pari-Passu Lien Obligations of a particular Class so long as the Collateral Agent receives a certificate of the Issuers stating that (A) such amendment or modification is in accordance with the Pari-Passu Lien Credit Documents of such Class and (B) such amendment or modification does not adversely affect the interests of the Pari-Passu Lien Secured Parties of any other Class.

(c) Each Authorized Representative agrees to execute and deliver (at the sole cost and expense of the Grantors) all such consents, confirmations, authorizations and other instruments as shall reasonably be requested by the Collateral Agent to evidence and confirm any release of Shared Collateral or amendment or modification to the Real Property Collateral Management Agreement or any Pari-Passu Lien Security Document provided for in this Section.

SECTION 2.07. Certain Agreements with Respect to Bankruptcy and Insolvency Proceedings. The Authorized Representative of each Class, for itself and on behalf of its Related Secured Parties, agrees that, if the Issuers or any other Grantor shall become subject to a case (a “Bankruptcy Case”) under the Bankruptcy Code and shall, as debtor-in-possession, move for approval of financing (“DIP Financing”) to be provided by one or more lenders (the “DIP Lenders”) under Section 364 of the Bankruptcy Code or any equivalent provision of any other Bankruptcy Law or the use of cash collateral under Section 363 of the Bankruptcy Code or any equivalent provision of any other Bankruptcy Law, neither such Authorized Representative nor its Related Secured Parties will raise any objection to any such financing or to the Liens on the Shared Collateral securing any such financing (“DIP Financing Liens”) or to any use of cash collateral that constitutes Shared Collateral, in each case unless the Applicable Authorized Representative or, if on or prior to the date of the Discharge of LC Facility Obligations, the LC Facility Authorized Representative, shall then oppose or object to such DIP Financing or such DIP Financing Liens or such use of cash collateral (and (i) to the extent that such DIP Financing Liens are senior to the Liens on any such Shared Collateral for the benefit of the LC Facility Secured Parties or the Controlling Secured Parties, each Non-Controlling Secured Party (and, in the case of DIP Financing Liens senior to Liens on Shared Collateral for the benefit of the LC Facility Secured Parties, the Controlling Secured Parties) will subordinate its or their Liens (as applicable) with respect to such Shared Collateral on the same terms as the Liens of the LC Facility Secured Parties or the Controlling Secured Parties (as applicable, and in each case, other than any Liens of the LC Facility Secured Parties or Controlling Secured Parties constituting DIP Financing Liens) are subordinated thereto, and (ii) to the extent that such DIP Financing Liens rank pari passu with the Liens on any such Shared Collateral granted to secure the Pari-Passu Lien Obligations of the LC Facility Secured Parties or the Controlling Secured Parties, each Non-Controlling Secured Party (and, in the case of DIP Financing Liens that rank pari-passu with the Liens on any such Shared Collateral granted to secure the Pari-Passu Lien Obligations of the LC Facility Secured Parties, the Controlling Secured Parties) will confirm the priorities with respect to such Shared Collateral as set forth herein), in each case so long as (A) the Pari-Passu Lien Secured Parties of such Class retain the benefit of their Liens on all such Shared Collateral subject to the DIP Financing Liens, including proceeds thereof arising after the commencement of the Bankruptcy Case, with such Liens having the same priority with respect to Liens of the Pari-Passu Lien Secured Parties of any other Class (other than any Liens of the Pari-Passu Lien Secured Parties of such other Class constituting DIP Financing Liens) as existed prior to the commencement of the Bankruptcy Case, (B) the Pari-Passu Lien Secured Parties of such Class are granted Liens on any additional collateral provided to the Pari- Passu Lien Secured Parties of any other Class as adequate protection or otherwise in connection with such DIP Financing or use of cash collateral, with such Liens having the same priority with respect to Liens of the Pari-Passu Lien Secured Parties of any other Class (other than any Liens of the Pari-Passu Lien Secured Parties of such other Class constituting DIP Financing Liens) as existed prior to the commencement of the Bankruptcy Case, (C) if any amount of such DIP Financing or cash collateral is applied to repay any Pari-Passu Lien Obligations, such amount is applied in accordance with Section 2.01(b), and (D) if the Pari-Passu Lien Secured Parties of any Class are granted adequate protection, including

in the form of periodic payments, in connection with such DIP Financing or use of cash collateral, the proceeds of such adequate protection are applied in accordance with Section 2.01(b); provided, however, that the Pari-Passu Lien Secured Parties of each Class shall have a right to object to the grant, as security for the DIP Financing, of a Lien on any Collateral subject to Liens in favor of the Pari-Passu Lien Secured Parties of such Class or its Authorized Representative that shall not constitute Shared Collateral; and provided further that any Pari-Passu Lien Secured Party receiving adequate protection granted in connection with the DIP Financing or such use of cash collateral shall not object to any other Pari-Passu Lien Secured Party receiving adequate protection comparable to any such adequate protection granted to such Pari-Passu Lien Secured Party.

SECTION 2.08. Reinstatement. If, in any Insolvency or Liquidation Proceeding or otherwise, all or part of any payment with respect to the Pari-Passu Lien Obligations of any Class previously made shall be rescinded for any reason whatsoever (including an order or judgment for disgorgement of a preference under the Bankruptcy Code or any similar law), then the terms and conditions of Article II shall be fully applicable thereto until all the Pari-Passu Lien Obligations of such Class shall again have been paid in full in cash.

SECTION 2.09. Insurance and Condemnation Awards. As between the Pari-Passu Lien Secured Parties, the Collateral Agent, acting at the instruction of the Applicable Authorized Representative and, if on or prior to the date of the Discharge of LC Facility Obligations, the LC Facility Authorized Representative (for the avoidance of doubt, subject to Sections 2.02 and 2.03), shall have the exclusive right, subject to the rights of the Grantors under the Pari-Passu Lien Security Documents, to settle and adjust claims in respect of Shared Collateral under policies of insurance covering or constituting Shared Collateral and to approve any award granted in any condemnation or similar proceeding, or any deed in lieu of condemnation, in respect of the Shared Collateral; provided, however, that any Proceeds arising therefrom shall be subject to Section 2.01(b).

SECTION 2.10. Refinancings. The Pari-Passu Lien Obligations of any Class may be Refinanced, in whole or in part, in each case, without notice to, or the consent of, any Pari-Passu Lien Secured Party of any other Class, all without affecting the priorities provided for herein or the other provisions hereof; provided, however, that nothing in this Section shall affect any limitation on any such Refinancing that is set forth in the Pari-Passu Lien Credit Documents of any Class; and provided further, however, that, if any obligations of the Grantors in respect of such Refinancing Indebtedness shall be secured by Liens on any Shared Collateral, then such obligations and the holders thereof shall be subject to and bound by the provisions of this Agreement and the Authorized Representative of the holders of any such Refinancing Indebtedness shall have executed an Additional Authorized Representative Joinder Agreement.

SECTION 2.11. Possessory Collateral Agent as Gratuitous Bailee for Perfection. (a) The Collateral Agent agrees to hold any Shared Collateral constituting Possessory Collateral that is part of the Collateral in its possession or control (or in the

possession or control of its agents or bailees) as gratuitous bailee for the benefit of each Pari-Passu Lien Secured Party and any assignee solely for the purpose of perfecting the security interest granted in such Possessory Collateral, if any, pursuant to the applicable Pari-Passu Lien Security Documents, in each case subject to the terms and conditions of this Section. Pending delivery to the Collateral Agent, each Authorized Representative agrees to hold any Shared Collateral constituting Possessory Collateral, from time to time in its possession, as gratuitous bailee for the benefit of each Pari-Passu Lien Secured Party and any assignee, solely for the purpose of perfecting the security interest granted in such Possessory Collateral, if any, pursuant to the applicable Pari-Passu Lien Security Documents, in each case, subject to the terms and conditions of this Section.

(b) The duties or responsibilities of the Collateral Agent and each Authorized Representative under this Section shall be limited solely to holding any Shared Collateral constituting Possessory Collateral as gratuitous bailee for the benefit of each Pari-Passu Lien Secured Party for purposes of perfecting the Lien held by such Pari-Passu Lien Secured Parties therein. Except for the exercise of reasonable care in the custody of any Collateral in its possession and the accounting for moneys actually received by it hereunder, the Collateral Agent shall have no duty as to any Collateral or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral.

SECTION 2.12. Permitted Priority Liens. The Pari-Passu Lien Secured Parties hereby authorize and instruct the Collateral Agent to, and the Collateral Agent hereby agrees that it shall, execute and deliver such lien subordination, non-disturbance, attornment and other similar agreements as the Company may from time to time request, in form and substance reasonably satisfactory to the Applicable Authorized Representative and, if on or prior to the date of the Discharge of LC Facility Obligations, the LC Facility Authorized Representative, so long as the Company delivers to the Collateral Agent an Officers’ Certificate certifying that the Lien or other encumbrance proposed to be made senior to the Pari-Passu Lien Obligations is permitted to be incurred under the Pari-Passu Lien Credit Documents and is a Permitted Priority Lien.

SECTION 2.13. Excluded Stock Collateral. Each Authorized Representative, for itself and on behalf of its Related Secured Parties, agrees that, notwithstanding any provision of any Pari-Passu Lien Credit Document to the contrary, if, prior to the Discharge of LC Facility Obligations, (i) an Event of Default shall have occurred and is continuing and such Authorized Representative or any of its Related Secured Parties is taking action to enforce rights or exercise remedies in respect of any Excluded Stock Collateral (as defined in the Security Agreement), (ii) any distribution is made in respect of any Excluded Stock Collateral in any Insolvency or Liquidation Proceeding or (iii) such Authorized Representative or any of its Related Secured Parties receives any payment with respect to any Excluded Stock Collateral pursuant to any intercreditor agreement (other than this Agreement), then the proceeds of any sale, collection or other liquidation of any Excluded Stock Collateral obtained by such Authorized Representative or any of its Related Secured Parties on account of such enforcement of rights or exercise of remedies, and any such distributions or payments received by such Authorized Representative or any of its Related Secured Parties shall be applied in accordance with clauses (1), (2), (3) and (5), but not clause (4), of Section 2.01(b).

SECTION 2.14. Excluded Land Collateral. Each Authorized Representative, for itself and on behalf of its Related Secured Parties, agrees that, notwithstanding any provision of any Pari-Passu Lien Credit Document to the contrary, if (i) an Event of Default shall have occurred and is continuing and such Authorized Representative or any of its Related Secured Parties is taking action to enforce rights or exercise remedies in respect of any Excluded Land Collateral, (ii) any distribution is made in respect of any Collateral in any Insolvency or Liquidation Proceeding or (iii) such Authorized Representative or any of its Related Secured Parties receives any payment with respect to any Excluded Land Collateral pursuant to any intercreditor agreement (other than this Agreement), then the proceeds of any sale, collection or other liquidation of any Excluded Land Collateral obtained by such Authorized Representative or any of its Related Secured Parties on account of such enforcement of rights or exercise of remedies, and any such distributions or payments received by such Authorized Representative or any of its Related Secured Parties shall be applied in accordance with clauses (1), (2), (4) and (5), but not clause (3), of Section 2.01(b).

SECTION 2.15. Miscellaneous. Unless and until otherwise instructed by an Authorized Representative, the Collateral Agent may consider all Collateral as Shared Collateral. Each Authorized Representative hereby agrees that (i) upon a change in the Authorized Representative serving as Applicable Authorized Representative, the incumbent Applicable Authorized Representative shall provide prompt notice to the Collateral Agent as to the successor thereof, (ii) upon the assignment of any party’s rights and obligations under this Agreement, the assigning party shall provide prompt notice to the Collateral Agent as to the assignee thereof and (iii) upon a change in the principal amount outstanding of any Class of Specified Pari Passu-Lien Obligations, the Applicable Authorized Representative shall notify the Collateral Agent as to such change. Furthermore, the LC Facility Authorized Representative hereby agrees to provide prompt notice to the Collateral Agent upon the Discharge of LC Facility Obligations.

ARTICLE III

Determinations with Respect to Obligations and Liens

Whenever, in connection with the exercise of its rights or the performance of its obligations hereunder, the Collateral Agent or the Authorized Representative of any Class shall be required to determine the existence or amount of any Pari-Passu Lien Obligations of any Class, or the Shared Collateral subject to any Lien securing the Pari-Passu Lien Obligations of any Class (and whether such Lien constitutes a valid and perfected Lien), it may request that such information be furnished to it in writing by the Authorized Representative of such Class and shall be entitled to make such determination on the basis of the information so furnished; provided, however, that if, notwithstanding such request, the Authorized Representative of the applicable Class shall fail or refuse reasonably promptly to provide the requested information, the requesting Collateral

Agent or Authorized Representative shall be entitled to make any such determination by such method as it may, in the exercise of its good faith judgment, determine, including by reliance upon an Officers’ Certificate. The Collateral Agent and each Authorized Representative may rely conclusively, and shall be fully protected in so relying, on any determination made by it in accordance with the provisions of the preceding sentence (or as otherwise directed by a court of competent jurisdiction) and shall have no liability to any Grantor, any Pari-Passu Lien Secured Party or any other Person as a result of such determination or any action or not taken pursuant thereto.

ARTICLE IV

Concerning the Collateral Agent

SECTION 4.01. Appointment and Authority. (a) Each of the Authorized Representatives, for itself and on behalf of its Related Secured Parties, hereby irrevocably appoints Wells Fargo Bank, National Association to act as the Collateral Agent hereunder and under each of the Pari-Passu Lien Security Documents and the Real Property Collateral Management Agreement, and authorizes the Collateral Agent to take such actions and to exercise such powers as are delegated to the Collateral Agent by the terms hereof or thereof, including for purposes of acquiring, holding and enforcing any and all Liens on Collateral granted by any Grantor to secure any of the Pari-Passu Lien Obligations, together with such actions and powers as are reasonably incidental thereto (including, for the avoidance of doubt, (i) entering into the Real Property Collateral Management Agreement and (ii) establishing and maintaining accounts at such banking institutions necessary or appropriate to receive and distribute Proceeds in accordance with Section 2.01 and the Pari-Passu Lien Security Documents and the Real Property Collateral Management Agreement). In addition, to the extent required under the laws of any jurisdiction other than the United States, each of the Authorized Representatives, for itself and on behalf of its Related Secured Parties, hereby grants to the Collateral Agent any required powers of attorney to execute any Pari-Passu Lien Security Document governed by the laws of such jurisdiction on such Pari-Passu Lien Secured Party’s behalf. Without limiting the generality of the foregoing, the Collateral Agent is hereby expressly authorized to execute any and all documents (including releases) with respect to the Shared Collateral, and the rights of the Pari-Passu Lien Secured Parties with respect thereto, as contemplated by and in accordance with the provisions of this Agreement and the Pari-Passu Lien Security Documents.

(b) Each of the Authorized Representatives, for itself and on behalf of its Related Secured Parties, acknowledges and agrees that the Collateral Agent shall be entitled, for the benefit of the Pari-Passu Lien Secured Parties, to sell, transfer or otherwise dispose of or deal with any Shared Collateral as provided herein and in the Pari-Passu Lien Security Documents and the Real Property Collateral Management Agreement, without regard to any rights, remedies or powers to which the Non-Controlling Secured Parties would otherwise be entitled to as a result of their Non-Controlling Secured Obligations. Without limiting the foregoing, each of the Authorized Representatives, for itself and on behalf of its Related Secured Parties, agrees that none of the Collateral Agent, the Applicable Authorized Representative, the LC Facility

Authorized Representative or any other Pari-Passu Lien Secured Party shall have any duty or obligation first to marshal or realize upon any type of Shared Collateral (or any other Collateral securing any of the Pari-Passu Lien Obligations), or to sell, dispose of or otherwise liquidate all or any portion of such Shared Collateral (or any other Collateral securing any Pari-Passu Lien Obligations), in any manner that would maximize the return to the Non-Controlling Secured Parties, notwithstanding that the order and timing of any such realization, sale, disposition or liquidation may affect the amount of proceeds actually received by the Non-Controlling Secured Parties from such realization, sale, disposition or liquidation. Each of the Authorized Representatives, for itself and on behalf of its Related Secured Parties, waives any claim they may now or hereafter have against the Collateral Agent or the Authorized Representative or any Pari-Passu Lien Secured Party of any other Class arising out of (i) any actions that the Collateral Agent or any such Authorized Representative or Pari-Passu Lien Secured Party takes or omits to take (including actions with respect to the creation, perfection or continuation of Liens on any Collateral, actions with respect to the foreclosure upon, sale or other disposition, release or depreciation of, or failure to realize upon, any of the Collateral and actions with respect to the collection of any claim for all or any part of the Pari-Passu Lien Obligations from any account debtor, guarantor or any other party) in accordance with the Pari-Passu Lien Security Documents or the Real Property Collateral Management Agreement or any other agreement related thereto or to the collection of the Pari-Passu Lien Obligations or the valuation, use, protection or release of any security for the Pari-Passu Lien Obligations, (ii) any election by any Applicable Authorized Representative, LC Facility Authorized Representative or Pari-Passu Lien Secured Parties, in any proceeding instituted under the Bankruptcy Code, of the application of Section 1111(b) of the Bankruptcy Code or (iii) subject to Section 2.07, any borrowing by, or grant of a security interest or administrative expense priority under Section 364 of the Bankruptcy Code or any equivalent provision of any other Bankruptcy Law by, the Issuers or any of its Subsidiaries, as debtor-in-possession. Notwithstanding any other provision of this Agreement, the Collateral Agent shall not accept any Shared Collateral in full or partial satisfaction of any Pari-Passu Lien Obligations pursuant to Section 9-620 of the Uniform Commercial Code of any jurisdiction without the consent of each Authorized Representative representing Pari-Passu Lien Secured Parties for whom such Collateral constitutes Shared Collateral.

(c) Each of the Authorized Representatives, for itself and on behalf of its Related Secured Parties, acknowledges and agrees that, upon any other obligations being designated hereunder as Additional Pari-Passu Lien Obligations or any other Person becoming an Additional Authorized Representative or any other Persons becoming Additional Pari-Passu Lien Secured Parties, the Collateral Agent will continue to act in its capacity as Collateral Agent in respect of the then existing Authorized Representatives and Pari-Passu Lien Secured Parties and such Additional Authorized Representative and Additional Pari-Passu Lien Secured Parties.

SECTION 4.02. Rights as a Pari-Passu Lien Secured Party. The Person serving as the Collateral Agent hereunder shall have the same rights and powers in its capacity as a Pari-Passu Lien Secured Party of any Class as any other Pari-Passu Lien Secured Party of such Class and may exercise the same as though it were not the

Collateral Agent and the term “Pari-Passu Lien Secured Party”, “Pari-Passu Lien Secured Parties”, “Indenture Secured Party”, “Indenture Secured Parties”, “Additional Pari-Passu Lien Secured Party” or “Additional Pari-Passu Lien Secured Parties”, as applicable, shall, unless otherwise expressly indicated or unless the context otherwise requires, include the Person serving as the Collateral Agent hereunder in its individual capacity. The Person serving as the Collateral Agent and its Affiliates may accept deposits from, lend money to, act as the financial advisor or in any other advisory capacity for and generally engage in any kind of business with the Issuers or any of their Subsidiaries or any other Affiliate thereof as if such Person were not the Collateral Agent hereunder and without any duty to account therefor to any other Pari-Passu Lien Secured Party.

SECTION 4.03. Exculpatory Provisions. The Collateral Agent shall not have any duties or obligations except those expressly set forth herein and in the other Pari-Passu Lien Security Documents and the Real Property Collateral Management Agreement. Without limiting the generality of the foregoing, the Collateral Agent:

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

(ii) shall not have any duty to take or refrain from taking any discretionary action or exercise or refrain from exercising any discretionary powers, except discretionary rights and powers expressly contemplated hereby or by the Pari-Passu Lien Security Documents or the Real Property Collateral Management Agreement that the Collateral Agent is required to exercise as directed in writing by the Applicable Authorized Representative and, if on or prior to the date of the Discharge of LC Facility Obligations, the LC Facility Authorized Representative; provided, however, that the Collateral Agent shall not be required to take any action that, in its opinion or the opinion of its counsel, may expose the Collateral Agent, its agent or counsel to liability or that is contrary to any Pari-Passu Lien Security Document or applicable law;

(iii) shall not be under any obligation to exercise any of the rights or powers vested in it hereby or by the Pari-Passu Lien Security Documents or the Real Property Collateral Management Agreement as directed in writing by the Applicable Authorized Representative and, if on or prior to the date of the Discharge of LC Facility Obligations, the LC Facility Authorized Representative, unless such Authorized Representative has offered to the Collateral Agent reasonable security or indemnity reasonably satisfactory to it against the costs, expenses and liabilities that might be incurred by it in compliance with such request or direction;

(iv) shall not be required to expend or risk its own funds or otherwise incur any financial liability in the performance of its duties hereunder, or in the exercise of its rights or powers, unless it receives indemnity satisfactory to it against any loss, liability or expense;

(v) may rely upon and enforce for its own benefit each and all of the rights, powers, immunities, indemnities and benefits of the Trustee under Article VII of the Indenture, each of which shall also be deemed to be for the benefit of the Collateral Agent;

(vi) shall not, except as expressly set forth in this Agreement, the Real Property Collateral Management Agreement and in the Pari-Passu Lien Security Documents, have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Issuers or any of their Subsidiaries or any of their respective Affiliates that is communicated to or obtained by the Person serving as the Collateral Agent or any of its Affiliates in any capacity;

(v) shall not be liable for any action taken or not taken by it (A) with the consent or at the request of (in accordance with the provisions of this Agreement) the Applicable Authorized Representative or the LC Facility Authorized Representative, (B) in the absence of its own gross negligence or wilful misconduct or (C) in reliance on an Officers’ Certificate stating that such action is permitted by the terms of this Agreement;

(vi) shall be deemed not to have knowledge of any Default or Event of Default under any Pari-Passu Lien Credit Documents of any Class unless and until notice describing such Default or Event Default is given to the Collateral Agent by the Authorized Representative of such Class or the Issuers in accordance with the applicable Pari-Passu Lien Credit Document;

(vii) shall not be responsible for or have any duty to ascertain or inquire into (A) any statement, warranty or representation made in or in connection with this Agreement or any Pari-Passu Lien Security Document or the Real Property Collateral Management Agreement, (B) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith, (C) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein or therein or the occurrence of any Default or Event of Default, (D) the validity, enforceability, effectiveness or genuineness of this Agreement, any Pari-Passu Lien Security Document, the Real Property Collateral Management Agreement or any other agreement, instrument or document, or the validity, attachment, creation, perfection, priority or enforceability of any Lien purported to be created by the Pari-Passu Lien Security Documents, (E) the value or the sufficiency of any Collateral for Pari-Passu Lien Obligations of any Class or (F) the satisfaction of any condition set forth in any Pari-Passu Lien Credit Document, any Pari Passu Lien Security Document or the Real Property Collateral Management Agreement, other than to confirm receipt of items expressly required to be delivered to the Collateral Agent; and

(viii) shall be deemed not to have knowledge of the Discharge of LC Facility Obligations, a change in the principal amounts of the Classes of Specified Pari Passu Lien Obligations, the identity of any Authorized Representative or the identity of the Authorized Representative serving as Applicable Authorized Representative until notice of such Discharge or change is given to the Collateral Agent in accordance with Section 2.15.

SECTION 4.04. Reliance by Collateral Agent. The Collateral Agent shall be entitled to rely, and shall not incur any liability for relying, upon any notice, request, certificate, consent, statement, instrument, document or other writing (including any electronic message, Internet or intranet website posting or other distribution) believed by it to be genuine and to have been signed, sent or otherwise authenticated by the proper Person. The Collateral Agent also shall be entitled to rely, and shall not incur any liability for relying, upon any statement made to it orally or by telephone and believed by it to have been made by the proper Person. The Collateral Agent may consult with legal counsel of its selection (who may be counsel for the Issuers, any other Grantor or any Authorized Representative), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts.

SECTION 4.05. Delegation of Duties. The Collateral Agent may perform any and all of its duties and exercise its rights and powers hereunder or under any other Pari-Passu Lien Security Document or the Real Property Collateral Management Agreement by or through any one or more sub-agents appointed by the Collateral Agent and the Collateral Agent shall not be responsible for any misconduct or negligence of any such sub-agent appointed with due care. The Collateral Agent and any such sub-agent may perform any and all of its duties and exercise its rights and powers by or through their respective Affiliates. The exculpatory provisions of this Article shall apply to any such sub-agent and to the Affiliates of the Collateral Agent and any such sub-agent, and shall apply to their respective activities as the Collateral Agent.

SECTION 4.06. Resignation of Collateral Agent. The Collateral Agent may at any time give notice of its resignation as Collateral Agent under this Agreement, the Real Property Collateral Management Agreement and the Pari-Passu Lien Security Documents to each Authorized Representative and the Company. Upon receipt of any such notice of resignation, the Applicable Authorized Representative (and, if on or prior to the date of the Discharge of LC Facility Obligations, the LC Facility Authorized Representative) shall have the right, in consultation with the Company, to appoint a successor. If no such successor shall have been so appointed by the Applicable Authorized Representative (and, if on or prior to the date of the Discharge of LC Facility Obligations, by the LC Facility Authorized Representative) and shall have accepted such appointment within 30 days after the retiring Collateral Agent gives notice of its resignation, then the retiring Collateral Agent may, on behalf of the Pari-Passu Lien Secured Parties, appoint a successor Collateral Agent reasonably satisfactory to the Applicable Authorized Representative (and, if on or prior to the date of the Discharge of LC Facility Obligations, the LC Facility Authorized Representative); provided, however, that if the Collateral Agent shall notify each Authorized Representative and the Company that no qualifying Person has accepted such appointment, then such resignation shall nonetheless become effective in accordance with such notice and (a) the retiring

Collateral Agent shall be discharged from its duties and obligations hereunder and under the Pari-Passu Lien Security Documents and the Real Property Collateral Management Agreement (except that in the case of any Collateral held by the Collateral Agent on behalf of the Pari-Passu Lien Secured Parties under any Pari-Passu Lien Security Document, the retiring Collateral Agent shall continue to hold such Collateral solely for purposes of maintaining the perfection of the security interests of the Pari-Passu Lien Secured Parties therein until such time as a successor Collateral Agent is appointed but with no obligation to take any further action at the request of the Applicable Authorized Representative or any other Pari-Passu Lien Secured Parties) and (b) all payments, communications and determinations provided to be made by, to or through the Collateral Agent shall instead be made by or to each Authorized Representative directly, until such time as the Applicable Authorized Representative and, if on or prior to the date of the Discharge of LC Facility Obligations, the LC Facility Authorized Representative, appoint a successor Collateral Agent as provided above. Upon the acceptance of a successor’s appointment as Collateral Agent hereunder and under the Pari-Passu Lien Security Documents and the Real Property Collateral Management Agreement, such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring (or retired) Collateral Agent, and the retiring Collateral Agent shall be discharged from all of its duties and obligations hereunder or under the Pari-Passu Lien Security Documents and the Real Property Collateral Management Agreement (if not already discharged therefrom as provided above). Notwithstanding the resignation of the Collateral Agent hereunder and under the Pari-Passu Lien Security Documents and the Real Property Collateral Management Agreement, the provisions of this Article and the equivalent provision of any Additional Pari-Passu Lien Credit Document shall continue in effect for the benefit of such retiring Collateral Agent, its sub-agents and their respective Related Secured Parties in respect of any actions taken or omitted to be taken by any of them while the retiring Collateral Agent was acting as Collateral Agent. Upon any notice of resignation of the Collateral Agent hereunder and under the Pari-Passu Lien Security Documents and the Real Property Collateral Management Agreement, the Company agrees to use commercially reasonable efforts to transfer (and maintain the validity and priority of) the Liens in favor of the retiring Collateral Agent under the Pari-Passu Lien Security Documents to the successor Collateral Agent.

SECTION 4.07. Collateral Matters. Each of the Pari-Passu Lien Secured Parties irrevocably authorizes and directs the Collateral Agent:

(a) to release any Lien on any property granted to or held by the Collateral Agent under any Pari-Passu Lien Security Document or the Real Property Collateral Management Agreement in accordance with Sections 2.04 and 2.06, in accordance with the Real Property Collateral Management Agreement or upon receipt of an Officers’ Certificate stating that such release is permitted by the terms of the Pari-Passu Lien Credit Documents; and

(b) to release any Grantor from its obligations under the Pari-Passu Lien Security Documents or the Real Property Collateral Management Agreement upon receipt of an Officers’ Certificate and Opinion of Counsel stating that such release is permitted by the terms of the Pari-Passu Lien Credit Documents; neither of which shall require the instruction of any Authorized Representative in accordance with Section 2.02 or 2.03.

ARTICLE V

No Liability

SECTION 5.01. Information. Neither the Collateral Agent nor the Authorized Representative or Pari-Passu Lien Secured Parties of any Class shall have any duty to disclose to any Pari-Passu Lien Secured Party of any other Class any information relating to the Issuers or any of their Subsidiaries, or any other circumstance bearing upon the risk of nonpayment of any of the Pari-Passu Lien Obligations, that is known or becomes known to any of them or any of their Affiliates. If the Collateral Agent or the Authorized Representative or any Pari-Passu Lien Secured Party of any Class, in its sole discretion, undertakes at any time or from time to time to provide any such information to, as the case may be, the Authorized Representative or any Pari-Passu Lien Secured Party of any other Class, it shall be under no obligation (i) to make, and shall not be deemed to have made, any express or implied representation or warranty, including with respect to the accuracy, completeness, truthfulness or validity of the information so provided, (ii) to provide any additional information or to provide any such information on any subsequent occasion or (iii) to undertake any investigation.

SECTION 5.02. No Warranties or Liability. (a) Each Authorized Representative, for itself and on behalf of its Related Secured Parties, acknowledges and agrees that neither the Collateral Agent nor the Authorized Representative or any Pari-Passu Lien Secured Party of any other Class has made any express or implied representation or warranty, including with respect to the execution, validity, legality, completeness, collectability or enforceability of any of the Pari-Passu Lien Credit Documents, the ownership of any Shared Collateral or the perfection or priority of any Liens thereon. The Authorized Representative and the Pari-Passu Lien Secured Parties of any Class will be entitled to manage and supervise their loans and other extensions of credit in the manner determined by them.

(b) No Authorized Representative or Pari-Passu Lien Secured Parties of any Class shall have any express or implied duty to the Authorized Representative or any Pari-Passu Lien Secured Party of any other Class to act or refrain from acting in a manner that allows, or results in, the occurrence or continuance of a Default or an Event of Default under any Pari-Passu Lien Credit Document (other than, in each case, this Agreement), regardless of any knowledge thereof that they may have or be charged with.

ARTICLE VI

Additional Pari-Passu Lien Obligations

The Issuers may, at any time and from time to time, subject to any limitations contained in the Pari-Passu Lien Credit Documents in effect at such time, designate additional Indebtedness and related obligations that are, or are to be, secured by

Liens on any assets of either of the Issuers or any other Grantor that would, if such Liens were granted, constitute Shared Collateral as “Additional Pari-Passu Lien Obligations” by delivering to the Collateral Agent and each Authorized Representative party hereto at such time an Officers’ Certificate:

(a) describing the Indebtedness and other obligations being designated as Additional Pari-Passu Lien Obligations, and including a statement of the maximum aggregate outstanding principal amount of such Indebtedness as of the date of such certificate;

(b) setting forth the Additional Pari-Passu Lien Credit Documents under which such Additional Pari-Passu Lien Obligations are issued or incurred or the guarantees of such Additional Pari-Passu Lien Obligations are, or are to be, created, and attaching copies of such Additional Pari-Passu Lien Credit Documents as each Grantor has executed and delivered to the Person that serves as the administrative agent, trustee or a similar representative for the holders of such Additional Pari-Passu Lien Obligations (such Person being referred to as the “Additional Authorized Representative”) with respect to such Additional Pari-Passu Lien Obligations on the closing date of such Additional Pari-Passu Lien Obligations, certified as being true and complete by an Officers’ Certificate;

(c) identifying the Person that serves as the Additional Authorized Representative;

(d) certifying that the incurrence of such Additional Pari-Passu Lien Obligations, the creation of the Liens securing such Additional Pari-Passu Lien Obligations and the designation of such Additional Pari-Passu Lien Obligations as “Additional Pari-Passu Lien Obligations” hereunder do not violate or result in a default under any provision of any Pari-Passu Lien Credit Documents in effect at such time;

(e) certifying that the Additional Pari-Passu Lien Credit Documents authorize the Additional Authorized Representative to become a party hereto by executing and delivering an Additional Authorized Representative Joinder Agreement and provide that upon such execution and delivery, such Additional Pari-Passu Lien Obligations and the holders thereof shall become subject to and bound by the provisions of this Agreement; and

(f) attaching a fully completed Authorized Representative Joinder Agreement executed and delivered by the Additional Authorized Representative.

Upon the delivery of such certificate and the related attachments as provided above, the obligations designated in such notice as “Additional Pari-Passu Lien Obligations” shall become Additional Pari-Passu Lien Obligations for all purposes of this Agreement.

ARTICLE VII

Miscellaneous

SECTION 7.01. Notices. All notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows:

(a) if to any Grantor, to it (or, in the case of any Grantor other than the Company, to it in care of the Company) at 655 Brea Canyon Road, Walnut, California 91788-0487, Attention of Chief Financial Officer (Fax No. (909) 869-0849);

(b) if to the Collateral Agent, to it at Wells Fargo Bank, National Association, 45 Broadway, 14th Floor, New York, NY 10006, Fax 212-515-1589, Attn: Julius Zamora;

(c) if to the Trustee (in its capacity as the Authorized Representative of the Indenture Secured Parties), to it at 707 Wilshire Blvd, 17^th Floor, Los Angeles, CA 90017, Attention: Corporate Trust Department;

(d) if to the LC Facility Authorized Representative, to it at Credit Suisse, Eleven Madison Avenue, New York, NY 10010, Attention of Agency Group (Fax No. (212) 325-8304); and

(e) if to any other Additional Authorized Representative, to it at the address set forth in the applicable Joinder Agreement.

Any party hereto may change its address or facsimile number for notices and other communications hereunder by notice to the other parties hereto. All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt (if a Business Day) and on the next Business Day thereafter (in all other cases) if delivered by hand or overnight courier service or sent by facsimile or on the date five Business Days after dispatch by certified or registered mail if mailed, in each case delivered, sent or mailed (properly addressed) to such party as provided in this Section or in accordance with the latest unrevoked direction from such party given in accordance with this Section. As agreed to in writing by any party hereto from time to time, notices and other communications to such party may also be delivered by e-mail to the e-mail address of a representative of such party provided from time to time by such party.

SECTION 7.02. Waivers; Amendment; Joinder Agreements. (a) No failure or delay on the part of any party hereto in exercising any right or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the parties hereto are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of

this Agreement or consent to any departure by any party therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice or demand on any party hereto in any case shall entitle such party to any other or further notice or demand in similar or other circumstances.

(b) Neither this Agreement nor any provision hereof may be waived, amended or otherwise modified except pursuant to an agreement or agreements in writing entered into by the Collateral Agent and each Authorized Representative then party hereto; provided, however, that no such agreement shall by its terms amend, modify or otherwise affect the rights or obligations of any Grantor without the Company’s prior written consent; provided further, however, that (i)(A) without the consent of any party hereto other than the Issuers, this Agreement may be supplemented by an Authorized Representative Joinder Agreement, and an Additional Authorized Representative may become a party hereto, in accordance with Article VI, and (B) without the consent of any party hereto, this Agreement may be supplemented by a Grantor Joinder Agreement, and a Subsidiary may become a party hereto, in accordance with Section 7.13, and (ii) in connection with any Refinancing of Pari-Passu Lien Obligations of any Class, or the incurrence of Additional Pari-Passu Lien Obligations of any Class, the Collateral Agent and the Authorized Representatives then party hereto shall enter (and are hereby authorized to enter without the consent of any other Pari-Passu Lien Secured Party), at the request of the Collateral Agent, any Authorized Representative or the Company, into such amendments or modifications of this Agreement as are reasonably necessary to reflect such Refinancing or such incurrence and are reasonably satisfactory to the Collateral Agent and each such Authorized Representative.

SECTION 7.03. Parties in Interest. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, as well as the other Pari-Passu Lien Secured Parties, all of whom are intended to be bound by, and to be third party beneficiaries of, this Agreement.

SECTION 7.04. Effectiveness; Survival. This Agreement shall become effective when executed and delivered by the parties hereto. All covenants, agreements, representations and warranties made by any party in this Agreement shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of this Agreement. This Agreement shall continue in full force and effect notwithstanding the commencement of any Insolvency or Liquidation Proceeding against the Issuers or any of their Subsidiaries. The reimbursement and indemnification obligations in favor of Collateral Agent hereunder, including without limitation the items set forth in 2.01(b)(FIRST) shall remain operative and in full force and effect regardless of the termination of this Agreement or any Note Documents or LC Facility Documents, the consummation of the transactions contemplate hereby and thereby and payment of the obligations thereunder.

SECTION 7.05. Counterparts. This Agreement may be executed in counterparts, each of which shall constitute an original but all of which when taken together shall constitute a single contract. Delivery of an executed signature page to this Agreement by facsimile or other electronic transmission shall be as effective as delivery of a manually signed counterpart of this Agreement.

SECTION 7.06. Severability. Any provision of this Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction. The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.

SECTION 7.07. Governing Law. This Agreement shall be construed in accordance with and governed by the law of the State of New York.

SECTION 7.08. Submission to Jurisdiction Waivers; Consent to Service of Process. The Collateral Agent and each Authorized Representative, for itself and on behalf of its Related Secured Parties, irrevocably and unconditionally:

(a) submits for itself and its property in any legal action or proceeding relating to this Agreement and the Pari-Passu Lien Security Documents and the Real Property Collateral Management Agreement, or for recognition and enforcement of any judgment in respect thereof, to the exclusive general jurisdiction of the courts of the State of New York, the courts of the United States of America for the Southern District of New York and appellate courts from any thereof;

(b) consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same;

(c) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to such Person (or its Authorized Representative) at the address referred to in Section 7.01;

(d) agrees that nothing herein shall affect the right of any other party hereto (or any Pari-Passu Lien Secured Party) to effect service of process in any other manner permitted by law or shall limit the right of any party hereto (or any Pari-Passu Lien Secured Party) to sue in any other jurisdiction; and

(e) waives, to the maximum extent not prohibited by law, any right it may have to claim or recover in any legal action or proceeding referred to in this Section any special, exemplary, punitive or consequential damages.

SECTION 7.09. WAIVER OF JURY TRIAL. EACH PARTY HERETO WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

SECTION 7.10. Headings. Article and Section headings used herein are for convenience of reference only, are not part of this Agreement and are not to affect the construction of, or to be taken into consideration in interpreting, this Agreement.

SECTION 7.11. Conflicts. In the event of any conflict or inconsistency between the provisions of this Agreement (including Section 2.06 hereof) and the provisions of any of the Pari-Passu Lien Credit Documents, the provisions of this Agreement shall control.

SECTION 7.12. Provisions Solely to Define Relative Rights. The provisions of this Agreement are and are intended solely for the purpose of defining the relative rights of the Pari-Passu Lien Secured Parties in relation to one another. Except as expressly provided in this Agreement, none of the Company, any other Grantor, any other Subsidiary or any other creditor of any of the foregoing shall have any rights or obligations hereunder, and none of the Company, any other Grantor or any other Subsidiary may rely on the terms hereof. Nothing in this Agreement is intended to or shall impair the obligations of the Company or any other Grantor, which are absolute and unconditional, to pay the Pari-Passu Lien Obligations as and when the same shall become due and payable in accordance with their terms.

SECTION 7.13. Additional Grantors. In the event any Subsidiary of the Company shall have granted a Lien on any of its assets to secure any Pari-Passu Lien Obligations, the Company shall cause such Subsidiary, if not already a party hereto, to become a party hereto as a “Grantor”. Upon the execution and delivery by any such Subsidiary of a Grantor Joinder Agreement, such Subsidiary shall become a party hereto and a Grantor hereunder with the same force and effect as if originally named as such herein. The execution and delivery of any such instrument shall not require the consent of any other party hereto. The rights and obligations of each party hereto shall remain in full force and effect notwithstanding the addition of any new Grantor as a party to this Agreement.

SECTION 7.14. Integration. This Agreement, together with the other Pari-Passu Lien Credit Documents, represents the agreement of each of the Grantors and the Pari-Passu Lien Secured Parties with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by any Grantor, the Collateral Agent or any other Pari-Passu Lien Secured Party relative to the subject matter hereof not expressly set forth or referred to herein or in the other Pari-Passu Lien Credit Documents.

SECTION 7.15. Further Assurances. Each of the Collateral Agent, each Authorized Representative and the Grantors agrees that it will execute, or will cause to be executed, any and all further documents, agreements and instruments, and take all such further actions, as may be required under any applicable law, or which the Collateral Agent or any Authorized Representative may reasonably request, to effectuate the terms of this Agreement, including the relative Lien priorities provided for herein.

SECTION 7.16. Security Agreement. In addition to the foregoing rights, in acting hereunder and by virtue of this Agreement, the Collateral Agent shall have all of the rights, protections and immunities granted to it under the Security Agreement, all of which are incorporated by reference herein.

IN WITNESS WHEREOF, the parties hereto have caused this Intercreditor Agreement to be duly executed by their respective authorized officers as of the day and year first above written.

WELLS FARGO BANK, NATIONAL ASSOCIATION, as Collateral Agent,
by	/s/    Julius R. Zamora
	Name: Julius R. Zamora
	Title: Vice President

[Signature Page to Intercreditor Agreement]

WELLS FARGO BANK, NATIONAL ASSOCIATION, as Authorized Representative for the Indenture Secured Parties solely in its capacity as Trustee under the Indenture,
by	/s/    Maddy Hall
	Name: Maddy Hall
	Title: Vice President

[Signature Page to Intercreditor Agreement]

CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH, as Administrative Agent,
by	/s/    Bill O’Daly
	Name: BILL O’DALY
	Title: DIRECTOR

by	/s/    Sanja Gazahi
	Name: Sanja Gazahi
	Title: Associate

[Signature Page to Intercreditor Agreement]

SHEA HOMES LIMITED PARTNERSHIP, a California limited partnership
By:	/s/    James G. Shontere
	Name: James G. Shontere
	Title: Secretary

By:	/s/    Robert R. O’Dell
	Name: Robert R. O’Dell
	Title: Treasurer

SHEA HOMES FUNDING CORP., a Delaware corporation
By:	/s/    James G. Shontere
	Name: James G. Shontere
	Title: Chief Financial Officer and Treasurer

By:	/s/    Robert R. O’Dell
	Name: Robert R. O’Dell
	Title: Vice President

[Signature Page to Intercreditor Agreement]

GUARANTORS:

HIGHLANDS RANCH DEVELOPMENT CORPORATION, a Colorado corporation
By:	/s/    James G. Shontere
	Name: James G. Shontere
	Title: Secretary
By:	/s/    Robert R. O’Dell
	Name: Robert R. O’Dell
	Title: Treasurer

MONTY GREEN HOLDINGS, LLC, a Delaware limited liability company
By:	/s/    James G. Shontere
	Name: James G. Shontere
	Title: Secretary
By:	/s/    Robert R. O’Dell
	Name: Robert R. O’Dell
	Title: Treasurer

MOUNTAINBROOK VILLAGE COMPANY, an Arizona corporation
By:	/s/    James G. Shontere
	Name: James G. Shontere
	Title: Secretary
By:	/s/    Robert R. O’Dell
	Name: Robert R. O’Dell
	Title: Treasurer

[Signature Page to Intercreditor Agreement]

SAND CREEK CATTLE COMPANY, a Colorado corporation
By:	/s/    James G. Shontere
	Name: James G. Shontere
	Title: Secretary
By:	/s/    Robert R. O’Dell
	Name: Robert R. O’Dell
	Title: Treasurer
SERENADE AT NATOMAS, LLC, a California limited liability company
By:	Shea Homes, Inc., a Delaware corporation, Its sole Member

By:	/s/    James G. Shontere
	Name: James G. Shontere
	Title: Secretary
By:	/s/    Robert R. O’Dell
	Name: Robert R. O’Dell
	Title: Treasurer

[Signature Page to Intercreditor Agreement]

SEVILLE GOLF AND COUNTRY CLUB, LLC, an Arizona limited liability company
By:	Shea Homes Limited Partnership, a California limited partnership, Its Sole Member and Manager

By: J.F. Shea, L.P., a Delaware limited partnership, Its sole General Partner

By: JFS Management, L.P., a Delaware limited partnership, Its sole General Partner

                  By: J.F. Shea Construction Management, Inc., a California corporation, Its sole General Partner

By:	/s/    James G. Shontere
	Name: James G. Shontere
	Title: Secretary
By:	/s/    Robert R. O’Dell
	Name: Robert R. O’Dell
	Title: Treasurer

[Signature Page to Intercreditor Agreement]

SHEA BREA DEVELOPMENT, LLC, a Delaware limited liability company
By:	Shea Homes Limited Partnership, a California limited partnership, Its Sole Member and Manager

By:  J.F. Shea, L.P., a Delaware limited partnership, Its sole General Partner

By:  JFS Management, L.P., a Delaware limited partnership, Its sole General Partner

                  By:  J.F. Shea Construction Management, Inc., a California corporation, Its sole General Partner

By:	/s/    James G. Shontere
	Name: James G. Shontere
	Title: Secretary
By:	/s/    Robert R. O’Dell
	Name: Robert R. O’Dell
	Title: Treasurer

[Signature Page to Intercreditor Agreement]

SHEA CAPITAL II, LLC, a Delaware limited liability company
By:	Shea Homes Limited Partnership, a California limited partnership, Its Manager

By: J.F. Shea, L.P., a Delaware limited partnership, Its sole General Partner

By: JFS Management, L.P., a Delaware limited partnership, Its sole General Partner

                  By: J.F. Shea Construction Management, Inc., a California corporation, Its sole General Partner

By:	/s/    James G. Shontere
	Name: James G. Shontere
	Title: Secretary
By:	/s/    Robert R. O’Dell
	Name: Robert R. O’Dell
	Title: Treasurer

SHEA COMMUNITIES MARKETING COMPANY, a Delaware corporation
By:	/s/    James G. Shontere
	Name: James G. Shontere
	Title: Secretary

By:	/s/    Robert R. O’Dell
	Name: Robert R. O’Dell
	Title: Treasurer

[Signature Page to Intercreditor Agreement]

SHEA FINANCIAL SERVICES, INC., a California corporation
By:	/s/    James G. Shontere
	Name: James G. Shontere
	Title: Secretary

By:	/s/    Robert R. O’Dell
	Name: Robert R. O’Dell
	Title: Treasurer

SHEA HOMES, INC., a Delaware corporation
By:	/s/    James G. Shontere
	Name: James G. Shontere
	Title: Secretary

By:	/s/    Robert R. O’Dell
	Name: Robert R. O’Dell
	Title: Treasurer

SHEA HOMES AT MONTAGE, LLC, a California limited liability company
By:	/s/    James G. Shontere
	Name: James G. Shontere
	Title: Secretary
By:	/s/    Robert R. O’Dell
	Name: Robert R. O’Dell
	Title: Treasurer

[Signature Page to Intercreditor Agreement]

SHEA HOMES SOUTHWEST, INC., an Arizona corporation
By:	/s/    James G. Shontere
	Name: James G. Shontere
	Title: Secretary

By:	/s/    Robert R. O’Dell
	Name: Robert R. O’Dell
	Title: Treasurer

SHEA HOMES VANTIS, LLC, a California limited liability company
By:	/s/    James G. Shontere
	Name: James G. Shontere
	Title: Secretary

By:	/s/    Robert R. O’Dell
	Name: Robert R. O’Dell
	Title: Treasurer

SHEA INSURANCE SERVICES, INC., a California corporation
By:	/s/    James G. Shontere
	Name: James G. Shontere
	Title: Secretary
By:	/s/    Robert R. O’Dell
	Name: Robert R. O’Dell
	Title: Treasurer

[Signature Page to Intercreditor Agreement]

SHEA LA QUINTA LLC, a California limited liability company
By:	Shea Homes, Inc., a Delaware corporation, Its sole Member

By:	/s/    James G. Shontere
	Name: James G. Shontere
	Title: Secretary
By:	/s/    Robert R. O’Dell
	Name: Robert R. O’Dell
	Title: Treasurer

SHEA NINTH AND COLORADO, LLC, a Colorado limited liability company
By:	Shea Homes Limited Partnership, a California limited partnership, Its sole Member and Manager

By: J.F. Shea, L.P., a Delaware limited partnership, Its sole General Partner

By: JFS Management, L.P., a Delaware limited partnership, Its sole General Partner

                  By: J.F. Shea Construction Management, Inc., a California corporation, Its sole General Partner

By:	/s/    James G. Shontere
	Name: James G. Shontere
	Title: Secretary
By:	/s/    Robert R. O’Dell
	Name: Robert R. O’Dell
	Title: Treasurer

[Signature Page to Intercreditor Agreement]

SHEA OTAY VILLAGE 11, LLC, a California limited liability company
By:	Shea Homes Limited Partnership, a California limited partnership, Its Sole Member

By: J.F. Shea, L.P., a Delaware limited partnership, Its sole General Partner

By: JFS Management, L.P., a Delaware limited partnership, Its sole General Partner

                  By: J.F. Shea Construction Management, Inc., a California corporation, Its sole General Partner

By:	/s/    James G. Shontere
	Name: James G. Shontere
	Title: Secretary
By:	/s/    Robert R. O’Dell
	Name: Robert R. O’Dell
	Title: Treasurer

[Signature Page to Intercreditor Agreement]

SHEA PROCTOR VALLEY, LLC, a California limited liability company
By:	Shea Homes Limited Partnership, a California limited partnership, Its Sole Member

By: J.F. Shea, L.P., a Delaware limited partnership, Its sole General Partner

By: JFS Management, L.P., a Delaware limited partnership, Its sole General Partner

                  By: J.F. Shea Construction Management, Inc., a California corporation, Its sole General Partner

By:	/s/    James G. Shontere
	Name: James G. Shontere
	Title: Secretary
By:	/s/    Robert R. O’Dell
	Name: Robert R. O’Dell
	Title: Treasurer

[Signature Page to Intercreditor Agreement]

SHEA PROPERTIES OF COLORADO, INC., a Colorado corporation
By:	/s/    James G. Shontere
	Name: James G. Shontere
	Title: Secretary
By:	/s/     Robert R. O’Dell
	Name: Robert R. O’Dell
	Title: Treasurer

SHEA RIVERMARK VILLAGE, LLC, a California limited liability company
By:	Shea Homes Limited Partnership, a California limited partnership, Its Sole Member and Manager

By:  J.F. Shea, L.P., a Delaware limited partnership, Its sole General Partner

  By:  JFS Management, L.P., a Delaware limited partnership, Its sole General Partner

                     By:  J.F. Shea Construction Management, Inc., a California corporation, Its sole General Partner

By:	/s/     James G. Shontere
	Name: James G. Shontere
	Title:   Secretary
BY:	/s/    Robert R. O’Dell
	Name: Robert R. O’Dell
	Title:   Treasurer

[Signature Page to Intercreditor Agreement]

SHEA TONNER HILLS, LLC, a Delaware limited liability company
By:	Shea Homes Limited Partnership, a California limited partnership, Its sole Member and Manager

By: J.F. Shea, L.P., a Delaware limited partnership, Its sole General Partner

By: JFS Management, L.P., a Delaware limited partnership, Its sole General Partner

                  By: J.F. Shea Construction Management, Inc., a California corporation, Its sole General Partner

By:	/s/    James G. Shontere
	Name: James G. Shontere
	Title:  Secretary
BY:	/s/    Robert R. O’Dell
	Name: Robert R. O’Dell
	Title:  Treasurer

SHEA VICTORIA GARDENS, LLC, a Florida limited liability company
By:	/s/    James G. Shontere
	Name: James G. Shontere
	Title: Secretary
By:	/s/     Robert R. O’Dell
	Name: Robert R. O’Dell
	Title: Treasurer

[Signature Page to Intercreditor Agreement]

SH JUBILEE, LLC, a Delaware limited liability company
By:	/s/    James G. Shontere
	Name: James G. Shontere
	Title: Secretary
By:	/s/     Robert R. O’Dell
	Name: Robert R. O’Dell
	Title: Treasurer

SH JUBILEE MANAGEMENT, LLC, a Delaware limited liability company
By:	/s/    James G. Shontere
	Name: James G. Shontere
	Title: Secretary
By:	/s/     Robert R. O’Dell
	Name: Robert R. O’Dell
	Title: Treasurer

[Signature Page to Intercreditor Agreement]

SHI JV HOLDINGS, LLC, a Delaware limited liability company
By:	/s/    James G. Shontere
	Name:James G. Shontere Title: Secretary

By:	/s/    Robert R. O’Dell
	Name:Robert R. O’Dell Title: Treasurer

SHLP JV HOLDINGS, LLC, a Delaware limited liability company
By:	/s/    James G. Shontere
	Name:James G. Shontere Title: Secretary

By:	/s/    Robert R. O’Dell
	Name:Robert R. O’Dell Title: Treasurer

[Signature Page to Intercreditor Agreement]

TOWER 104 GATHERING, LLC, a Colorado limited liability company
By:	Shea Homes Limited Partnership, a California limited partnership, Its Sole Member and Manager

By: J.F. Shea, L.P., a Delaware limited partnership, Its sole General Partner

By: JFS Management, L.P., a Delaware limited partnership, Its sole General Partner

                  By: J.F. Shea Construction Management, Inc., a California corporation, Its sole General Partner

By:	/s/     James G. Shontere
	Name: James G. Shontere Title: Secretary
By:	/s/     Robert R. O’Dell
	Name: Robert R. O’Dell
	Title: Treasurer

[Signature Page to Intercreditor Agreement]

TOWER 104 OIL, LLC, a Colorado limited liability company
By:	Shea Homes Limited Partnership, a California limited partnership, Its Sole Member and Manager

By: J.F. Shea, L.P., a Delaware limited partnership, Its sole General Partner

By: JFS Management, L.P., a Delaware limited partnership, Its sole General Partner

                  By: J.F. Shea Construction Management, Inc., a California corporation, Its sole General Partner

By:	/s/     James G. Shontere
	Name: James G. Shontere
	Title: Secretary
By:	/s/     Robert R. O’Dell
	Name: Robert R. O’Dell
	Title: Treasurer

[Signature Page to Intercreditor Agreement]

TRILOGY ANTIOCH, LLC, a California limited liability company
By:	SHEA CAPITAL II, LLC, a Delaware limited liability company, Its sole Member

By: Shea Homes Limited Partnership, a California limited partnership, Its Manager

By: J.F. Shea, L.P., a Delaware limited partnership, Its sole General Partner

By: JFS Management, L.P., a Delaware limited partnership, Its sole General Partner

                          By: J.F. Shea Construction Management, Inc., a California corporation, Its sole General Partner

By:	/s/     James G. Shontere
	Name: James G. Shontere
	Title: Secretary
By:	/s/     Robert R. O’Dell
	Name: Robert R. O’Dell
	Title: Treasurer

UDC ADVISORY SERVICES, INC., an Illinois corporation
By:	/s/     James G. Shontere
	Name: James G. Shontere Title: Secretary

By:	/s/    Robert R. O’Dell
	Name: Robert R. O’Dell Title: Treasurer

[Signature Page to Intercreditor Agreement]

UDC HOMES CONSTRUCTION, INC., an Arizona corporation
By:	/s/    James G. Shontere
	Name:James G. Shontere Title: Secretary

By:	/s/    Robert R. O’Dell
	Name: Robert R. O’Dell Title: Treasurer

VISTANCIA CONSTRUCTION, LLC, a Delaware limited liability company
By:	Shea Homes Southwest, Inc., an Arizona corporation, Its Manager

By:	/s/    James G. Shontere
	Name: James G. Shontere Title: Secretary

By:	/s/    Robert R. O’Dell
	Name: Robert R. O’Dell Title: Treasurer

VISTANCIA MARKETING, LLC, a Delaware limited liability company
By:	Shea Homes Southwest, Inc., an Arizona corporation, Its Manager

By:	/s/    James G. Shontere
	Name: James G. Shontere Title: Secretary

By:	/s/    Robert R. O’Dell
	Name: Robert R. O’Dell Title: Treasurer

[Signature Page to Intercreditor Agreement]

EXHIBIT I to

INTERCREDITOR AGREEMENT

[FORM OF] ADDITIONAL AUTHORIZED REPRESENTATIVE AGENT JOINDER AGREEMENT NO. [         ] dated as of [         ], [         ] (this “Joinder Agreement”) to the INTERCREDITOR AGREEMENT dated as of May 10, 2011 (as amended, supplemented or otherwise modified from time to time, the “Intercreditor Agreement”), among SHEA HOMES LIMITED PARTNERSHIP, a California limited partnership (the “Company”), SHEA HOMES FUNDING CORP., a Delaware corporation (together with the Company, the “Issuers”), the other GRANTORS party thereto, WELLS FARGO BANK, NATIONAL ASSOCIATION, as collateral agent for the Pari-Passu Lien Secured Parties (in such capacity, the “Collateral Agent”), and WELLS FARGO BANK, NATIONAL ASSOCIATION, as the Authorized Representative for the Indenture Secured Parties in its capacity as trustee under the Indenture, CREDIT SUISSE AG, as the Authorized Representative for the LC Facility Secured Parties, and each Additional Authorized Representative from time to time party thereto, as the Authorized Representative for any Pari-Passu Lien Secured Parties of any other Class.

Capitalized terms used herein but not otherwise defined herein shall have the meanings assigned to such terms in the Intercreditor Agreement.

The Issuers and the other Grantors propose to issue or incur “Additional Pari-Passu Lien Obligations” designated by the Issuers as such in accordance with Article VI of the Intercreditor Agreement in an Officers’ Certificate delivered concurrently herewith to the Collateral Agent and the Authorized Representatives (the “Additional Pari-Passu Lien Obligations”). The Person identified in the signature pages hereto as the “Additional Authorized Representative” (the “Additional Authorized Representative”) will serve as the administrative agent, trustee or a similar representative for the holders of the Additional Pari-Passu Lien Obligations (the “Additional Pari-Passu Lien Secured Parties”).

The Additional Authorized Representative wishes, in accordance with the provisions of the Intercreditor Agreement, to become a party to the Intercreditor Agreement and to acquire and undertake, for itself and on behalf of the Additional Pari-Passu Lien Secured Parties, the rights and obligations of an “Additional Authorized Representative” and “Secured Parties” thereunder.

Accordingly, the Additional Authorized Representative, for itself and on behalf of its Related Secured Parties, and the Issuers agree as follows, for the benefit of the Collateral Agent, the existing Authorized Representatives and the existing Pari-Passu Lien Secured Parties:

SECTION 1.01. Accession to the Intercreditor Agreement. The Additional Authorized Representative hereby (a) accedes and becomes a party to the

Intercreditor Agreement as an “Additional Authorized Representative”, (b) agrees, for itself and on behalf of the Additional Pari-Passu Lien Secured Parties, to all the terms and provisions of the Intercreditor Agreement and (c) acknowledges and agrees that (i) the Additional Pari-Passu Lien Obligations and Liens on any Collateral securing the same shall be subject to the provisions of the Intercreditor Agreement and (ii) the Additional Authorized Representative and the Additional Pari-Passu Lien Secured Parties shall have the rights and obligations specified under the Intercreditor Agreement with respect to an “Authorized Representative” and a “Pari-Passu Lien Secured Party”, respectively, and shall be subject to and bound by the provisions of the Intercreditor Agreement.

SECTION 1.02. Representations and Warranties of the Additional Authorized Representative. The Additional Authorized Representative represents and warrants to the Collateral Agent, the existing Authorized Representatives and the existing Pari-Passu Lien Secured Parties that (a) it has full power and authority to enter into this Joinder Agreement, in its capacity as the Additional Authorized Representative, (b) this Joinder Agreement has been duly authorized, executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms, and (c) the Additional Pari-Passu Lien Credit Documents relating to the Additional Pari-Passu Lien Obligations provide that, upon the Additional Authorized Representative’s execution and delivery of this Joinder Agreement, (i) the Additional Pari-Passu Lien Obligations and Liens on any Collateral securing the same shall be subject to the provisions of the Intercreditor Agreement and (ii) the Additional Authorized Representative and the Additional Pari-Passu Lien Secured Parties shall have the rights and obligations specified therefor under, and shall be subject to and bound by the provisions of, the Intercreditor Agreement.

SECTION 1.03. Parties in Interest. This Joinder Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, as well as the other Pari-Passu Lien Secured Parties, all of whom are intended to be bound by, and to be third party beneficiaries of, this Agreement.

SECTION 1.04. Counterparts. This Joinder Agreement may be executed in counterparts, each of which shall constitute an original but all of which when taken together shall constitute a single contract. Delivery of an executed signature page to this Agreement by facsimile or other electronic transmission shall be as effective as delivery of a manually signed counterpart of this Joinder Agreement.

SECTION 1.05. Governing Law. This Joinder Agreement shall be construed in accordance with and governed by the law of the State of New York.

SECTION 1.06. Notices. All communications and notices hereunder shall be in writing and given as provided in Section 7.01 of the Intercreditor Agreement. All communications and notices hereunder to the Additional Authorized Representative shall be given to it at the address set forth under its signature hereto, which information supplements Section 7.01 to the Intercreditor Agreement.

SECTION 1.07. Expenses. The Issuers agree to reimburse the Collateral Agent and each of the Authorized Representatives for its reasonable out-of-pocket expenses in connection with this Joinder Agreement, including the reasonable fees, other charges and disbursements of counsel for the Collateral Agent and any of the Authorized Representatives.

SECTION 1.08. Incorporation by Reference. The provisions of Sections 7.04, 7.06, 7.08, 7.09, 7.10, 7.11 and 7.12 of the Intercreditor Agreement are hereby incorporated by reference, mutatis mutandis, as if set forth in full herein.

IN WITNESS WHEREOF, the Additional Authorized Representative and the Issuers have duly executed this Joinder Agreement to the Intercreditor Agreement as of the day and year first above written.

[        ], AS ADDITIONAL AUTHORIZED REPRESENTATIVE,
by
	Name: Title:

Address for notices:
	attention of:
	Facsimile:

SHEA HOMES LIMITED PARTNERSHIP,
by
	Name: Title:

SHEA HOMES FUNDING CORP.,
by
	Name: Title:

Acknowledged by: WELLS FARGO BANK, NATIONAL ASSOCIATION, solely in its capacity as the Collateral Agent,
by
	Name: Title:

WELLS FARGO BANK, NATIONAL ASSOCIATION, solely in its capacity as Trustee and Authorized Representative for the Indenture Secured Parties
by
	Name: Title:

CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH, as the LC Facility Authorized Representative
by
	Name: Title:

by
	Name: Title:

EXHIBIT II to

INTERCREDITOR AGREEMENT

[FORM OF] GRANTOR JOINDER AGREEMENT NO. [         ] dated as of [         ], [         ] (this “Joinder Agreement”) to the INTERCREDITOR AGREEMENT dated as of May 10, 2011 (as amended, supplemented or otherwise modified from time to time, the “Intercreditor Agreement”), among SHEA HOMES LIMITED PARTNERSHIP, a California limited partnership (the “Company”), SHEA HOMES FUNDING CORP., a Delaware corporation (together with the Company, the “Issuers”), the other GRANTORS party thereto, WELLS FARGO BANK, NATIONAL ASSOCIATION, as collateral agent for the Pari-Passu Lien Secured Parties (as defined below) (in such capacity, the “Collateral Agent”), and WELLS FARGO BANK, NATIONAL ASSOCIATION, as the Authorized Representative for the Indenture Secured Parties in its capacity as trustee under the Indenture (as defined below), CREDIT SUISSE AG, as the Authorized Representative for the LC Facility Secured Parties and each Additional Authorized Representative from time to time party thereto, as the Authorized Representative for any Pari-Passu Lien Secured Parties of any other Class.

Capitalized terms used herein but not otherwise defined herein shall have the meanings assigned to such terms in the Intercreditor Agreement.

[         ], a [         ] [corporation] and a Subsidiary of the Issuers (the Additional Grantor”), has granted a Lien on all or a portion of its assets to secure Pari-Passu Lien Obligations and such Additional Grantor is not a party to the Intercreditor Agreement.

The Additional Grantor wishes to become a party to the Pari-Passu Lien Intercreditor Agreement and to acquire and undertake the rights and obligations of a Grantor thereunder. The Additional Grantor is entering into this Joinder Agreement in accordance with the provisions of the Intercreditor Agreement in order to become a Grantor thereunder.

Accordingly, the Additional Grantor agrees as follows, for the benefit of the Collateral Agent, the Authorized Representatives and the Pari-Passu Lien Secured Parties:

SECTION 1.01. Accession to the Intercreditor Agreement. The Additional Grantor (a) hereby accedes and becomes a party to the Intercreditor Agreement as a “Grantor”, (b) agrees to all the terms and provisions of the Intercreditor Agreement and (c) acknowledges and agrees that the Additional Grantor shall have the rights and obligations specified under the Intercreditor Agreement with respect to a “Grantor” and shall be subject to and bound by the provisions of the Intercreditor Agreement.

SECTION 1.02. Representations and Warranties of the Additional Grantor. The Additional Grantor represents and warrants to the Collateral Agent, the Authorized Representatives and the Pari-Passu Lien Secured Parties that this Joinder Agreement has been duly authorized, executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms.

SECTION 1.03. Parties in Interest. This Joinder Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, as well as the other Pari-Passu Lien Secured Parties, all of whom are intended to be third party beneficiaries of this Agreement.

SECTION 1.04. Counterparts. This Joinder Agreement may be executed in counterparts, each of which shall constitute an original but all of which when taken together shall constitute a single contract. Delivery of an executed signature page to this Agreement by facsimile or other electronic transmission shall be as effective as delivery of a manually signed counterpart of this Joinder Agreement.

SECTION 1.05. Governing Law. This Joinder Agreement shall be construed in accordance with and governed by the law of the State of New York.

SECTION 1.06. Notices. All communications and notices hereunder shall be in writing and given as provided in Section 7.01 of the Intercreditor Agreement.

SECTION 1.07. Expenses. The Grantor agrees to reimburse the Collateral Agent and each of the Authorized Representatives for its reasonable out-of-pocket expenses in connection with this Joinder Agreement, including the reasonable fees, other charges and disbursements of counsel for the Collateral Agent and any of the Authorized Representatives.

SECTION 1.08. Incorporation by Reference. The provisions of Sections 7.04, 7.06, 7.08, 7.09, 7.10, 7.11 and 7.12 of the Intercreditor Agreement are hereby incorporated by reference, mutatis mutandis, as if set forth in full herein.

IN WITNESS WHEREOF, the Additional Grantor has duly executed this Joinder Agreement to the Intercreditor Agreement as of the day and year first above written.

[NAME OF SUBSIDIARY],
by
	Name:
	Title:

EX-5.1

Exhibit 5.1

Client Matter No.: C 46350-00023

January 20, 2012

Shea Homes Limited Partnership

Shea Homes Funding Corp.

655 Brea Canyon Road

Walnut, California 91789

(909) 594-9500

Re: Shea Homes Limited Partnership and Shea Homes Funding Corp. Registration Statement on Form S-4

Ladies and Gentlemen:

We have examined the Registration Statement on Form S-4 (the “Registration Statement”), of Shea Homes Limited Partnership, a California limited partnership (the “Company”), Shea Homes Funding Corp., a Delaware corporation and certain direct and indirect wholly-owned subsidiaries of the Company listed as co-registrants thereto (collectively, the “Guarantors”), filed with the Securities and Exchange Commission (the “Commission”) pursuant to the Securities Act of 1933, as amended (the “Securities Act”), in connection with the offering by the Company of up to $750,000,000 principal amount of the Company’s 8.625% Senior Secured Notes due 2019 (the “Exchange Notes”) and the guarantees of the Company’s payment obligations under the Exchange Notes (the “Guarantees”), in exchange for a like principal amount of the Company’s outstanding 8.625% Senior Secured Notes due 2019 (the “Outstanding Notes”).

We have examined the originals, or copies certified or otherwise identified to our satisfaction, of the Indenture dated May 10, 2011 by and among the Company, the Guarantors and Wells Fargo Bank, National Association, as trustee, governing the Exchange Notes (the “Indenture”), and such other documents, corporate records, certificates of officers of the Company and the Guarantors and of public officials and other instruments as we have deemed necessary or advisable to enable us to render these opinions. In our examination, we have assumed, without independent investigation, the genuineness of all signatures, the legal capacity and competency of all natural persons, the authenticity of all documents submitted to us as originals and the conformity to original documents of all documents submitted to us as copies. As to any facts material to these opinions, we have relied to the extent we deemed appropriate and without independent investigation upon statements and representations of officers and other representatives of the Company and the Guarantors and others.

Shea Homes Limited Partnership

Shea Homes Funding Corp.

January 20, 2012

Page 2

Based upon the foregoing, and subject to the assumptions, exceptions, qualifications and limitations set forth herein, we are of the opinion that:

1. With respect to the Exchange Notes, when the Exchange Notes are executed and authenticated in accordance with the provisions of the Indenture and issued and delivered in exchange for the Outstanding Notes in the manner described in the Registration Statement, the Exchange Notes will constitute legal, valid and binding obligations of the Company.

2. With respect to the Guarantees, when the Exchange Notes are executed and authenticated in accordance with the provisions of the Indenture and issued and delivered in exchange for the Outstanding Notes in the manner described in the Registration Statement, the Guarantees will constitute legal, valid and binding obligations of the Guarantors.

The opinions expressed above are subject to the following additional exceptions, qualifications, limitations and assumptions:

A. We render no opinion herein as to matters involving the laws of any jurisdiction other than the State of New York, the United States of America and to the extent relevant for our opinions herein, the California Corporations Code, the Beverly-Killea Limited Liability Company Act, the California Revised Limited Partnership Act, the Colorado Business Corporation Act, the Colorado Limited Liability Company Act, the Delaware General Corporation Law and the Delaware Limited Liability Company Act. This opinion is limited to the effect of the current state of the laws of the State of New York, the United States of America and, to the limited extent set forth above, the States of California, Colorado and Delaware and the facts as they currently exist. We assume no obligation to revise or supplement this opinion in the event of future changes in such laws or the interpretations thereof or such facts after such time as the Registration Statement is declared effective.

B. Our opinions above are subject to (i) the effect of any bankruptcy, insolvency, reorganization, moratorium, arrangement, or similar laws affecting the rights and remedies of creditors generally, including, without limitation, the effect of statutory or other laws regarding fraudulent transfers or preferential transfers and (ii) general principles of equity, including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing, and the possible unavailability of specific performance, injunctive relief, or other equitable remedies regardless of whether enforceability is considered in a proceeding in equity or at law.

C. We express no opinion regarding the effectiveness of (i) any waiver of stay, extension or usury laws or of unknown future rights, (ii) provisions relating to

Shea Homes Limited Partnership

Shea Homes Funding Corp.

January 20, 2012

Page 3

indemnification, exculpation or contribution, to the extent such provisions may be held unenforceable as contrary to public policy or federal or state securities laws, (iii) any purported fraudulent transfer “savings” clause, (iv) any provision waiving the right to object to venue in any court, (v) any agreement to submit to the jurisdiction of any Federal court or (vi) any waiver of the right to jury trial.

We consent to the filing of this opinion as an exhibit to the Registration Statement, and we further consent to the use of our name under the caption “Legal Matters” in the Registration Statement and the prospectus that forms a part thereof. In giving these consents, we do not thereby admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act or the rules and regulations of the Commission promulgated thereunder.

Very truly yours,

/s/ GIBSON, DUNN & CRUTCHER LLP

EX-10.1

Exhibit 10.1

EXECUTION COPY

LETTER OF CREDIT FACILITY AGREEMENT

dated as of

May 10, 2011,

among

SHEA HOMES LIMITED PARTNERSHIP,

SHEA HOMES FUNDING CORP.,

THE SUBSIDIARY GUARANTORS PARTY HERETO,

THE PARTICIPANTS PARTY HERETO

and

CREDIT SUISSE AG,

as Issuing Bank and Administrative Agent

CREDIT SUISSE SECURITIES (USA) LLC

[CS&M Ref. No. 5865-717    

ARTICLE I
Definitions
SECTION 1.01.	Defined Terms	1
SECTION 1.02.	Terms Generally	28
SECTION 1.03.	Pari-Passu Indebtedness	29
ARTICLE II
The Credits
SECTION 2.01.	The Credits	29
SECTION 2.02.	Fees	34
SECTION 2.03.	Default Interest	35
SECTION 2.04.	Termination and Reduction of Commitments	35
SECTION 2.05.	Reserve Requirements; Change in Circumstances	36
SECTION 2.06.	Pro Rata Treatment	37
SECTION 2.07.	Sharing of Setoffs	37
SECTION 2.08.	Payments	38
SECTION 2.09.	Taxes	39
SECTION 2.10.	Assignment of Commitments Under Certain Circumstances; Duty to Mitigate	42
SECTION 2.11.	Extension of Commitments	44
SECTION 2.12.	Defaulting Participants	44
SECTION 2.13.	Cash Collateral	46
ARTICLE III
Representations and Warranties
SECTION 3.01.	Organization; Powers	47
SECTION 3.02.	Authorization	48
SECTION 3.03.	Enforceability	48
SECTION 3.04.	Governmental Approvals	48
SECTION 3.05.	Financial Statements	49
SECTION 3.06.	No Material Adverse Change	49
SECTION 3.07.	Title to Properties; Possession Under Leases	49
SECTION 3.08.	Subsidiaries	50
SECTION 3.09.	Litigation; Compliance with Laws	50
SECTION 3.10.	Agreements	50
SECTION 3.11.	Federal Reserve Regulations	50
SECTION 3.12.	Investment Company Act	51
SECTION 3.13.	Use of Proceeds	51
SECTION 3.14.	Tax Returns	51
SECTION 3.15.	No Material Misstatements	51

SECTION 3.16.	Employee Benefit Plans	51
SECTION 3.17.	Environmental Matters	52
SECTION 3.18.	Insurance	52
SECTION 3.19.	Security Documents	52
SECTION 3.20.	Location of Real Property and Leased Premises	53
SECTION 3.21.	Labor Matters	54
SECTION 3.22.	Solvency	54
SECTION 3.23.	Pari-Passu Indebtedness	54
SECTION 3.24.	Sanctioned Persons	54
ARTICLE IV
Conditions of Lending
SECTION 4.01.	All Credit Events	55
SECTION 4.02.	First Credit Event	55
ARTICLE V
Affirmative Covenants
SECTION 5.01.	Existence; Rights	57
SECTION 5.02.	Financial Statements, Reports, etc	58
SECTION 5.03.	Properties	59
SECTION 5.04.	Insurance	59
SECTION 5.05.	Further Assurances; Information Regarding Collateral	59
SECTION 5.06.	[Reserved]	62
SECTION 5.07.	Performance of Obligations and Payment of Taxes	62
SECTION 5.08.	Litigation and Other Notices	62
SECTION 5.09.	Compliance with Laws	63
SECTION 5.10.	Subsidiaries	63
ARTICLE VI
Negative Covenants
SECTION 6.01.	Indebtedness	64
SECTION 6.02.	Restricted Payments	66
SECTION 6.03.	Transactions with Affiliates	69
SECTION 6.04.	Limitations on Asset Dispositions	70
SECTION 6.05.	Liens	71
SECTION 6.06.	Sale and Lease-Back Transactions	75
SECTION 6.07.	Restrictions Affecting Restricted Subsidiaries	75
SECTION 6.08.	Mergers, Consolidation and, Sales of Assets	78
SECTION 6.09.	Line of Business	79
SECTION 6.10.	Limitations on Shea Corp.	79

ARTICLE VII
Events of Default
ARTICLE VIII
The Administrative Agent
ARTICLE IX
Miscellaneous
SECTION 9.01.	Notices	85
SECTION 9.02.	Survival of Agreement	87
SECTION 9.03.	Binding Effect	88
SECTION 9.04.	Successors and Assigns	88
SECTION 9.05.	Expenses; Indemnity	92
SECTION 9.06.	Right of Setoff	94
SECTION 9.07.	Applicable Law	94
SECTION 9.08.	Waivers; Amendment	95
SECTION 9.09.	Interest Rate Limitation	95
SECTION 9.10.	Entire Agreement	96
SECTION 9.11.	WAIVER OF JURY TRIAL	96
SECTION 9.12.	Severability	97
SECTION 9.13.	Counterparts	97
SECTION 9.14.	Headings	97
SECTION 9.15.	Jurisdiction; Consent to Service of Process	97
SECTION 9.16.	Confidentiality	98
SECTION 9.17.	USA PATRIOT Act Notice	99
ARTICLE X
GUARANTEE
SECTION 10.01.	The Guarantee	99
SECTION 10.02.	Guarantee of Payment; Continuing Guarantee	100
SECTION 10.03.	No Limitations	100
SECTION 10.04.	Reinstatement	102
SECTION 10.05.	Agreement To Pay; Contribution; Indemnity and Subrogation	102
SECTION 10.06.	Information	103
SECTION 10.07.	Subordination	103
SECTION 10.08.	Additional Guarantors	103
SECTION 10.09.	Maximum Liability	103
SECTION 10.10.	Release of Guarantors	104

SCHEDULES

Schedule 1.01(b)	–	Subsidiary Guarantors
Schedule 1.10(c)	–	Mortgaged Property
Schedule 2.01	–	Participants and Commitments
Schedule 3.08	–	Subsidiaries
Schedule 3.18	–	Insurance
Schedule 3.19(a)	–	UCC Filing Offices
Schedule 3.19(c)	–	Mortgage Filing Offices
Schedule 3.20(a)	–	Owned Real Property
Schedule 3.20(b)	–	Leased Real Property
Schedule 4.02(a)	–	Local Counsel

EXHIBITS
Exhibit A	–	Form of Administrative Questionnaire
Exhibit B	–	Form of Assignment and Assumption
Exhibit C	–	Form of Security Agreement
Exhibit D	–	Form of Intercreditor Agreement
Exhibit E	–	Form of Mortgage
Exhibit F	–	Form of Supplement

LETTER OF CREDIT FACILITY AGREEMENT dated as of May 10, 2011, among SHEA HOMES LIMITED PARTNERSHIP, a California limited partnership (the “Company”), SHEA HOMES FUNDING CORP., a Delaware corporation and wholly owned subsidiary of the Company (“Shea Corp.”), the Subsidiary Guarantors (as defined in Article I) party hereto, the Participants (as defined in Article I), and CREDIT SUISSE AG, as administrative agent (in such capacity, the “Administrative Agent”) for the Participants.

The Company has requested the Issuing Bank to issue Letters of Credit, in an aggregate face amount at any time outstanding not in excess of $75,000,000, to backstop existing letters of credit and to support obligations of the Company, its Restricted Subsidiaries or their respective joint ventures.

The Issuing Bank is willing to issue Letters of Credit on the terms and subject to the conditions set forth herein. Accordingly, the parties hereto agree as follows:

ARTICLE I

Definitions

SECTION 1.01. Defined Terms. As used in this Agreement, the following terms shall have the meanings specified below:

“Acquired Indebtedness” means (a) with respect to any person that becomes a Restricted Subsidiary (or is merged into the Company, Shea Corp. or any Restricted Subsidiary) after the Closing Date, Indebtedness of such person or any of its subsidiaries existing at the time such person becomes a Restricted Subsidiary (or is merged into the Company, Shea Corp. or any Restricted Subsidiary) that was not incurred in connection with, or in contemplation of, such person becoming a Restricted Subsidiary (or being merged into the Company, Shea Corp. or any Restricted Subsidiary) and (b) with respect to the Company, Shea Corp. or any Restricted Subsidiary, any Indebtedness expressly assumed by the Company, Shea Corp. or any Restricted Subsidiary in connection with the acquisition of any assets from another person (other than the Company, Shea Corp. or any Restricted Subsidiary), which Indebtedness was not incurred by such other person in connection with or in contemplation of such acquisition. Indebtedness incurred in connection with or in contemplation of any transaction described in clause (a) or (b) of the preceding sentence shall be deemed to have been incurred by the Company, Shea Corp. or a Restricted Subsidiary, as the case may be, at the time such person becomes a Restricted Subsidiary (or is merged into the Company, Shea Corp. or any Restricted Subsidiary) in the case of clause (a) or at the time of the acquisition of such assets in the case of clause (b), but shall not be deemed Acquired Indebtedness.

“Additional Notes” shall mean any additional notes permitted to be issued from time to time by Shea Corp. and the Company pursuant to the Indenture.

“Additional Pari-Passu Lien Obligations” shall have the meaning assigned to such term in the Intercreditor Agreement.

“Administrative Agent Fees” shall have the meaning assigned to such term in Section 2.02(b).

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

“Affiliate” shall mean, when used with respect to a specified person, another person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the person specified.

“Alternate Base Rate” shall mean, for any day, a rate per annum equal to the greater of (a) the Prime Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. If the Administrative Agent shall have determined (which determination shall be conclusive absent manifest error) that it is unable to ascertain the Federal Funds Effective Rate for any reason, including the inability or failure of the Administrative Agent to obtain sufficient quotations in accordance with the terms of the definition thereof, the Alternate Base Rate shall be determined without regard to clause (b) of the preceding sentence until the circumstances giving rise to such inability no longer exist. Any change in the Alternate Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective on the effective date of such change in the Prime Rate or the Federal Funds Effective Rate, as the case may be.

“Approved Fund” means any Fund that is administered or managed by (a) a Participant, (b) an Affiliate of a Participant or (c) an entity that administers or manages a Participant, or an Affiliate of such entity.

“Asset Acquisition” means (a) an Investment by the Company, Shea Corp. or any Restricted Subsidiary in any other person if, as a result of such Investment, such person shall become a Restricted Subsidiary or shall be consolidated or merged with or into the Company, Shea Corp. or any Restricted Subsidiary or (b) the acquisition by the Company, Shea Corp. or any Restricted Subsidiary of the assets of any person, which constitute all or substantially all of the assets or of an operating unit or line of business of such person or which is otherwise outside the ordinary course of business.

“Asset Disposition” shall mean:

(a) any sale, transfer, conveyance, lease or other disposition (including by way of merger, consolidation or sale and leaseback or sale of Equity Interests in any Subsidiary) (each, a “transaction”), whether in a single transaction or series of related transactions, of any Property or assets of the Company, Shea Corp. or any Restricted Subsidiary to any other person; or

(b) the issuance or sale of Equity Interests of Shea Corp. or any Restricted Subsidiary, whether in a single transaction or a series of related transactions.

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provided that, the term “Asset Disposition” shall not include:

(i) a transaction between either the Company or Shea Corp. and any Restricted Subsidiary or a transaction between Shea Corp. and the Company or between any Restricted Subsidiaries,

(ii) a transaction in the ordinary course of business, including sales (directly or indirectly), Required Dedications (as defined in the Indenture as in effect on the date hereof), leases and sales and leasebacks of (A) homes, improved land and unimproved land and (B) real estate (including related amenities and improvements),

(iii) a transaction involving the sale of Equity Interests of, or the disposition of assets in, an Unrestricted Subsidiary,

(iv) any exchange or swap of assets (including land swaps) of the Company, Shea Corp. or any Restricted Subsidiary for assets (including Equity Interests of any person that is or will be a Restricted Subsidiary following receipt thereof) that (x) are to be used by the Company, Shea Corp. or any Restricted Subsidiary in the ordinary course of its Real Estate Business and (y) have a Fair Market Value substantially equivalent to the Fair Market Value of the assets exchanged or swapped; provided; however; that to the extent that the assets exchanged or swapped were Collateral, the assets received are pledged as Collateral under the Security Documents substantially contemporaneously with such exchange or swap to the extent required to do so pursuant to the Security Documents,

(v) any sale, transfer, conveyance, lease or other disposition of assets and properties permitted pursuant to Section 6.08,

(vi) the creation of a Lien permitted under Section 6.05 and dispositions in connection with such Liens,

(vii) the making of any Restricted Payment or Permitted Investment that is permitted to be made, and is made, pursuant to Section 6.02, or

(viii) any single transaction or series of related transactions that involves property, assets or Equity Interests having a Fair Market Value of less than $1,000,000.

“Assignment and Assumption” shall mean an assignment and assumption entered into by a Participant and an Eligible Assignee (with the consent of any party whose consent is required by Section 9.04), and accepted by the Administrative Agent, in substantially the form of Exhibit B or any other form approved by the Administrative Agent.

“Attributable Debt” in respect of a Sale-Leaseback Transaction means, as at the time of determination, the present value (discounted at the interest rate borne by the Notes, compounded annually) of the total obligations of the lessee for rental payments during the remaining term of the lease included in such Sale-Leaseback Transaction (including any period for which such lease has been extended); provided, however, that if such Sale-Leaseback Transaction results in a Capital Lease Obligation, the amount of

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Indebtedness represented thereby will be determined in accordance with the definition of “Capital Lease Obligation”.

“Baker JV” means the joint venture conducted by Shea/Baker Ranch Associates LLC, a California limited liability company.

“Bankruptcy Law” shall have the meaning assigned to such term in Article VII, clause (g).

“Board” shall mean the Board of Governors of the Federal Reserve System of the United States of America.

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

“Capital Lease Obligations” of any person shall mean the obligations of such person to pay rent or other amounts under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP, and the amount of such obligations will be the capitalized amount thereof determined in accordance with GAAP.

“Cash Collateralize” means to pledge and deposit with or deliver to the Administrative Agent, for the benefit of the Issuing Bank or Participants, as collateral for L/C Obligations or obligations of Participants to fund participations in respect of L/C Obligations, cash or deposit account balances or, if the Administrative Agent and the Issuing Bank shall agree in their sole discretion, other credit support, in each case pursuant to documentation in form and substance satisfactory to the Administrative Agent and the Issuing Bank. “Cash Collateral” shall have a meaning correlative to the foregoing and shall include the proceeds of such cash collateral and other credit support.

“Cash Equivalents” shall mean:

(a) dollars;

(b) securities issued or directly and fully guaranteed or insured by the United States of America (or by any agency or instrumentality thereof to the extent such obligations are backed by the full faith and credit of the United States of America), in each case maturing within one year from the date of acquisition thereof;

(c) investments in commercial paper maturing within one year from the date of acquisition thereof and having, at such date of acquisition, a rating of P-1, A-1 or the equivalent thereof by S&P or Moody’s;

(d) investments in demand deposits, certificates of deposit, bankers’ acceptances and eurodollar time deposits maturing within one year from the date of acquisition thereof and overnight bank deposits, in each case issued or guaranteed by or placed with any domestic office of any commercial bank organized under the laws of the United States of America or any State thereof that has a combined capital and surplus and undivided profits of not less than $500,000,000;

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(e) repurchase obligations with a term of not more than 7 days for securities described in clause (b) or (d) above and entered into with a financial institution satisfying the criteria of clause (d) above; and

(f) investments in “money market funds” within the meaning of Rule 2a-7 of the Investment Company Act of 1940, as amended, substantially all of whose assets are invested in investments of the type described in clauses (a) through (e) above.

“CCM Proceeding” shall have the meaning assigned to such term in the Tax Distribution Agreement.

A “Change in Control” shall be deemed to have occurred if:

(a) any sale, lease or other transfer (in one transaction or a series of transactions) of all or substantially all the consolidated assets of the Company and its Restricted Subsidiaries to any person (other than a Restricted Subsidiary); provided, however, that a transaction where the holders of all classes of common equity of the Company immediately prior to such transaction own, directly or indirectly, more than 50% of all classes of common equity of such person immediately after such transaction shall not be a Change of Control;

(b) a “person” or “group” (within the meaning of Section 13(d) of the Exchange Act (other than the Permitted Holders)) becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act) of common equity of the Company representing more than 50% of the voting power of the common equity of the Company;

(c) the holders of Equity Interests of the Company approve any plan or proposal for the liquidation or dissolution of the Company; provided, however, that a liquidation or dissolution of the Company which is part of a transaction described in the proviso to clause (a) above shall not constitute a Change of Control; or

(d) a change of control shall occur as defined in the instrument governing any publicly traded debt securities of the Company or Shea Corp. which requires the Company or Shea Corp. to repay or repurchase such debt securities.

“Change in Law” shall mean the occurrence, after the date of this Agreement, of any of the following: (a) the adoption or taking effect of any law, rule, regulation or treaty, (b) any change in any law, rule, regulation or treaty or in the administration, interpretation, implementation or application thereof by any Governmental Authority or (c) the making or issuance of any request, rule, guideline or directive (whether or not having the force of law) by any Governmental Authority; provided that notwithstanding anything herein to the contrary, (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives thereunder or issued in connection therewith and (y) all requests, rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III, shall in each case be deemed to be a “Change in Law”, regardless of the date enacted, adopted or issued.

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“Closing Date” shall mean May 10, 2011.

“Code” shall mean the Internal Revenue Code of 1986 and the regulations promulgated thereunder, as amended from time to time.

“Collateral” shall mean all the “Collateral” as defined in any Security Document and shall also include the Mortgaged Properties.

“Commitment” shall mean, with respect to any Participant, such Participant’s commitment to acquire participations in Letters of Credit as provided for herein, as set forth in Schedule 2.01, or in the Assignment and Assumption pursuant to which such Participant assumed its Commitment, as applicable, as the same may be (a) reduced from time to time pursuant to Section 2.04 and (b) reduced or increased from time to time pursuant to assignments by or to such Participant pursuant to Section 9.04.

“Commitment Fee” shall have the meaning assigned to such term in Section 2.02(a).

“Consolidated Cash Flow Available for Fixed Charges” means, for any period, Consolidated Net Income for such period plus the sum of the following, without duplication (but only to the extent deducted in calculating such Consolidated Net Income) for such period:

(1) income taxes and Tax Distributions, plus

(2) Consolidated Interest Expense, plus

(3) depreciation and amortization expenses, plus

(4) all other non-cash charges (unless such non-cash charge represents an accrual of or reserve for cash expenditures in any future period), minus

(5) all non-cash items (other than the receipt of notes receivable) increasing such Consolidated Net Income for such period.

“Consolidated Fixed Charge Coverage Ratio” means, with respect to any date of determination, the ratio of (x) Consolidated Cash Flow Available for Fixed Charges for the prior four full fiscal quarters for which financial statements are available immediately preceding such date, to (y) the aggregate Consolidated Interest Expense for such four quarter period. For purposes of this definition, “Consolidated Cash Flow Available for Fixed Charges” and “Consolidated Interest Expense” shall be calculated after giving effect on a pro forma basis for the period of such calculation to:

(a) the incurrence or the repayment, repurchase, defeasance or other discharge (collectively, “repayment”) of any Indebtedness of the Company, Shea Corp. or any Restricted Subsidiary (and the application of the proceeds thereof) giving rise to the need to make such calculation, and any incurrence or repayment of other Indebtedness (and the application of the proceeds thereof), at any time on or after the first day of the prior four

6

fiscal quarter period and on or prior such date, as if such incurrence or repayment, as the case may be (and the application of the proceeds thereof), occurred on the first day of such four quarter period, except that Indebtedness under revolving credit facilities shall be deemed to be the average daily balance of such Indebtedness during such four quarter period (as reduced on such pro forma basis by the application of any proceeds of the incurrence of Indebtedness giving rise to the need to make such calculation);

(b) any Asset Disposition or Asset Acquisition (including any Asset Acquisition giving rise to the need to make such calculation as a result of the Company, Shea Corp. or any Restricted Subsidiary (including any person that becomes a Restricted Subsidiary as a result of any such Asset Acquisition) incurring Acquired Indebtedness at any time on or after the first day of such four quarter period and on or prior to such date of determination), as if such Asset Disposition or Asset Acquisition (including the incurrence or repayment of any such Indebtedness) and the inclusion, notwithstanding clause (b) of the definition of “Consolidated Net Income,” of any Consolidated Cash Flow Available for Fixed Charges associated with such Asset Acquisition as if it occurred on the first day of such four quarter period; provided, however, that the Consolidated Cash Flow Available for Fixed Charges associated with any Asset Acquisition shall not be included to the extent the net income so associated would be excluded pursuant to the definition of “Consolidated Net Income,” other than clause (b) thereof, as if it applied to the person or assets involved before they were acquired; and

(c) the Consolidated Cash Flow Available for Fixed Charges and the Consolidated Interest Expense attributable to discontinued operations, as determined in accordance with GAAP, shall be excluded;

provided that, for purposes of calculating “Consolidated Cash Flow Available for Fixed Charges” for purposes of determining the denominator (but not the numerator) of the Consolidated Fixed Charge Coverage Ratio, (i) interest on Indebtedness in respect of which a pro forma calculation is required that is determined on a fluctuating basis as of the date of such determination (including Indebtedness actually incurred on such date) and which will continue to be so determined thereafter shall be deemed to have accrued at a fixed rate per annum equal to the rate of interest on such Indebtedness in effect on such date and (ii) notwithstanding clause (i), interest on such Indebtedness determined on a fluctuating basis, to the extent such interest is covered for at least one year by agreements relating to Interest Protection Agreements, shall be deemed to accrue at the rate per annum resulting after giving effect to the operation of such agreements.

“Consolidated Interest Expense” shall mean, for any period, the total interest expense of the Company, its consolidated Restricted Subsidiaries and Shea Corp. (other than non-cash interest expense attributable to convertible indebtedness under Accounting Practices Bulletin 14 or any successor provision), plus, to the extent not included in such total interest expense, and to the extent incurred by the Company, its Restricted Subsidiaries or Shea Corp., without duplication:

(a) interest expense attributable to Capital Lease Obligations, Attributable Debt and the interest component of any deferred payment obligations;

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(b) amortization of debt discount (including the amortization of original issue discount resulting from the issuance of Indebtedness at less than par) and debt issuance cost; provided, however, that any amortization of bond premium will be credited to reduce Consolidated Interest Expense unless, pursuant to GAAP, such amortization of bond premium has otherwise reduced Consolidated Interest Expense;

(c) capitalized interest;

(d) non-cash interest expense; provided, however, that any non-cash interest expense or income attributable to the movement in the mark to mark valuation of Interest Protection Agreements or other derivative instruments pursuant to GAAP shall be excluded from the calculation of Consolidated Interest Expense);

(e) commissions, discounts and other fees and charges owed with respect to letters of credit and bankers’ acceptance financing;

(f) net payments (or minus net receipts) pursuant to Interest Protection Agreements;

(g) the product of (i) all dividends accrued in respect of all Disqualified Equity Interests of the Company and all Preferred Equity Interests of the Company or any Restricted Subsidiary, in each case, held by persons other than the Company or a Restricted Subsidiary (other than dividends payable solely in Qualified Equity Interests of the Company), times (ii) a fraction of the numerator of which is one and the denominator of which is one minus the effective combined tax rate of the issuer of such Disqualified Equity Interests or Preferred Equity Interests (expressed as a decimal) for such period (as estimated by the chief financial officer of the Company in good faith);

(h) interest incurred in connection with Investments in discontinued operations; and

(i) interest accruing on any Indebtedness of any other person to the extent such Indebtedness is guaranteed by (or secured by a Lien on the assets of) the Company or any Restricted Subsidiary; provided, however, that this clause (i) shall not include any interest accruing on Indebtedness (A) subject to guarantees constituting Specified Obligations of the Company or any Restricted Subsidiary or (B) of the type described in Section 6.01(m)(y).

“Consolidated Net Income” shall mean, for any period, the aggregate net income (or loss) of the Company and its Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP; provided, however, that there will be excluded from such net income (loss) (to the extent otherwise included therein), without duplication:

(a) the net income (or loss) of (x) any Unrestricted Subsidiary or (y) any person (other than a Restricted Subsidiary) in which any person other than the Company, Shea Corp. or any Restricted Subsidiary has an ownership interest, except, in each case, to the extent that any such income has actually been received by the Company, Shea Corp. or

8

any Restricted Subsidiary in the form of cash dividends or similar cash distributions during such period,

(b) except to the extent includable in Consolidated Net Income pursuant to the foregoing clause (a), the net income (or loss) of any person that accrued prior to the date that (i) such person becomes a Restricted Subsidiary or is merged with or into or consolidated with the Company, Shea Corp. or any of its Restricted Subsidiaries (except, in the case of an Unrestricted Subsidiary that is redesignated a Restricted Subsidiary during such period, to the extent of its retained earnings from the beginning of such period to the date of such redesignation) or (ii) the assets of such person are acquired by the Company, Shea Corp. or any Restricted Subsidiary,

(c) the net income of any Restricted Subsidiary that is not a Guarantor to the extent that (but only so long as) the declaration or payment of dividends or similar distributions by such Restricted Subsidiary of that income is not permitted by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary during such period; provided, however, that the net income of any such Restricted Subsidiary during such period shall be included in Consolidated Net Income up to the aggregate amount of cash actually distributed by such Restricted Subsidiary during such period to the Company or another Restricted Subsidiary as a dividend or other distribution,

(d) the gains or losses, together with any related provision for taxes, realized during such period by the Company, Shea Corp. or any Restricted Subsidiary resulting from (i) the acquisition of securities, or extinguishment of Indebtedness, of the Company, Shea Corp. or any Restricted Subsidiary or (ii) any Asset Disposition by the Company, Shea Corp. or any Restricted Subsidiary,

(e) any extraordinary gain or loss together with any related provision for taxes, realized by the Company, Shea Corp. or any Restricted Subsidiary and

(f) any Tax Distributions paid during such period by the Company, Shea Corp. or any Restricted Subsidiary.

“Control” shall mean the power to direct the management or policies of a person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, and the terms “Controlling” and “Controlled” shall have meanings correlative thereto.

“Control Agreement” shall mean, with respect to any deposit account or securities account maintained by any Credit Party, a control agreement in form and substance reasonably satisfactory to the Administrative Agent, duly executed and delivered by such Credit Party and the depositary bank or the securities intermediary, as the case may be, with which such account is maintained.

“Credit Documents” shall mean this Agreement, the Letters of Credit, the Intercreditor Agreement and the Security Documents.

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“Credit Event” shall have the meaning assigned to such term in Section 4.01.

“Credit Facility” shall mean the letter of credit facility provided for by this Agreement.

“Credit Parties” shall mean the Company, Shea Corp. and the Guarantors.

“Credit Suisse” shall mean Credit Suisse, AG.

“Default” shall mean any event or condition which upon notice, lapse of time or both would constitute an Event of Default.

“Defaulting Participant” shall mean, subject to Section 2.12(b), any Participant that (a) has failed to (i) fund all or any portion of its L/C Disbursement (or any participation therein) within two Business Days of the date such payments were required to be funded hereunder unless such Participant notifies the Issuing Bank, the Administrative Agent and the Company in writing that such failure is the result of such Participant’s determination that one or more conditions precedent to funding (each of which conditions precedent, together with any applicable default, shall be specifically identified in such writing) has not been satisfied, or (ii) pay to the Administrative Agent, the Issuing Bank, or any other Participant any other amount required to be paid by it hereunder within two Business Days of the date when due, (b) has notified the Company, the Administrative Agent or the Issuing Bank in writing that it does not intend to comply with its funding obligations hereunder, or has made a public statement to that effect (unless such writing or public statement relates to such Participant’s obligation to fund an L/C Disbursement hereunder and states that such position is based on such Participant’s determination that a condition precedent to funding (which condition precedent, together with any applicable default, shall be specifically identified in such writing or public statement) cannot be satisfied), (c) has failed, within three Business Days after written request by the Administrative Agent, the Issuing Bank or the Company, to confirm in writing to the Administrative Agent, the Issuing Bank and the Company that it will comply with its prospective funding obligations hereunder (provided that such Participant shall cease to be a Defaulting Participant pursuant to this clause (c) upon receipt of such written confirmation by the Administrative Agent, the Issuing Bank and the Company), or (d) has, or has a direct or indirect parent company that has, (i) become the subject of a proceeding under any Bankruptcy Law, or (ii) had appointed for it a receiver, custodian, conservator, trustee, administrator, assignee for the benefit of creditors or similar person charged with reorganization or liquidation of its business or assets, including the Federal Deposit Insurance Corporation or any other state or federal regulatory authority acting in such a capacity; provided that a Participant shall not be a Defaulting Participant solely by virtue of the ownership or acquisition of any equity interest in that Participant or any direct or indirect parent company thereof by a Governmental Authority so long as such ownership interest does not result in or provide such Participant with immunity from the jurisdiction of courts within the United States or from the enforcement of judgments or writs of attachment on its assets or permit such Participant (or such Governmental Authority) to reject, repudiate, disavow or disaffirm any contracts or agreements made with such Participant. Any determination by the Administrative Agent that a Participant

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is a Defaulting Participant under clauses (a) through (d) above shall be conclusive and binding absent manifest error, and such Participant shall be deemed to be a Defaulting Participant (subject to Section 2.12(b)) upon delivery of written notice of such determination to the Company, each Issuing Bank and each Participant.

“Disqualified Equity Interests” shall mean any Equity Interest that, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, (a) matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the option of the holder thereof, in whole or in part, on or prior to 91 days following the Maturity Date or (b) is convertible into or exchangeable or exercisable for (whether at the option of the issuer or the holder thereof) (i) debt securities or (ii) any Equity Interests referred to in (a) above, in each case, at any time prior to 91 days following the Maturity Date; provided, however, that any Equity Interests that would not constitute Disqualified Equity Interests but for provisions thereof giving holders thereof (or the holders of any security into or for which such Equity Interests are convertible, exchangeable or exercisable) the right to require the Company to repurchase or redeem such Equity Interests upon the occurrence of a change in control or asset disposition occurring prior to 91 days following the Maturity Date shall not constitute Disqualified Equity Interests if the change in control or asset disposition provision applicable to such Equity Interests are no more favorable to such holders than the definition of “Change in Control” and Section 6.04 as applicable, and such Equity Interests specifically provide that the Company will not repurchase or redeem any such Equity Interests pursuant to such provisions prior to (A) the Company’s repurchase of the Notes pursuant to Sections 4.10 and 4.12 of the Indenture and (B) the Company’s compliance with the terms of this Agreement, after giving effect to any exercise of remedies or requirement of cash collateralization hereunder. For purposes of this definition, the “Maturity Date” shall be determined assuming that the Company has exercised its right to extend the Maturity Date pursuant to Section 2.11 for the maximum period permitted thereby, unless previously exercised for a shorter period.

“dollars” or “$” shall mean lawful money of the United States of America.

“Eligible Assignee” shall mean any person that meets the requirements to be an assignee under Sections 9.04(b)(iv), (vi) and (vii) (subject to such consents, if any, as may be required under Section 9.04 (b)(iv)).

“Environmental Laws” shall mean all former, current and future Federal, state, local and foreign laws (including common law), treaties, regulations, rules, ordinances, codes, decrees, judgments, directives, orders (including consent orders), and agreements in each case, relating to protection of the environment, natural resources, human health and safety or the presence, Release of, or exposure to, Hazardous Materials, or the generation, manufacture, processing, distribution, use, treatment, storage, transport, recycling or handling of, or the arrangement for such activities with respect to, Hazardous Materials.

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“Environmental Liability” shall mean all liabilities, obligations, damages, losses, claims, actions, suits, judgments, orders, fines, penalties, fees, expenses and costs (including administrative oversight costs, natural resource damages and remediation costs), whether contingent or otherwise, arising out of or relating to (a) compliance or non-compliance with any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the Release of any Hazardous Materials or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.

“Equity Interests” shall mean, with respect to any person, any and all shares, interests, participations or other equivalents (however designated) of or in such person’s capital stock or other equity interests, and options, rights or warrants to purchase such capital stock or other equity interests, whether now outstanding or issued after the Closing Date, including all Disqualified Equity Interests and Preferred Equity Interests.

“ERISA” shall mean the Employee Retirement Income Security Act of 1974 and the regulations promulgated thereunder, as may be amended from time to time.

“ERISA Affiliate” shall mean any trade or business (whether or not incorporated) that, together with the Company, is treated as a single employer under Section 414(b) or (c) of the Code, or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code.

“ERISA Event” shall mean (a) any “reportable event”, as defined in Section 4043 of ERISA, with respect to a Plan (other than an event for which the 30-day notice period is waived), (b) any failure by any Plan to satisfy the minimum funding standard (within the meaning of Section 412 of the Code or Section 302 of ERISA) applicable to such Plan, whether or not waived, (c) the filing pursuant to Section 412(c) of the Code or Section 302(c) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan, (d) a determination that any Plan is, or is expected to be, in “at-risk” status (as defined in Section 303(i)(4) of ERISA or Section 430(i)(4) of the Code), (e) the incurrence by the Company or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan or the withdrawal or partial withdrawal of the Company or any of its ERISA Affiliates from any Plan or Multiemployer Plan, (f) the receipt by the Company or any of its ERISA Affiliates from the PBGC or a plan administrator of any notice relating to the intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan, (g) the receipt by the Company or any of its ERISA Affiliates of any notice, or the receipt by any Multiemployer Plan from the Company or any of its ERISA Affiliates of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA or in “endangered” or “critical” status, within the meaning of Section 305 of ERISA, (h) the occurrence of a “prohibited transaction” with respect to which the Company or any of the Subsidiaries is a “disqualified person” (within the meaning of Section 4975 of the Code) or with respect to which the Company or any such Subsidiary could otherwise be liable, or (i) any other event or condition with respect to a

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Plan or Multiemployer Plan that could result in liability of the Company or any Subsidiary.

“Event of Default” shall have the meaning assigned to such term in Article VII.

“Exchange Notes” shall have the meaning assigned to such term in the Indenture.

“Excluded Property” shall have the meaning assigned to such term in the Security Agreement.

“Excluded Taxes” shall mean, with respect to any payment made by any Credit Party under any Credit Document, any of the following Taxes on or with respect to a Recipient: (a) income or franchise taxes imposed on (or measured by) the Recipient’s net income by the United States of America, or by the jurisdiction under the laws of which such Recipient is organized or in which its principal office is located or, in the case of any Participant, in which its applicable lending office is located, (b) any branch profits Taxes imposed on the Recipient by the United States of America or any similar Tax imposed by any other jurisdiction described in clause (a) above, (c) in the case of a Participant (other than an assignee pursuant to a request by the Company under Section 2.10(a)) any U.S. Federal withholding Taxes resulting from any law in effect on the date such Participant becomes a party to this Agreement (or designates a new lending office) or is attributable to such Participant’s failure to comply with Section 2.09(f), except to the extent that such Participant (or its assignor, if any) was entitled, at the time of designation of a new lending office (or assignment), to receive additional amounts from the Company with respect to such withholding Tax pursuant to Section 2.09(a) and (d) any Taxes imposed under FATCA (or any amended or successor version of FATCA that is substantively comparable and not materially more onerous to comply with).

“Existing Credit Agreement” shall mean the Amended and Restated Credit Agreement dated as of November 5, 2010, among J.F. Shea Co., Inc., the Company, the financial institutions party thereto and Wells Fargo Bank, National Association, as administrative agent.

“Fair Market Value” shall mean, with respect to any property or other asset, the price (after taking into account any liabilities relating to such assets) that would be negotiated in an arm’s-length transaction for cash between a willing seller and a willing and able buyer, neither of which is under any compulsion to complete the transaction, as such price is determined in good faith by the board of directors of the Company or a duly authorized committee thereof, as evidenced by a resolution of such board or committee; provided, however, that for purposes of Section 6.02(a)(ii), if the Fair Market Value of the property or assets in question is so determined to be in excess of $1,000,000, such determination must be confirmed by an Independent Qualified Party.

“FATCA” shall mean Sections 1471 through 1474 of the Code, as of the date of this Agreement, and any regulations or official interpretations thereof.

“Federal Funds Effective Rate” shall mean, for any day, the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve

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System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for the day for such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it.

“Fees” shall mean the Commitment Fees, the Administrative Agent Fees, the L/C Participation Fees, the Upfront Fees and the Issuing Bank Fees.

“Financial Officer” of any person shall mean the chief financial officer, principal accounting officer, treasurer or controller of such person.

“Foreign Participant” shall mean a Participant that is not a U.S. Person.

“Fronting Exposure” shall mean, at any time there is a Defaulting Participant, such Defaulting Participant’s Pro Rata Percentage of the L/C Exposure with respect to Letters of Credit issued by the Issuing Bank other than Letters of Credit as to which such Defaulting Participant’s participation obligation has been reallocated to other Participants or Cash Collateralized in accordance with the terms hereof.

“Fund” means any person (other than a natural person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its activities.

“GAAP” shall mean generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession of the United States, as in effect on the Closing Date.

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

“Guarantee” of or by any person shall mean any obligation, contingent or otherwise, of any person directly or indirectly guaranteeing any Indebtedness of any other person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such person: (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness of such other person (whether arising by virtue of partnership arrangements, or by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (b) entered into for purposes of assuring in any other manner the obligee of such Indebtedness of the payment thereof or to protect such obligee against loss in respect thereof, in whole or in part; provided that the term

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“Guarantee” does not include (x) endorsements for collection or deposit in the ordinary course of business or (y) indemnification obligations of the Company, Shea Corp. or any Restricted Subsidiary entered into in the ordinary course of business.

“Guarantors” shall mean Shea Corp. and the Subsidiary Guarantors.

“Hazardous Materials” shall mean (a) any petroleum products or byproducts and all other hydrocarbons, coal ash, radon gas, asbestos, urea formaldehyde foam insulation, polychlorinated biphenyls, chlorofluorocarbons and all other ozone-depleting substances and (b) any chemical, material, substance or waste that is prohibited, limited or regulated by or pursuant to any Environmental Law.

“Indebtedness” of any person shall mean, without duplication:

(a) the principal in respect of (i) indebtedness of such person for borrowed money and (ii) indebtedness evidenced by notes, debentures, or other similar instruments for the payment of which such person is responsible or liable, including, in each case, any premium on such indebtedness to the extent such premium has become due and payable;

(b) all Capital Lease Obligations of such person and all Attributable Debt in respect of Sale-Leaseback Transactions entered into by such person;

(c) all obligations of such person issued or assumed as the deferred purchase price of property, all conditional sale obligations of such person and all obligations of such person under any title retention agreement (but excluding (i) any accounts payable or other liability to trade creditors arising in the ordinary course of business and (ii) any obligation to pay a contingent purchase price as long as such obligation remains contingent);

(d) all obligations of such person for the reimbursement of any obligor on any letter of credit, bankers’ acceptance or similar credit transaction (other than obligations with respect to letters of credit securing obligations (other than obligations in clauses (a) - (c) above) entered into in the ordinary course of business of such person to the extent such letters of credit are not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no later than the tenth business day following payment on the letter of credit);

(e) the amount of all obligations of such person with respect to the redemption, repayment or other repurchase of any Disqualified Equity Interests of such person or, with respect to any Preferred Equity Interests of any subsidiary of such person, the amount of such Preferred Equity Interests to be determined in accordance with the Indenture (but excluding, in each case, any accrued dividends);

(f) all Guarantees by such person of obligations of the type referred to in clauses (a)-(e) above or dividends of other persons (excluding any preferred returns payable pursuant to any joint venture documentation);

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(g) all obligations of the type referred to in clauses (a)-(f) of other persons secured by any Lien on any property or asset of such person (whether or not such obligation is assumed by such person), the amount of such obligation being deemed to be the lesser of the Fair Market Value of such property or assets and the amount of the obligation so secured; and

(h) to the extent not otherwise included in this definition, the obligations of such person under Interest Protection Agreements or other agreements designed to protect such person against fluctuations in currency values.

Notwithstanding the foregoing, (i) in connection with the purchase by the Company, Shea Corp. or any Restricted Subsidiary of any business, the term “Indebtedness” will exclude post-closing payment adjustments to which the seller may become entitled to the extent such payment is determined by a final closing balance sheet or such payment depends on the performance of such business after the closing; provided, however, that, at the time of closing, the amount of any such payment is not determinable and, to the extent such payment thereafter becomes fixed and determined, the amount is paid within 30 days thereafter, (ii) guarantees constituting Specified Obligations shall not constitute Indebtedness and (iii) repayment guarantees constituting Investments made pursuant to the JV Payment Basket shall constitute Indebtedness.

The amount of Indebtedness of any person at any date shall be the outstanding balance at such date of all obligations as described above; provided, however, that in the case of Indebtedness sold at a discount, the amount of such Indebtedness at any time will be the accreted value thereof at such time.

The amount of any Preferred Equity Interests that has a fixed redemption, repayment or repurchase price will be calculated in accordance with the terms of such Preferred Equity Interests as if such Preferred Equity Interests were redeemed, repaid or repurchased on any date on which the amount of such Preferred Equity Interests are to be determined pursuant to this Agreement; provided, however, that if such Preferred Equity Interests could not be required to be redeemed, repaid or repurchased at the time of such determination, the redemption, repayment or repurchase price will be calculated as of the first date thereafter on which such Preferred Equity Interests could be required to be so redeemed, repaid or repurchased. If the Company’s Preferred Equity Interests do not have a fixed redemption, repayment or repurchase price, the amount of such Preferred Equity Interests will be their maximum liquidation value.

“Indemnified Taxes” shall mean (a) Taxes, other than Excluded Taxes, imposed on or with respect to any payment made by any Credit Party under any Credit Document and (b) Other Taxes.

“Indenture” shall mean the Indenture dated as of May 10, 2011 among the Company, Shea Corp., the Guarantors and Wells Fargo Bank, National Association., as trustee.

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“Independent Qualified Party” shall mean an accounting, appraisal, investment banking firm or consultant to persons engaged in Real Estate Businesses of nationally recognized standing that is, in the good faith judgment of the Company, qualified to perform the task for which it has been engaged; provided, however, that such firm or consultant is not an Affiliate of the Company.

“Independent Valuation” of real property means (x) with respect to the sale of real property by the Company, Shea Corp. or any Restricted Subsidiary, any amount proposed to be paid for such real property pursuant to a bona fide offer to purchase made by an unaffiliated person and which the Company, Shea Corp. or the Restricted Subsidiary, as applicable, would be willing to accept or (y) any appraised value of such real property as determined by an Independent Qualified Party.

“Interest Protection Agreement” shall mean any interest rate swap agreement, interest rate collar agreement, option or futures contract or other similar agreement or arrangement designed to protect a person or any of its subsidiaries against fluctuations in interest rates with respect to Indebtedness permitted to be incurred hereunder and not for speculative purposes.

“Intercreditor Agreement” shall mean the Intercreditor Agreement, substantially in the form of Exhibit D, dated as of May 10, 2011 among the trustee under the Note Documents, the Collateral Agent and the Administrative Agent.

“Investment” shall mean any direct or indirect advance, loan (other than advances to customers in the ordinary course of business that are recorded as accounts receivable on the balance sheet of the lender) or other extensions of credit (including by way of guarantee or similar arrangement) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition of Equity Interests, Indebtedness or other similar instruments issued by such person (including, for the avoidance of doubt, the purchase of equity interests in joint ventures pursuant to customary buy/sell provisions contained in the agreements governing such joint ventures). If the Company, Shea Corp. or any Restricted Subsidiary issues, sells or otherwise disposes of any Equity Interests of a person that is a Restricted Subsidiary such that, after giving effect thereto, such person is no longer a Restricted Subsidiary, any Investment by the Company, Shea Corp. or any Restricted Subsidiary in such person remaining after giving effect thereto will be deemed to be a new Investment at such time. The acquisition by the Company, Shea Corp. or any Restricted Subsidiary of a person that holds an Investment in a third person will be deemed to be an Investment by the Company, Shea Corp. or such Restricted Subsidiary, as applicable, in such third person at such time. Except as otherwise provided for herein, the amount of an Investment shall be its Fair Market Value at the time the Investment is made and without giving effect to subsequent changes in value.

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For purposes of the definition of “Unrestricted Subsidiary”, the definition of “Restricted Payment” and Section 6.02:

(1) “Investment” shall include the portion (proportionate to the Company’s equity interest in such Subsidiary) of the Fair Market Value of the net assets of any Subsidiary of the Company at the time that such Subsidiary is designated an Unrestricted Subsidiary; provided, however, that upon a redesignation of such Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue to have a permanent “Investment” in an Unrestricted Subsidiary equal to an amount (if positive) equal to (A) the Company’s “Investment” in such Subsidiary at the time of such redesignation less (B) the portion (proportionate to the Company’s equity interest in such Subsidiary) of the Fair Market Value of the net assets of such Subsidiary at the time of such redesignation; and

(2) any property transferred to or from an Unrestricted Subsidiary shall be valued at its Fair Market Value at the time of such transfer, in each case as determined in good faith by the board of directors of the Company.

“IRS” shall mean the United States Internal Revenue Service.

“Issuing Bank” shall mean, as the context may require, (a) Credit Suisse, acting through any of its Affiliates or branches, in its capacity as the issuer of Letters of Credit hereunder and (b) any other Participant that may become an Issuing Bank pursuant to Section 2.01(i) or 2.01(k), with respect to Letters of Credit issued by such Participant. The Issuing Bank may, in its discretion, arrange for one or more Letters of Credit to be issued by Affiliates or branches of the Issuing Bank, in which case the term “Issuing Bank” shall include any such Affiliate or branch with respect to Letters of Credit issued by such Affiliate or branch.

“Issuing Bank Fees” shall have the meaning assigned to such term in Section 2.02(c).

“JFSCI” means J.F. Shea Co., Inc., a Nevada corporation.

“JV Payment Basket” shall have the meaning assigned to such term in Section 6.02(b)(xiii).

“L/C Disbursement” shall mean a payment or disbursement made by the Issuing Bank pursuant to a Letter of Credit.

“L/C Exposure” shall mean at any time the sum of (a) the aggregate undrawn amount of all outstanding Letters of Credit at such time and (b) the aggregate amount of all L/C Disbursements that have not yet been reimbursed by or on behalf of the Company at such time. The L/C Exposure of any Participant at any time shall equal its Pro Rata Percentage of the aggregate L/C Exposure at such time.

“L/C Participation Fee” shall have the meaning assigned to such term in Section 2.02(c).

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“Letter of Credit” shall mean any standby letter of credit issued pursuant to Section 2.01.

“Lien” shall mean, with respect to any Property, any mortgage, lien, pledge, encumbrance, charge, security interest or encumbrance of any kind in respect of such Property. For purposes of this definition, a person shall be deemed to own, subject to a Lien, any Property which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such Property.

“Margin Stock” shall have the meaning assigned to such term in Regulation U.

“Material Adverse Effect” shall mean (a) a materially adverse effect on the business, assets, operations, financial condition or operating results of the Company and the Restricted Subsidiaries, taken as a whole, (b) a material impairment of the ability of the Company or any other Credit Party to perform any of its obligations under any Credit Document to which it is a party or (c) a material impairment of the rights and remedies of or benefits available to the Participants or Issuing Bank under any Credit Document.

“Material Indebtedness” shall mean Indebtedness (other than Letters of Credit), or obligations in respect of one or more Interest Protection Agreements, of any one or more of the Company, Shea Corp. or any Restricted Subsidiary in an aggregate principal amount exceeding $10,000,000. For purposes of determining Material Indebtedness, the “principal amount” of the obligations of the Company, Shea Corp. or any Restricted Subsidiary in respect of any Interest Protection Agreement at any time shall be the maximum aggregate amount (giving effect to any netting agreements) that the Company, Shea Corp. or such Restricted Subsidiary would be required to pay if such Interest Protection Agreement were terminated at such time.

“Maturity Date” shall mean May 12, 2014, subject to extension pursuant to Section 2.11.

“Minimum Collateral Amount” means, at any time, (i) with respect to Cash Collateral consisting of cash or deposit account balances, an amount equal to 103% of the Fronting Exposure of the Issuing Banks with respect to Letters of Credit issued and outstanding at such time and (ii) otherwise, an amount determined by the Administrative Agent and the Issuing Bank in their sole discretion.

“Moody’s” shall mean Moody’s Investors Service, Inc., or any successor thereto.

“Mortgaged Properties” shall mean, initially, the owned real properties specified on Schedule 1.01(c), and shall include each other parcel of real property and improvements thereto with respect to which a Mortgage is granted pursuant to Section 5.05.

“Mortgages” shall mean the mortgages, deeds of trust, assignments of leases and rents, modifications and other security documents delivered pursuant to clause (i) of Section 4.02(h) or pursuant to Section 5.05, each substantially in the form of Exhibit E.

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“Multiemployer Plan” shall mean a multiemployer plan as defined in Section 4001(a)(3) of ERISA.

“Non-Consenting Participant” means any Participant that does not approve any consent, waiver or amendment that (i) requires the approval of all affected Participants in accordance with the terms of Section 9.08 and (ii) has been approved by the Required Participants.

“Non-Defaulting Participant” means, at any time, each Participant that is not a Defaulting Participant at such time.

“Non-Recourse Indebtedness” means Indebtedness of any person for which (1) the sole legal recourse for collection of principal and interest on such Indebtedness (other than in respect of customary “bad-boy” guarantees) is against the specific property identified in the instruments evidencing or securing such Indebtedness and such property was acquired with the proceeds of such Indebtedness or such Indebtedness was incurred within 90 days after the acquisition of such property and (2) no other assets may be realized upon in collection of principal or interest on such Indebtedness; provided, however, that such Indebtedness cannot serve as a basis for a cross default to any other Indebtedness. Indebtedness which is otherwise Non-Recourse Indebtedness will not lose its character as Non-Recourse Indebtedness because there is recourse for (a) environmental warranties and indemnities or (b) indemnities for and liabilities arising from fraud, misrepresentation, misapplication or non-payment of rents, profits, insurance and condemnation proceeds and other sums actually received by the obligor from secured assets to be paid to the lender, waste and mechanics’ liens.

“Note Documents” shall mean the Indenture and all other instruments, agreements and other documents evidencing or governing the Notes or providing for any Guarantee or other right in respect thereof.

“Notes” shall mean the Company’s Senior Secured Notes due 2019, in an initial aggregate principal amount of $750,000,000.

“Obligations” shall mean (a) the due and punctual payment by the Credit Parties of (i) each payment required to be made by the Credit Parties or joint ventures under this Agreement in respect of any Letter of Credit, when and as due (including interest accruing during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding), including payments in respect of reimbursement of disbursements, interest thereon and obligations to provide cash collateral and (ii) all other monetary obligations of the Credit Parties to any of the Secured Parties under this Agreement and each of the other Credit Documents, including obligations to pay fees, expense reimbursement obligations and indemnification obligations, whether primary, secondary, direct, contingent, fixed or otherwise (including monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding), (b) the due and punctual performance of all other obligations of the Credit Parties under or pursuant to this Agreement and each of

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the other Credit Documents, and (c) the due and punctual payment and performance of all the obligations of each other Credit Party under or pursuant to this Agreement and each of the other Credit Documents (including monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding).

“Other Connection Taxes” shall mean, with respect to any Recipient, Taxes imposed as a result of a present or former connection between such Recipient and the jurisdiction imposing such Taxes (other than a connection arising from such Recipient having executed, delivered, enforced, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, or engaged in any other transaction pursuant to, or enforced, any Credit Document, or sold or assigned an interest in any Credit Document).

“Other Taxes” shall mean any present or future stamp, court, documentary, intangible, recording, filing or similar excise or property Taxes that arise from any payment made under, from the execution, delivery, performance, enforcement or registration of, or from the registration, receipt or perfection of a security interest under, or otherwise with respect to, any Credit Document, except any such Taxes that are Other Connection Taxes imposed with respect to an assignment (other than an assignment under Section 2.10(a)).

“PBGC” shall mean the Pension Benefit Guaranty Corporation referred to and defined in ERISA.

“Pari-Passu Lien Obligations” means all Indebtedness secured by pari-passu Liens on the Collateral, incurred pursuant to Section 6.05(h), (i) and (j), and all obligations in respect thereof, including in respect of the Notes and each series of Additional Pari-Passu Lien Obligations.

“Participants” shall mean (a) the persons listed on Schedule 2.01 (other than any such person that has ceased to be a party hereto pursuant to an Assignment and Assumption) and (b) any person that has become a party hereto pursuant to an Assignment and Assumption.

“Participation Register” shall have the meaning assigned to such term in Section 9.04(d).

“Partners Insurance Company” means Partners Insurance Company, Inc., a Hawaii corporation, and its successors and assigns.

“Perfection Certificate” shall mean the Perfection Certificate substantially in the form of Exhibit B to the Security Agreement.

“Permitted Holders” means, collectively, John F. Shea, Peter O. Shea, Peter O. Shea, Jr., Mary Shea, John Morrissey and their respective family trusts, spouses, sons and daughters and lineal descendants, siblings and other familial relatives of any of them, including any corporation, limited liability companies or other entities more than 50% of

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the issued and outstanding equity interests of which are held, directly or indirectly, by any of the foregoing persons.

“Permitted Investments” shall mean:

(a) Cash Equivalents;

(b) Guarantees (but not payments thereon) with respect to Specified Obligations;

(c) any Investment in (i) the Company or any Guarantor or (ii) any person that becomes a Guarantor as a result of such Investment or that is consolidated or merged with or into, or transfers all or substantially all of the assets of it or an operating unit or line of business to, the Company or a Guarantor;

(d) any receivables, loans or other consideration taken by the Company, Shea Corp. or any Restricted Subsidiary in connection with any asset sale otherwise permitted hereunder; provided that non-cash consideration received in an Asset Disposition or an exchange or swap of assets shall be pledged as Collateral under the Security Documents to the extent the assets subject to such Asset Disposition or exchange or swap of assets constituted Collateral;

(e) Investments received in connection with any bankruptcy or reorganization proceeding, or as a result of foreclosure, perfection or enforcement of any Lien or any judgment or settlement of any person in exchange for or satisfaction of Indebtedness or other obligations or other property received from such person, or for other liabilities or obligations of such person created, in accordance with the terms hereof;

(f) Investments in Interest Protection Agreements permitted hereunder;

(g) any loan or advance to an executive officer, director or employee of the Company or any Restricted Subsidiary made in the ordinary course of business or in accordance with past practice; provided, however, that any such loan or advance exceeding $1,000,000 shall have been approved by the board of directors of the Company or a committee thereof consisting of disinterested members;

(h) obligations (but not payments thereon) with respect to homeowners association obligations, community facility district bonds, metro district bonds, mello-roos bonds and subdivision improvement bonds and similar bonding requirements arising in the ordinary course of business of a homebuilder;

(i) guarantee or indemnification obligations (other than for the payment of borrowed money) entered into in the ordinary course of business and incurred for the benefit of any adjoining landowner, seller of real property or municipal government authority (or enterprises thereof) in connection with the acquisition, entitlement and development of real property;

(j) guarantee and indemnification obligations arising in connection with surety bonds issued in the ordinary course of business;

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(k) prepaid expenses, negotiable instruments held for collection and insurance, lease, utility and workers’ compensation, performance and other similar deposits made in the ordinary course of business;

(l) current Investments acquired in the ordinary course of business for cash management purposes; and

(m) guarantees and related extensions of credit constituting Permitted Indebtedness (other than Indebtedness incurred pursuant to Section 6.01(n), but including any payments made in respect of Letters of Credit) or Covered Indebtedness.

“person” shall mean any individual, corporation, trust, joint venture, incorporated or unincorporated association, joint stock company, limited liability company, partnership, unincorporated organization or government or any agency or political subdivision thereof.

“Plan” shall mean any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which the Company or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an “employer” as defined in Section 3(5) of ERISA.

“Preferred Equity Interests” of any person means all Equity Interests of such person which have a preference in liquidation or with respect to the payment of dividends.

“Prime Rate” shall mean the rate of interest per annum determined from time to time by Credit Suisse as its prime rate in effect at its principal office in New York City and notified to the Company.

“Pro Rata Percentage” of any Participant at any time shall mean the percentage of the Total Commitment represented by such Participant’s Commitment. In the event the Commitments shall have expired or been terminated, the Pro Rata Percentages shall be determined on the basis of the Commitments most recently in effect, giving effect to any subsequent assignments.

“Property” of any person shall all types of real, personal, tangible, intangible or mixed property owned by such person, whether or not included in the most recent consolidated balance sheet of such person and its Subsidiaries under GAAP, including Equity Interests and Indebtedness of other persons.

“Qualified Equity Interests” of any person shall mean any Equity Interest of such person other than (a) Disqualified Equity Interests, (b) any Equity Interests sold to a subsidiary of such person or a company equity plan, (c) any Equity Interests financed, directly or indirectly, using funds borrowed from such person, a subsidiary of such person or any company equity plan or contributed, extended, advanced or guaranteed by such person, a subsidiary of such person or any company equity plan, (d) any Equity Interests issued upon conversion of, or issued in exchange for, debt securities owned by

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any subsidiary of such person or company equity plan, (e) any Equity Interests issued in connection with any cash contribution made in accordance with Section 6.02(b)(vi) and (f) except for purposes of the definition of “Excluded Contribution”, any Equity Interest to the extent the cash or Cash Equivalents received in connection therewith are designated as Excluded Contributions; provided, however, except for purposes of the definition of Excluded Contribution, Qualified Equity Interests will not include any Equity Interests to the extent the Company has designated the net proceeds or marketable securities received from the sale of such Equity Interests as Excluded Contributions. Unless otherwise specified, Qualified Equity Interests refer to Qualified Equity Interests of the Company.

“Real Estate Business” has the meaning assigned to such term in Section 6.09.

“Recipient” shall mean (a) the Administrative Agent, (b) any Participant and (c) any Issuing Bank, as applicable.

“Refinancing Indebtedness” shall mean Indebtedness that refinances any Indebtedness of the Company, Shea Corp. or any Restricted Subsidiary existing on the Closing Date or incurred in compliance with this Agreement, including Indebtedness that refinances Refinancing Indebtedness; provided, however, that:

(a) such Refinancing Indebtedness has a maturity date no earlier than the maturity date of the Indebtedness being refinanced;

(b) such Refinancing Indebtedness has a weighted average life to maturity at the time such Refinancing Indebtedness is incurred that is equal to or greater than the weighted average life to maturity of the Indebtedness being refinanced;

(c) such Refinancing Indebtedness has an aggregate principal amount (or if incurred with original issue discount, an aggregate issue price) that is equal to or less than the aggregate principal amount (or if incurred with original issue discount, the aggregate accreted value) then outstanding (plus fees and expenses, including any premium and defeasance costs) under the Indebtedness being refinanced; and

(d) if the Indebtedness being Refinanced is subordinated in right of payment to the Notes, such Refinancing Indebtedness is subordinated in right of payment to the Notes to at least the same extent as the Indebtedness being refinanced;

provided further, however, that Refinancing Indebtedness shall not include (A) Indebtedness of a Subsidiary that Refinances Indebtedness of Shea Corp. or the Company or (B) Indebtedness of the Company, Shea Corp. or a Restricted Subsidiary that Refinances Indebtedness of an Unrestricted Subsidiary.

“Register” shall have the meaning assigned to such term in Section 9.04(c).

“Regulation T” shall mean Regulation T of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof.

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“Regulation U” shall mean Regulation U of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof.

“Regulation X” shall mean Regulation X of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof.

“Related Parties” shall mean, with respect to any specified person, such person’s Affiliates and the partners, directors, officers, employees, agents, trustees, administrators, managers, advisors and representatives of such person and of such person’s Affiliates.

“Release” shall mean any release, spill, emission, leaking, dumping, injection, pouring, deposit, disposal, discharge, dispersal, leaching or migration into or through the environment or within or upon any building, structure, facility or fixture.

“Required Participants” shall mean, at any time, Participants having L/C Exposure and unused Commitments representing more than 50% of the total L/C Exposure and unused Commitments at such time; provided that the L/C Exposure and unused Commitments of any Defaulting Participant shall be disregarded in the determination of the Required Participants at any time unless such Defaulting Participant is the only Participant at such time.

“Responsible Officer” of any person shall mean any executive officer or Financial Officer of such person and any other officer or similar official thereof responsible for the administration of the obligations of such person in respect of this Agreement.

“Restricted Payment” shall mean any of the following:

(i) the declaration or payment of any dividend or any other distribution on Equity Interests of the Company, Shea Corp. or any Restricted Subsidiary or any payment made to the direct or indirect holders (in their capacities as such) of Equity Interests of the Company, Shea Corp. or any Restricted Subsidiary (other than (a) dividends or distributions payable solely in Qualified Equity Interests and (b) in the case of Shea Corp. or Restricted Subsidiaries, dividends or distributions payable ratably to of the Company, Shea Corp. or a Restricted Subsidiary and each other person entitled thereto);

(ii) the purchase, redemption or other acquisition or retirement for value of any Equity Interests of the Company, Shea Corp. or any Restricted Subsidiary (other than a payment made to the Company, Shea Corp. or any Restricted Subsidiary);

(iii) any Investment (other than any Permitted Investment), including any Investment in any joint venture, any Investment in an Unrestricted Subsidiary (including by the designation of a Subsidiary of the Company as an Unrestricted Subsidiary) or any Investment in a Restricted Subsidiary that is not a Guarantor (each Investment described in this clause (iii), a “Restricted Investment”);

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(iv) the purchase, repurchase, redemption, acquisition or retirement for value, prior to one year before the date for any scheduled maturity, sinking fund or amortization or other principal installment payment, of any Subordinated Indebtedness (other than Indebtedness incurred pursuant to Section 6.01(d)) or (b) the purchase, repurchase, redemption, defeasance, or other acquisition or retirement of Subordinated Indebtedness purchased in anticipation of satisfying a sinking fund obligation, amortization or principal installment or final maturity, in each case due within one year of the date of purchase, repurchase, redemption, defeasance or other acquisition or retirement); and

(v) any payment by the Company, Shea Corp. or any Restricted Subsidiary with respect to a Specified Obligation.

“Restricted Subsidiary” shall mean any Subsidiary of the Company that is not an Unrestricted Subsidiary, including Shea Corp.

“S&P” shall mean Standard & Poor’s Ratings Service, or any successor thereto.

“Secured Parties” shall mean (a) the Participants, (b) the Issuing Bank, (c) the Administrative Agent, (d) the beneficiaries of each indemnification or expense reimbursement obligation undertaken by the Company or any Guarantor under any Credit Document and (e) the successors and assigns of each of the foregoing.

“Security Agreement” shall mean the Security Agreement, substantially in the form of Exhibit C, among the Company, Shea Corp., the Subsidiaries party thereto, the Collateral Agent and the Administrative Agent for the benefit of the Secured Parties.

“Security Documents” shall mean the Mortgages, the Security Agreement and each of the security agreements, mortgages and other instruments and documents executed and delivered pursuant to any of the foregoing or pursuant to Section 5.05.

“Significant Subsidiary” shall have the meaning assigned to such term in the Indenture (as in effect on the date hereof).

“Specified Obligations” shall mean (a) interest-coverage, re-margin and completion guarantees with respect to (i) any joint venture in which the Company, Shea Corp. or any Restricted Subsidiary has a direct or an indirect equity interest or (ii) the Baker JV, (b) customary “bad-boy” guarantees, (c) guarantees of Affiliate obligations existing on the Closing Date (and any extension, modification or replacement of such Affiliate obligation provided that such extension, modification or replacement does not increase the obligations of the Company or any Restricted Subsidiary with respect to such Affiliate obligations) and (d) tax payments (including interest and penalties) or Tax Distributions, as applicable, attributable to any U.S. federal income tax proceeding (whether or not still contested or subject to appeal) regarding the completed contract method (as defined in U.S. Treasury Regulation Section 1.460-4(d)) of accounting for periods prior to 2011 (other than any increase in taxes payable for periods after 2010 as a result of such proceeding).

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“Subordinated Indebtedness” means Indebtedness subordinated in right of payment to the Obligations, pursuant to a written agreement and includes any Indebtedness ranking equally in right of payment to the Obligations, but unsecured or secured by the Collateral on a basis entirely junior to that of the Obligations.

“subsidiary” shall mean, with respect to any person (herein referred to as the “parent”), any corporation or other entity of which a majority of the Equity Interests having ordinary voting power to elect a majority of the governing body or other persons performing similar functions is at the time directly or indirectly owned or controlled by such person.

“Subsidiary” shall mean any subsidiary of the Company.

“Subsidiary Guarantor” shall mean each Subsidiary listed on Schedule 1.01(b), and each other Subsidiary that is or becomes a party to the Security Agreement and this Agreement.

“Supplement” has the meaning assigned to such term in Section 10.08.

“Tax Distribution Agreement” means the Tax Distribution Agreement dated May 10, 2011 between the Company, the direct and indirect holders of ownership interests in the Company, and each of the persons party to the Sixth Amended and Restated Agreement of Limited Partnership of Shea Homes Limited Partnership, dated as of April 1, 2005 (as amended, restated, supplemented or otherwise modified from time to time).

“Tax Distributions” means, so long as the Company is treated as a pass-through or disregarded entity for United States federal income tax purposes, the distributions in respect of income taxes permitted under Section 2 of the Tax Distribution Agreement as in effect on the Closing Date.

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

“Total Commitment” shall mean, at any time, the aggregate amount of the Commitments, as in effect at such time. The initial Total Commitment is $75,000,000.

“Transactions” shall mean, collectively, (a) the receipt by the Company of at least $121,000,000 (at least $75,000,000 of which shall be in cash) on account of receivables due from certain of its affiliates, (b) the execution, delivery and performance by the Company, Shea Corp. and the Subsidiaries party thereto of the Note Documents and the issuance of the Notes, (c) the execution, delivery and performance by the Credit Parties of the Credit Documents to which they are a party, (d) the repayment of all amounts due or outstanding under or in respect of, and the termination of, the Existing Credit Agreement and (e) the payment of related fees and expenses.

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“Unrestricted Subsidiary” shall mean:

(a) Partners Insurance Company and its subsidiaries and

(b) any other Subsidiary of the Company (other than Shea Corp.) so designated after the Closing Date by a resolution adopted by the board of directors of the Company or a duly authorized committee thereof as provided below; provided, however, that (i) the holders of Indebtedness of such Subsidiary of the Company do not have direct or indirect recourse against the Company, Shea Corp. or any Restricted Subsidiary, and neither the Company, Shea Corp. nor any Restricted Subsidiary otherwise has liability for, or any payment obligations in respect of such Indebtedness (including any undertaking, agreement or instrument evidencing such Indebtedness), except, in each case, to the extent that (A) the amount thereof constitutes a Restricted Payment permitted by Section 6.02, (B) in the case of Non-Recourse Indebtedness, such recourse or liability is for the matters discussed in the last sentence of the definition of “Non-Recourse Indebtedness,” or (C) such Indebtedness is a guarantee by such Subsidiary of Indebtedness of the Company, Shea Corp. or a Restricted Subsidiary and (ii) no holder of any Indebtedness of such Subsidiary shall have a right to declare a default on such Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity as a result of a default on any Indebtedness of the Company, Shea Corp. or any Restricted Subsidiary.

“Upfront Fees” shall have the meaning assigned to such term in Section 2.02(d).

“U.S. Person” shall mean a “United States person” within the meaning of Section 7701(a)(30) of the Code.

“USA PATRIOT Act” shall mean The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (Title III of Pub. L. No. 107-56 (signed into law October 26, 2001)).

“Withdrawal Liability” shall mean liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA.

“Withholding Agent”“ shall mean any Credit Party and the Administrative Agent.

SECTION 1.02. Terms Generally. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation.” The word “will” shall be construed to have the same meaning and effect as the word “shall.” Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to

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any person shall be construed to include such person’s successors and assigns, (c) the words “herein,” “hereof” and “hereunder,” and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement, (e) any reference to any law or regulation herein shall, unless otherwise specified, refer to such law or regulation as amended, modified or supplemented from time to time, and (f) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights.

SECTION 1.03. Pari-Passu Indebtedness. The Obligations are hereby designated as “Pari-Passu Lien Obligations” for all purposes of the Note Documents.

ARTICLE II

The Credits

SECTION 2.01. The Credits. (a) General. Subject to the terms and conditions set forth herein, the Company may request the issuance of Letters of Credit for its own account or for the account of any of its Restricted Subsidiaries or their respective joint ventures (in which case the Company and such subsidiary or joint venture shall be co-applicants with respect to such Letter of Credit and the Company shall be liable for obligations in respect thereof as provided herein), in a form reasonably acceptable to the Administrative Agent and the Issuing Bank, at any time and from time to time while the Commitments remain in effect. This Section shall not be construed to impose an obligation upon the Issuing Bank to issue any Letter of Credit that is inconsistent with the terms and conditions of this Agreement.

(b) Notice of Issuance, Amendment, Renewal, Extension; Certain Conditions. In order to request the issuance of a Letter of Credit (or to amend, renew or extend an existing Letter of Credit), the Company shall deliver a notice, in accordance with Section 9.01, to the Issuing Bank and the Administrative Agent (reasonably in advance of the requested date of issuance, amendment, renewal or extension) requesting the issuance of a Letter of Credit, or identifying the Letter of Credit to be amended, renewed or extended, the date of issuance, amendment, renewal or extension, the date on which such Letter of Credit is to expire (which shall comply with paragraph (c) below), the amount of such Letter of Credit, the name and address of the beneficiary thereof and such other information as shall be necessary to prepare such Letter of Credit; provided that no Letters of Credit shall be issued after the date that is 30 days prior to the Maturity Date. A Letter of Credit shall be issued, amended, renewed or extended only if, and upon issuance, amendment, renewal or extension of each Letter of Credit the Company shall be

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deemed to represent and warrant that, after giving effect to such issuance, amendment, renewal or extension the L/C Exposure shall not exceed the Total Commitment.

(c) Expiration Date. Each Letter of Credit shall expire at the close of business on the earlier of the date one year after the date of the issuance of such Letter of Credit and the date that is five Business Days prior to the Maturity Date, unless such Letter of Credit expires by its terms on an earlier date; provided, however, that a Letter of Credit may, upon the request of the Company, include a provision whereby such Letter of Credit shall be renewed automatically for additional consecutive periods of 12 months or less (but not beyond the date that is five Business Days prior to the Maturity Date) unless the Issuing Bank notifies the beneficiary thereof at least 30 days (or such longer period as may be specified in such Letter of Credit) prior to the then-applicable expiration date that such Letter of Credit will not be renewed.

(d) Participations. By the issuance of a Letter of Credit and without any further action on the part of the Issuing Bank or the Participants, the Issuing Bank hereby grants to each Participant, and each such Participant hereby acquires from the Issuing Bank, a participation in such Letter of Credit equal to such Participant’s Pro Rata Percentage of the aggregate amount available to be drawn under such Letter of Credit, effective upon the issuance of such Letter of Credit. In consideration and in furtherance of the foregoing, each Participant hereby absolutely and unconditionally agrees to pay to the Administrative Agent, for the account of the Issuing Bank, such Participant’s Pro Rata Percentage of each L/C Disbursement made by the Issuing Bank and not reimbursed by the Company (or, if applicable, another party pursuant to its obligations under any other Credit Document) forthwith on the date due as provided in Section 2.01(l). Each Participant acknowledges and agrees that its obligation to acquire participations pursuant to this paragraph in respect of Letters of Credit is absolute and unconditional and shall not be affected by any circumstance whatsoever, including the occurrence and continuance of a Default or an Event of Default, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever.

(e) Reimbursement. If the Issuing Bank shall make any L/C Disbursement in respect of a Letter of Credit, the Company shall pay to the Administrative Agent an amount equal to such L/C Disbursement on the same Business Day that the Company shall have received notice from the Issuing Bank that payment of such draft will be made, or, if the Company shall have received such notice later than 10:00 a.m., New York City time, on any Business Day, not later than 10:00 a.m., New York City time, on the immediately following Business Day.

(f) Obligations Absolute. The Company’s obligations to reimburse L/C Disbursements as provided in paragraph (e) above shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement, under any and all circumstances whatsoever, and irrespective of:

(i) any lack of validity or enforceability of any Letter of Credit or any Credit Document, or any term or provision therein;

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(ii) any amendment or waiver of or any consent to departure from all or any of the provisions of any Letter of Credit or any Credit Document;

(iii) the existence of any claim, setoff, defense or other right that the Company, any other party guaranteeing, or otherwise obligated with, the Company, any Subsidiary or other Affiliate thereof or any other person may at any time have against the beneficiary under any Letter of Credit, the Issuing Bank, the Administrative Agent or any Participant or any other person, whether in connection with this Agreement, any other Credit Document or any other related or unrelated agreement or transaction;

(iv) any draft or other document presented under a Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect;

(v) payment by the Issuing Bank under a Letter of Credit against presentation of a draft or other document that does not comply with the terms of such Letter of Credit; and

(vi) any other act or omission to act or delay of any kind of the Issuing Bank, the Participants, the Administrative Agent or any other person or any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section, constitute a legal or equitable discharge of the Company’s obligations hereunder.

Without limiting the generality of the foregoing, it is expressly understood and agreed that the absolute and unconditional obligation of the Company hereunder to reimburse L/C Disbursements will not be excused by the gross negligence or wilful misconduct of the Issuing Bank. However, the foregoing shall not be construed to excuse the Issuing Bank from liability to the Company to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are hereby waived by the Company to the extent permitted by applicable law) suffered by the Company that are caused by the Issuing Bank’s gross negligence or wilful misconduct in determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof. It is further understood and agreed that the Issuing Bank may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary and, in making any payment under any Letter of Credit (i) the Issuing Bank’s exclusive reliance on the documents presented to it under such Letter of Credit as to any and all matters set forth therein, including reliance on the amount of any draft presented under such Letter of Credit, whether or not the amount due to the beneficiary thereunder equals the amount of such draft and whether or not any document presented pursuant to such Letter of Credit proves to be insufficient in any respect, if such document on its face appears to be in order, and whether or not any other statement or any other document presented pursuant to such Letter of Credit proves to be forged or invalid or any statement therein proves to be inaccurate or untrue in any respect whatsoever and (ii) any noncompliance in any immaterial respect of the documents presented under such Letter of Credit with the terms

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thereof shall, in each case, be deemed not to constitute gross negligence or wilful misconduct of the Issuing Bank.

(g) Disbursement Procedures. (i) The Issuing Bank shall, promptly following its receipt thereof, examine all documents purporting to represent a demand for payment under a Letter of Credit. The Issuing Bank shall as promptly as possible give telephonic notification, confirmed by fax, to the Administrative Agent and the Company of such demand for payment and whether the Issuing Bank has made or will make an L/C Disbursement thereunder; provided that any failure to give or delay in giving such notice shall not relieve the Company of its obligation to reimburse the Issuing Bank and the Participants with respect to any such L/C Disbursement.

(ii) If the Issuing Bank shall not have received from the Company the payment required to be made by Section 2.01(e) within the time specified in such Section, the Issuing Bank will promptly notify the Administrative Agent of the L/C Disbursement and the Administrative Agent will promptly notify each Participant of such L/C Disbursement and its Pro Rata Percentage thereof. Each Participant shall pay by wire transfer of immediately available funds to the Administrative Agent not later than 2:00 p.m., New York City time, on such date (or, if such Participant shall have received such notice later than 12:00 (noon), New York City time, on any day, not later than 10:00 a.m., New York City time, on the immediately following Business Day), an amount equal to such Participant’s Pro Rata Percentage of such L/C Disbursement (it being understood that any such amount paid by any Participant shall not constitute a loan and shall not relieve the Company from its obligation to reimburse such L/C Disbursement), and the Administrative Agent will promptly pay to the Issuing Bank amounts so received by it from the Participants. The Administrative Agent will promptly pay to the Issuing Bank any amounts received by it from the Company pursuant to Section 2.01(e) prior to the time that any Participant makes any payment pursuant to this paragraph; any such amounts received by the Administrative Agent thereafter will be promptly remitted by the Administrative Agent to the Participants that shall have made such payments and to the Issuing Bank, as their interests may appear. If any Participant shall not have made its Pro Rata Percentage of such L/C Disbursement available to the Administrative Agent as provided above, such Participant agrees to pay interest on such amount, for each day from and including the date such amount is required to be paid in accordance with this paragraph to but excluding the date such amount is paid, to the Administrative Agent for the account of the Issuing Bank at, for the first such day, the Federal Funds Effective Rate, and for each day thereafter, the Alternate Base Rate.

(h) Interim Interest. If the Issuing Bank shall make any L/C Disbursement in respect of a Letter of Credit, then, unless the Company shall reimburse such L/C Disbursement in full on such date, the unpaid amount thereof shall bear interest for the account of the Issuing Bank, for each day from and including the date of such L/C Disbursement, to but excluding the earlier of the date of payment by the Company or the

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date on which interest shall commence to accrue thereon as provided in Section 2.03, at the rate per annum equal to the Alternate Base Rate plus 3.0%.

(i) Resignation or Removal of the Issuing Bank. The Issuing Bank may resign at any time by giving 30 days’ prior written notice to the Administrative Agent, the Participants and the Company, and may be removed at any time by the Company by notice to the Issuing Bank, the Administrative Agent and the Participants. Upon the acceptance of any appointment as the Issuing Bank hereunder by a Participant that shall agree to serve as successor Issuing Bank, such successor shall succeed to and become vested with all the interests, rights and obligations of the retiring Issuing Bank. At the time such removal or resignation shall become effective, the Company shall pay all accrued and unpaid fees pursuant to Section 2.02(c)(ii). The acceptance of any appointment as the Issuing Bank hereunder by a successor Participant shall be evidenced by an agreement entered into by such successor, in a form satisfactory to the Company and the Administrative Agent, and, from and after the effective date of such agreement, (i) such successor Participant shall have all the rights and obligations of the previous Issuing Bank under this Agreement and the other Credit Documents and (ii) references herein and in the other Credit Documents to the term “Issuing Bank” shall be deemed to refer to such successor or to any previous Issuing Bank, or to such successor and all previous Issuing Banks, as the context shall require. After the resignation or removal of the Issuing Bank hereunder, the retiring Issuing Bank shall remain a party hereto and shall continue to have all the rights and obligations of an Issuing Bank under this Agreement and the other Credit Documents with respect to Letters of Credit issued by it prior to such resignation or removal, but shall not be required to issue additional Letters of Credit.

(j) Cash Collateralization. If any Event of Default shall occur and be continuing, the Company shall, on the Business Day it receives notice thereof from the Issuing Bank or the Required Participants together with a demand for cash collateral pursuant to this Section 2.01(j) and specifying the amount to be deposited, deposit in an account with the Administrative Agent, for the benefit of the Issuing Bank and the Participants, an amount in cash equal to 105% of the L/C Exposure as of such date. Such deposit shall be held by the Administrative Agent as collateral for the payment and performance of the Obligations. The Administrative Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over such account. Other than any interest earned on the investment of such deposits in Cash Equivalents, which investments shall be made at the option and sole discretion of the Administrative Agent, such deposits shall not bear interest. Interest or profits, if any, on such investments shall accumulate in such account. Moneys in such account shall (i) automatically be applied by the Administrative Agent to reimburse the Issuing Bank for L/C Disbursements for which it has not been reimbursed and (ii) be held for the satisfaction of the reimbursement obligations of the Company for the L/C Exposure at such time. If the Company is required to provide an amount of cash collateral hereunder as a result of the occurrence of an Event of Default, such amount (to the extent not applied as aforesaid) shall be returned to the Company within three Business Days after all Defaults and Events of Default have been cured or waived.

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(k) Additional Issuing Banks. The Company may, at any time and from time to time with the consent of the Administrative Agent (which consent shall not be unreasonably withheld or delayed) and such Participant, designate one or more additional Participants to act as an issuing bank under the terms of this Agreement. Any Participant designated as an issuing bank pursuant to this paragraph (k) shall be deemed to be an “Issuing Bank” (in addition to being a Participant) in respect of Letters of Credit issued or to be issued by such Participant, and, with respect to such Letters of Credit, such term shall thereafter apply to the other Issuing Bank and such Participant.

SECTION 2.02. Fees. (a) The Company agrees to pay to each Participant, through the Administrative Agent, on the last Business Day of March, June, September and December in each year and on each date on which any Commitment of such Participant shall expire or be terminated as provided herein, a commitment fee (a “Commitment Fee”) equal to 0.50% per annum on the daily unused amount of the Commitment of such Participant during the preceding quarter (or other period commencing with the date hereof or ending with the Maturity Date or the date on which the Commitment of such Participant shall expire or be terminated). All Commitment Fees shall be computed on the basis of the actual number of days elapsed in a year of 360 days.

(b) The Company agrees to pay to the Administrative Agent, for its own account, in consideration for its agreement to act as Administrative Agent for the Credit Facility, an annual administration fee of $30,000 for each year the Credit Facility shall remain in effect (the “Administrative Agent Fees”). The first payment of such Administrative Agent Fee shall be earned by, and payable to the Administrative Agent, quarterly in advance on the Closing Date for the first quarter to occur after the Closing Date and, thereafter, quarterly in advance on the first day of every third month after the Closing Date for so long as the Credit Facility is in effect. Such Administrative Agent Fee will be in addition to reimbursement of the Administrative Agent’s out-of-pocket expenses in accordance with Section 9.05.

(c) The Company agrees to pay (i) to each Participant, through the Administrative Agent, on the last Business Day of March, June, September and December of each year and on the date on which the Commitment of such Participant shall be terminated as provided herein, a fee (an “L/C Participation Fee”) calculated on such Participant’s Pro Rata Percentage of the daily aggregate L/C Exposure (excluding the portion thereof attributable to unreimbursed L/C Disbursements) during the preceding quarter (or shorter period commencing with the date hereof or ending with the Maturity Date or the date on which all Letters of Credit have been canceled or have expired and the Commitments of all Participants shall have been terminated) at a rate equal to 3.0% per annum, and (ii) to the Issuing Bank with respect to each Letter of Credit (A) on the last Business Day of March, June, September and December of each year, on the Maturity Date and on the date on which all Letters of Credit have been canceled or have expired and the Commitments shall have been terminated, a fronting fee, which shall accrue at a rate equal to 0.125% per annum on the aggregate face amount of outstanding Letters of Credit issued by such Issuing Bank and (B) the standard issuance and drawing fees in amounts

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and at times specified from time to time by the Issuing Bank pursuant to arrangements made between the Issuing Bank and the Company (the “Issuing Bank Fees”). All L/C Participation Fees and Issuing Bank Fees shall be computed on the basis of the actual number of days elapsed in a year of 360 days.

(d) The Company agrees to pay an upfront fee (the “Upfront Fee”) for the account of each Participant in an amount equal to 1.0% of such Participant’s Commitment on the Closing Date. Such Upfront Fee will be in all respects fully earned, due and payable on the Closing Date and non-refundable and non-creditable thereafter.

(e) All Fees shall be paid on the dates due, in immediately available funds, to the Administrative Agent for distribution, if and as appropriate, among the Participants, except that the Issuing Bank Fees shall be paid directly to the Issuing Bank. Once paid, none of the Fees shall be refundable under any circumstances.

SECTION 2.03. Default Interest. If the Company shall default in the payment of any amount due hereunder, by acceleration or otherwise, or under any other Credit Document, then, until such defaulted amount shall have been paid in full, to the extent permitted by law, such defaulted amount shall bear interest (after as well as before judgment), payable on demand, at a rate per annum (computed on the basis of the actual number of days elapsed over a year of 365 or 366 days, as the case may be, when determined by reference to the Prime Rate and over a year of 360 days at all other times) equal to the Alternate Base Rate plus 5.00% per annum.

SECTION 2.04. Termination and Reduction of Commitments. (a) The Commitments shall automatically terminate on the Maturity Date. Notwithstanding the foregoing, the Commitments shall automatically terminate at 5:00 p.m., New York City time, on May 10, 2011, if the conditions set forth in Section 4.02 shall not have been satisfied or waived by such time.

(b) Upon at least three Business Days’ prior irrevocable written or fax notice to the Administrative Agent, the Company may at any time in whole permanently terminate, or from time to time in part permanently reduce, the Commitments; provided, however, that (i) each partial reduction of the Commitments shall be in an integral multiple of $1,000,000 and in a minimum amount of $5,000,000 and (ii) the Commitments shall not be reduced to an amount that is less than the L/C Exposure at the time; provided further, that any notice of termination of the Commitments in full given by the Company may state that such termination notice is conditioned upon the effectiveness of other credit facilities or capital raising, in which case such notice may be revoked by the Company (by notice to the Administrative Agent on or prior to the specified effective date) if such condition is not satisfied.

(c) Each reduction in the Commitments hereunder shall be made ratably among the Participants in accordance with their respective applicable Commitments. The Company shall pay to the Administrative Agent for the account of the applicable

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Participants, on the date of each termination or reduction, the Commitment Fees on the amount of the Commitments so terminated or reduced accrued to but excluding the date of such termination or reduction.

SECTION 2.05. Reserve Requirements; Change in Circumstances.

(a) Notwithstanding any other provision of this Agreement, if any Change in Law shall: (i) impose, modify or deem applicable any reserve, special deposit, compulsory loan, insurance charge or similar requirement against assets of, deposits with or for the account of or credit extended or participated in by any Participant or the Issuing Bank, (ii) impose on such Participant or the Issuing Bank any other condition affecting this Agreement or any Letter of Credit or participation therein or (iii) subject any Recipient to any Taxes on its loans, loan principal, letters of credit, commitments, or other obligations, or its deposits, reserves, other liabilities or capital attributable thereto (other than (A) Indemnified Taxes, (B) Excluded Taxes and (B) Other Connection Taxes on gross or net income, profits or revenue (including value-added or similar Taxes)), and the result of any of the foregoing shall be to increase the cost to such Participant or the Issuing Bank of issuing or maintaining any Letter of Credit or purchasing or maintaining a participation therein or to reduce the amount of any sum received or receivable by such Participant or the Issuing Bank hereunder (whether of principal, interest or otherwise), the Company will pay to such Participant or the Issuing Bank, as the case may be, upon demand such additional amount or amounts as will compensate such Participant or the Issuing Bank, as the case may be, for such additional costs incurred or reduction suffered.

(b) If any Participant or the Issuing Bank shall have determined that any Change in Law affecting such Participant or Issuing Bank or any lending office of such Participant or such Participant’s or Issuing Bank’s holding company, if any, regarding capital requirements has or would have the effect of reducing the rate of return on such Participant’s or the Issuing Bank’s capital or on the capital of such Participant’s or the Issuing Bank’s holding company, if any, as a consequence of this Agreement or participations in Letters of Credit purchased by such Participant pursuant hereto or the Letters of Credit issued by the Issuing Bank pursuant hereto to a level below that which such Participant or the Issuing Bank or such Participant’s or the Issuing Bank’s holding company could have achieved but for such Change in Law (taking into consideration such Participant’s or the Issuing Bank’s policies and the policies of such Participant’s or the Issuing Bank’s holding company with respect to capital adequacy), then from time to time, upon delivery by such Participant or Issuing Bank of a certificate as set forth in Section 2.05(c), the Company shall pay to such Participant or the Issuing Bank, as the case may be, such additional amount or amounts as will compensate such Participant or the Issuing Bank or such Participant’s or the Issuing Bank’s holding company for any such reduction suffered.

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(c) A certificate of a Participant or the Issuing Bank setting forth the amount or amounts necessary to compensate such Participant or the Issuing Bank or its holding company, as applicable, as specified in paragraph (a) or (b) above shall be delivered to the Company and shall be conclusive absent manifest error. The Company shall pay such Participant or the Issuing Bank the amount shown as due on any such certificate delivered by it within 10 days after its receipt of the same.

(d) Failure or delay on the part of any Participant or the Issuing Bank to demand compensation for any increased costs or reduction in amounts received or receivable or reduction in return on capital shall not constitute a waiver of such Participant’s or the Issuing Bank’s right to demand such compensation; provided that the Company shall not be under any obligation to compensate any Participant or the Issuing Bank under paragraph (a) or (b) above with respect to increased costs or reductions with respect to any period prior to the date that is nine months prior to such request (except that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the nine month period referred to above shall be extended to include the period of retroactive effect thereof).

SECTION 2.06. Pro Rata Treatment. Each payment of the Commitment Fees and each reduction of the Commitments shall be allocated pro rata among the Participants in accordance with their respective applicable Commitments, which amounts may, at the Administrative Agent’s discretion, be rounded to the next higher or lower whole dollar amount.

SECTION 2.07. Sharing of Setoffs. Each Participant agrees that if it shall, through the exercise of a right setoff or counterclaim or otherwise, obtain payment in respect of any principal or interest in respect of any L/C Disbursement resulting in such Participant receiving payment of a proportion of the aggregate amount of its participations in L/C Disbursements greater than its pro rata share thereof as provided herein, then the Participant receiving such greater proportion shall (a) notify the Administrative Agent of such fact and (b) purchase (for cash at face value) participations in the L/C Exposure of such other Participant, so that the aggregate unpaid principal amount of the L/C Exposure and participations in L/C Exposure held by each Participant shall be in the same proportion to the aggregate unpaid principal amount of L/C Exposure then outstanding as the principal amount of its L/C Exposure prior to such exercise of setoff or counterclaim or other event was to the principal amount of L/C Exposure outstanding prior to such exercise of banker’s lien, setoff or counterclaim or other event; provided, however, that (A) if any such purchase or purchases or adjustments shall be made pursuant to this Section 2.07 and the payment giving rise thereto shall thereafter be recovered, such purchase or purchases or adjustments shall be rescinded to the extent of such recovery and the purchase price or prices or adjustment restored without interest and (B) the provisions of this paragraph shall not be construed to apply to (x) any payment made by the Company pursuant to and in accordance with the

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express terms of this Agreement (including the application of funds arising from the existence of a Defaulting Participant), or (y) any payment obtained by a Participant as consideration for the assignment of or sale of a participation in any of its L/C Disbursements to any assignee or participant, other than to the Company or any Subsidiary thereof (as to which the provisions of this paragraph shall apply). The Company and Shea Corp. expressly consent to the foregoing arrangements and agree that any Participant holding a participation in an L/C Disbursement deemed to have been so purchased may exercise any and all rights of setoff or counterclaim or otherwise with respect to any and all moneys owing by the Company and Shea Corp. to such Participant by reason thereof as fully as if such Participant had made a loan directly to the Company in the amount of such participation.

SECTION 2.08. Payments. (a) The Company shall make each payment (including principal of or interest on any L/C Disbursement or any Fees or other amounts) hereunder and under any other Credit Document not later than 1:00 p.m., New York City time, on the date when due in immediately available dollars, without setoff, defense or counterclaim. Each such payment (other than Issuing Bank Fees, which shall be paid directly to the Issuing Bank) shall be made to the Administrative Agent at its offices at Eleven Madison Avenue, New York, NY 10010. The Administrative Agent shall promptly distribute to each Participant (or the Issuing Bank, if applicable) any payments received by the Administrative Agent on behalf of such Participant (or Issuing Bank, if applicable).

(b) Except as otherwise expressly provided herein, whenever any payment (including any Fees or other amounts) hereunder or under any other Credit Document shall become due, or otherwise would occur, on a day that is not a Business Day, such payment may be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of interest or Fees, if applicable.

(c) Unless the Administrative Agent shall have received notice from the Company prior to the date on which any payment is due to the Administrative Agent for the account of the Participants or the Issuing Bank hereunder that the Company will not make such payment, the Administrative Agent may assume that the Company has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Participants or the Issuing Bank, as the case may be, the amount due. In such event, if the Company does not in fact make such payment, then each of the Participants or the Issuing Bank, as the case may be, severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Participant, and to pay interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation.

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SECTION 2.09. Taxes. (a) Any and all payments by any Credit Party under any Credit Document shall be made without withholding for any Taxes, unless such withholding is required by any law. If any Withholding Agent determines, in its sole discretion exercised in good faith, that it is so required to withhold Taxes, then such Withholding Agent may so withhold and shall timely pay the full amount of withheld Taxes to the relevant Governmental Authority in accordance with applicable law. If such Taxes are Indemnified Taxes, then the sum payable by the relevant Credit Party shall be increased as necessary so that after making all required withholdings (including withholdings applicable to additional sums payable under this Section) the applicable Recipient receives an amount equal to the sum it would have received had no such withholding been made.

(b) In addition, the Company shall timely pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law.

(c) The Company shall indemnify each Recipient within 10 days after written demand therefor, for the full amount of any Indemnified Taxes that are paid or payable by such Recipient on or with respect to any payment by or on account of any obligation of the Company or any other Credit Party under any Credit Document (including Indemnified Taxes imposed or asserted on or attributable to amounts payable under this Section) and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. The indemnity under this Section 2.09(e) shall be paid within 10 days after the Recipient delivers to the Company a certificate stating the amount of any Indemnified Taxes so paid or payable by such Recipient and describing the basis for the indemnifiable claim. Such certificate shall be conclusive absent manifest error.

(d) Each Participant shall severally indemnify the Administrative Agent for any Taxes (but, in the case of any Indemnified Taxes, only to the extent that the Company or any Credit Party has not already indemnified the Administrative Agent for such Indemnified Taxes and without limiting the obligation of the Company or any such Credit Parties to do so) attributable to such Participant that are paid or payable by the Administrative Agent in connection with any Credit Document and any reasonable expenses arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. The indemnity under this Section 2.09(d) shall be paid within 10 days after the Administrative Agent delivers to the applicable Participant a certificate stating the amount of Taxes so paid or payable by the Administrative Agent. Such certificate shall be conclusive of the amount so paid or payable absent manifest error.

(e) As soon as practicable after any payment of Indemnified Taxes by the Company or any other Credit Party to a Governmental Authority, the Company shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting

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such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent.

(f) (i) Any Participant that is entitled to an exemption from, or reduction of, U.S. Federal withholding Tax (including U.S. backup withholding Tax) with respect to any payments under any Credit Document shall deliver to the Company and the Administrative Agent, at the time or times reasonably requested by the Company or the Administrative Agent, such properly completed and executed documentation reasonably requested by the Company or the Administrative Agent as will permit such payments to be made without, or at a reduced rate of, withholding. In addition, any Participant, if requested by the Company or the Administrative Agent, shall deliver such other documentation prescribed by law or reasonably requested by the Company or the Administrative Agent as will enable the Company or the Administrative Agent to determine whether or not such Lender is subject to any U.S. Federal withholding (including U.S. backup withholding) or information reporting requirements. Notwithstanding anything to the contrary in the preceding two sentences, the completion, execution and submission of such documentation (other than such documentation set forth in Section 2.09(f)(ii)(A) through (E) below) shall not be required if in the Participant’s judgment such completion, execution or submission would subject such Participant to any material unreimbursed cost or expense or would materially prejudice the legal or commercial position of such Participant. Upon the reasonable request of the Company or the Administrative Agent, any Participant shall update any form or certification previously delivered pursuant to this Section 2.09(f). If any form or certification previously delivered pursuant to this Section 2.09(f) expires or becomes obsolete or inaccurate in any respect with respect to a Participant, such Participant shall promptly (and in any event within 10 days after such expiration, obsolescence or inaccuracy) notify the Company and the Administrative Agent in writing of such expiration, obsolescence or inaccuracy and update the form or certification if it is legally eligible to do so.

(ii) Without limiting the generality of the foregoing, in the event that the Company is a U.S. Person, any Participant with respect to the Company shall, if it is legally eligible to do so, deliver to the Company and the Administrative Agent (in such number of copies reasonably requested by the Company and the Administrative Agent) on or prior to the date on which such Participant becomes a party hereto, duly completed and executed copies of whichever of the following is applicable:

(A) in the case of a Participant that is a U.S. Person, IRS Form W-9 certifying that such Participant is exempt from U.S. Federal backup withholding Tax;

(B) in the case of a Foreign Participant claiming the benefits of an income tax treaty to which the United States is a party (1) with respect to payments of interest under any Credit Document, IRS Form W-8BEN establishing an exemption from, or reduction of, U.S. Federal withholding Tax pursuant to the “interest” article of such tax treaty and (2) with respect to any other applicable

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payments under any Credit Document, IRS Form W-8BEN establishing an exemption from, or reduction of, U.S. Federal withholding Tax pursuant to the “business profits” or “other income” article of such tax treaty;

(C) in the case of a Foreign Participant for whom payments under any Credit Document constitute income that is effectively connected with such Participant’s conduct of a trade or business in the United States, IRS Form W-8ECI;

(D) in the case of a Foreign Participant claiming the benefits of the exemption for portfolio interest under Section 881(c) of the Code both (1) IRS Form W-8BEN and (2) a certificate substantially in the form of Exhibit C (a “U.S. Tax Certificate”) to the effect that such Participant is not (a) a “bank” within the meaning of Section 881(c)(3)(A) of the Code, (b) a “10 percent shareholder” of the Company within the meaning of Section 881(c)(3)(B) of the Code, (c) a “controlled foreign corporation” described in Section 881(c)(3)(C) of the Code and (d) conducting a trade or business in the United States with which the relevant interest payments are effectively connected;

(E) in the case of a Foreign Participant that is not the beneficial owner of payments made under any Credit Document (including a partnership or a person purchasing a participation) (1) an IRS Form W-8IMY on behalf of itself and (2) the relevant forms prescribed in clauses (A), (B), (C), (D) and (F) of this paragraph (f)(ii) that would be required of each such beneficial owner or partner of such partnership if such beneficial owner or partner were a Lender; provided, however, that if the Participant is a partnership and one or more of its partners are claiming the exemption for portfolio interest under Section 881(c) of the Code, such Participant may provide a U.S. Tax Certificate on behalf of such partners; or

(F) any other form prescribed by applicable law as a basis for claiming exemption from, or a reduction of, U.S. Federal withholding Tax together with such supplementary documentation as may be reasonably requested by the Company or the Administrative Agent in order to enable the Company or the Administrative Agent to determine the amount of Tax (if any) required by law to be withheld.

(iii) If a payment made to a Participant under any Credit Document would be subject to U.S. federal withholding Tax imposed by FATCA if such Participant were to fail to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Code, as applicable), such Participant shall deliver to the Withholding Agent, at the time or times prescribed by law and at such time or times reasonably requested by the Withholding Agent, such documentation prescribed by applicable law (including as prescribed by Section 1471(b)(3)(C)(i) of the Code) and such additional documentation reasonably requested by the Withholding Agent as may be necessary for the Withholding Agent to comply with its obligations under FATCA, to determine that such Participant has or has not complied with such

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Participant’s obligations under FATCA and, as necessary, to determine the amount to deduct and withhold from such payment. Solely for purposes of this Section 2.09(f)(iii), “FATCA” shall include any amendments made to FATCA after the date of this Agreement.

(g) If any party determines, in its sole discretion exercised in good faith, that it has received a refund of any Taxes as to which it has been indemnified pursuant to this Section 2.09 (including additional amounts paid pursuant to this Section 2.09), it shall pay to the indemnifying party an amount equal to such refund (but only to the extent of indemnity payments made under this Section with respect to the Taxes giving rise to such refund), net of all out-of-pocket expenses (including any Taxes) of such indemnified party and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund). Such indemnifying party, upon the request of such indemnified party, shall repay to such indemnified party the amount paid to such indemnified party pursuant to the previous sentence (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) in the event such indemnified party is required to repay such refund to such Governmental Authority. Notwithstanding anything to the contrary in this Section 2.09(g), in no event will any indemnified party be required to pay any amount to any indemnifying party pursuant to this Section 2.09(g) if such payment would place such indemnified party in a less favorable position (on a net after-Tax basis) than such indemnified party would have been in if the indemnification payments or additional amounts giving rise to such refund had never been paid. This Section 2.09(g) shall not be construed to require any indemnified party to make available its Tax returns (or any other information relating to its Taxes which it deems confidential) to the indemnifying party or any other person.

(h) Each party’s obligations under this Section 2.09 shall survive any assignment of rights by, or the replacement of, a Participant, the termination of the Commitments and the repayment, satisfaction or discharge of all other obligations under any Credit Document.

(i) For purposes of Section 2.09(d) and (f), the term “Participant” includes any Issuing Bank.

SECTION 2.10. Assignment of Commitments Under Certain Circumstances; Duty to Mitigate. (a)In the event (i) any Participant or the Issuing Bank delivers a certificate requesting compensation pursuant to Section 2.05, (ii) the Company is required to pay any additional amount to any Participant or the Issuing Bank or any Governmental Authority on account of any Participant or the Issuing Bank pursuant to Section 2.09 or (iii) any Participant refuses to consent to any amendment, waiver or other modification of any Credit Document requested by the Company that requires the consent of a greater percentage of the Participants than the Required Participants and such amendment, waiver or other modification is consented to by the Required Participants and, in the case of clauses (i) and (ii) above, such Participant has declined or is unable to designate a different lending office in accordance with Section 2.10(b), the Company may, at its

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sole expense and effort (in accordance with and subject to the restrictions contained in, and consents required by, Section 9.04, including with respect to the processing and recordation fee referred to in Section 9.04(b)), upon notice to such Participant or the Issuing Bank, as the case may be, and the Administrative Agent, require such Participant or the Issuing Bank to transfer and assign, without recourse, all its interests, rights and obligations under this Agreement (or, in the case of clause (iii) above, all its interests, rights and obligation with respect to the Commitments that are the subject of the related consent, amendment, waiver or other modification) to an Eligible Assignee that shall assume such assigned obligations and, with respect to clause (iii) above, shall consent to such requested amendment, waiver or other modification of any Credit Document (which Eligible Assignee may be another Participant, if a Participant accepts such assignment); provided that (x) such assignment shall not conflict with any law, rule or regulation or order of any court or other Governmental Authority having jurisdiction, (y) the Company shall have received the prior written consent of the Administrative Agent and the Issuing Bank, which consents shall not unreasonably be withheld, conditioned or delayed, and (z) the Company or such Eligible Assignee shall have paid to the affected Participant or the Issuing Bank in immediately available funds an amount equal to the sum of the principal of and interest accrued to the date of such payment on the L/C Disbursements of such Participant or the Issuing Bank, respectively, plus all Fees and other amounts accrued for the account of such Participant or the Issuing Bank hereunder with respect thereto (including any amounts under Sections 2.05 and 2.09); provided further that, if prior to any such transfer and assignment the circumstances or event that resulted in such Participant’s or the Issuing Bank’s claim for compensation under Section 2.05 or the amounts paid pursuant to Section 2.09, as the case may be, cease to cause such Participant or the Issuing Bank to suffer increased costs or reductions in amounts received or receivable or reduction in return on capital, or cease to result in amounts being payable under Section 2.09, as the case may be (including as a result of any action taken by such Participant or the Issuing Bank pursuant to paragraph (b) below), or if such Participant or the Issuing Bank shall waive its right to claim further compensation under Section 2.05 in respect of such circumstances or event or shall waive its right to further payments under Section 2.09 in respect of such circumstances or event or shall consent to the proposed amendment, waiver, consent or other modification, as the case may be, then such Participant or the Issuing Bank shall not thereafter be required to make any such transfer and assignment hereunder.

(b) If (i) any Participant or the Issuing Bank shall request compensation under Section 2.05, or (ii) the Company is required to pay any additional amount to any Participant or the Issuing Bank or any Governmental Authority on account of any Participant or the Issuing Bank, pursuant to Section 2.09, then such Participant or the Issuing Bank shall use reasonable efforts (which shall not require such Participant or the Issuing Bank to incur an unreimbursed loss or unreimbursed cost or expense or suffer any

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disadvantage or burden deemed by it to be significant) (x) to file any certificate or document reasonably requested in writing by the Company or (y) to assign its rights and delegate and transfer its obligations hereunder to another of its offices, branches or affiliates, if such filing or assignment would reduce its claims for compensation under Section 2.05 or would reduce amounts payable pursuant to Section 2.09, as the case may be, in the future. The Company hereby agrees to pay all reasonable costs and expenses incurred by any Participant or the Issuing Bank in connection with any such filing or assignment, delegation and transfer.

SECTION 2.11. Extension of Commitments. The Company may, at its option, elect to extend the initial Maturity Date to a date that is not more than one year after the initial Maturity Date by delivering written notice of such election to the Administrative Agent and the Issuing Bank not later than the date that is 120 days prior to the initial Maturity Date, specifying the effective date of such extension (which shall be a Business Day prior to the initial Maturity Date) and the Maturity Date shall be so extended on the effective date of such written notice; provided that (i) on and as of such effective date, the conditions specified in Section 4.01(b) and (c) are satisfied as though a Letter of Credit was being issued on such date (and such written notice shall include a representation to such effect) and (ii) on or prior to such effective date, the Company shall have paid to the Administrative Agent, for the account of each Participant, a fee equal to 0.25% of the Commitment of such Participant as of such effective date.

SECTION 2.12. Defaulting Participants. (a) Notwithstanding anything to the contrary contained in this Agreement, if any Participant becomes a Defaulting Participant, then, until such time as such Participant is no longer a Defaulting Participant, to the extent permitted by applicable law:

(i) Such Defaulting Participant’s right to approve or disapprove any amendment, waiver or consent with respect to this Agreement shall be restricted as set forth in the definition of Required Participants.

(ii) Any payment of principal, interest, fees or other amounts received by the Administrative Agent for the account of such Defaulting Participant (whether voluntary or mandatory, at maturity, pursuant to Article VII or otherwise) or received by the Administrative Agent from a Defaulting Participant pursuant to Section 9.06 shall be applied at such time or times as may be determined by the Administrative Agent as follows: first, to the payment of any amounts owing by such Defaulting Participant to the Administrative Agent hereunder; second, to the payment of any amounts owing by such Defaulting Participant to the Issuing Bank hereunder; third, to Cash Collateralize the Issuing Bank’s Fronting Exposure with respect to such Defaulting Participant in accordance with Section 2.13; fourth, if so determined by the Administrative Agent and the Company, to be held in a deposit account and released pro rata in order to (x) satisfy such Defaulting Participant’s potential future funding obligations with respect to L/C

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Disbursements under this Agreement and (y) Cash Collateralize the Issuing Bank’s future Fronting Exposure with respect to such Defaulting Participant with respect to future Letters of Credit issued under this Agreement, in accordance with Section 2.13; fifth, to the payment of any amounts owing to the Participants or the Issuing Bank as a result of any judgment of a court of competent jurisdiction obtained by any Participant or the Issuing Bank against such Defaulting Participant as a result of such Defaulting Participant’s breach of its obligations under this Agreement; sixth, so long as no Default or Event of Default exists, to the payment of any amounts owing to the Company as a result of any judgment of a court of competent jurisdiction obtained by the Company against such Defaulting Participant as a result of such Defaulting Participant’s breach of its obligations under this Agreement; and seventh, to such Defaulting Participant or as otherwise directed by a court of competent jurisdiction; provided that if (x) such payment is a payment of the principal amount of any L/C Disbursements (or any participation therein) in respect of which such Defaulting Participant has not fully funded its appropriate share, and (y) such Letters of Credit were issued at a time when the conditions set forth in Section 4.02 were satisfied or waived, such payment shall be applied solely to pay the L/C Disbursements owed to all Non-Defaulting Participants on a pro rata basis prior to being applied to the payment of any L/C Disbursements (or participations therein) owed to, such Defaulting Participant until such time as unfunded participations in L/C Obligations are held by the Participants pro rata in accordance with the Commitments under the Facility without giving effect to Section 2.12(a)(iv). Any payments, prepayments or other amounts paid or payable to a Defaulting Participant that are applied (or held) to pay amounts owed by a Defaulting Participant or to post Cash Collateral pursuant to this Section 2.12(a)(ii) shall be deemed paid to and redirected by such Defaulting Participant, and each Participant irrevocably consents hereto.

(iii) (A) No Defaulting Participant shall be entitled to receive any Commitment Fee for any period during which that Participant is a Defaulting Participant (and the Company shall not be required to pay any such fee that otherwise would have been required to have been paid to that Defaulting Participant), (B) each Defaulting Participant shall be entitled to receive L/C Participation Fees for any period during which that Participant is a Defaulting Participant only to the extent allocable to its Pro Rata Percentage of the L/C Exposure for which it has provided Cash Collateral pursuant to Section 2.13 and (C) with respect to any other fees not required to be paid to any Defaulting Participant pursuant to clause (A) or (B) above, the Company shall (x) pay to each Non-Defaulting Participant that portion of any such fee otherwise payable to such Defaulting Participant with respect to such Defaulting Participant’s participation in L/C Exposure that has been reallocated to such Non-Defaulting Participant pursuant to clause (iv) below, (y) pay to the Issuing Bank, the amount of any such fee otherwise payable to such Defaulting Participant to the extent allocable to the Issuing Bank’s Fronting Exposure to such Defaulting Participant, and (z) not be required to pay the remaining amount of any such fee.

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(iv) All or any part of such Defaulting Participant’s participation in L/C Exposure shall be reallocated among the Non-Defaulting Participants in accordance with their respective Pro Rata Percentages (calculated without regard to such Defaulting Participant’s Commitment) but only to the extent that (x) the conditions set forth in Section 4.02 are satisfied at the time of such reallocation (and, unless the Company shall have otherwise notified the Administrative Agent at such time, the Company shall be deemed to have represented and warranted that such conditions are satisfied at such time), and (y) such reallocation does not cause the aggregate L/C Exposure of any Non-Defaulting Participant to exceed such Non-Defaulting Participant’s Commitment. No reallocation hereunder shall constitute a waiver or release of any claim of any party hereunder against a Defaulting Participant arising from that Participant having become a Defaulting Participant, including any claim of a Non-Defaulting Participant as a result of such Non-Defaulting Participant’s increased exposure following such reallocation.

(v) If the reallocation described in clause (iv) above cannot, or can only partially, be effected, the Company shall, without prejudice to any right or remedy available to it hereunder or under law, Cash Collateralize the Issuing Bank’s Fronting Exposure in accordance with the procedures set forth in Section 2.13.

(b) If the Company, the Administrative Agent and the Issuing Bank agree in writing that a Participant is no longer a Defaulting Participant, the Administrative Agent will so notify the parties hereto, whereupon as of the effective date specified in such notice and subject to any conditions set forth therein (which may include arrangements with respect to any Cash Collateral), that Participant will, to the extent applicable, purchase at par that portion of participations of the other Participants or take such other actions as the Administrative Agent may determine to be necessary to cause the funded and unfunded participations in Letters of Credit to be held pro rata by the Participants in accordance with the Commitments hereunder (without giving effect to Section 2.12(a)(iv)), whereupon such Participant will cease to be a Defaulting Participant; provided that no adjustments will be made retroactively with respect to fees accrued or payments made by or on behalf of the Company while that Participant was a Defaulting Participant; and provided, further, that except to the extent otherwise expressly agreed by the affected parties, no change hereunder from Defaulting Participant to Participant will constitute a waiver or release of any claim of any party hereunder arising from that Participant’s having been a Defaulting Participant.

(c) So long as any Participant is a Defaulting Participant, the Issuing Bank shall not be required to issue, extend, renew or increase any Letter of Credit unless it is satisfied that it will have no Fronting Exposure after giving effect thereto.

SECTION 2.13. Cash Collateral. (a)At any time that there shall exist a Defaulting Participant, within one Business Day following the written request of the Administrative Agent or the Issuing Bank (with a copy to the Administrative Agent) the Company shall Cash Collateralize the Issuing Bank’s Fronting Exposure with respect to such Defaulting

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Participant (determined after giving effect to Section 2.12(a)(iv) and any Cash Collateral provided by such Defaulting Participant) in an amount not less than the Minimum Collateral Amount.

(b) The Company, and to the extent provided by any Defaulting Participant, such Defaulting Participant, hereby grants to the Administrative Agent, for the benefit of the Issuing Bank, and agrees to maintain, a security interest in all such Cash Collateral as security for the Defaulting Participants’ obligation to fund participations in respect of L/C Obligations, to be applied pursuant to paragraph (c) below. If at any time the Administrative Agent determines that Cash Collateral is subject to any right or claim of any person other than the Administrative Agent and the Issuing Bank as herein provided (subject to the terms of the Intercreditor Agreement), or that the total amount of such Cash Collateral is less than the Minimum Collateral Amount, the Company will, promptly upon demand by the Administrative Agent, pay or provide to the Administrative Agent additional Cash Collateral in an amount sufficient to eliminate such deficiency (after giving effect to any Cash Collateral provided by the Defaulting Participant).

(c) Notwithstanding anything to the contrary contained in this Agreement, Cash Collateral provided under this Section 2.13 or Section 2.12 in respect of Letters of Credit shall be applied to the satisfaction of the Defaulting Participant’s obligation to fund participations in respect of L/C Exposure (including, as to Cash Collateral provided by a Defaulting Participant, any interest accrued on such obligation) for which the Cash Collateral was so provided, prior to any other application of such property as may otherwise be provided for herein.

(d) Cash Collateral (or the appropriate portion thereof) provided to reduce the Issuing Bank’s Fronting Exposure shall no longer be required to be held as Cash Collateral pursuant to this Section 2.13 following (i) the elimination of the applicable Fronting Exposure (including by the termination of Defaulting Participant status of the applicable Participant), or (ii) the determination by the Administrative Agent and the Issuing Bank that there exists excess Cash Collateral; provided that, subject to Section 2.12 the person providing Cash Collateral and the Issuing Bank may agree that Cash Collateral shall be held to support future anticipated Fronting Exposure or other obligations and provided further that to the extent that such Cash Collateral was provided by the Company, such Cash Collateral shall remain subject to the security interest granted pursuant to the Credit Documents.

ARTICLE III

Representations and Warranties

Each of Shea Corp. and the Company represents and warrants to the Administrative Agent, the Issuing Bank and each of the Participants that:

SECTION 3.01. Organization; Powers. The Company, Shea Corp. and each of the Restricted Subsidiaries (a) is duly organized, validly existing and in good standing

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under the laws of the jurisdiction of its organization, (b) has all requisite power and authority to own its property and assets and to carry on its business as now conducted and as proposed to be conducted, (c) is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required, except where the failure so to qualify could not reasonably be expected to result in a Material Adverse Effect, and (d) has the power and authority to execute, deliver and perform its obligations under each of the Credit Documents and each other agreement or instrument contemplated thereby to which it is or will be a party.

SECTION 3.02. Authorization. The Transactions (a) have been duly authorized by all requisite corporate, limited partnership or limited liability company and, if required, stockholder or equityholder action and (b) will not (i) violate (A) any provision of law, statute, rule or regulation which violations could reasonably be expected to result in a Material Adverse Effect, or of the certificate or articles of incorporation or other constitutive documents or by-laws of the Company, Shea Corp. or any Restricted Subsidiary, (B) any order of any Governmental Authority applicable to the Company, Shea Corp. or any Restricted Subsidiary or (C) any provision of any indenture or other material agreement or instrument to which the Company, Shea Corp. or any Restricted Subsidiary is a party or by which any of them or any of their property is or may be bound, (ii) be in conflict with, result in a breach of or constitute (alone or with notice or lapse of time or both) a default under, or give rise to any right to accelerate or to require the prepayment, repurchase or redemption of any obligation under any such indenture or other material agreement or instrument or (iii) result in the creation or imposition of any Lien upon or with respect to any property or assets now owned or hereafter acquired by the Company, Shea Corp. or any Restricted Subsidiary (other than any Lien created hereunder or under the Security Documents).

SECTION 3.03. Enforceability. This Agreement has been duly executed and delivered by Shea Corp. and the Company and constitutes, and each other Credit Document when executed and delivered by each Credit Party party thereto will constitute, a legal, valid and binding obligation of such Credit Party enforceable against such Credit Party in accordance with its terms, except as such enforceability may be limited by (a) applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors’ rights generally and (b) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

SECTION 3.04. Governmental Approvals. No action, consent or approval of, registration or filing with or any other action by any Governmental Authority is or will be required in connection with the Transactions, except for (a) the filing of Uniform Commercial Code financing statements and filings with the United States Patent and Trademark Office and the United States Copyright Office, (b) recordation of the Mortgages, (c) such as have been made or obtained and are in full force and effect, or that will be made contemporaneously with the Closing Date and (d) such actions, consents, approvals, registrations and filings with the United States Securities and Exchange Commission and other Governmental Authorities as may be necessary or appropriate in connection with the obligations of the Credit Parties under the Note Documents or Credit

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Documents that (i) are not required in connection with the consummation of the Transactions that are to be consummated on the Closing Date and (ii) in the case of the Credit Documents, are reasonably expected to be made or obtained without burdensome conditions or expense within the time required.

SECTION 3.05. Financial Statements. (a)The Company has heretofore furnished to the Participants its consolidated balance sheet and related statements of income, changes in equity and cash flows as of and for the fiscal year ended December 31, 2010, audited by and accompanied by the opinion of Ernst & Young, independent public accountants. Such financial statements fairly present in all material respects the financial condition and results of operations and cash flows of the Company and its consolidated Subsidiaries as of such date and for such period. Such balance sheet and the notes thereto disclose all material liabilities, direct or contingent, of the Company and its consolidated Subsidiaries as of the date thereof, to the extent required by GAAP. Such financial statements were prepared in accordance with GAAP applied on a consistent basis.

(b) The Company has heretofore delivered to the Participants its unaudited pro forma consolidated balance sheet and related pro forma statements of income, stockholder’s equity and cash flows as of December 31, 2010, prepared giving effect to the Transactions as if they had occurred, with respect to such balance sheet, on such date and, with respect to such other financial statements, on the first day of the 12-month period ending on such date. Such pro forma financial statements have been prepared in good faith by the Company, based on the assumptions used to prepare the pro forma financial information contained in the offering documents circulated in connection with the Notes (which assumptions are believed by the Company on the date hereof and on the Closing Date to be reasonable), are based on the best information available to the Company as of the date of delivery thereof, accurately reflect all adjustments required to be made to give effect to the Transactions and present fairly on a pro forma basis the estimated consolidated financial position of the Company and its consolidated Subsidiaries as of such date and for such period, assuming that the Transactions had actually occurred at such date or at the beginning of such period, as the case may be.

SECTION 3.06. No Material Adverse Change. No event, change or condition has occurred that has had, or could reasonably be expected to have, a Material Adverse Effect, since December 31, 2010.

SECTION 3.07. Title to Properties; Possession Under Leases. (a)Each of the Company, Shea Corp. and the Subsidiary Guarantors has good and marketable title to, or valid leasehold interests in, all its material properties and assets (including all Mortgaged Property), except for minor defects in title that do not interfere with its ability to conduct its business as currently conducted or to utilize such properties and assets for their intended purposes. All such material properties and assets are free and clear of Liens, other than Liens expressly permitted by Section 6.05.

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(b) Each of the Company, Shea Corp. and the Subsidiary Guarantors has complied with all obligations under all material leases to which it is a party and all such leases are valid and in full force and effect.

SECTION 3.08. Subsidiaries. Schedule 3.08 sets forth as of the Closing Date a list of all Subsidiaries of the Company and whether such Subsidiary is a Restricted Subsidiary or an Unrestricted Subsidiary. The shares of capital stock or other ownership interests so indicated on Schedule 3.08 are owned by the Company, directly or indirectly, free and clear of all Liens (other than Liens created under the Security Documents or otherwise permitted by Section 6.05).

SECTION 3.09. Litigation; Compliance with Laws. (a)There are no actions, suits or proceedings at law or in equity or by or before any Governmental Authority now pending (other than the CCM Proceeding) or, to the knowledge of Shea Corp. or the Company, threatened against or affecting Shea Corp. or the Company or any Subsidiary or any business, property or rights of any such person (i) that involve any Credit Document or the Transactions or (ii) which could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect.

(b) None of the Company, Shea Corp. or any of the Subsidiaries or any of their respective material properties or assets is in violation of, nor will the continued operation of their material properties and assets as currently conducted violate, any law, rule or regulation (including any zoning, building, Environmental Law, ordinance, code or approval or any building permits) or any restrictions of record or agreements affecting the Mortgaged Property, or is in default with respect to any judgment, writ, injunction, decree or order of any Governmental Authority, where such violation or default could reasonably be expected to result in a Material Adverse Effect.

SECTION 3.10. Agreements. (a)None of the Company, Shea Corp. or any of the Subsidiaries is a party to any agreement or instrument or subject to any corporate restriction that has resulted or could reasonably be expected to result in a Material Adverse Effect.

(b) None of the Company, Shea Corp. or any of the Subsidiaries is in default in any manner under any provision of any indenture or other agreement or instrument evidencing Indebtedness, or any other material agreement or instrument to which it is a party or by which it or any of its properties or assets are or may be bound, where such default could reasonably be expected to result in a Material Adverse Effect.

SECTION 3.11. Federal Reserve Regulations. (a)None of the Company, Shea Corp. or any of the Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of buying or carrying Margin Stock.

(b) No part of the proceeds of any Letter of Credit will be used, whether directly or indirectly, and whether immediately, incidentally or ultimately, for any purpose that

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entails a violation of, or that is inconsistent with, the provisions of the Regulations of the Board, including Regulation T, U or X.

SECTION 3.12. Investment Company Act. None of the Company, Shea Corp. or any Subsidiary is an “investment company” as defined in, or subject to regulation under, the Investment Company Act of 1940.

SECTION 3.13. Use of Proceeds. The Company will request the issuance of Letters of Credit only for the purposes specified in the introductory statement to this Agreement.

SECTION 3.14. Tax Returns. Each of the Company, Shea Corp. and the Restricted Subsidiaries has filed or caused to be filed all Federal and other material tax returns or materials required to have been filed by it in any jurisdiction and has paid or caused to be paid all material taxes due and payable by it, except taxes that are being contested in good faith by appropriate proceedings and for which the Company, Shea Corp. or such Subsidiary, as applicable, shall have set aside on its books adequate reserves.

SECTION 3.15. No Material Misstatements. None of the information, reports, financial statements, exhibits or schedules furnished by or on behalf of Shea Corp. or the Company to the Administrative Agent or any Participant in connection with the negotiation of any Credit Document or included therein or delivered pursuant thereto contained, contains or will contain any material misstatement of fact or omitted, omits or will omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were, are or will be made, not misleading; provided that to the extent any such information, report, financial statement, exhibit or schedule was based upon or constitutes a forecast or projection, each of Shea Corp. and the Company represents only that it acted in good faith on the basis of information and assumptions that the Company believed to be reasonable as of the date such material was prepared (based upon accounting principles consistent with the historical audited financial statements of the Company) and utilized due care in the preparation of such information, report, financial statement, exhibit or schedule (it being understood that the projections are subject to significant uncertainties and contingencies, many of which are beyond the Company’s control, and that no assurance can be given that the projections will be realized).

SECTION 3.16. Employee Benefit Plans. Each of the Company and its ERISA Affiliates is in compliance in all material respects with the applicable provisions of ERISA and the Code and the regulations and published interpretations thereunder. No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events, could reasonably be expected to result in material liability of the Company or any of its ERISA Affiliates. The present value of all benefit liabilities under each Plan (based on the assumptions used for purposes of Accounting Standards Codification Topic 715) did not, as of the last annual valuation date applicable thereto, exceed by more than $1,000,000 the fair market value of the assets of such Plan, and the present value of all benefit liabilities of all underfunded Plans (based on the

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assumptions used for purposes of Accounting Standards Codification Topic 715) did not, as of the last annual valuation dates applicable thereto, exceed by more than $1,000,000 the fair market value of the assets of all such underfunded Plans.

SECTION 3.17. Environmental Matters. (a)Except with respect to any other matters that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, none of the Company, Shea Corp. or any of the Subsidiaries (i) has failed to comply with any Environmental Law or to obtain, maintain or comply with any permit, license or other approval required under any Environmental Law, (ii) has become subject to any Environmental Liability, (iii) has received notice of any claim with respect to any Environmental Liability or (iv) knows of any basis for any Environmental Liability.

(b) Since the date of this Agreement, there has been no change in the status of the matters disclosed on Schedule 3.17 that, individually or in the aggregate, has resulted in, or materially increased the likelihood of, a Material Adverse Effect.

SECTION 3.18. Insurance. Schedule 3.18 sets forth a true, complete and correct description of all insurance maintained by the Company or by the Company for its Restricted Subsidiaries as of the date hereof and the Closing Date. As of each such date, such insurance is in full force and effect and all premiums have been duly paid. The Company and its Restricted Subsidiaries have insurance in such amounts and covering such risks and liabilities as are in accordance with normal industry practice.

SECTION 3.19. Security Documents. (a)The Security Agreement, upon execution and delivery thereof by the parties thereto, will create in favor of the Collateral Agent, for the ratable benefit of the Secured Parties, a legal, valid and enforceable security interest in the Collateral (as defined in the Security Agreement) and the proceeds thereof and (i) when the Pledged Collateral (as defined in the Security Agreement) is delivered to the Collateral Agent, the Lien created under the Security Agreement shall constitute a fully perfected first priority Lien on, and security interest in, all right, title and interest of the Credit Parties in such Pledged Collateral, in each case prior and superior in right to any other person, and (ii) (A) on the Closing Date, when financing statements in appropriate form are filed in the offices specified on Schedule 3.19(a) and (B) at any time after the Closing Date, when financing statements or amendments thereto are filed pursuant to the Security Documents, the Lien created under the Security Agreement will constitute a fully perfected Lien on, and security interest in, all right, title and interest of the Credit Parties in such Collateral (other than Intellectual Property, as defined in the Security Agreement) to the extent the Liens created by the Security Agreement can be perfected by the filing of a financing statement under the Uniform Commercial Code, in each case prior and superior in right to any other Lien, other than with respect to Liens expressly permitted by Section 6.05.

(b) Upon the recordation of the Security Agreement (or a short-form security agreement in form and substance reasonably satisfactory to the Company and the Collateral Agent) with the United States Patent and Trademark Office and the United States Copyright Office, together with the financing statements in appropriate form filed

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in the offices specified on Schedule 3.19(a), (A) on the Closing Date, when such financing statements are filed and (B) at any time after the Closing Date, when financing statements or amendments thereto are filed pursuant to the Security Documents, the Lien created under the Security Agreement shall constitute a fully perfected Lien on, and security interest in, all right, title and interest of the Credit Parties in the Intellectual Property (as defined in the Security Agreement) in which a security interest may be perfected by filing in the United States and its territories and possessions, in each case prior and superior in right to any other Lien (other than the Liens expressly permitted by Section 6.05) (it being understood that subsequent recordings in the United States Patent and Trademark Office and the United States Copyright Office may be necessary to perfect a Lien on registered trademarks and patents, trademark and patent applications and registered copyrights acquired by the Credit Parties after the date hereof).

(c) The Mortgages (upon recordation thereof) are effective to create in favor of the Collateral Agent, for the ratable benefit of the Secured Parties, a legal, valid and enforceable Lien on all of the Credit Parties’ right, title and interest in and to the Mortgaged Property thereunder and the proceeds thereof, and when the Mortgages are filed in the offices specified on Schedule 3.19(c), the Mortgages shall constitute a fully perfected Lien on, and security interest in, all right, title and interest of the Credit Parties in such Mortgaged Property and the proceeds thereof, in each case prior and superior in right to any other person, other than with respect to the rights of persons pursuant to Liens expressly permitted by Section 6.05.

(d) Each Control Agreement, upon execution and delivery thereof by the parties thereto and the taking of the other actions provided for therein, will constitute a fully perfected security interest in all right, title and interest of the Credit Parties in the Collateral subject thereto, prior and superior to the rights of any other Person, except for rights secured by Liens permitted under Section 6.05.

SECTION 3.20. Location of Real Property and Leased Premises. (a) Schedule 3.20(a) lists completely and correctly as of the Closing Date all real property owned by the Company and the Subsidiary Guarantors which shall comprise part of the Collateral and the addresses thereof, other than any Properties that are not material to the operations of the Company and the Subsidiary Guarantors, including, without limitation, reserved mineral rights, reserved easements, deed restrictions, strips, gores and open space and other similar immaterial real property interests. As of the Closing Date, the Company and the Subsidiary Guarantors own in fee all the real property set forth on Schedule 3.20(a).

(b) Schedule 3.20(b) lists completely and correctly as of the Closing Date all real property leased by the Company and the Subsidiary Guarantors and the addresses thereof other than leases of de minimis real property that are not material, individually or in the aggregate, to the operations of the Company and the Restricted Subsidiaries. As of the Closing Date, the Company and the Subsidiary Guarantors have valid leases in all the real property set forth on Schedule 3.20(b).

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SECTION 3.21. Labor Matters. As of the date hereof and the Closing Date, there are no strikes, lockouts or slowdowns against the Company, Shea Corp. or any Restricted Subsidiary pending or, to the knowledge of Shea Corp. or the Company, threatened. The hours worked by and payments made to employees of the Company, Shea Corp. and the Restricted Subsidiaries have not been in violation of the Fair Labor Standards Act or any other applicable Federal, state, local or foreign law dealing with such matters. All payments due from the Company, Shea Corp. or any Restricted Subsidiary, or for which any claim may be made against the Company, Shea Corp. or any Restricted Subsidiary, on account of wages and employee health and welfare insurance and other benefits, have been paid or accrued as a liability on the books of the Company, Shea Corp. or such Restricted Subsidiary. The consummation of the Transactions will not give rise to any right of termination or right of renegotiation on the part of any union under any collective bargaining agreement to which the Company, Shea Corp. or any Restricted Subsidiary is bound.

SECTION 3.22. Solvency. Immediately after the consummation of the Transactions to occur on the Closing Date and immediately following the issuance of each Letter of Credit, (a) the fair value of the consolidated assets of the Credit Parties, at a fair valuation, will exceed their consolidated debts and liabilities, subordinated, contingent or otherwise; (b) the present fair saleable value of the consolidated properties of the Credit Parties will be greater than the amount that will be required to pay the probable liability of their debts and other liabilities, subordinated, contingent or otherwise, as such debts and other liabilities become absolute and matured; (c) the Credit Parties will be able to pay their debts and liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured; and (d) the Credit Parties will not have unreasonably small capital with which to conduct the business in which they are engaged as such business is now conducted and is proposed to be conducted following the Closing Date.

SECTION 3.23. Pari-Passu Indebtedness. The Obligations constitute “Pari-Passu Lien Obligations” under and as defined in the Note Documents.

SECTION 3.24. Sanctioned Persons. None of the Company, Shea Corp. or any Subsidiary nor, to the knowledge of the Company, any director, officer, agent, employee or Affiliate of the Company, Shea Corp. or any Subsidiary is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department (“OFAC”); and the Company will not directly or indirectly use the proceeds of the Letters of Credit or otherwise make available such proceeds to any person, for the purpose of financing the activities of any person currently subject to any U.S. sanctions administered by OFAC.

ARTICLE IV

Conditions of Lending

The obligations of the Issuing Bank to issue Letters of Credit hereunder are subject to the satisfaction of the following conditions:

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SECTION 4.01. All Credit Events. On the date of each issuance, amendment, extension or renewal of a Letter of Credit (each such event being called a “Credit Event”):

(a) The Issuing Bank and the Administrative Agent shall have received a notice requesting the issuance, amendment, extension or renewal of such Letter of Credit as required by Section 2.01(b).

(b) The representations and warranties set forth in Article III and in each other Credit Document shall be true and correct in all material respects on and as of the date of such Credit Event with the same effect as though made on and as of such date, except to the extent such representations and warranties expressly relate to an earlier date.

(c) At the time of and immediately after such Credit Event, no Default or Event of Default shall have occurred and be continuing.

Each Credit Event shall be deemed to constitute a representation and warranty by the Company and Shea Corp. on the date of such Credit Event as to the matters specified in paragraphs (b) and (c) of this Section 4.01.

SECTION 4.02. First Credit Event. On the Closing Date:

(a) The Administrative Agent shall have received, on behalf of itself, the Participants and the Issuing Bank, a favorable written opinion of (i) Gibson, Dunn & Crutcher, counsel for Shea Corp. and the Company in form and substance reasonably satisfactory to the Administrative Agent, and (ii) each local counsel listed on Schedule 4.02(a), in form and substance reasonably satisfactory to the Administrative Agent, in each case (A) dated the Closing Date, (B) addressed to the Issuing Bank, the Administrative Agent and the Participants, and (C) covering such matters relating to the Credit Documents and the Transactions as the Administrative Agent shall reasonably request, and Shea Corp. and the Company hereby request such counsel to deliver such opinions.

(b) All legal matters incident to this Agreement and extensions of credit hereunder and the other Credit Documents shall be satisfactory to the Participants, to the Issuing Bank and to the Administrative Agent.

(c) The Administrative Agent shall have received (i) a copy of the certificate or articles of incorporation, including all amendments thereto, of each Credit Party, certified as of a recent date by the Secretary of State of the state of its organization, and a certificate as to the good standing of each Credit Party as of a recent date, from such Secretary of State; (ii) a certificate of the Secretary or Assistant Secretary of each Credit Party dated the Closing Date and certifying (A) that attached thereto is a true and complete copy of the by-laws of such Credit Party as in effect on the Closing Date and at all times since a date prior to the date of the resolutions described in clause (B) below, (B) that attached thereto is a true and complete copy of resolutions duly adopted by the Board of Directors of such Credit Party authorizing the execution, delivery and performance of the Credit Documents to which such person is a party and that such

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resolutions have not been modified, rescinded or amended and are in full force and effect, (C) that the certificate or articles of incorporation of such Credit Party have not been amended since the date of the last amendment thereto shown on the certificate of good standing furnished pursuant to clause (i) above, and (D) as to the incumbency and specimen signature of each officer executing any Credit Document or any other document delivered in connection herewith on behalf of such Credit Party; (iii) a certificate of another officer as to the incumbency and specimen signature of the Secretary or Assistant Secretary executing the certificate pursuant to clause (ii) above; and (iv) such other documents as the Participants, the Issuing Bank or the Administrative Agent may reasonably request.

(d) The Administrative Agent shall have received a certificate, dated the Closing Date and signed by a Financial Officer of the Company, confirming compliance with the conditions precedent set forth in paragraphs (b) and (c) of Section 4.01.

(e) The Administrative Agent shall have received all Fees and other amounts due and payable on or prior to the Closing Date, including, to the extent invoiced, reimbursement or payment of all out-of-pocket expenses required to be reimbursed or paid by the Company hereunder or under any other Credit Document.

(f) The Security Agreement shall have been duly executed by each Credit Party that is to be a party thereto and shall be in full force and effect on the Closing Date. The Collateral Agent shall have received all documents and instruments (including UCC financing statements) necessary or appropriate to be filed or recorded in order to perfect the security interest under the Security Documents (except as expressly set forth with respect to the Mortgaged Property) and except in the case of any security interests in the Collateral (as defined in the Security Agreement) that can be perfected solely by possession.

(g) The Intercreditor Agreement shall have been duly executed by the Company, the Administrative Agent, the Collateral Agent and the other parties thereto and shall be in full force and effect on the Closing Date.

(h) The Collateral Agent shall have received a Perfection Certificate with respect to the Credit Parties dated the Closing Date and duly executed by a Responsible Officer of the Company, and shall have received the results of a search of the Uniform Commercial Code filings (or equivalent filings) made with respect to the Credit Parties in the states (or other jurisdictions) of formation of such persons, in which the chief executive office of each such person is located and in the other jurisdictions in which such persons maintains material Equipment (as defined in the Security Agreement) or other Collateral, in each case as indicated on such Perfection Certificate, together with copies of the financing statements (or similar documents) disclosed by such search, and accompanied by evidence satisfactory to the Collateral Agent that the Liens indicated in any such financing statement (or similar document) would be permitted under Section 6.05 or have been or will be contemporaneously released or terminated.

(i) [Reserved].

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(j) The Administrative Agent shall have received a copy of, or a certificate as to coverage under, the insurance policies required by Section 5.04 and the applicable provisions of the Security Documents, each of which shall be endorsed or otherwise amended to include a customary lender’s loss payable endorsement and to name the Collateral Agent as additional insured, in form and substance satisfactory to the Administrative Agent.

(k) Shea Corp. and the Company shall have received gross cash proceeds of not less than $750,000,000 from the issuance of the Notes. The Administrative Agent shall have received copies of the Note Documents, certified by a Financial Officer as being complete and correct.

(l) The Company and the Subsidiary Guarantors shall have received at least $121,000,000 (at least $75,000,000 of which shall be in cash) on account of receivables due from certain of its affiliates.

(m) All principal, premium, if any, interest, fees and other amounts due or outstanding under the Existing Credit Agreement shall have been paid in full, the commitments thereunder terminated and all guarantees and security in support thereof discharged and released (or, in the case of existing mortgages, provisions satisfactory to the Administrative Agent shall have been made), and the Administrative Agent shall have received reasonably satisfactory evidence thereof. Immediately after giving effect to the Transactions and the other transactions contemplated hereby, the Company, Shea Corp. and the Subsidiaries shall have outstanding no Indebtedness or preferred stock other than (a) Indebtedness outstanding under this Agreement, (b) the Notes and (c) Indebtedness described in the offering documents relating to the Notes.

(n) The Participants shall have received, to the extent requested, all documentation and other information required by regulatory authorities under applicable “know your customer” and anti-money laundering rules and regulations, including the USA PATRIOT Act.

ARTICLE V

Affirmative Covenants

Each of Shea Corp. and the Company covenants and agrees with each Participant that so long as this Agreement shall remain in effect and until the Commitments have been terminated, all Fees and all other expenses or amounts payable under any Credit Document shall have been paid in full and all Letters of Credit have been canceled or have expired and all amounts drawn thereunder have been reimbursed in full, unless the Required Participants shall otherwise consent in writing, each of Shea Corp. and the Company will, and will cause each of the Restricted Subsidiaries to:

SECTION 5.01. Existence; Rights. Do or cause to be done all things necessary to preserve and keep in full force and effect their existence in accordance with their respective organizational documents, and the material rights, licenses and franchises of

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the Company and Shea Corp. and each Restricted Subsidiary; provided, however, that neither the Company nor Shea Corp. are required to preserve any such right, license or franchise, nor the existence of any Restricted Subsidiary, if the maintenance or preservation thereof is no longer desirable in the conduct of the business of the Company and its Restricted Subsidiaries taken as a whole; and provided further, however, that this Section 5.01 not prohibit any transaction otherwise permitted by Section 6.04 or Section 6.08.

SECTION 5.02. Financial Statements, Reports, etc. In the case of the Company, furnish to the Administrative Agent, which shall furnish to each Participant:

(a) (i) the description of the business of the Company and all quarterly and annual financial information that would be required to be contained in a filing with the SEC on Forms 10-Q and 10-K if the Company were required to file such Forms, including a “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and (ii) all current reports that would be required to be filed with the United States Securities and Exchange Commission on Form 8-K if the Company were required to file such reports.

(b) (i) concurrently with any delivery of financial statements under paragraph (a) above, a certificate of the accounting firm (with respect to annual financial statements) or Financial Officer (with respect to quarterly financial statements) opining on or certifying such statements (which certificate, when furnished by an accounting firm, may be limited to accounting matters and disclaim responsibility for legal interpretations), certifying that no Default or Event of Default has occurred or, if such Default or Event of Default has occurred, specifying the nature and extent thereof and any corrective action taken or proposed to be taken with respect thereto and (ii) concurrently with the delivery of annual financial statements and financial statements for the second fiscal quarter period under paragraph (a) above, a certificate executed by the chief legal officer of the Company (x) setting forth a list of all Property owned by the Company or any Subsidiary that, to such officer’s knowledge based upon reasonable inquiry, is located in a designated “flood hazard area” in any Flood Insurance Rate Map published by the Federal Emergency Management Agency (or any successor agency) and (y) certifying that no Material Adverse Effect could reasonably be expected to arise from the classification of the location of such Properties as “flood hazard areas”.

(c) promptly after the request by any Participant, all documentation and other information that such Participant reasonably requests in order to comply with its ongoing obligations under applicable “know your customer” and anti-money laundering rules and regulations, including the USA PATRIOT Act;

(d) promptly after the request by the Administrative Agent or any Participant, copies of (i) any documents described in Section 101(k)(1) of ERISA that the Company or any of its ERISA Affiliates may request with respect to any Multiemployer Plan and (ii) any notices described in Section 101(l)(1) of ERISA that the Company or any of its ERISA Affiliates may request with respect to any Multiemployer Plan; provided that if the Company or any of its ERISA Affiliates has not requested such documents or notices

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from the administrator or sponsor of the applicable Multiemployer Plan, the Company or the applicable ERISA Affiliate shall promptly make a request for such documents or notices from such administrator or sponsor and shall provide copies of such documents and notices promptly after receipt thereof; and

(e) promptly, from time to time, such other information regarding the operations, business affairs and financial condition of the Company, Shea Corp. or any Subsidiary, or compliance with the terms of any Credit Document, as the Administrative Agent or any Participant may reasonably request.

SECTION 5.03. Properties. Do or cause to be done all things necessary to at all times maintain and preserve all property material to the conduct of its business and keep such property in good repair, working order and condition and from time to time make, or cause to be made, all needful and proper repairs, renewals, additions, improvements and replacements thereto necessary in order that the business carried on in connection therewith may be properly conducted at all times.

SECTION 5.04. Insurance. (a)Keep its insurable properties adequately insured at all times by financially sound and reputable insurers (including co-insurance and self-insurance); maintain such other insurance, to such extent (including co-insurance and self-insurance) and against such risks, including fire and other risks insured against by extended coverage, as is customary with companies in the same or similar businesses operating in the same or similar locations, including public liability insurance against claims for personal injury or death or property damage occurring upon, in, about or in connection with the use of any properties owned, occupied or controlled by it; and maintain such other insurance as may be required by law.

(b) With respect to any Mortgaged Property, carry and maintain comprehensive general liability insurance including the “broad form CGL endorsement” and coverage on an occurrence basis against claims made for personal injury (including bodily injury, death and property damage) and umbrella liability insurance against any and all claims, naming the Collateral Agent as an additional insured, on forms satisfactory to the Administrative Agent.

SECTION 5.05. Further Assurances; Information Regarding Collateral. (a) Cause each wholly-owned Restricted Subsidiary (other than any wholly-owned Subsidiary that is prohibited from becoming a Guarantor as a result of any requirement of law, rule or regulation binding on such Subsidiary or as a result of an existing contractual limitation where a waiver is not reasonably able to be obtained) that incurs any Indebtedness to, and any other person that guarantees the Notes to, contemporaneously, (i) execute and deliver to the Administrative Agent a supplement in the form of Exhibit F pursuant to which such Restricted Subsidiary or person will guarantee payment of the Obligations on the same terms and conditions as those set forth herein and applicable to the other Guarantors in accordance with Section 10.08 and (ii) execute and deliver an amendment, supplement or other instrument in respect of the Security Documents necessary to cause such Restricted Subsidiary or person to become a grantor thereunder and take all action required thereunder to perfect the Liens created thereunder, as well as

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to execute and deliver to the Collateral Agent and Administrative Agent joinders to the Intercreditor Agreement, in each case at the time such person becomes a Restricted Subsidiary, guarantees the Notes, or Guarantees any such other Indebtedness, as applicable.

(b) On the Closing Date, the Company, Shea Corp. and each Guarantor shall grant Liens on all their Property (other than Excluded Property) and take all appropriate steps to cause such Liens to be perfected Liens (subject to Liens permitted pursuant to Section 6.05), including through recordation of Mortgages, entry into control agreements, filing of UCC-1 financing statements or otherwise, pursuant to, and to the extent required by, the Security Documents to be entered into on the Closing Date and this Agreement. In addition, the Company shall provide a Title Policy to the Collateral Agent with respect to each Mortgage granted pursuant to this Section 5.05 and the real property described in such Mortgage. For the avoidance of doubt, the requirements of this Section 5.05(b) are subject to Section 5.05(e) below.

(c) If any of the Company, Shea Corp., or the Guarantors at any time grants, assumes, perfects or becomes subject to any Lien upon any of its Property (other than Excluded Property) then owned or thereafter acquired as security for any other Pari-Passu Lien Obligation, the Company or Shea Corp. will, or will cause such Guarantor to, as promptly as practical (subject to Section 5.05(e) below):

(i) grant a Lien on such Property to the Collateral Agent for the benefit of the Secured Parties and, to the extent such grant would require the execution and delivery of a Security Document, the Company, Shea Corp. or such Guarantor shall execute and deliver a Security Document on substantially the same terms as the agreement or instrument executed and delivered to secure such other Pari-Passu Lien Obligations;

(ii) cause the Lien granted in such Security Document to be duly perfected in any manner permitted by law to the same extent as the Liens granted for the benefit of such other Pari-Passu Lien Obligations are perfected; and

(iii) instruct the Collateral Agent to take all action necessary in connection with the foregoing provisions of this Section 5.05(c), including as necessary under the Security Documents.

(d) If the Company, Shea Corp. or any Guarantor at any time after the Closing Date acquires any new Property (other than Excluded Property) that is not automatically subject to a Lien under the Security Documents, or a Restricted Subsidiary becomes a Guarantor, the Company or Shea Corp. will, or will cause such Guarantor, subject to the requirements of the Security Documents, to as soon as practical after such Property’s acquisition or it no longer being Excluded Property (subject to the provisions of Section 5.05(e)):

(i) grant a Lien on such Property (or, in the case of a new Guarantor, all its assets except Excluded Property) to the Collateral Agent for the benefit of the

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Secured Parties (and, to the extent such grant would require the execution and delivery of a Security Document, the Company, Shea Corp. or such Guarantor shall execute and deliver a Security Document on substantially the same terms as the Security Documents executed and delivered on the Closing Date);

(ii) cause the Lien granted in such Security Document to be duly perfected in any manner permitted by law to the same extent as the Liens granted on the Closing Date are perfected (including, in the case of real property, through the recordation of Mortgages); and

(iii) instruct the Collateral Agent to take all action necessary in connection with the foregoing provisions of this paragraph including as necessary under the Security Documents.

(e) The Company shall deliver a favorable written opinion of counsel to the Administrative Agent and the Collateral Agent in respect of any Lien grant referred to by the foregoing provisions of this paragraph by a new Guarantor or with respect to real property, addressing customary matters (and containing customary exceptions) consistent with the opinion of counsel delivered on the Closing Date pursuant to Section 4.02(a), or within 90 days after the Closing Date in accordance with Section 5.05(e) below, in respect of such matters; provided, however, that an opinion of counsel shall not be required with respect to any Mortgage on real property located in a jurisdiction for which an opinion of counsel has been previously delivered to the Administrative Agent pursuant to this Agreement. In addition, the Company shall provide a Title Policy to the Collateral Agent with respect to each Mortgage granted pursuant to this Section 5.05(d) and the real property described in such Mortgage.

(f) Notwithstanding anything to the contrary set forth in this Section 5.05 or elsewhere in this Agreement or any Security Document, any Mortgages (and any related Security Documents) required to be granted pursuant to this Agreement or the Security Documents with respect to real property owned by the Company, Shea Corp. or a Guarantor on the Closing Date shall be granted, together with opinions of counsel delivered to the Administrative Agent in respect of the enforceability and validity of such Mortgages and Title Policies to the Collateral Agent with respect to each Mortgage granted pursuant to this Section 5.05 and the real property described in such Mortgage, as soon as commercially reasonable following the Closing Date, but in no event later than 90 days following the Closing Date.

(g) The Company and Shea Corp. will bear and pay all legal expenses, filing fees, insurance premiums and other costs associated with the performance of the obligations of the Company, Shea Corp. and the Guarantors set forth in this Section 5.05 and will also pay or reimburse the Administrative Agent and Collateral Agent for all reasonable out-of-pocket expenses, disbursements and advances incurred or made by the Administrative Agent and Collateral Agent in connection therewith, including the reasonable compensation and expenses of the Administrative Agent’s and Collateral Agent’s agents and counsel.

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(h) None of the Company, Shea Corp. nor any of the Guarantors will be permitted to take any action, or knowingly or negligently omit to take any action, which action or omission would reasonably be expected to materially impair the security interest with respect to the Collateral for the benefit of the Secured Parties.

(i) Notwithstanding anything else herein, in no event shall the Obligations be secured by a security interest in any Property located in a designated “flood hazard area” in any Flood Insurance Rate Map published by the Federal Emergency Management Agency (or any successor agency) for the duration of such designation. If and when such Property is no longer located in a designated “flood hazard area” in any Flood Insurance Rate Map published by the Federal Emergency Management Agency (or any successor agency), such Property shall, automatically and without any further action on the part of the Collateral Agent or the Company, secure the Obligations.

SECTION 5.06. [Reserved].

SECTION 5.07. Performance of Obligations and Payment of Taxes. Pay its Indebtedness and other obligations promptly and in accordance with their terms and pay and discharge promptly when due all material taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits in respect of its property, before the same shall become delinquent or in default, as well as all material lawful claims for labor, materials and supplies or otherwise that, if unpaid, might give rise to a Lien upon such properties or any part thereof; provided, however, that such payment and discharge shall not be required with respect to any such tax, assessment, charge, levy or claim so long as the validity or amount thereof shall be contested in good faith by appropriate proceedings and the Company shall have set aside on its books adequate reserves with respect thereto in accordance with GAAP and such contest operates to suspend collection of the contested obligation, assessment or charge and enforcement of a Lien and, in the case of a Mortgaged Property, there is no risk of forfeiture of such property.

SECTION 5.08. Litigation and Other Notices. Furnish to the Administrative Agent, the Issuing Bank and each Participant prompt written notice of the following:

(a) any Event of Default or Default, specifying the nature and extent thereof and the corrective action (if any) taken or proposed to be taken with respect thereto;

(b) the filing or commencement of, or any threat or notice of intention of any person to file or commence, any action, suit or proceeding, whether at law or in equity or by or before any Governmental Authority, against the Company or any Affiliate thereof that could reasonably be expected to result in a Material Adverse Effect;

(c) the occurrence of any ERISA Event that, alone or together with any other ERISA Events that have occurred, could reasonably be expected to result in liability of the Company and the Restricted Subsidiaries in an aggregate amount exceeding $2,000,000; and

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(d) any development that has resulted in, or could reasonably be expected to result in, a Material Adverse Effect.

SECTION 5.09. Compliance with Laws. Except where the failure to do, cause or comply with any of the following could not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect: do or cause to be done all things necessary to obtain, preserve, renew, extend and keep in full force and effect the rights, licenses, permits, franchises, authorizations, patents, copyrights, trademarks and trade names material to the conduct of its business; maintain and operate such business in substantially the manner in which it is presently conducted and operated; comply in all material respects with all applicable laws, rules, regulations and decrees and orders of any Governmental Authority, whether now in effect or hereafter enacted; and at all times maintain and preserve all property material to the conduct of such business and keep such property in good repair, working order and condition and from time to time make, or cause to be made, all needful and proper repairs, renewals, additions, improvements and replacements thereto necessary in order that the business carried on in connection therewith may be properly conducted at all times.

SECTION 5.10. Subsidiaries. (a)Subject to the requirements in the definition of “Unrestricted Subsidiary”, the board of directors of the Company or a duly authorized committee thereof may designate any Subsidiary to be an Unrestricted Subsidiary; provided, however, that (a) the net amount (the “Designation Amount”) then outstanding of all previous Investments by the Company and the Restricted Subsidiaries in such Subsidiary and its Subsidiaries will be deemed to be a Restricted Payment at the time of such designation and will reduce the amount available for Restricted Payments under Section 6.02, to the extent provided therein, (b) the Company must be permitted under Section 6.02 to make the Restricted Payment deemed to have been made pursuant to clause (a), and (c) after giving effect to such designation, no Default or Event of Default shall have occurred or be continuing. In accordance with the foregoing, and not in limitation thereof, Investments made by any person in any subsidiary of such person prior to such person’s merger with the Company or any Restricted Subsidiary (but not in contemplation or anticipation of such merger) shall not be counted as an Investment by the Company or such Restricted Subsidiary if such subsidiary of such person is designated as an Unrestricted Subsidiary.

(b) The board of directors of the Company or a duly authorized committee thereof may also redesignate an Unrestricted Subsidiary to be a Restricted Subsidiary; provided, however, that (1) the Indebtedness of such Unrestricted Subsidiary as of the date of such redesignation could then be incurred under Section 6.01 and (2) immediately after giving effect to such redesignation and the incurrence of any such additional Indebtedness, the Company and the Restricted Subsidiaries could incur $1.00 of additional Coverage Indebtedness in accordance with Section 6.01

(c) Any such designation or redesignation by the G board of directors of the Company or a committee thereof will be evidenced to the Administrative Agent by the filing with the Administrative Agent of a certified copy of the resolution of the board of directors of the Company or a committee thereof giving effect to such designation or

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redesignation and an Officers’ Certificate certifying that such designation or redesignation complied with the foregoing conditions and setting forth the underlying calculations of such Officers’ Certificate. The designation of any person as an Unrestricted Subsidiary shall be deemed to include a designation of all subsidiaries of such person as Unrestricted Subsidiaries.

ARTICLE VI

Negative Covenants

Each of Shea Corp. and the Company covenants and agrees with each Participant that, so long as this Agreement shall remain in effect and until the Commitments have been terminated, all Fees and all other expenses or amounts payable under any Credit Document have been paid in full and all Letters of Credit have been canceled or have expired and all amounts drawn thereunder have been reimbursed in full, unless the Required Participants shall otherwise consent in writing, neither Shea Corp. nor the Company will, nor will they cause or permit any of the Restricted Subsidiaries to:

SECTION 6.01. Indebtedness. Incur, create, assume, become liable for or guarantee the payment of any Indebtedness (including Acquired Indebtedness) unless, immediately after giving effect thereto and the application of the proceeds therefrom, the Consolidated Fixed Charge Coverage Ratio on the date thereof would be at least 2.0 to 1.0 (such Indebtedness, “Coverage Indebtedness”), except:

(a) Indebtedness existing on the date hereof and set forth in Schedule 6.01 (after giving effect to the anticipated use of proceeds from the issuance and sale of the Notes) but not any extensions, renewals or replacements of such Indebtedness;

(b) Indebtedness created hereunder and under the other Credit Documents;

(c) Indebtedness with respect to the Notes (and Exchange Notes) and Guarantees thereof, other than Additional Notes;

(d) Indebtedness owed to and held by the Company, Shea Corp. or a Restricted Subsidiary; provided that (A) any subsequent issuance or transfer of any Equity Interests which results in any such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any subsequent transfer of such Indebtedness (other than to the Company, Shea Corp. or a Restricted Subsidiary) shall be deemed, in each case, to constitute the incurrence of such Indebtedness by the obligor thereon and (B) if the Company or Shea Corp. is the obligor on such Indebtedness, such Indebtedness is expressly subordinated to the prior payment in full in cash of all obligations with respect to the Notes and the Obligations;

(e) Indebtedness of the Company or any Restricted Subsidiary under any Interest Protection Agreements in a notional amount no greater than the outstanding principal amount (at the time the related Interest Protection Agreement is entered into) of the Indebtedness being hedged;

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(f) Indebtedness of the Company or any Restricted Subsidiary incurred to finance the acquisition of equipment and fixtures or other property; provided that the aggregate principal amount of Indebtedness permitted by this Section 6.01(f), when combined with the aggregate principal amount of all Capital Lease Obligations incurred pursuant to Section 6.01(g), shall not exceed $10,000,000 (including all Refinancing Indebtedness, but excluding any obligations that would not be required to be classified or accounted for as Capital Lease Obligations in accordance with GAAP as of March 31, 2011, without giving effect to any changes therein after the Closing Date) at any time outstanding;

(g) Capital Lease Obligations in an aggregate principal amount, when combined with the aggregate principal amount of all Indebtedness incurred pursuant to Section 6.01(f), not in excess of $10,000,000 (including all Refinancing Indebtedness) at any time outstanding (which amount shall not include any obligations that would not be required to be classified or accounted for as Capital Lease Obligations in accordance with GAAP as of March 31, 2011, without giving effect to any changes therein after the Closing Date);

(h) to the extent a portion of the Notes are redeemed or repurchased and retired, Indebtedness of the Company or any Guarantor in an aggregate amount (including all Refinancing Indebtedness incurred to refinance any Indebtedness incurred pursuant to this Section 6.01(h)) not to exceed the lesser of (x) 75% of the aggregate principal amount of the Notes so redeemed or repurchased and retired and (y) $100,000,000;

(i) all obligations under any arrangement (including (x) adjustments to land purchase price and (y) profit participations) by which future payments are due to the sellers of real property acquired by either the Company, Shea Corp. or any Restricted Subsidiary after a specified period of time following such acquisition or at the time of the subsequent sale of the subject real property, which future payments (i) are based on the subsequent sale price of the subject real property, the allocated costs of developing the subject real property or an amount specified at the time of such acquisition and (ii) may include fixed minimum amounts in respect of such arrangements and true-up payments;

(j) bank overdrafts arising in the ordinary course of business;

(k) obligations under an agreement with any government authority, adjoining (or common masterplan) landowner or seller of real property, in each case entered into in the ordinary course of business in connection with the acquisition of real property, to entitle, develop or construct infrastructure thereupon;

(l) Indebtedness deemed to exist pursuant to the terms of a joint venture agreement as a result of the failure of the Company or any Restricted Subsidiary to make a required capital contribution therein; provided that the only recourse on such Indebtedness is limited to the Company’s or such Restricted Subsidiary’s equity interests in the related joint venture;

(m) obligations relating to, and guarantees and pledges of assets incurred in the ordinary course of business in respect of (x) surety bonds and (y) payments due in respect

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of community facility district, metro-district, mello-roos, subdivision improvement and similar bonding requirements;

(n) repayment guarantees that constitute Investments made pursuant to the JV Basket; provided that, after giving effect to such guarantees, the Company could invest at least $1.00 in a Restricted Investment pursuant to the JV Basket;

(o) Indebtedness that is Non-Recourse Indebtedness with respect to the Company and the Restricted Subsidiaries;

(p) any guarantee by the Company or any Guarantor of any Indebtedness permitted to be incurred hereunder (other than Sections 6.01(l) and (o)); provided that, in the event such Indebtedness that is being guaranteed is subordinated to the Obligations or a Guarantee, as the case may be, then the related guarantee shall be subordinated in right of payment to the Obligations or such Guarantee, as the case may be;

(q) any Indebtedness incurred by Shea Corp. as a co-issuer or co-guarantor of such Indebtedness with the Company;

(r) Refinancing Indebtedness incurred by the Company or any Guarantor in respect of any Coverage Indebtedness or any Indebtedness incurred pursuant to Sections 6.01(a), (c) and (r); and

(s) other Indebtedness of the Company or any Guarantor in an aggregate principal amount not exceeding $25,000,000 at any time outstanding (including any Refinancing Indebtedness thereof).

SECTION 6.02. Restricted Payments. (a)Declare or make, or agree to declare or make, directly or indirectly, any Restricted Payment; provided, however, that a Restricted Payment may be made if (i) no Default or Event of Default shall have occurred and be continuing at the time of or immediately after giving effect to such Restricted Payment, (ii) immediately after giving effect to such Restricted Payment the Company could incur at least $1.00 of Coverage Indebtedness in accordance with Section 6.01 and (iii) immediately after giving effect to such Restricted Payment, the aggregate amount of all Restricted Payments (including the Fair Market Value of any non-cash Restricted Payment) declared or made on or after the Closing Date (other than those Restricted Payments described in clauses (iii) through (xiii) of the next paragraph) does not exceed the sum of:

(i) 50% of the Consolidated Net Income of the Company on a cumulative basis during the period (taken as one accounting period) from and including the first day of the Company’s fiscal quarter during which the Closing Date occurs and ending on the last day of the Company’s fiscal quarter immediately preceding the date of such Restricted Payment (or in the event such Consolidated Net Income shall be a deficit, minus 100% of such deficit), plus

(ii) 100% of the aggregate net cash proceeds of and the Fair Market Value of any property or other asset received by the Company from (1) any capital contribution to the

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Company after the Closing Date or any issue or sale after the Closing Date of any Qualified Equity Interests and (2) the issue or sale after the Closing Date of any Indebtedness or other securities of the Company convertible into or exercisable for Qualified Equity Interests that have been so converted or exercised, plus

(iii) in the case of a distribution on or disposition or repayment of any Restricted Investment, an amount (to the extent not included in the calculation of Consolidated Net Income referred to in (i)) equal to the lesser of (x) the return of capital with respect to such Investment (including by dividend, distribution or sale of Equity Interests) and (y) the amount of such Investment that was treated as a Restricted Payment, in either case, less the cost of the disposition or repayment of such Investment (to the extent not included in the calculation of Consolidated Net Income referred to in (i)), plus

(iv) with respect to any Unrestricted Subsidiary that is redesignated as a Restricted Subsidiary after the Closing Date in accordance with the definition of Unrestricted Subsidiary (so long as the designation of such Subsidiary as an Unrestricted Subsidiary was treated as a Restricted Payment made after the Closing Date, and only to the extent not included in the calculation of Consolidated Net Income referred to in (i)), an amount equal to the lesser of (x) the proportionate interest of the Company or any Restricted Subsidiary in an amount equal to the excess of (I) the total assets of such Unrestricted Subsidiary, valued on an aggregate basis at the lesser of book value and Fair Market Value thereof, over (II) the total liabilities of such Unrestricted Subsidiary, determined in accordance with GAAP, and (y) the Designation Amount at the time of such Unrestricted Subsidiary’s designation as an Unrestricted Subsidiary.

(b) Notwithstanding the foregoing, the Company, Shea Corp. and any Restricted Subsidiary may make, or agree to pay or make, the following Restricted Payments:

(i) the payment of any dividend or redemption of any Equity Interests or Subordinated Indebtedness within 60 days after the date of declaration thereof or call for redemption if, at such date of declaration or call for redemption, such payment or redemption was permitted by the provisions of the preceding paragraph as of the date of declaration and the payment itself will be deemed to have been paid on such date of declaration);

(ii) any Restricted Payment made in exchange for, or out of the net proceeds of the substantially concurrent sale of, Qualified Equity Interests;

(iii) the purchase, repayment, redemption, repurchase, defeasance or other acquisition or retirement for value by the Company of any Subordinated Indebtedness of the Company, Shea Corp. or any Restricted Subsidiary in exchange for, or out of proceeds of, Refinancing Indebtedness incurred as permitted by and in compliance with Section 6.01;

(iv) Restricted Investments after the Closing Date not to exceed an aggregate amount (net of any returns of capital with respect to such Investments (including by dividend, distribution or sale)) of $10,000,000;

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(v) Restricted Investments after the Closing Date in joint ventures not to exceed an aggregate amount (net of any returns of capital with respect to such Investments (including by dividend, distribution or sale)) of $100,000,000; provided, however, that, at the time any such Investment is made, the net book value of the Company’s inventory (including “work-in-progress” inventory, land held for development and land held for sale) and cash securing the Obligations and any other Pari-Passu Lien Obligations is at least 275% of the aggregate principal amount of the Letters of Credit then outstanding plus the aggregate amount of such other Pari-Passu Lien Obligations;

(vi) Restricted Payments made after the Closing Date in respect of Specified Obligations not to exceed $70,000,000; provided, however, that such Restricted Payments may exceed $70,000,000 to the extent that the Company receives a cash equity contribution from JFSCI in the amount of such excess within 10 Business Days following such Restricted Payment;

(vii) Tax Distributions (other than payments with respect to Specified Obligations);

(viii) the purchase, repayment, redemption, repurchase, defeasance or other acquisition or retirement for value of Subordinated Indebtedness of the Company, Shea Corp. or any Restricted Subsidiary with the proceeds of the offering of the Notes;

(ix) the declaration and payment of dividends to holders of any class or series of Disqualified Equity Interests of the Company or any of its Restricted Subsidiaries issued in accordance with and to the extent permitted by Section 6.01; provided, however, that, at the time of payment of such dividend, no Default or Event of Default shall have occurred and be continuing (or result therefrom);

(x) repurchases of Equity Interests deemed to occur upon exercise of equity options or warrants if such Equity Interests represent a portion of the exercise price of such options or warrants;

(xi) Restricted Payments that are made with cash or Cash Equivalents received by the Company as capital contributions to its equity or from the issuance or sale of Qualified Equity Interests of the Company, in each case, after the Closing Date and are designated at such time as an “Excluded Contribution” pursuant to an officer’s certificate delivered by the Company;

(xii) the repurchase, redemption or other acquisition or retirement for value of any Subordinated Indebtedness pursuant to Section 6.04; provided, however, that all Notes tendered by Holders in connection with a Change of Control Offer or Asset Sale Offer (each, as defined in the Indenture), as applicable, have been purchased, redeemed, defeased or acquired for value; or

(xiii) Restricted Investments after the Closing Date in joint ventures (other than amounts expended in respect of Specified Obligations) in an amount not to

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exceed an aggregate amount (net of any returns of capital with respect to such Investments (including by dividend, distribution or sale)) of $70,000,000 (the “JV Payment Basket”);

provided that, for purposes of determining the aggregate and permitted amounts of Restricted Payments made, the amount of any guarantee of any Investment in any person that was initially treated as a Restricted Payment and which was subsequently terminated or expired, net of any amounts paid by the Company, Shea Corp. or any Restricted Subsidiary in respect of such guarantee, shall be deducted.

SECTION 6.03. Transactions with Affiliates. (a)Make any loan, advance, guarantee or capital contribution to, or for the benefit of, or sell, lease, transfer or otherwise dispose of any property or assets to, or for the benefit of, or purchase or lease any property or assets from, or enter into or amend any contract, agreement or understanding with, or for the benefit of (i) any Affiliate of the Company, (ii) any Affiliate of any of the Subsidiaries or (iii) any holder of 10% or more of the common equity of the Company (or Affiliates of such holders) (such persons, collectively “Affiliated Persons” and such transactions, collectively, “Affiliate Transactions”), except that the Company or any Restricted Subsidiary may engage in any of the foregoing transactions in the ordinary course of business at prices and on terms and conditions not less favorable to the Company or such Restricted Subsidiary than could be obtained on an arm’s-length basis from unrelated third parties.

(b) Engage in any Affiliate Transaction (i) in the case of transfers of real property involving more than $10,000,000, unless the consideration paid in respect thereof exceeds the greatest of not less than three Independent Valuations and (ii) in all other cases (A) having a value of more than $2,000,000 unless the terms of such Affiliate Transaction are set forth in writing and a majority of the board of directors of the Company has determined in good faith that the criterion in Section 6.03(a) has been satisfied and (B) having a value of more than $5,000,000 unless the terms of such Affiliate Transaction are set forth in writing and the Company has received a written opinion from an Independent Qualified Party to the effect that such Affiliate Transaction is fair, from a financial standpoint, to the Company and its Restricted Subsidiaries or is not less favorable to the Company and its Restricted Subsidiaries than could reasonably be expected to be obtained at the time in an arm’s-length transaction with a person who is not an Affiliated Person.

(c) Notwithstanding the foregoing, the following transactions shall not be prohibited by this Section 6.03:

(i) any contract, agreement or understanding with, or for the benefit of, or plan for the benefit of, employees of the Company or its Subsidiaries generally (in their capacities as such) that has been approved by the board of directors of the Company,

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(ii) Equity Interests issuances to directors, officers and employees of the Company or its Subsidiaries pursuant to plans approved by the holders of Equity Interests of the Company,

(iii) any Permitted Investment (other than Permitted Investments described in clause (c)(ii) of the definition of “Permitted Investments”) or Restricted Payment permitted pursuant to Section 6.02,

(iv) any transaction between or among the Company and one or more Restricted Subsidiaries or between or among Restricted Subsidiaries; provided, however, no such transaction shall involve any other Affiliate (other than an Unrestricted Subsidiary to the extent the applicable amount constitutes a Restricted Payment permitted by Section 6.02),

(v) any transaction between one or more Restricted Subsidiaries and one or more Unrestricted Subsidiaries where all the payments to, or other benefits conferred upon, such Unrestricted Subsidiaries are substantially contemporaneously issued as a dividend, or otherwise distributed or transferred without charge, to the Company or a Restricted Subsidiary,

(vi) any Affiliate Transactions consummated in accordance with existing written agreements with Affiliates, or entities in which an Affiliate owns an interest, including amendments thereto, that are no more favorable to the Affiliate in any material respect than the existing terms;

(vii) the payment of reasonable and customary fees to, and indemnity provided on behalf of, officers, directors, employees or consultants of Holding, the Company or any Restricted Subsidiary; and

(viii) any transaction with an Affiliate that is a joint venture in which the Company or any Restricted Subsidiary has a direct or indirect equity interest so long as the other joint venture partners not constituting Affiliates of the Company approve the subject transaction.

SECTION 6.04. Limitations on Asset Dispositions. (a)Engage in any Asset Disposition unless (i) the Company, Shea Corp. (or such Restricted Subsidiary, as the case may be) receives consideration at the time of such Asset Disposition at least equal to the Fair Market Value thereof (or at least 90% of the Fair Market Value thereof in the case of a Sale-Leaseback Transaction of a model house) and (ii) not less than 70% of the consideration received by the Company, Shea Corp. (or such Restricted Subsidiary, as the case may be) is in the form of cash, Cash Equivalents and/or securities (such securities (x) in the case of equity securities, that are listed on the New York Stock Exchange, the American Stock Exchange or the Nasdaq Stock Market and (y) in the case of debt securities, that are rated by a nationally recognized rating agency, listed on the New York Stock Exchange or the American Stock Exchange or are covered by at least two reputable market makers); provided that, the amount of (A) any Indebtedness (other than any Subordinated Indebtedness) of any of the Company, Shea Corp. or any Restricted

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Subsidiary that is actually assumed by the transferee in such Asset Disposition (provided that the Company, Shea Corp. or Restricted Subsidiary, as the case may be, making the Asset Disposition is released from its obligations with respect to such Indebtedness), (B) any notes or other obligations received by the Company, Shea Corp. or any Restricted Subsidiary which are immediately converted into cash and (C) the Fair Market Value of any property or other asset (including Equity Interests of any person that will be a Restricted Subsidiary following receipt thereof) received that are used or useful in a Real Estate Business (as defined below) (provided that to the extent that the assets disposed of in such Asset Disposition were Collateral, such property or assets are pledged as Collateral under the Security Documents substantially contemporaneously with such sale, to the extent required to do so pursuant to such Security Documents), shall be deemed to be consideration required by clause (b) above for purposes of determining the percentage of such consideration received by the Company, Shea Corp. or the Restricted Subsidiary.

(b) The net cash proceeds of an Asset Disposition shall, within one year of such Asset Disposition, at the Company’s election, be utilized in a manner permitted under the Note Documents; provided that, if the Company, Shea Corp. or the applicable Restricted Subsidiary do not reinvest the proceeds from such Asset Dispositions as necessary to avoid any requirement to offer to repurchase Notes then, if the cumulative repurchasing of Notes would exceed $50,000,000, the Company shall cash collateralize any then outstanding Letters of Credit (at the Minimum Collateral Amount) and as a condition to the issuance of a Letter of Credit or any increase in the amount of any Letter of Credit thereafter, the Company shall cash collateralize such Letters of Credit so that at all times, the outstanding Letters of Credit are cash collateralized (at the Minimum Collateral Account).

SECTION 6.05. Liens. Create, incur, assume or suffer to exist any Lien on any property or assets (including Equity Interests or other securities or Indebtedness of any person, including the Company or any Restricted Subsidiary) now owned or hereafter acquired by it, except:

(a) Liens for taxes, assessments or governmental or quasi-government charges or claims that (i) are not yet delinquent, (ii) are being contested in compliance with Section 5.07 or (iii) encumber solely property abandoned or in the process of being abandoned;

(b) landlords, carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s, suppliers’ or other Liens arising in the ordinary course of business and securing obligations that are not delinquent or which are being contested in compliance with Section 5.07;

(c) Liens (other than Liens imposed by ERISA) incurred or deposits made in the ordinary course of business in connection with workmen’s compensation, unemployment insurance and other types of social security;

(d) Liens incurred or deposits made to secure the performance of tenders, bids, leases, statutory obligations, surety and appeal bonds, development

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obligations, progress payments, government contracts, utility services, developer’s or other obligations to make on-site or off-site improvements and other obligations of a like nature (other than obligations for the payment of borrowed money), in each case incurred in the ordinary course of business;

(e) attachment or judgment Liens; provided that such Liens do not violate Article VII;

(f) recorded or unrecorded easements, rights-of-way, dedications, covenants, conditions, restrictions, reservations, assessment district or similar Liens in connection with municipal or special district financing, agreements with adjoining landowners or state or local government authorities and other similar charges, burdens and encumbrances which do not, individually or in the aggregate, materially impair the use or development of the assets to which they relate in the ordinary course of business of the Company, Shea Corp. and the Restricted Subsidiaries,

(g) zoning restrictions, licenses, restrictions on use of real property or minor irregularities in title thereto, which do not materially impair the use of such real property in the ordinary course of business of the Company, Shea Corp. or any of the Restricted Subsidiaries;

(h) Liens securing Indebtedness incurred pursuant to Sections 6.01(b), (e) and (h); provided, however, that any such Liens rank pari-passu with the Obligations and such Indebtedness is subject to the Intercreditor Agreement;

(i) Liens securing Indebtedness incurred pursuant to Section 6.01(i); provided, however, that such Liens apply only the property acquired in connection with the incurrence of such Indebtedness and related properties acquired from the same seller;

(j) Liens securing (i) the Notes (other than Additional Notes) and Exchange Notes, the Guarantees thereof, (ii) other obligations under the Notes Documents and (iii) any obligations owing to the trustee or the Collateral Agent under the Indenture, Note Documents or Credit Documents; provided that all such Liens described in this clause (j) also secure the Obligations;

(k) Liens securing Non-Recourse Indebtedness of the Company, Shea Corp. or any Restricted Subsidiary;

(l) Liens securing Indebtedness incurred pursuant to Sections 6.01(f) and (g); provided, however, that such Liens apply only to the property acquired in connection with the incurrence of such Indebtedness within 180 days after such incurrence;

(m) Liens on property or assets of the Company, Shea Corp. or any Restricted Subsidiary securing Indebtedness of the Company, Shea Corp. or any

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Restricted Subsidiary owing to the Company, Shea Corp. or one or more Restricted Subsidiaries;

(n) leases or subleases granted to others not materially interfering with the ordinary course of business of the Company, Shea Corp. and the Restricted Subsidiaries,

(o) any right of first refusal, right of first offer option, contract or other agreement to sell an asset; provided that such sale is not otherwise prohibited under the Note Documents;

(p) any right of a lender or lenders to which the Company, Shea Corp. or a Restricted Subsidiary may be indebted to offset against, or appropriate and apply to the payment of such, Indebtedness any and all balances, credits, deposits, accounts or money of the Company, Shea Corp. or a Restricted Subsidiary with or held by such lender or lenders or its Affiliates;

(q) any pledge or deposit of cash or property in conjunction with obtaining surety, performance, completion or payment bonds and letters of credit or other similar instruments or providing earnest money obligations, escrows or similar purpose undertakings or indemnifications in the ordinary course of business of the Company, Shea Corp. and the Restricted Subsidiaries,

(r) Liens for homeowners and property owner association developments and assessments;

(s) Liens on deposits made in the ordinary course of business as security for the obligations of the Company, Shea Corp. and the Restricted Subsidiaries with respect to indemnification in respect of title insurance providers;

(t) any Lien on any Property of a person existing at the time such person is merged with or into or consolidated with the Company or any Subsidiary of the Company or becomes a Subsidiary of the Company; provided, however, that (i) such Lien was in existence prior to the contemplation of such merger or consolidation or acquisition and (ii) such Lien does not extend to any assets other than those of the person being merged into or consolidated with the Company or the Subsidiary or acquired by the Company or its Subsidiaries;

(u) Liens on specific items of inventory or other goods and proceeds of any person securing such person’s obligations in respect of bankers’ acceptances issued or created for the account of such person to facilitate the purchase, shipment or storage of such inventory or other goods;

(v) Liens incurred in the ordinary course of business to secure (i) profit and price participation arrangements and (ii) fees, taxes and carry costs on, in respect of or owing to governmental issuers (including enterprises thereof) of community facility district, mello-roos, metro-district or similar bonding obligations,

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(w) Licenses of intellectual property granted in the ordinary course of business and not interfering in any material respect with the ordinary conduct of business of the Company or any Restricted Subsidiary,

(x) Liens of lessor, sublessor or licensor arising under any lease, sublease or license entered into by the Company or any Restricted Subsidiary in the ordinary course of business and not interfering in any material respect with the ordinary conduct of business of the Company or any Restricted Subsidiary, and covering only the Property or assets so leased, subleased or licensed,

(y) any (i) interest or title of a lessor or sublessor under any lease of a Property or asset not prohibited hereunder, (ii) Lien or restriction that the interest or title of such lessor or sublessor may be subject to or (iii) subordination of the interest of the lessee or sublessee under such lease to any Lien or restriction referred to in the preceding clause (ii), so long as the holder of such Lien or restriction agrees to recognize the rights of such lessee or sublessee under such lease,

(z) pledges, deposits and other Liens existing under, or required to be made in connection with, (i) earnest money obligations, escrows or similar purpose undertakings or indemnifications in connection with any purchase and sale agreement, (ii) development agreements or other contracts entered into with governmental authorities (or an entity sponsored by a governmental authority), in connection with the entitlement of real property or (iii) agreements for the funding of infrastructure, including in respect of the issuance of community facility district bonds, metro district bonds, mello-roos bonds and subdivision improvement bonds, and similar bonding requirements arising in the ordinary course of business of a homebuilder,

(aa) Liens, encumbrances or other restrictions contained in any joint venture agreement entered into by the Company or any Restricted Subsidiary with respect to the equity interests issued by the relevant joint venture or the assets of such joint venture,

(bb) assignments of insurance or condemnation proceeds provided to landlords (or their mortgagees) pursuant to the terms of any lease of Property leased by the Company or any Restricted Subsidiary, in each case with respect to the property so leased, and customary Liens and rights reserved in any lease for rent or for compliance with the terms of such lease,

(cc) Liens on cash pledged to secure deductibles, retentions and other obligations to insurance providers in the ordinary course of business;

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(dd) Liens securing Refinancing Indebtedness (or successive refinancings) in whole or in part of any Indebtedness secured by any Lien pursuant to Sections 6.05(i), (j), (l) and (t); provided that:

(i) such new Lien shall be limited to all or part of the same property and assets that secured or, under the written agreements pursuant to which the original Lien arose, could secure the original Lien (plus improvements and accessions to, such property or proceeds or distributions thereof); and

(ii) the Indebtedness secured by such Lien at such time is not increased to any amount greater than the sum of (x) the outstanding principal amount or, if greater, committed amount of the Indebtedness described under Sections 6.05(i), (j), (l) and (t) at the time the original Lien was incurred and (y) an amount necessary to pay any fees and expenses, including premiums, related to such refinancing, and

(ee) Liens securing Indebtedness incurred pursuant to Section 6.01(s); provided, however, that to the extent such Indebtedness constitutes Indebtedness of the type described in clause (a) of the definition of Indebtedness (other than a note evidencing the deferred purchase price of property), any such Liens rank pari-passu with the Obligations and such Indebtedness is subject to the Intercreditor Agreement.

SECTION 6.06. Sale and Lease-Back Transactions. Enter into any arrangement, directly or indirectly, with any person whereby it shall sell or transfer any property, real or personal, whether now owned or hereafter acquired, and thereafter rent or lease such property unless (a) such transaction would be permissible pursuant to Section 6.01 (b) any Liens arising in connection therewith are permitted by Section 6.05 (without equally and ratably securing the Obligations), (c) the net proceeds received by the Company or any Restricted Subsidiary in connection with such Sale and Lease-Back Transaction are at least equal to the Fair Market Value of such property (or at least 90% of the Fair Market Value in the case of a Sale and lease-Back Transaction of a model house) and (d) the Company applies the proceeds of such transaction in compliance with Section 6.04.

SECTION 6.07. Restrictions Affecting Restricted Subsidiaries. (a)Create, assume or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to:

(i) pay dividends or make any other distributions on its Equity Interests or any other interest or participation in, or measured by, its profits, owned by the Company, Shea Corp. or any other Restricted Subsidiary, or pay interest on or principal of any Indebtedness owed to the Company or any other Restricted Subsidiary;

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(ii) make loans or advances to the Company, Shea Corp. or any other Restricted Subsidiary; or

(iii) transfer any of its property or assets to the Company, Shea Corp. or any other Restricted Subsidiary.

(b) Notwithstanding the foregoing, Section 6.07(a) shall not apply to:

(i) encumbrances or restrictions existing under or by reason of applicable law, including judicial or regulatory actions;

(ii) contractual encumbrances or restrictions in effect at or entered into on the Closing Date;

(iii) any restrictions or encumbrances arising under (A) Acquired Indebtedness or (B) appearing in any agreements acquired or assumed in connection with the acquisition of property; provided, however, that such encumbrance or restriction applies only to either the assets that were subject to the restriction or encumbrance at the time of the acquisition or the obligor on such Indebtedness and its Subsidiaries prior to such acquisition;

(iv) any Lien permitted under Section 6.05, or any other agreement restricting the sale or other disposition of property, if such permitted Lien or agreement does not expressly restrict the ability of a Subsidiary of the Company to pay dividends or make or repay loans or advances prior to default thereunder;

(v) reasonable and customary borrowing base covenants set forth in agreements evidencing Indebtedness otherwise permitted hereunder;

(vi) customary non-assignment provisions in leases, licenses, encumbrances, contracts or similar assets entered into or acquired in the ordinary course of business;

(vii) any restriction with respect to a Restricted Subsidiary imposed pursuant to an agreement entered into for the sale or disposition of all or substantially all the Equity Interests or assets of such Restricted Subsidiary pending the closing of such sale or disposition;

(viii) encumbrances or restrictions existing under or by reason of (A) the Note Documents, (B) the Credit Documents or (C) the definitive agreements governing any other Indebtedness that is pari-passu with the Obligations and the Notes that is permitted to be incurred after the Closing Date in accordance with Section 6.01; provided, however, that in the case of clause (C), (x) either (i) the encumbrance or restriction applies only in the event of and during the continuance of a payment default or a default with respect to a financial covenant contained in such definitive agreements or (ii) the Company determines at the time any such additional pari-passu Indebtedness is incurred (and at the time of any modification of the terms of any such encumbrance or restriction) that any such encumbrance

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or restriction will not materially affect the Company’s or any Restricted Subsidiary’s ability to make principal or interest payments on the Obligations and any other Indebtedness that is an obligation of the Company or any Restricted Subsidiary, as applicable, and (y) the encumbrance or restriction is not materially more disadvantageous to the holders of the Notes than is customary in comparable financings or agreements (as determined by the Company in good faith);

(ix) purchase money obligations that impose restrictions on the property so acquired of the nature described in clause (iii) of Section 6.07(a);

(x) Liens permitted under Section 6.05 securing Indebtedness that limit the right of the debtor to dispose of the assets subject to such Lien;

(xi) provisions with respect to the disposition or distribution of assets or property in joint venture agreements, assets sale agreements, stock sale agreements and other similar agreements;

(xii) customary provisions of any franchise, distribution or similar agreements;

(xiii) restrictions on cash or other deposits or net worth imposed by contracts entered into in the ordinary course of business;

(xiv) any encumbrances or restrictions existing under (A) development agreements or other contracts entered into with municipal entities, agencies or sponsors in connection with the entitlement or development of real property or (B) agreements for funding of infrastructure, including in respect of the issuance of community facility district bonds, metro district bonds, mello-roos bonds and subdivision improvement bonds, and similar bonding requirements arising in the ordinary course of business of a homebuilder;

(xv) any encumbrances or restrictions contained in any joint venture agreement entered into by the Company or any of its Restricted Subsidiaries, to the extent binding upon the assets of the relevant joint venture, together with any encumbrances or restrictions contained in any agreement entered into by any such joint venture; and

(xvi) any encumbrance or restrictions of the type referred to in clauses (i), (ii) or (iii) of Section 6.07(a) imposed by any amendments, modifications, restatements, renewals, supplements, replacements or refinancings of the contracts, instruments or obligations referred to in clauses (ii), (iii), (viii) and (ix) of this Section 6.07(b); provided, however, that such amendments, modifications, restatements, renewals, supplements, replacements or refinancings are, in the good faith judgment of the board of directors of the Company, no more restrictive in any material respect with respect to such dividend and other payment restrictions than those contained in the dividend or other payment restrictions prior to such amendment, modification, restatement, renewal, supplement, replacement or refinancing.

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SECTION 6.08. Mergers, Consolidation and, Sales of Assets. (a) In the case of the Company, Shea Corp. and any other Guarantor, merge into or consolidate with any other person, or permit any other person to merge into or consolidate with it, or sell, convey, lease or otherwise dispose of (in one transaction or in a series of transactions) all or substantially all its assets (including, without limitation, by way of liquidation or dissolution), or assign any of its Obligations or obligations under the Note Documents, to any person (in each case other than in a transaction in which the Company, Shea Corp. or a Guarantor is the survivor of a consolidation or merger, or the transferee in a sale, lease, conveyance or other disposition, liquidation or dissolution) unless:

(i) the person formed by or surviving such consolidation or merger (if other than the Company, Shea Corp. or the Restricted Subsidiary as the case may be), or to which such sale, lease, conveyance or other disposition or assignment will be made (collectively, the “Successor”), is a corporation or other legal entity organized and existing under the laws of the United States or any state thereof or the District of Columbia, and the Successor assumes by written agreement in a form reasonably satisfactory to the Administrative Agent all the obligations of the Company, Shea Corp. or the Restricted Subsidiary, as the case may be, under this Agreement, the Intercreditor Agreement and the Security Documents;

(ii) immediately after giving effect to such transaction, no Default or Event of Default has occurred and is continuing; and

(iii) immediately after giving effect to such transaction, the Company (or its Successor) could incur at least $1.00 of Coverage Indebtedness in accordance with Section 6.01.

(b) Notwithstanding the foregoing, (i) this Section 6.08 shall not apply to any Restricted Subsidiary that is not a Guarantor and (ii) the Company, Shea Corp. and any other Guarantor may consummate the following transactions:

(i) a transaction involving the sale or disposition of Equity Interests of a Guarantor, or the consolidation or merger of a Guarantor, or the sale, lease, conveyance or other disposition of all or substantially all the assets of a Guarantor, that in any such case results in such Guarantor being released from its Guarantee as provided herein;

(ii) a transaction the purpose of which is to change the state of incorporation of the Company, Shea Corp. or any Restricted Subsidiary;

(iii) a liquidation or dissolution of any Restricted Subsidiary, other than Shea Corp.; or

(iv) a sale, lease, conveyance or other disposition of all or substantially all the assets of any Restricted Subsidiary in connection with the sale or wind-down of retail or other land sales by such Restricted Subsidiary.

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SECTION 6.09. Line of Business. Engage in any business other than homebuilding, housing construction, real estate (including masterplan) development or construction and the sale of homes and related real estate activities including the provision of mortgage financing or title insurance or any other business substantially related or reasonably incidental thereto (collectively, a “Real Estate Business”).

SECTION 6.10. Limitations on Shea Corp.. Shea Corp. may not hold any material assets (other than Indebtedness owing to Shea Corp. by the Company or any Restricted Subsidiary and non-material Cash Equivalents), become liable for any obligations or engage in any business activities (other than treasury, cash management and activities incidental thereto); provided, however, that Shea Corp. may be a co-obligor or co-guarantor with respect to the Notes or any other Indebtedness or other obligations if the Company is an obligor or guarantor of such Indebtedness or obligations. Shea Corp. shall be a wholly-owned Subsidiary of the Company at all times. At any time after the Company or any successor to the Company is a corporation, Shea Corp. may merge with or consolidate into the Company or any Subsidiary of the Company.

ARTICLE VII

Events of Default

In case of the happening of any of the following events (“Events of Default”):

(a) any representation or warranty made or deemed made in or in connection with any Credit Document or the issuances of Letters of Credit hereunder, or any representation, warranty, statement or information contained in any report, certificate, financial statement or other instrument furnished in connection with or pursuant to any Credit Document, shall prove to have been false or misleading in any material respect when so made, deemed made or furnished;

(b) default shall be made in the reimbursement with respect to any L/C Disbursement when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or by acceleration thereof or otherwise;

(c) default shall be made in the payment of any Fee or any other amount (other than an amount referred to in (b) above) due under any Credit Document, when and as the same shall become due and payable, and such default shall continue unremedied for a period of three Business Days;

(d) default shall be made in the due observance or performance by the Company, Shea Corp. or any Restricted Subsidiary of any covenant, condition or agreement contained in Section 5.01 or 5.08 or in Article VI, and such default shall continue unremedied for a period of five Business Days (i) after notice thereof from the Administrative Agent or the Required Participants to the Company or (ii) after any person at the Company has obtained knowledge thereof;

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(e) default shall be made in the due observance or performance by the Company, Shea Corp. or any Restricted Subsidiary of any covenant, condition or agreement contained in any Credit Document (other than those specified in (b), (c) or (d) above) and such default shall continue unremedied for a period of 30 days after notice thereof from the Administrative Agent or the Required Participants to the Company;

(f) (i) the Company, Shea Corp. or any Restricted Subsidiary shall fail to pay any principal, interest or other amount due in respect of any Material Indebtedness, when and as the same shall become due and payable (after giving effect to any applicable cure or grace period) or (ii) any other event or condition occurs that results in any Material Indebtedness becoming due prior to its scheduled maturity or that enables or permits (after giving effect to any applicable cure or grace period) the holder or holders of any Material Indebtedness or any trustee or agent on its or their behalf to cause any Material Indebtedness to become due, or to require the prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled maturity or that results in the termination or permits any counterparty to terminate any Interest Protection Agreement the obligations under which constitute Material Indebtedness; provided that this clause (ii) shall not apply to secured Indebtedness that becomes due as a result of the voluntary sale or transfer of the property or assets securing such Indebtedness;

(g) a court of competent jurisdiction enters an order or decree under Title 11 of the United States Code, as now constituted or hereafter amended, or any similar Federal or state law for the relief of debtors (collectively, “Bankruptcy Law”) that: (i) is for relief against the Company, Shea Corp. or any Restricted Subsidiary that is a Significant Subsidiary as debtor in an involuntary case; (ii) appoints a receiver, trustee, assignee, liquidator or similar official (a “Custodian”) of the Company, Shea Corp. or any Restricted Subsidiary that is a Significant Subsidiary or a Custodian for all or substantially all the property of the Company, Shea Corp. or any Restricted Subsidiary that is a Significant Subsidiary; or (iii) orders the liquidation of the Company, Shea Corp. or any Restricted Subsidiary that is a Significant Subsidiary and, in each case, the order or decree remains unstayed and in effect for 60 days;

(h) the Company, Shea Corp. or any Restricted Subsidiary that is a Significant Subsidiary pursuant to or within the meaning of any Bankruptcy Law (i) commences a voluntary case, (ii) consents to the entry of an order for relief against it in an involuntary case, (iii) consents to the appointment of a Custodian of it or for all or substantially all its property, or (iv) makes a general assignment for the benefit of its creditors;

(i) a final judgment or judgments that exceed $10,000,000 or more (net of insurance available to the Company, Shea Corp. or Restricted Subsidiary and expected (in the good faith judgment of the Company) to be available to satisfy such judgment), individually or in the aggregate, for the payment of money having been entered by a court or courts of competent jurisdiction against the

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Company, Shea Corp. or any of the Restricted Subsidiaries and such judgment or judgments is not satisfied, bonded, stayed, annulled or rescinded within 60 days of being entered;

(j) an ERISA Event shall have occurred that, in the opinion of the Required Participants, when taken together with all other such ERISA Events, could reasonably be expected to result in liability of the Company and its ERISA Affiliates in an aggregate amount exceeding $2,000,000;

(k) any Guarantee made in Article X for any reason shall cease to be in full force and effect (other than in accordance with its terms), or any Guarantor shall deny in writing that it has any further liability under such Guarantee (other than as a result of the discharge of such Guarantor in accordance with the terms of the Credit Documents);

(l) any security interest purported to be created by any Security Document shall cease to be, or shall be asserted by the Company or any other Credit Party not to be, a valid, perfected, first priority (except as otherwise expressly provided in this Agreement or such Security Document) security interest in the securities, assets or properties covered thereby, except to the extent that any such loss of perfection or priority results from the failure of the Collateral Agent to maintain possession of certificates representing securities pledged under the Security Agreement and except to the extent that such loss is covered by a lender’s title insurance policy and the related insurer promptly after such loss shall have acknowledged in writing that such loss is covered by such title insurance policy; or

(m) there shall have occurred a Change in Control;

then, and in every such event (other than an event with respect to Shea Corp. or the Company described in paragraph (g) or (h) above), and at any time thereafter during the continuance of such event, the Administrative Agent may, and at the request of the Required Participants shall, by notice to the Company, take any or all of the following actions, at the same or different times: (i) terminate forthwith the Commitments, (ii) declare the Obligations then outstanding to be forthwith due and payable in whole or in part, whereupon the Obligations so declared to be due and payable shall become due and payable immediately, and any unpaid accrued Fees and all other liabilities of the Company accrued hereunder and under any other Credit Document, shall become forthwith due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived by the Company, anything contained herein or in any other Credit Document to the contrary notwithstanding and (iii) require that the Company comply with Section 2.01(j); and in any event with respect to Shea Corp. or the Company described in paragraph (g) or (h) above, the Commitments shall automatically terminate and Obligations then outstanding, together with accrued interest thereon and any unpaid accrued Fees and all other liabilities of the Company accrued hereunder and under any other Credit Document, shall automatically become due and payable, without presentment, demand, protest or any other notice of any kind, all of

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which are hereby expressly waived by the Company, anything contained herein or in any other Credit Document to the contrary notwithstanding, and the Company shall immediately comply with the requirements of Section 2.01(j).

ARTICLE VIII

The Administrative Agent

Each of the Participants and the Issuing Bank hereby irrevocably appoints the Administrative Agent (for purposes of this Article VIII, the Administrative Agent is referred to as the “Agent”) to act on its behalf as the Administrative Agent hereunder and under the other Credit Documents and authorizes the Agent to take such actions on its behalf and to exercise such powers as are delegated to the Agent by the terms of the Credit Documents, together with such actions and powers as are reasonably incidental thereto. Without limiting the generality of the foregoing, each of the Issuing Bank and each Participant (a) expressly authorizes and instructs the Agent to enter into the Intercreditor Agreement and (b) hereby agrees that it will be bound by the provisions of the Intercreditor Agreement. The provisions of this Article are solely for the benefit of the Agent, the Participants and the Issuing Bank, and neither the Company nor any other Credit Party shall have rights as a third-party beneficiary of any of such provisions. It is understood and agreed that the use of the term “agent” herein or in any other Credit Documents (or any other similar term) with reference to the Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable law. Instead such term is used as a matter of market custom, and is intended to create or reflect only an administrative relationship between contracting parties.

The bank serving as the Administrative Agent hereunder shall have the same rights and powers in its capacity as a Participant as any other Participant and may exercise the same as though it were not the Agent, and such bank and its Affiliates may accept deposits from, lend money to, own securities of, act as the financial advisor or in any other advisory capacity for, and generally engage in any kind of business with the Company, Shea Corp. or any Subsidiary or other Affiliate thereof as if it were not the Agent hereunder and without any duty to account therefore to the Participants.

The Agent shall not have any duties or obligations except those expressly set forth herein and in the other Credit Documents, and its duties hereunder shall be administrative in nature. Without limiting the generality of the foregoing, (a) the Agent shall not be subject to any fiduciary or other implied duties, regardless of whether a Default or an Event of Default has occurred and is continuing, (b) the Agent shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby or by the other Credit Documents that the Agent is required to exercise as directed in writing by the Required Participants (or such other number or percentage of the Participants as shall be necessary under the circumstances as provided in Section 9.08) provided that the Agent shall not be required to take any action that, in its opinion or the opinion of its counsel, may expose the Agent to liability or that is contrary to any Credit Document or applicable law, including for the

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avoidance of doubt any action that may be in violation of the automatic stay under any Bankruptcy Law or that may effect a forfeiture, modification or termination of property of a Defaulting Participant in violation of any Bankruptcy Law, and (c) except as expressly set forth herein or in the other Credit Documents, the Agent shall not have any duty to disclose, nor shall it be liable for the failure to disclose, any information relating to the Company, Shea Corp. or any of the Subsidiaries that is communicated to or obtained by the bank serving as Administrative Agent or any of its Affiliates in any capacity. The Agent shall not be liable for any action taken or not taken by it with the consent or at the request of the Required Participants (or such other number or percentage of the Participants as shall be necessary, or as the Agent shall believe in good faith shall be necessary, under the circumstances as provided in Section 9.08) or in the absence of its own gross negligence or willful misconduct as determined by a court of competent jurisdiction by final and nonappealable judgment. The Agent shall be deemed not to have knowledge of any Default unless and until notice describing such Default is given to the Agent in writing by the Company, Shea Corp. or a Participant, and the Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with any Credit Document, (ii) the contents of any certificate, report or other document delivered thereunder or in connection therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth in any Credit Document, (iv) the validity, enforceability, effectiveness or genuineness of any Credit Document or any other agreement, instrument or document, or (v) the satisfaction of any condition set forth in Article IV or elsewhere in any Credit Document, other than to confirm receipt of items expressly required to be delivered to the Agent.

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

The Agent may perform any and all its duties and exercise its rights and powers under any Credit Document by or through any one or more sub-agents appointed by it. The Agent and any such sub-agent may perform any and all its duties and exercise its rights and powers by or through their respective Related Parties. The exculpatory provisions of the preceding paragraphs shall apply to any such sub-agent and to the

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Related Parties of the Agent and any such sub-agent as well as activities as Agent. The Agent shall not be responsible for the negligence or misconduct of any sub-agents except to the extent that a court of competent jurisdiction determines in a final and non appealable judgment that the Agent acted with gross negligence or willful misconduct in the selection of such sub-agents

The Agent may at any time give notice of its resignation to the Participants, the Issuing Bank and the Company. Upon receipt of any such notice of resignation, the Required Participants shall have the right, in consultation with the Company, to appoint a successor. If no successor shall have been so appointed by the Required Participants and shall have accepted such appointment within 30 days after the retiring Agent gives notice of its resignation (or such earlier date as shall be agreed by the Required Participants)( the “Resignation Effective Date”), then the retiring Agent may (but shall not be obligated to), on behalf of the Participants and the Issuing Bank, appoint a successor Agent which shall be a bank with an office in New York, New York, or an Affiliate of any such bank. Whether or not a successor has been appointed, such resignation shall become effective in accordance with such notice on the Resignation Effective Date.

If the person serving as Agent is a Defaulting Participant pursuant to clause (d) of the definition thereof, the Required Participants may, to the extent permitted by applicable law, by notice in writing to the Company and such Person remove such person as Agent and, in consultation with the Company, appoint a successor. If no such successor shall have been so appointed by the Required Participants and shall have accepted such appointment within 30 days (or such earlier day as shall be agreed by the Required Participants) (the “Removal Effective Date”), then such removal shall nonetheless become effective in accordance with such notice on the Removal Effective Date.

With effect from the Resignation Effective Date or the Removal Effective Date (as applicable) (1) the retiring or removed Agent shall be discharged from its duties and obligations hereunder and under the other Credit Documents and (2) all payments, communications and determinations provided to be made by, to or through the Agent shall instead be made by or to each Participant and the Issuing Bank directly, until such time, if any, as the Required Participants appoint a successor Agent as provided for above. Upon the acceptance of its appointment as Agent hereunder by a successor, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring or removed Agent, and the retiring or removed Agent shall be discharged from its duties and obligations hereunder or under the other Credit Documents. The fees payable by the Company to a successor Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Company and such successor. After the retiring or removed Agent’s resignation or removal hereunder and under the Credit Documents, the provisions of this Article and Section 9.05 shall continue in effect for the benefit of such retiring or removed Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while the retiring or removed Agent was acting as Agent.

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Each Participant and Issuing Bank acknowledges that it has, independently and without reliance upon the Agent or any other Participant or any of their Related Parties and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Participant and Issuing Bank also acknowledges that it will, independently and without reliance upon the Agent or any other Participant and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement or any other Credit Document, any related agreement or any document furnished hereunder or thereunder.

Anything herein to the contrary notwithstanding, the Arranger listed on the cover page hereof shall have any powers, duties or responsibilities under this Agreement or any of the other Credit Documents, except in its capacity, as applicable, as the Agent, a Participant or an Issuing Bank hereunder.

In case of the pendency of any proceeding under any Bankruptcy Law, the Agent (irrespective of whether the principal of any L/C Obligation shall then be due and payable as herein expressed or by declaration or otherwise and irrespective of whether the Agent shall have made any demand on the Company) shall be entitled and empowered (but not obligated) by intervention in such proceeding or otherwise:

(a) to file and prove a claim for the whole amount of the principal and interest owing and unpaid in respect of the L/C Obligations and all other Obligations that are owing and unpaid and to file such other documents as may be necessary or advisable in order to have the claims of the Participants, the Issuing Bank and the Agent (including any claim for the reasonable compensation, expenses, disbursements and advances of the Participants, the Issuing Bank and the Agent and their respective agents and counsel and all other amounts due the Participants, the Issuing Bank and the Agent under Sections 2.01, 2.02 and 9.05) allowed in such judicial proceeding; and

(b) to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same,

and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Participant and Issuing Bank to make such payments to the Agent and, in the event that the Agent shall consent to the making of such payments directly to the Participants and the Issuing Bank, to pay to the Agent any amount due for the reasonable compensation, expenses, disbursements and advances of the Agent and its agents and counsel, and any other amounts due the Agent under Sections 2.02 and 9.05.

ARTICLE IX

Miscellaneous

SECTION 9.01. Notices. (a)Except in the case of notices and other communications expressly permitted to be given by telephone (and except as provided in

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paragraph (b) below), all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by facsimile as follows:

(i) if to the Company or Shea Corp., to it at 655 Brea Canyon Road, Walnut, California 91788-0487, Attention of Chief Financial Officer (Fax No. (909) 869-0849);

(ii) if to the Administrative Agent, to Credit Suisse, Eleven Madison Avenue, New York, NY 10010, Attention of Agency Group (Fax No. (212) 325-8304);

(iii) if to a Participant, to it at its address (or fax number) set forth on Schedule 2.01 or in the Assignment and Assumption pursuant to which such Participant shall have become a party hereto; and

(iv) if to the Issuing Bank, to it at Trade Finance/Services Department, One Madison Avenue, 2nd Floor, New York, NY 10010, Attention of Adrian Silghigian (Fax No. (212) 743-1267);.

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

(b) Notices and other communications to the Participants and the Issuing Bank hereunder may be delivered or furnished by electronic communication (including e mail and Internet or intranet websites) pursuant to procedures approved by the Administrative Agent, provided that the foregoing shall not apply to notices to any Participant or Issuing Bank pursuant to Article II if such Participant or Issuing Bank, as applicable, has notified the Administrative Agent that it is incapable of receiving notices under such Article by electronic communication. The Administrative Agent or the Company may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it; provided that approval of such procedures may be limited to particular notices or communications.

(c) Unless the Administrative Agent otherwise prescribes, (i) notices and other communications sent to an e-mail address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested” function, as available, return e-mail or other written acknowledgement), and (ii) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient, at its e-mail address as described in the foregoing clause (i), of notification that such notice or communication is available and identifying the website address therefore; provided that, for both clauses (i)

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and (ii) above, if such notice, email or other communication is not sent during the normal business hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next business day for the recipient.

(d) Any party hereto may change its address or facsimile number for notices and other communications hereunder by notice to the other parties hereto.

(e) Each Credit Party agrees that the Administrative Agent may, but shall not be obligated to, make the Communications (as defined below) available to the Issuing Bank and the other Participants by posting the Communications on Debt Domain, Intralinks, Syndtrak or a substantially similar electronic transmission system (the “Platform”).

(f) The Platform is provided “as is” and “as available.” The Agent Parties (as defined below) do not warrant the adequacy of the Platform and expressly disclaim liability for errors or omissions in the Communications. No warranty of any kind, express, implied or statutory, including, without limitation, any warranty of merchantability, fitness for a particular purpose, non-infringement of third-party rights or freedom from viruses or other code defects, is made by any Agent Party in connection with the Communications or the Platform. In no event shall the Administrative Agent or any of its Related Parties (collectively, the “Agent Parties”) have any liability to the Credit Parties, any Participant or any other person or entity for damages of any kind, including, without limitation, direct or indirect, special, incidental or consequential damages, losses or expenses (whether in tort, contract or otherwise) arising out of the any Credit Party’s or the Administrative Agent’s transmission of communications through the Platform. “Communications” means, collectively, any notice, demand, communication, information, document or other material that any Credit Party provides to the Administrative Agent pursuant to any Credit Document or the transactions contemplated therein which is distributed to the Administrative Agent, any Participant or the Issuing Bank by means of electronic communications pursuant to this Section, including through the Platform.

SECTION 9.02. Survival of Agreement. All covenants, agreements, representations and warranties made by the Company or Shea Corp. herein and in the certificates or other instruments prepared or delivered in connection with or pursuant to this Agreement or any other Credit Document shall be considered to have been relied upon by the Participants and the Issuing Bank and shall survive the issuance of Letters of Credit by the Issuing Bank, regardless of any investigation made by the Participants or the Issuing Bank or on their behalf, and shall continue in full force and effect as long as the any Fee or any other amount payable under this Agreement or any other Credit Document is outstanding and unpaid or any Letter of Credit is outstanding and so long as the Commitments have not been terminated. The provisions of Sections 2.02, 2.04 and 9.05 shall remain operative and in full force and effect regardless of the expiration of the term of this Agreement, the consummation of the transactions contemplated hereby, the expiration of the Commitments, the expiration of any Letter of Credit, the invalidity or unenforceability of any term or provision of this Agreement or any other Credit Document, or any investigation made by or on behalf of the Administrative Agent, any Participant or the Issuing Bank.

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SECTION 9.03. Binding Effect. Except as provided in Section 4.02, this Agreement shall become effective when it shall have been executed by the Company, Shea Corp. and the Administrative Agent and when the Administrative Agent shall have received counterparts hereof which, when taken together, bear the signatures of each of the other parties hereto.

SECTION 9.04. Successors and Assigns. (a)Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the permitted successors and assigns of such party; and all covenants, promises and agreements by or on behalf of the Company, Shea Corp., the Administrative Agent, the Issuing Bank or the Participants that are contained in this Agreement shall bind and inure to the benefit of their respective successors and assigns, except that the Company may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of the Administrative Agent and each Participant and no Participant may assign or otherwise transfer any of its rights or obligations hereunder except (i) to an assignee in accordance with the provisions of paragraph (b) of this Section or (ii) by way of participation in accordance with the provisions of paragraph (d) of this Section, or (iii) by way of pledge or assignment of a security interest subject to the restrictions of this Section (and any other attempted assignment or transfer by any party hereto shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any person (other than the parties hereto, their respective successors and assigns permitted hereby, persons to whom participations are sold to the extent provided in paragraph (d) of this Section and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent, the Issuing Bank and the Participants) any legal or equitable right, remedy or claim under or by reason of this Agreement.

(b) Each Participant may assign to one or more Eligible Assignees all or a portion of its interests, rights and obligations under this Agreement (including all or a portion of its Commitment); provided that any such assignment shall be subject to the following conditions:

(i) in the case of an assignment of the entire remaining amount of the assigning Participant’s Commitment and/or participations in L/C Disbursements at the time owing to it or contemporaneous assignments to related Approved Funds that equal at least the amount specified below in the aggregate or in the case of an assignment to another Participant, an Affiliate of a Participant or an Approved Fund, no minimum amount need be assigned;

(ii) in any case not described in paragraph (b)(i) of this Section, the aggregate amount of the Commitment or, if the applicable Commitment is not then in effect, the L/C Exposure of the assigning Participant subject to each such assignment (determined as of the date the Assignment and Assumption with respect to such assignment is delivered to the Administrative Agent or, if “Trade Date” is specified in the Assignment and Assumption, as of the Trade Date) shall not be less than $1,000,000, unless each of the Administrative Agent and, so long

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as no Default or Event of Default has occurred and is continuing, the Company otherwise consents (each such consent not to be unreasonably withheld or delayed);

(iii) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Participant’s rights and obligations under this Agreement with respect to the Commitment assigned;

(iv) no consent shall be required for any assignment except to the extent required by paragraph (b)(ii) of this Section and, in addition:

(a) the consent of the Company (such consent not to be unreasonably withheld or delayed) shall be required unless (x) a Default or Event of Default has occurred and is continuing at the time of such assignment, or (y) such assignment is to a Participant, an Affiliate of a Participant or an Approved Fund; provided that the Company shall be deemed to have consented to any such assignment unless it shall object thereto by written notice to the Administrative Agent within 5 Business Days after having received notice thereof;

(b) the consent of the Administrative Agent (such consent not to be unreasonably withheld or delayed) shall be required for assignments in respect of any Commitments if such assignment is to a person that is not a Participant with a Commitment, an Affiliate of such Participant or an Approved Fund with respect to such Participant; and

(c) the consent of the Issuing Bank shall be required for each assignment;

(v) the parties to each such assignment shall execute and deliver to the Administrative Agent an Assignment and Assumption, and shall pay to the Administrative Agent a processing and recordation fee of $3,500 (which fee may be waived or reduced in the sole discretion of the Administrative Agent) and the assignee, if it shall not be a Participant, shall deliver to the Administrative Agent an Administrative Questionnaire and all applicable tax forms;

(vi) no such assignment shall be made to (A) the Company or any of the Company’s Affiliates or Subsidiaries or (B) to any Defaulting Participant or any of its subsidiaries, or any person who, after becoming a Participant hereunder, would constitute any of the foregoing persons;

(vii) no assignment shall be to a natural person; and

(viii) in connection with any assignment of rights and obligations of any Defaulting Participant hereunder, no such assignment shall be effective unless and until, in addition to the other conditions thereto set forth herein, the parties to the assignment shall make such additional payments to the Administrative Agent in an aggregate amount sufficient, upon distribution thereof as appropriate (which may be outright payment, purchases by the assignee of participations or subparticipations, or other compensating actions, including funding, with the

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consent of the Participant and the Administrative Agent, the applicable pro rata share of L/C Disbursements (or participations therein) previously requested but not funded by the Defaulting Participant, to each of which the applicable assignee and assignor hereby irrevocably consent), to (x) pay and satisfy in full all payment liabilities then owed by such Defaulting Participant to the Administrative Agent, the Issuing Bank and each other Participant hereunder (and interest accrued thereon), and (y) acquire (and fund as appropriate) its full pro rata share of all participations in Letters of Credit in accordance with its Applicable Percentage. Notwithstanding the foregoing, in the event that any assignment of rights and obligations of any Defaulting Participant hereunder shall become effective under applicable law without compliance with the provisions of this paragraph, then the assignee of such interest shall be deemed to be a Defaulting Participant for all purposes of this Agreement until such compliance occurs.

(ix) Subject to acceptance and recording thereof by the Administrative Agent pursuant to paragraph (c) of this Section, from and after the effective date specified in each Assignment and Assumption, the assignee thereunder shall be a party to this Agreement and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Participant under this Agreement, and the assigning Participant thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Participant’s rights and obligations under this Agreement, such Participant shall cease to be a party hereto) but shall continue to be entitled to the benefits of Sections 2.05, 2.09 and 9.05 with respect to facts and circumstances occurring prior to the effective date of such assignment; provided, that except to the extent otherwise expressly agreed by the affected parties, no assignment by a Defaulting Participant will constitute a waiver or release of any claim of any party hereunder arising from that Participant’s having been a Defaulting Participant. Any assignment or transfer by a Participant of rights or obligations under this Agreement that does not comply with this paragraph shall be treated for purposes of this Agreement as a sale by such Participant of a participation in such rights and obligations in accordance with paragraph (d) of this Section.

(c) The Administrative Agent, acting for this purpose as an agent of the Company, shall maintain at one of its offices in The City of New York a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Participants, and the Commitment of each Participant pursuant to the terms hereof from time to time (the “Register”). The entries in the Register shall be conclusive and the Company, the Administrative Agent, the Issuing Bank and the Participants may treat each person whose name is recorded in the Register pursuant to the terms hereof as a Participant hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Company and the Issuing Bank, at any reasonable time and from time to time upon reasonable prior notice.

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(d) Each Participant may without the consent of the Company, the Issuing Bank or the Administrative Agent sell participations to one or more banks or other persons (other than a natural person, the Company or any of the Company’s Affiliates or Subsidiaries) in all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment); provided, however, that (i) such Participant’s obligations under this Agreement shall remain unchanged and (ii) such Participant shall remain solely responsible to the other parties hereto for the performance of such obligations. Any agreement or instrument pursuant to which a Participant shall sell a participation shall provide that such Participant retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement (other than amendments, modifications or waivers decreasing any fees payable to such participating bank or person hereunder, increasing or extending the Commitments in which such participating bank or person has an interest or releasing any Guarantor (other than in connection with the sale of such Guarantor in a transaction permitted by Section 6.08) or all or substantially all of the Collateral). Each Participant shall maintain a register (the “Participation Register”) identifying any person to whom it has sold a participation and each Participant shall provide access to such Participation Register to the Company upon the Company’s reasonable request.

(e) A person to which a Participant sells a participation shall not be entitled to receive any greater payment under Sections 2.05 and 2.09 than the applicable Participant would have been entitled to receive with respect to the participation sold to such person (except to the extent such entitlement to receive a greater payment results from a Change in Law that occurs after such person acquired the applicable participation), unless the sale of the participation to such person is made with the Company’s prior written consent. A person to which a Participant sells a participation that would be a Foreign Participant if it were a Participant shall not be entitled to the benefits of Section 2.09 unless the Company is notified of the participation sold to such participant and such participant agrees, for the benefit of the Company, to comply with Section 2.09 as though it were a Participant.

(f) Any Participant may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Participant, including any pledge or assignment to secured obligations to a Federal Reserve Rate; provided that no such pledge or assignment shall release such Participant from any of its obligations hereunder or substitute any such pledge or assignee for such Participant as a party hereto.

(g) In the event that any Participant shall become a Defaulting Participant or S&P, Moody’s and Thompson’s BankWatch (or InsuranceWatch Ratings Service, in the case of Participants that are insurance companies (or Best’s Insurance Reports, if such insurance company is not rated by Insurance Watch Ratings Service)) shall, after the date that any Participant becomes a Participant, downgrade the long-term certificate deposit ratings of such Participant, and the resulting ratings shall be below BBB-, Baa3 and C (or BB, in the case of a Participant that is an insurance company (or B, in the case of an insurance company not rated by InsuranceWatch Ratings Service)) (or, with respect to any Participant that is not rated by any such ratings service or provider or the Issuing Bank shall have reasonably determined that there has occurred a material adverse change

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in the financial condition of any such Participant, or a material impairment of the ability of any such Participant to perform its obligations hereunder, as compared to such condition or ability as of the date that any such Participant became a Participant) then the Issuing Bank shall have the right, but not the obligation, at its own expense, upon notice to such Participant and the Administrative Agent, to replace such Participant with an assignee (in accordance with and subject to the restrictions contained in paragraph (b) above), and such Participant hereby agrees to transfer and assign without recourse (in accordance with and subject to the restrictions contained in paragraph (b) above) all its interests, rights and obligations in respect of its Commitment to such assignee; provided, however, that (i) no such assignment shall conflict with any law, rule and regulation or order of any Governmental Authority and (ii) the Issuing Bank or such assignee, as the case may be, shall pay to such Participant in immediately available funds on the date of such assignment any amounts accrued for such Participant’s account or owed to it hereunder.

SECTION 9.05. Expenses; Indemnity. (a) The Company shall pay (i) all reasonable and documented out-of-pocket expenses incurred by the Administrative Agent and its Affiliates (including the reasonable fees, charges and disbursements of counsel for the Administrative Agent), in connection with the preparation, negotiation, execution, delivery and administration of this Agreement and the other Credit Documents, or any amendments, modifications or waivers of the provisions hereof or thereof (whether or not the transactions contemplated hereby or thereby shall be consummated), (ii) all reasonable and documented out-of-pocket expenses incurred by the Issuing Bank in connection with the issuance, amendment, renewal or extension of any Letter of Credit or any demand for payment thereunder, and (iii) all out-of-pocket expenses incurred by the Administrative Agent, any Participant or the Issuing Bank (including the fees, charges and disbursements of any counsel for the Administrative Agent, any Participant or the Issuing Bank), any Participant or the Issuing Bank, in connection with the enforcement or protection of its rights (A) in connection with this Agreement and the other Credit Documents, including its rights under this Section, or (B) in connection with the Letters of Credit issued hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such extensions of credit hereunder.

(b) The Company shall indemnify the Administrative Agent (and any sub-agent thereof), each Participant and the Issuing Bank, and each Related Party of any of the foregoing persons (each such person being called an “Indemnitee”) against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses (including the fees, charges and disbursements of any counsel for any Indemnitee), incurred by any Indemnitee or asserted against any Indemnitee by any Person (including the Company or any other Credit Party) other than such Indemnitee and its Related Parties arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement, any other Credit Document or any agreement or instrument contemplated hereby or thereby, the performance by the parties hereto of their respective obligations hereunder or thereunder or the consummation of the transactions contemplated hereby or thereby, (ii) any Letter of Credit or the use or proposed use of the proceeds therefrom (including any refusal by the Issuing Bank to honor a demand for payment under a Letter of Credit if the documents presented in connection with such

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demand do not strictly comply with the terms of such Letter of Credit), (iii) any actual or alleged presence or Release of Hazardous Materials on or from any property owned or operated by the Company or any of its Subsidiaries, or any Environmental Liability related in any way to the Company or any of its Subsidiaries, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory, whether brought by a third party or by the Company or any other Credit Party, and regardless of whether any Indemnitee is a party thereto; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from (x) the gross negligence or willful misconduct of such Indemnitee (or any Related Party of such Indemnitee) or (y) solely in the case of a claim brought by the Borrower, a material breach of such Indemnitee’s obligations under the Credit Documents in bad faith.

(c) To the extent that the Company for any reason fails to indefeasibly pay any amount required under paragraph (a) or (b) of this Section to be paid by it to the Administrative Agent (or any sub-agent thereof), the Issuing Bank or any Related Party of any of the foregoing, each Participant severally agrees to pay to the Administrative Agent (or any such sub-agent), the Issuing Bank or such Related Party, as the case may be, such Participant’s pro rata share (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought based on each Participant’s share of the Total L/C Exposure at such time) of such unpaid amount (including any such unpaid amount in respect of a claim asserted by such Participant); provided that with respect to such unpaid amounts owed to the Issuing Bank solely in its capacity as such, only the Participants shall be required to pay such unpaid amounts, such payment to be made severally among them based on such Participants’ Pro Rata Percentage (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) provided, further, that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent (or any such sub-agent) or the Issuing Bank in its capacity as such, or against any Related Party of any of the foregoing acting for the Administrative Agent (or any such sub-agent) or the Issuing Bank in connection with such capacity.

(d) To the fullest extent permitted by applicable law, the Company shall not assert, and hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any other Credit Document or any agreement or instrument contemplated hereby, the transactions contemplated hereby or thereby, any Letter of Credit, or the use of the proceeds thereof. No Indemnitee referred to in paragraph (b) above shall be liable for any damages arising from the use by unintended recipients of any information or other materials distributed by it through telecommunications, electronic or other information transmission systems in connection with this Agreement or the other Credit Documents or the transactions contemplated hereby or thereby.

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(e) All amounts due under this Section shall be payable promptly after demand therefor.

(f) Each party’s obligations under this Section shall survive the termination of the Credit Documents and payment of the obligations hereunder.

SECTION 9.06. Right of Setoff. If an Event of Default shall have occurred and be continuing, each Participant, the Issuing Bank, and each of their respective Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by applicable law, to set off and apply any and all deposits (general or special, time or demand, provisional or final, in whatever currency) at any time held, and other obligations (in whatever currency) at any time owing, by such Participant, the Issuing Bank or any such Affiliate, to or for the credit or the account of the Company or any other Credit Party against any and all of the obligations of the Company or such Credit Party now or hereafter existing under this Agreement or any other Credit Document to such Participant or the Issuing Bank or their respective Affiliates, irrespective of whether or not such Participant, Issuing Bank or Affiliate shall have made any demand under this Agreement or any other Credit Document and although such obligations of the Company or such Credit Party may be contingent or unmatured or are owed to a branch, office or Affiliate of such Participant or the Issuing Bank different from the branch, office or Affiliate holding such deposit or obligated on such indebtedness; provided that in the event that any Defaulting Participant shall exercise any such right of setoff, (x) all amounts so set off shall be paid over immediately to the Administrative Agent for further application in accordance with the provisions of Section 2.12 and, pending such payment, shall be segregated by such Defaulting Participant from its other funds and deemed held in trust for the benefit of the Administrative Agent, the Issuing Bank, and the Participants, and (y) the Defaulting Participant shall provide promptly to the Administrative Agent a statement describing in reasonable detail the Obligations owing to such Defaulting Participant as to which it exercised such right of setoff. The rights of each Participant, the Issuing Bank and their respective Affiliates under this Section are in addition to other rights and remedies (including other rights of setoff) that such Participant, the Issuing Bank or their respective Affiliates may have. Each Participant and the Issuing Bank agree to notify the Company and the Administrative Agent promptly after any such setoff and application; provided that the failure to give such notice shall not affect the validity of such setoff and application.

SECTION 9.07. Applicable Law. This Agreement and the other Credit Documents and any claims, controversy, dispute or cause of action (whether in contract or tort or otherwise) based upon, arising out of or relating to this Agreement or any other Credit Document (except, as to any other Credit Document, as expressly set forth therein) and the transactions

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contemplated hereby and thereby shall be governed by, and construed in accordance with, the law of the State of New York.

SECTION 9.08. Waivers; Amendment. (a)No failure or delay of the Administrative Agent, any Participant or the Issuing Bank in exercising any power or right hereunder or under any other Credit Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Administrative Agent, the Issuing Bank and the Participants hereunder and under the other Credit Documents are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of this Agreement or any other Credit Document or consent to any departure by the Company or any other Credit Party therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) below, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice or demand on the Company or Shea Corp. in any case shall entitle the Company or Shea Corp. to any other or further notice or demand in similar or other circumstances.

(b) Neither this Agreement nor any other Credit Document nor any provision hereof or thereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Company, Shea Corp. and the Required Participants; provided, however, that no such agreement shall (i) decrease the principal amount of or extend the date for reimbursement of an L/C Disbursement or payment of interest thereon, or waive or excuse any such payment or any part thereof, or decrease the rate of interest on any L/C Disbursement, without the prior written consent of the Issuing Bank and each Participant directly adversely affected thereby, (ii) increase or extend the Commitment or decrease or extend the date for payment of any Fees of any Participant without the prior written consent of such Participant, (iii) amend or modify the pro rata requirements of Section 2.06, the provisions of Section 9.04(g) or the provisions of this Section or release all or substantially all the value of the Guarantees or all or substantially all of the Collateral, without the prior written consent of, the Issuing Bank and each Participant or (iv) reduce the percentage contained in the definition of the term “Required Participants” without the prior written consent of each Participant; provided further that no such agreement shall amend, modify or otherwise affect the rights or duties of the Administrative Agent or the Issuing Bank hereunder or under any other Credit Document without the prior written consent of the Administrative Agent or the Issuing Bank.

SECTION 9.09. Interest Rate Limitation. Notwithstanding anything herein to the contrary, if at any time the interest rate applicable to any L/C Disbursement (or participation therein), together with all fees, charges and other amounts which are treated as interest on such L/C Disbursement (or participation therein) under applicable law (collectively the “Charges”), shall exceed the maximum lawful rate (the “Maximum

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Rate”) which may be contracted for, charged, taken, received or reserved by the Issuing Bank or the Participant holding such participation in accordance with applicable law, the rate of interest payable in respect of such L/C Disbursement (or participation therein) hereunder, together with all Charges payable in respect thereof, shall be limited to the Maximum Rate and, to the extent lawful, the interest and Charges that would have been payable in respect of such L/C Disbursement (or participation therein) but were not payable as a result of the operation of this Section 9.09 shall be cumulated and the interest and Charges payable to such Issuing Bank or Participant in respect of other participations or periods shall be increased (but not above the Maximum Rate therefor) until such cumulated amount, together with interest thereon at the Federal Funds Effective Rate to the date of repayment, shall have been received by such Issuing Bank or Participant.

SECTION 9.10. Entire Agreement. This Agreement and the other Credit Documents constitute the entire contract between the parties relative to the subject matter hereof. Any other previous agreement among the parties with respect to the subject matter hereof is superseded by this Agreement and the other Credit Documents. Nothing in this Agreement or in the other Credit Documents, expressed or implied, is intended to confer upon any person (other than the parties hereto and thereto, their respective successors and assigns permitted hereunder (including any Affiliate of the Issuing Bank that issues any Letter of Credit) and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent, the Issuing Bank and the Participants) any rights, remedies, obligations or liabilities under or by reason of this Agreement or the other Credit Documents.

SECTION 9.11. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER CREDIT DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.11.

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SECTION 9.12. Severability. In the event any one or more of the provisions contained in this Agreement or in any other Credit Document should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby (it being understood that the invalidity of a particular provision in a particular jurisdiction shall not in and of itself affect the validity of such provision in any other jurisdiction). The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.

SECTION 9.13. Counterparts. (a)This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original but all of which when taken together shall constitute a single contract, and shall become effective as provided in Section 9.03. This Agreement and the other Credit Documents, and any separate letter agreements with respect to fees payable to the Administrative Agent, constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Delivery of an executed signature page to this Agreement by facsimile transmission or in electronic (i.e., “pdf” or “tif”) format shall be as effective as delivery of a manually signed counterpart of this Agreement.

(b) The words “execution,” “signed,” “signature,” and words of like import in any Assignment and Assumption shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any applicable law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on the Uniform Electronic Transactions Act.

SECTION 9.14. Headings. Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and are not to affect the construction of, or to be taken into consideration in interpreting, this Agreement.

SECTION 9.15. Jurisdiction; Consent to Service of Process. (a) Each of Shea Corp. and the Company hereby irrevocably and unconditionally agrees, that it will not commence any action, litigation or proceeding of any kind or description, whether in law or equity, whether in contract or in tort or otherwise, against the Administrative Agent, any Participant, the Issuing Bank, or any Related Party of the foregoing in any way relating to this Agreement or any other Credit Document or the transactions relating hereto or thereto, in any forum other than the courts of

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the State of New York sitting in New York County, and of the United States District Court of the Southern District of New York, and any appellate court from any thereof, and each of the parties hereto irrevocably and unconditionally submits to the jurisdiction of such courts and agrees that all claims in respect of any such action, litigation or proceeding may be heard and determined in such New York State court or, to the fullest extent permitted by applicable law, in such federal court. Each of the parties hereto agrees that a final judgment in any such action, litigation or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement or in any other Credit Document shall affect any right that the Administrative Agent, any Participant or the Issuing Bank may otherwise have to bring any action or proceeding relating to this Agreement or any other Credit Document against the Company, Shea Corp. or their respective properties in the courts of any jurisdiction.

(b) Each of Shea Corp. and the Company hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or the other Credit Documents in any court referred to in paragraph (a) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.

(c) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 9.01. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law.

SECTION 9.16. Confidentiality. Each of the Administrative Agent, the Issuing Bank and the Participants agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its and its Affiliates and to its Related Parties (it being understood that the persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent required or requested by any regulatory authority or purporting to have jurisdiction over such person or its Related Parties (including any self-regulatory authority (such as the National Association of Insurance Commissioners), (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (d) to any other party hereto, (e) in connection with the exercise of any remedies hereunder or under the other Credit Documents or any suit, action or proceeding relating to the enforcement of its rights hereunder or thereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section 9.16, to (i) any assignee of or participant in, or any prospective assignee of or participant in any of its rights or obligations under this

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Agreement and the other Credit Documents or (ii) any actual or prospective counterparty (or its Related Parties) to any swap, derivative or other transaction under which payments are to be made by reference to the Company and its obligations, this Agreement or payments hereunder, (g) on a confidential basis to (i) any rating agency in connection with rating the Company or its Subsidiaries or the Facilities or (ii) the CUSIP Service Bureau or any similar agency in connection with the issuance and monitoring of CUSIP with respect to the facility, (h) with the consent of the Company or (i) to the extent such Information (x) becomes publicly available other than as a result of a breach of this Section 9.16 or (y) becomes available to the Administrative Agent, any Participant the Issuing Bank or any of their respective Affiliates on a nonconfidential basis from a source other than the Company. For the purposes of this Section, “Information” shall mean all information received from the Company or Shea Corp. and related to the Company or Shea Corp. or their respective businesses, other than any such information that was available to the Administrative Agent, the Issuing Bank or any Participant on a nonconfidential basis prior to its disclosure by the Company or Shea Corp. Any person required to maintain the confidentiality of Information as provided in this Section 9.16 shall be considered to have complied with its obligation to do so if such person has exercised the same degree of care to maintain the confidentiality of such Information as such person would accord its own confidential information.

SECTION 9.17. USA PATRIOT Act Notice. The Issuing Bank, each Participant and the Administrative Agent (for itself and not on behalf of any Participant) hereby notifies Shea Corp. and the Company that pursuant to the requirements of the USA PATRIOT Act, it is required to obtain, verify and record information that identifies Shea Corp. and the Company, which information includes the name and address of Shea Corp. and the Company and other information that will allow the Issuing Bank, such Participant or the Administrative Agent, as applicable, to identify Shea Corp. and the Company in accordance with the USA PATRIOT Act.

ARTICLE X

GUARANTEE

SECTION 10.01. The Guarantee. Each Guarantor irrevocably and unconditionally guarantees, jointly with the other Guarantors and severally, as a primary obligor and not merely as a surety, the due and punctual payment and performance of the Obligations. Each Guarantor further agrees that the Obligations may be extended or renewed, in whole or in part, without notice to or further assent from it, and that it will remain bound upon its guarantee hereunder notwithstanding any such extension or renewal of any Obligation. Each Guarantor waives presentment to, demand of payment from and protest to the Company or any other Credit Party of

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any of the Obligations, and also waives notice of acceptance of its guarantee and notice of protest for nonpayment.

SECTION 10.02. Guarantee of Payment; Continuing Guarantee. Each Guarantor further agrees that its guarantee hereunder constitutes a guarantee of payment when due (whether (i) at the stated maturity, by acceleration or otherwise and (ii) or not any bankruptcy or similar proceeding shall have stayed the accrual of collection of any of the Obligations or operated as a discharge thereof) and not merely of collection, and waives any right to require that any resort be had by the Administrative Agent or any other Secured Party to any security held for the payment of the Obligations or to any balance of any deposit account or credit on the books of the Administrative Agent or any other Secured Party in favor of the Company, any other party, or any other person. Each Guarantor agrees that its guarantee hereunder is continuing in nature and applies to all Obligations, whether currently existing or hereafter incurred.

SECTION 10.03. No Limitations. (a)Except for termination of a Guarantor’s obligations hereunder as expressly provided in Section 10.10 and except for the limitations set forth in Section 10.09 or, with respect to any Guarantor that becomes a party hereto pursuant to Section 10.08 or otherwise, in any Supplement to this Agreement, the obligations of each Guarantor hereunder shall not be subject to any reduction, limitation, impairment or termination for any reason, including any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to any defense or set-off, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality or unenforceability of the Obligations, any impossibility in the performance of the Obligations, or otherwise. Without limiting the generality of the foregoing, the obligations of each Guarantor hereunder shall not be discharged or impaired or otherwise affected by reason of:

(i) the failure of the Administrative Agent or any other Secured Party to assert any claim or demand or to enforce any right or remedy under the provisions of any Credit Document or otherwise;

(ii) any rescission, waiver, amendment or modification of, or any release from any of the terms or provisions of, any Credit Document or any other agreement, including with respect to any other Guarantor under this Agreement;

(iii) the failure to perfect any security interest in, or the exchange, substitution, release or any impairment of, any security held by the Administrative Agent or any other Secured Party for the Obligations or any of them;

(iv) any default, failure or delay, wilful or otherwise, in the performance of the Obligations;

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(v) any other act or omission that may or might in any manner or to any extent vary the risk of any Guarantor or otherwise operate as a discharge of any Guarantor as a matter of law or equity (other than the payment in full in cash or immediately available funds of all the Obligations (other than contingent or unliquidated obligations or liabilities));

(vi) any illegality, lack of validity or enforceability of any Obligation;

(vii) any change in the corporate existence, structure or ownership of any Credit Party, or any insolvency, bankruptcy, reorganization or other similar proceeding affecting a Credit Party or its assets; or

(viii) any other circumstance (including without limitation, any statute of limitations but excluding, the payment in full in cash or immediately available funds of all the Obligations (other than contingent or unliquidated expense reimbursement or indemnification obligations or liabilities) or any existence of or reliance on any representation by the Administrative Agent that might otherwise constitute a defense to, or a legal or equitable discharge of, the Company or the Guarantor or any other guarantor or surety.

(ix) Each Guarantor expressly authorizes the Secured Parties to take and hold security for the payment and performance of the Obligations, to exchange, waive or release any or all such security (with or without consideration), to enforce or apply such security and direct the order and manner of any sale thereof in their sole discretion or to release or substitute any one or more other guarantors or obligors upon or in respect of the Obligations, all without affecting the obligations of any Guarantor hereunder.

(b) To the fullest extent permitted by applicable law, each Guarantor waives any defense based on or arising out of any defense of the Company or any other Credit Party or the unenforceability of the Obligations or any part thereof from any cause, or the cessation from any cause of the liability of the Company or any other Credit Party, other than the payment in full in cash of all the Obligations. The Administrative Agent and the other Secured Parties may, subject to the terms of the Security Documents, instruct the Collateral Agent to foreclose (and the Collateral Agent may foreclose) on any security held by or on behalf of one or more of them by one or more judicial or nonjudicial sales, accept an assignment of any such security in lieu of foreclosure, compromise or adjust any part of the Obligations, make any other accommodation with the Company or any other Credit Party or exercise any other right or remedy available to them against the Company or any other Credit Party, without affecting or impairing in any way the liability of any Guarantor hereunder except to the extent the Obligations have been paid in full in cash. To the fullest extent permitted by applicable law, each Guarantor waives any defense arising out of any such election even though such election operates, pursuant to applicable law, to impair or to extinguish any right of reimbursement or subrogation or other right or remedy of such Guarantor against the Company or any other Loan Party, as the case may be, or any security.

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SECTION 10.04. Reinstatement. Each of the Guarantors agrees that its guarantee hereunder shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of any Obligation is rescinded or must otherwise be restored by the Administrative Agent or any other Secured Party upon the bankruptcy or reorganization of the Company, any other Credit Party or otherwise or in the event that any contingent or unliquidated obligations or liabilities are not paid in full when due.

SECTION 10.05. Agreement To Pay; Contribution; Indemnity and Subrogation. (a)In furtherance of the foregoing and not in limitation of any other right that the Administrative Agent or any other Secured Party has at law or in equity against any Guarantor by virtue hereof, upon the failure of the Company or any other Credit Party to pay any Obligation when and as the same shall become due, whether at maturity, by acceleration, after notice of prepayment or otherwise, each Guarantor hereby promises to and will forthwith pay, or cause to be paid, to the Administrative Agent for distribution to the applicable Secured Parties in cash the amount of such unpaid Obligation.

(b) Each Guarantor that makes a payment under its guarantee shall be entitled, upon payment in full of all Obligations, to a contribution from each other Guarantor in an amount equal to such other Guarantor’s pro rata portion of such payment based on the respective net assets of all the Guarantors at the time of such payment determined in accordance with GAAP.

(c) In the event that (a) a payment in respect of an obligation shall be made by any Guarantor, the Company and Shea Corp. shall indemnify such Guarantor for the full amount of such payment and such Guarantor shall be subrogated to the rights of the person to whom such payments shall have been made to the extent of such payment and (b) any assets of any Guarantor shall be sold pursuant to this Agreement or any Security Document to satisfy in whole or in part any Obligation owed to any Secured Party, the Company and Shea Corp. shall indemnify such Guarantor in an amount equal to the greater of the book value of the fair marked value of the assets so sold.

(d) Each Guarantor (a “Contributing Party”) agrees (subject to Section 10.07) that, in the event a payment shall be made by any other Guarantor hereunder in respect of any Obligation or assets of any other Guarantor shall be sold pursuant to any Security Document to satisfy any Obligation owed to any Secured Party and such other Guarantor (the “Claiming Party”) shall not have been fully indemnified by the Issuers as provided in paragraph (c) above, the Contributing Party shall indemnify the Claiming Party in an amount equal to the amount of such payment or the greater of the book value or the fair market value of such assets, as the case may be, in each case multiplied by a fraction of which the numerator shall be the net worth of the Contributing Party on the date hereof and the denominator shall be the aggregate net worth of all the Guarantors on the date hereof (or, in the case of any Guarantor becoming a party hereto pursuant to Section 10.08, the date of the supplement hereto executed and delivered by such Guarantor). Any

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Contributing Party making any payment to a Claiming Party pursuant to this Section 10.05 shall (subject to Section 10.07) be subrogated to the rights of such Claiming Party under paragraph (c) to the extent of such payment.

SECTION 10.06. Information. Each Guarantor (a) assumes all responsibility for being and keeping itself informed of the Company’s and each other Credit Party’s financial condition and assets, and of all other circumstances bearing upon the risk of nonpayment of the Obligations and the nature, scope and extent of the risks that such Guarantor assumes and incurs hereunder, and (b) agrees that none of the Administrative Agent or the other Secured Parties will have any duty to advise such Guarantor of information known to it or any of them regarding such circumstances or risks.

SECTION 10.07. Subordination. (a)Notwithstanding any provision of this Agreement to the contrary, all rights of the Guarantors under Section 10.05 and all other rights of the Guarantors of indemnity, contribution or subrogation under applicable law or otherwise shall be fully subordinated to the payment in full in cash of the Obligations. No failure on the part of the Issuers or any Guarantor to make the payments required by Section 10.05 (or any other payments required under applicable law or otherwise) shall in any respect limit the obligations and liabilities of any Guarantor with respect to its obligations hereunder, and each Guarantor shall remain liable for the full amount of the obligations of such Guarantor hereunder.

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

SECTION 10.08. Additional Guarantors. Upon execution and delivery by the Administrative Agent and any Subsidiary that is required to become a party hereto by Section 5.05 of an instrument in the form of Exhibit F hereto (with such additions to such form as the Administrative Agent and the Company may reasonably agree in the case of any such Subsidiary) (a “Supplement”), such entity shall become a Guarantor hereunder with the same force and effect as if originally named as a Guarantor herein. The execution and delivery of any such instrument shall not require the consent of any other party to this Agreement. The rights and obligations of each party to this Agreement shall remain in full force and effect notwithstanding the addition of any new party to this Agreement.

SECTION 10.09. Maximum Liability. Each Guarantor, and by its acceptance of this guarantee, the Administrative Agent and each Participant hereby confirms that it is the intention of all such Persons that this guarantee and the Obligations of each Guarantor hereunder not constitute a

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fraudulent transfer or conveyance for purposes of any Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal, state or non-U.S. law to the extent applicable to this guarantee and the Obligations of each Guarantor hereunder. To effectuate the foregoing intention, the Administrative Agent, the Participants and the Guarantors hereby irrevocably agree that the Obligations of each Guarantor under this guarantee at any time shall be limited to the maximum amount as will result in the Obligations of such Guarantor under this guarantee not constituting a fraudulent transfer or conveyance.

SECTION 10.10. Release of Guarantors. A Guarantor will be released from its obligations under this Article X (other than any obligation that may have arisen under Section 10.05):

(i) upon the sale (including any sale pursuant to any exercise of remedies by a holder of Indebtedness of the Company or of such Guarantor) or other disposition (including by way of consolidation or merger) of a Guarantor,

(ii) upon the sale or disposition of all or substantially all the assets of such Guarantor,

(iii) upon the designation of such Guarantor as an Unrestricted Subsidiary in accordance with the terms of this Agreement,

(iv) upon the full satisfaction of the Obligations;

(v) provided, however, that in the case of clauses (i) and (ii) above, (A) such sale or other disposition is made to a person other than the Company or a Subsidiary of the Company, (B) such sale or disposition is otherwise permitted by this Agreement and (C) the Company provides an Officers’ Certificate to the Administrative Agent to the effect that the Company will comply with its obligations under Section 6.04.

(vi) At the request of the Company, the Administrative Agent shall execute and deliver an appropriate instrument evidencing such release.

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.

SHEA HOMES LIMITED PARTNERSHIP,
a California limited partnership
By:	/s/ James G. Shontere
	Name:	James G. Shontere
	Title:	Secretary
By:	/s/ Robert R. O’Dell
	Name:	Robert R. O’Dell
	Title:	Treasurer
SHEA HOMES FUNDING CORP., a Delaware corporation
By:	/s/ James G. Shontere
	Name:	James G. Shontere
	Title:	Chief Financial Officer and Secretary
By:	/s/ Robert R. O’Dell
	Name:	Robert R. O’Dell
	Title:	Vice President

[Signature Page to the Letter of Credit Facility Agreement]

GUARANTORS:

HIGHLANDS RANCH DEVELOPMENT CORPORATION,

a Colorado corporation

By:	/s/ James G. Shontere
	Name: James G. Shontere
	Title: Secretary
By:	/s/ Robert R. O’Dell
	Name: Robert R. O’Dell
	Title: Treasurer
MONTY GREEN HOLDINGS, LLC, a Delaware limited liability company
By:	/s/ James G. Shontere
	Name: James G. Shontere
	Title: Secretary
By:	/s/ Robert R. O’Dell
	Name: Robert R. O’Dell
	Title: Treasurer
MOUNTAINBROOK VILLAGE COMPANY, an Arizona corporation
By:	/s/ James G. Shontere
	Name: James G. Shontere
	Title: Secretary
By:	/s/ Robert R. O’Dell
	Name: Robert R. O’Dell
	Title: Treasurer

[Signature Page to the Letter of Credit Facility Agreement]

SAND CREEK CATTLE COMPANY, a Colorado corporation
By:	/s/ James G. Shontere
	Name: James G. Shontere
	Title: Secretary
By:	/s/ Robert R. O’Dell
	Name: Robert R. O’Dell
	Title: Treasurer
SERENADE AT NATOMAS, LLC, a California limited liability company
By:	Shea Homes, Inc., a Delaware corporation, Its sole Member
	By:	/s/ James G. Shontere
		Name: James G. Shontere
		Title: Secretary
	By:	/s/ Robert R. O’Dell
		Name: Robert R. O’Dell
		Title: Treasurer

[Signature Page to the Letter of Credit Facility Agreement]

SEVILLE GOLF AND COUNTRY CLUB, LLC, an Arizona limited liability company
By:	Shea Homes Limited Partnership, a California limited partnership, Its Sole Member and Manager
	By:	J.F. Shea, L.P., a Delaware limited partnership, Its sole General Partner
		By:	JFS Management, L.P., a Delaware limited partnership, Its sole General Partner
			By:	J.F. Shea Construction Management, Inc., a California corporation, Its sole General Partner
				By:	/s/ James G. Shontere
					Name: James G. Shontere
					Title: Secretary
				By:	/s/ Robert R. O’Dell
					Name: Robert R. O’Dell
					Title: Treasurer

[Signature Page to the Letter of Credit Facility Agreement]

SHEA BREA DEVELOPMENT, LLC, a Delaware limited liability company
By:	Shea Homes Limited Partnership, a California limited partnership, Its Sole Member and Manager
	By:	J.F. Shea, L.P., a Delaware limited partnership, Its sole General Partner
		By:	JFS Management, L.P., a Delaware limited partnership, Its sole General Partner
			By:	J.F. Shea Construction Management, Inc., a California corporation, Its sole General Partner
				By:	/s/ James G. Shontere
					Name: James G. Shontere
					Title: Secretary
				By:	/s/ Robert R. O’Dell
					Name: Robert R. O’Dell
					Title: Treasurer

[Signature Page to the Letter of Credit Facility Agreement]

SHEA CAPITAL II, LLC, a Delaware limited liability company
By:	Shea Homes Limited Partnership, a California limited partnership, Its Manager
	By:	J.F. Shea, L.P., a Delaware limited partnership, Its sole General Partner
		By:	JFS Management, L.P., a Delaware limited partnership, Its sole General Partner
			By:	J.F. Shea Construction Management, Inc., a California corporation, Its sole General Partner
				By:	/s/ James G. Shontere
					Name: James G. Shontere
					Title: Secretary
				By:	/s/ Robert R. O’Dell
					Name: Robert R. O’Dell
					Title: Treasurer

SHEA COMMUNITIES MARKETING COMPANY,

a Delaware corporation

By:	/s/ James G. Shontere
	Name: James G. Shontere
	Title: Secretary
By:	/s/ Robert R. O’Dell
	Name: Robert R. O’Dell
	Title: Treasurer

[Signature Page to the Letter of Credit Facility Agreement]

SHEA FINANCIAL SERVICES, INC., a California corporation
By:	/s/ James G. Shontere
	Name: James G. Shontere
	Title: Secretary
By:	/s/ Robert R. O’Dell
	Name: Robert R. O’Dell
	Title: Treasurer
SHEA HOMES, INC., a Delaware corporation
By:	/s/ James G. Shontere
	Name: James G. Shontere
	Title: Secretary
By:	/s/ Robert R. O’Dell
	Name: Robert R. O’Dell
	Title: Treasurer
SHEA HOMES AT MONTAGE, LLC, a California limited liability company
By:	/s/ James G. Shontere
	Name: James G. Shontere
	Title: Secretary
By:	/s/ Robert R. O’Dell
	Name: Robert R. O’Dell
	Title: Treasurer

[Signature Page to the Letter of Credit Facility Agreement]

SHEA HOMES SOUTHWEST, INC., an Arizona corporation
By:	/s/ James G. Shontere
	Name: James G. Shontere
	Title: Secretary
By:	/s/ Robert R. O’Dell
	Name: Robert R. O’Dell
	Title: Treasurer
SHEA HOMES VANTIS, LLC, a California limited liability company
By:	/s/ James G. Shontere
	Name: James G. Shontere
	Title: Secretary
By:	/s/ Robert R. O’Dell
	Name: Robert R. O’Dell
	Title: Treasurer
SHEA INSURANCE SERVICES, INC., a California corporation
By:	/s/ James G. Shontere
	Name: James G. Shontere
	Title: Secretary
By:	/s/ Robert R. O’Dell
	Name: Robert R. O’Dell
	Title: Treasurer

[Signature Page to the Letter of Credit Facility Agreement]

SHEA LA QUINTA LLC, a California limited liability company
By:	Shea Homes, Inc., a Delaware corporation, Its sole Member
	By:	/s/ James G. Shontere
		Name: James G. Shontere
		Title: Secretary
	By:	/s/ Robert R. O’Dell
		Name: Robert R. O’Dell
		Title: Treasurer
SHEA NINTH AND COLORADO, LLC, a Colorado limited liability company
By:	Shea Homes Limited Partnership, a California limited partnership, Its sole Member and Manager
	By:	J.F. Shea, L.P., a Delaware limited partnership, Its sole General Partner
		By:	JFS Management, L.P., a Delaware limited partnership, Its sole General Partner
			By:	J.F. Shea Construction Management, Inc., a California corporation, Its sole General Partner
				By:	/s/ James G. Shontere
					Name: James G. Shontere
					Title: Secretary
				By:	/s/ Robert R. O’Dell
					Name: Robert R. O’Dell
					Title: Treasurer

[Signature Page to the Letter of Credit Facility Agreement]

SHEA OTAY VILLAGE 11, LLC,
a California limited liability company
By:	Shea Homes Limited Partnership,
	a California limited partnership,
	Its Sole Member
	By:	J.F. Shea, L.P.,
		a Delaware limited partnership,
		Its sole General Partner
		By:	JFS Management, L.P.,
			a Delaware limited partnership,
			Its sole General Partner
			By:	J.F. Shea Construction Management, Inc.,
				a California corporation,
				Its sole General Partner
				By:	/s/ James G. Shontere
					Name: James G. Shontere
					Title: Secretary
				By:	/s/ Robert R. O’Dell
					Name: Robert R. O’Dell
					Title: Treasurer

[Signature Page to the Letter of Credit Facility Agreement]

SHEA PROCTOR VALLEY, LLC,
a California limited liability company
By:	Shea Homes Limited Partnership,
	a California limited partnership,
	Its Sole Member
	By:	J.F. Shea, L.P.,
		a Delaware limited partnership,
		Its sole General Partner
		By:	JFS Management, L.P.,
			a Delaware limited partnership,
			Its sole General Partner
			By:	J.F. Shea Construction Management, Inc.,
				a California corporation,
				Its sole General Partner
				By:	/s/ James G. Shontere
					Name: James G. Shontere
					Title: Secretary
				By:	/s/ Robert R. O’Dell
					Name: Robert R. O’Dell
					Title: Treasurer

[Signature Page to the Letter of Credit Facility Agreement]

SHEA PROPERTIES OF COLORADO, INC.,
a Colorado corporation
By:	/s/ James G. Shontere
	Name: James G. Shontere
	Title: Secretary
By:	/s/ Robert R. O’Dell
	Name: Robert R. O’Dell
	Title: Treasurer
SHEA RIVERMARK VILLAGE, LLC, a California limited liability company
By:	Shea Homes Limited Partnership,
	a California limited partnership,
	Its Sole Member and Manager
	By:	J.F. Shea, L.P.,
		a Delaware limited partnership,
		Its sole General Partner
		By:	JFS Management, L.P.,
			a Delaware limited partnership,
			Its sole General Partner
			By:	J.F. Shea Construction Management, Inc.,
				a California corporation,
				Its sole General Partner
				By:	/s/ James G. Shontere
					Name: James G. Shontere
					Title: Secretary
				By:	/s/ Robert R. O’Dell
					Name: Robert R. O’Dell
					Title: Treasurer

[Signature Page to the Letter of Credit Facility Agreement]

SHEA TONNER HILLS, LLC,
a Delaware limited liability company
By:	Shea Homes Limited Partnership,
	a California limited partnership,
	Its sole Member and Manager
	By:	J.F. Shea, L.P.,
		a Delaware limited partnership,
		Its sole General Partner
		By:	JFS Management, L.P.,
			a Delaware limited partnership,
			Its sole General Partner
			By:	J.F. Shea Construction Management, Inc.,
				a California corporation,
				Its sole General Partner
				By:	/s/ James G. Shontere
					Name: James G. Shontere
					Title: Secretary
				By:	/s/ Robert R. O’Dell
					Name: Robert R. O’Dell
					Title: Treasurer

SHEA VICTORIA GARDENS, LLC,
a Florida limited liability company
By:	/s/ James G. Shontere
	Name: James G. Shontere
	Title: Secretary
By:	/s/ Robert R. O’Dell
	Name: Robert R. O’Dell
	Title: Treasurer

[Signature Page to the Letter of Credit Facility Agreement]

SH JUBILEE, LLC,
a Delaware limited liability company
By:	/s/ James G. Shontere
	Name: James G. Shontere
	Title: Secretary
By:	/s/ Robert R. O’Dell
	Name: Robert R. O’Dell
	Title: Treasurer
SH JUBILEE MANAGEMENT, LLC, a Delaware limited liability company
By:	/s/ James G. Shontere
	Name: James G. Shontere
	Title: Secretary
By:	/s/ Robert R. O’Dell
	Name: Robert R. O’Dell
	Title: Treasurer

[Signature Page to the Letter of Credit Facility Agreement]

SHI JV HOLDINGS, LLC,
a Delaware limited liability company
By:	/s/ James G. Shontere
	Name: James G. Shontere
	Title: Secretary
By:	/s/ Robert R. O’Dell
	Name: Robert R. O’Dell
	Title: Treasurer
SHLP JV HOLDINGS, LLC, a Delaware limited liability company
By:	/s/ James G. Shontere
	Name: James G. Shontere
	Title: Secretary
By:	/s/ Robert R. O’Dell
	Name: Robert R. O’Dell
	Title: Treasurer

[Signature Page to the Letter of Credit Facility Agreement]

TOWER 104 GATHERING, LLC,
a Colorado limited liability company
By:	Shea Homes Limited Partnership,
	a California limited partnership,
	Its Sole Member and Manager
	By:	J.F. Shea, L.P.,
		a Delaware limited partnership,
		Its sole General Partner
		By:	JFS Management, L.P.,
			a Delaware limited partnership,
			Its sole General Partner
			By:	J.F. Shea Construction Management, Inc.,
				a California corporation,
				Its sole General Partner
				By:	/s/ James G. Shontere
					Name: James G. Shontere
					Title: Secretary
				By:	/s/ Robert R. O’Dell
					Name: Robert R. O’Dell
					Title: Treasurer

[Signature Page to the Letter of Credit Facility Agreement]

TOWER 104 OIL, LLC,
a Colorado limited liability company
By:	Shea Homes Limited Partnership,
	a California limited partnership,
	Its Sole Member and Manager
	By:	J.F. Shea, L.P.,
		a Delaware limited partnership,
		Its sole General Partner
		By:	JFS Management, L.P.,
			a Delaware limited partnership,
			Its sole General Partner
			By:	J.F. Shea Construction Management, Inc.,
				a California corporation,
				Its sole General Partner
				By:	/s/ James G. Shontere
					Name: James G. Shontere
					Title: Secretary
				By:	/s/ Robert R. O’Dell
					Name: Robert R. O’Dell
					Title: Treasurer

[Signature Page to the Letter of Credit Facility Agreement]

TRILOGY ANTIOCH, LLC,
a California limited liability company
By:	SHEA CAPITAL II, LLC,
	a Delaware limited liability company,
	Its sole Member
	By:	Shea Homes Limited Partnership,
		a California limited partnership,
		Its Manager
		By:	J.F. Shea, L.P.,
			a Delaware limited partnership,
			Its sole General Partner
			By:	JFS Management, L.P.,
				a Delaware limited partnership,
				Its sole General Partner
				By:	J.F. Shea Construction Management, Inc.,
					a California corporation,
					Its sole General Partner
					By:	/s/ James G. Shontere
						Name: James G. Shontere
						Title: Secretary
					By:	/s/ Robert R. O’Dell
						Name: Robert R. O’Dell
						Title: Treasurer
UDC ADVISORY SERVICES, INC.,
an Illinois corporation
By:	/s/ James G. Shontere
	Name: James G. Shontere
	Title: Secretary
By:	/s/ Robert R. O’Dell
	Name: Robert R. O’Dell
	Title: Treasurer

[Signature Page to the Letter of Credit Facility Agreement]

UDC HOMES CONSTRUCTION, INC.,
an Arizona corporation
By:	/s/ James G. Shontere
	Name: James G. Shontere
	Title: Secretary
By:	/s/ Robert R. O’Dell
	Name: Robert R. O’Dell
	Title: Treasurer
VISTANCIA CONSTRUCTION, LLC, a Delaware limited liability company
By:	Shea Homes Southwest, Inc.,
	an Arizona corporation,
	Its Manager
	By:	/s/ James G. Shontere
		Name: James G. Shontere
		Title: Secretary
	By:	/s/ Robert R. O’Dell
		Name: Robert R. O’Dell
		Title: Treasurer
VISTANCIA MARKETING, LLC, a Delaware limited liability company
By:	Shea Homes Southwest, Inc.,
	an Arizona corporation,
	Its Manager
	By:	/s/ James G. Shontere
		Name: James G. Shontere
		Title: Secretary
	By:	/s/ Robert R. O’Dell
		Name: Robert R. O’Dell
		Title: Treasurer

[Signature Page to the Letter of Credit Facility Agreement]

CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH, individually and as Administrative Agent and Issuing Bank,
	by	/s/ BILL O’DALY
		Name:	BILL O’DALY
		Title:	DIRECTOR
	by	/s/ Sanja Gazahi
		Name:	Sanja Gazahi
		Title:	Associate

[Signature Page to the Letter of Credit Facility Agreement]

SCHEDULE 1.01(b)

SUBSIDIARY GUARANTORS

Name	Form of Entity	Jurisdiction of Formation
Highlands Ranch Development Corporation	Corporation	Colorado
Monty Green Holdings, LLC	Limited Liability Company	Delaware
Mountainbrook Village Company	Corporation	Arizona
Sand Creek Cattle Company	Corporation	Colorado
Serenade at Natomas	Limited Liability Company	California
Seville Golf and Country Club, LLC	Limited Liability Company	Arizona
SH Jubilee, LLC	Limited Liability Company	Delaware
SH Jubilee Management, LLC	Limited Liability Company	Delaware
Shea Brea Development, LLC	Limited Liability Company	Delaware
Shea Capital II, LLC	Limited Liability Company	Delaware
Shea Communities Marketing Company	Corporation	Delaware
Shea Financial Services, Inc.	Corporation	California
Shea Homes at Montage, LLC	Limited Liability Company	California
Shea Homes, Inc.	Corporation	Delaware
Shea Homes Southwest, Inc.	Corporation	Arizona
Shea Homes Vantis, LLC	Limited Liability Company	California
Shea Insurance Services, Inc.	Corporation	California
Shea La Quinta LLC	Limited Liability Company	California
Shea Ninth and Colorado, LLC	Limited Liability Company	Colorado
Shea Otay Village 11, LLC	Limited Liability Company	California
Shea Proctor Valley, LLC	Limited Liability Company	California

Name	Form of Entity	Jurisdiction of Formation
Shea Properties of Colorado, Inc.	Corporation	Colorado
Shea Rivermark Village, LLC	Limited Liability Company	California
Shea Tonner Hills, LLC	Limited Liability Company	Delaware
Shea Victoria Gardens, LLC	Limited Liability Company	Florida
SHI JV Holdings, LLC	Limited Liability Company	Delaware
SHLP JV Holdings, LLC	Limited Liability Company	Delaware
Trilogy Antioch, LLC	Limited Liability Company	California
Tower 104 Gathering, LLC	Limited Liability Company	Colorado
Tower 104 Oil, LLC	Limited Liability Company	Colorado
UDC Homes Construction, Inc.	Corporation	Arizona
UDC Advisory Services, Inc.	Corporation	Illinois
Vistancia Construction, LLC	Limited Liability Company	Delaware
Vistancia Marketing, LLC	Limited Liability Company	Delaware

SCHEDULE 1.10(c)

MORTGAGED PROPERTY

CID #	Project Name	Master Plan	Owner
Active Adult Division
AA002	Trilogy Antioch
AA003	Central Coast	Trilogy Central Coast	SHLP
AA004	Trilogy Glen Ivy	Trilogy Glen Ivy	Shea Homes Inc.
AA005	Trilogy at La Quinta	Trilogy at La Quinta	Shea La Quinta LLC
		Trilogy at Redmond
AA006	Trilogy at Redmond Ridge	Ridge	Shea Homes Inc.
AA007	Victoria Gardens	Victoria Gardens	Shea Capital II
AA008	SHI — Vistancia Lots	Vistancia	Shea Homes Inc.
AA009	Vistancia Construction Company	Vistancia	Vistancia Construction LLC
Arizona Division
AZ001	Granite Ridge	Arroyo Mountain Estates	SHLP
AZ001	Mountain Shadows	Arroyo Mountain Estates	SHLP
AZ002	Sierra Pointe	Canyon Trails	SHLP
AZ003	Cabrillo Canyon	Laredo Ranch	SHLP
AZ004	Foothills at Layton Lakes	Layton Lakes	SHLP
AZ005	Copper Hills	Old Stone Ranch	SHLP
AZ005	Wild Horse	Old Stone Ranch	SHLP
AZ005	Painted Trails	Old Stone Ranch	SHLP
AZ006	Lost Canyon	Rancho Mirage	SHLP
AZ007	Santiago	Seville	SHLP
AZ007	La Mirada	Seville	SHLP
AZ007	La Quintana	Seville	SHLP
AZ007	Escala II	Seville	SHLP
AZ007	Spaces @ Seville	Seville	SHLP
AZ008	Villago 2	Tortosa	SHLP
AZ008	Alante	Tortosa	SHLP
			Vistancia Construction
AZ009	Entrada 3	Vistancia	LLC
			Vistancia Construction
AZ009	Entrada	Vistancia	LLC
			Vistancia Construction
AZ009	Mountain View Estates	Vistancia	LLC
			Vistancia Construction
AZ009	Vistancia F3	Vistancia	LLC
			Vistancia Construction
AZ009	Vistancia F4	Vistancia	LLC
AZ010	Kensington	Watson Estates	SHLP
AZ010	Brighton	Watson Estates	SHLP
AZ011	The Village at Litchfield Park	Litchfield Park	SHLP
	SHLP Mountain View Estates MC
AZ012	2700s	Vistancia	SHLP
AZ012	SHLP Desert Trails MC 2200s	Vistancia	SHLP
AZ012	SHLP Desert Trails MC 3500s	Vistancia	SHLP

CID #	Project Name	Master Plan	Owner
Colorado Division
CO001	Backcountry Future 118S 7010’s	Highlands Ranch	SHLP
CO001	BackCntry 118N 4510’s	Highlands Ranch	SHLP
CO001	BackCntry 118N 5010’s	Highlands Ranch	SHLP
CO001	BackCntry 118N 6020’s	Highlands Ranch	SHLP
CO001	BackCntry 118O 5030’s	Highlands Ranch	SHLP
CO001	BackCntry 118O 6020’s-Estates	Highlands Ranch	SHLP
CO001	BackCntry 118P/Q 4510’s	Highlands Ranch	SHLP
CO001	BackCntry 118P/Q 6020	Highlands Ranch	SHLP
CO001	BackCntry 118Q 5030’s	Highlands Ranch	SHLP
CO001	Spaces at Highlands Ranch	Highlands Ranch	SHLP
CO001	Tresana 2060/2070	Highlands Ranch	SHLP
CO001	BackCntry 118Q 5010’s	Highlands Ranch	SHLP
CO001	Tresana 2010’s	Highlands Ranch	SHLP
CO001	Backcountry Future 118S 7010’s	Highlands Ranch	SHLP
CO001	BackCntry 118N 5010’s Phase2	Highlands Ranch	SHLP
CO001	Backcountry Future 118O Ph1 Custom	Highlands Ranch	SHLP
CO003	DENVER TECH CENTER	DENVER TECH CENTER	SHLP
CO004	PLUM CREEK	PLUM CREEK	Sand Creek Cattle Company
CO005	Erie Commons - 4030’s	Erie Commons	SHLP
CO006	CHATFIELD GREEN — Trailmark	Chatfield Green	SHLP
CO002	Eaton Parcel and 393 acresPrimesite acq.	Reunion	SHLP
Northern California Division
NC001	Boulevard	Boulevard	SHLP
NC002	Hideaway II	Bridgeway Lakes	SHLP
NC003	Capistrano	Capistrano	SHLP
NC004	Front Porch	Liberty	SHLP
NC004	Hearth and Home	Liberty	SHLP
NC004	Hyacinth - Lot Sale	Liberty	SHLP
NC004	Front Porch	Liberty	SHLP
NC004	Hearth and Home	Liberty	SHLP
NC004	Lavendar - Lot Sale	Liberty	SHLP
NC004	Hyacinth - Lot Sale	Liberty	SHLP
NC005	Mondrian	Mondrian	SHLP
NC006	Portico	Montage	Shea Homes Inc.
NC006	Arborelle	Montage	Shea Homes Inc.
NC006	Ivy	Montage	Shea Homes Inc.
NC007	Antigua	Mountain House	SHLP
NC007	Campania	Mountain House	SHLP
NC007	Esplanade	Mountain House	SHLP
NC008	Serenade	Serenade	Shea Homes Inc.
NC009	The Cove at Summer Lake	Summer Lake	SHLP
NC009	Spaces 4000 (the Bay)	Summer Lake	SHLP
NC009	Spaces 5000 at Summer Lake	Summer Lake	SHLP
NC009	Spaces at Summer Lake	Summer Lake	SHLP
NC009	Summer Lake North - Overall	Summer Lake	SHLP
NC010	Waters End North	Waters End North	SHLP

CID #	Project Name	Master Plan	Owner
Southern California Division
SC001	Meadowbrook	Adeline’s Farm	SHLP
SC002	Spaces	Avonlea	SHLP
SC002	Avonlea	Avonlea	SHLP
SC002	Newbridge - Models	Avonlea	SHLP
SC002	Carmody - Models	Avonlea	SHLP
SC003	Jade @ Blackstone	Blackstone	Shea Tonner Hills LLC
SC003	Amber @ Blackstone	Blackstone	Shea Tonner Hills LLC
SC003	Blackstone PA 5	Blackstone	Shea Tonner Hills LLC
SC003	Blackstone PA 3A	Blackstone	Shea Tonner Hills LLC
SC004	Canterbury Lane	Canterbury Lane	SHLP
SC004	Canterbury II	Canterbury Lane	SHLP
SC005	Pasadera @ Glenwood	Glenwood	SHLP
SC005	Vista Vallarta @ Glenwood	Glenwood	SHLP
SC005	Birch River @ Glenwood	Glenwood	SHLP
SC005	Harbor Station @ Glenwood	Glenwood	SHLP
SC006	Indigo Trails	Indigo Trails	SHLP
SC007	Jackrabbit Trails	Jack Rabbit Trails	SHLP
SC008	Parkside Estates	Parkside Estates	SHLP
SC009	Tapestry	Tapestry	SHLP
SC010	Latitudes South @ Vantis	Vantis	Shea Homes Inc.
SC010	City Walk @ Vantis	Vantis	Shea Homes Inc.
SC010	Latitudes North @ Vantis	Vantis	Shea Homes Inc.
SC010	Vantis Podium	Vantis	Shea Homes Inc.
San Diego Division
SD001	Chaparral Ridge	Chaparral Ridge	SHLP
SD002	Cabanas, The	Coral Cove	SHLP
SD002	Beach House	Coral Cove	SHLP
SD003	Madeira	Del Sur	SHLP
SD003	Mandolin	Del Sur	SHLP
SD003	Madeira II	Del Sur	SHLP
SD003	Mandolin II	Del Sur	SHLP
SD004	Tapestry	Lomas Verdes	SHLP
SD004	Mosaic	Lomas Verdes	SHLP
SD005	Estrella	San Miguel Ranch	SHLP
SD005	Maravilla	San Miguel Ranch	SHLP
SD006	Agave	Windingwalk	SHLP
SD006	Amber	Windingwalk	SHLP
SD006	Sapphire	Windingwalk	SHLP
SD006	Clover	Windingwalk	SHLP
SD007	socialGarden	Civita	SHLP
SD007	skyLoft	Civita	SHLP
SD008	Iris	Iris/Vulcan	SHLP
SD009	Ventana @ Bella Lago	Bella Lago	SHLP
SD010	Seaside	Nantucket - Seaside	SHLP
SD011	Poinsettia Place	Poinsettia Place	Shea Homes Inc.

SCHEDULE 2.01

PARTICIPANTS AND COMMITMENTS

Credit Suisse AG, Cayman Islands Branch $ 75,000,000.00

SCHEDULE 3.08

SUBSIDIARIS

4S Area 37 LLC

4S Area 37 LLC

63rd and Jomax, LLC

AGS Bramasole, L.L.C.

AGS Destination, L.L.C.

AGS Home Builder I, L.P.

AGS Home Builder I, L.P.

AGS Jubilee, L.L.C.

AGS Land Holdings I, L.P.

AGS Land Holdings I, L.P.

AGS Market Street, L.L.C.

AGS Meridian, L.L.C.

AGS Pradera, L.L.C.

AGS Red Rock, L.L.C.

AGS Sendero, L.L.C.

AGS Shadow Creek, L.L.C.

AGS Sierra Sky, L.L.C.

AGS Silverstone, L.L.C.

AGS Tetherwind, L.L.C.

AGS Three Sixtyfive, L.L.C.

AGS Topaz, L.L.C.

AGS Twentyfour Seven, L.L.C.

Alameda Point Community Partners, LLC

Armstrong Ranch LLC

Armstrong Ranch LLC

Bay Vista at Meadow Park, L.P.

Benicia CS Developers, LLC

Benicia CS Lenders, LLC

Bridgeway Lakes Lot Development LLC

Brookfield Shea Otay, LLC

CLS Community Partners, LLC

Coast Cable Partners

Creekside at Meadow Park, L.P.

Escala Mission City, LLC

Escala Mission City, LLC

Highlands Ranch Development Corporation

Laing Forster Ranch II, LLC

Marina Community Partners, LLC

MFS Cascades, LLC

Monty Green Holdings, LLC

Mountainbrook Village Company

MSSH Dublin Development, LLC

MSSH Malibu Terrace Residential, LLC

Novato Community Partners, LLC

Partners Insurance Company, Inc.

Reserve North at Forster Highlands, LLC

Reserve South at Forster Highlands LLC

Reserve South at Forster Highlands LLC

Rivermark Partners, LLC

Riverpark Legacy, LLC

Sand Creek Cattle Company

S-C Perris Development LLC

Serenade at Natomas, LLC

Seville Golf and Country Club, LLC

SFHB I, LLC

SFHB I, LLC

SFHB Management I, LLC

SH Cascades, LLC

SH Jubilee Management, LLC

SH Jubilee, LLC

Shea Arvada Ridge, LLC

Shea Brea Development, LLC

Shea Capital II, LLC

Shea Capital II, LLC

Shea Colorado, LLC

Shea Communities Marketing Company

Shea Escrow Services

Shea Financial Services, Inc.

Shea Homes Southwest, Inc.

Shea Homes, Inc.

Shea Homes, LLC (North Carolina)

Shea Insurance Services, Inc.

Shea La Quinta, LLC

Shea Laguna Hills LLC

Shea Long Beach LLC

Shea Ninth and Colorado, LLC

Shea Otay Village 11, LLC

Shea Proctor Valley, LLC

Shea Properties of Colorado, Inc.

Shea Rivermark Village, LLC

Shea Riverpark Developers, LLC

Shea Tonner Hills, LLC

Shea Victoria Gardens, LLC

SheaComm at Power Ranch Marketing, L.L.C.

SheaComm/Sunpower, L.L.C.

Shea-Paul Ventures, LLC

SHI JV Holdings, LLC

SHLP JV Holdings,LLC

Snow Creek I, L.P.

SRD Management, LLC

Tonner Hills SSP, LLC

Tower 104 Gathering, LLC

Tower 104 Oil, LLC

Trilogy Antioch, LLC

Trilogy at Redmond Ridge, LLC

Tustin Legacy Community Partners, LLC

UDC Advisory Services, Inc.

UDC Homes Construction, Inc.

Vistancia 150 Commercial, LLC

Vistancia 150 Commercial, LLC

Vistancia 580 Commercial, LLC

Vistancia 580 Commercial, LLC

Vistancia Communications, LLC

Vistancia Construction, LLC

Vistancia Land Holdings, LLC

Vistancia Marketing, LLC

Vistancia North, LLC

Vistancia North, LLC

Vistancia South, LLC

Vistancia South, LLC

Vistancia, LLC

West Landmark Ventures, LLC

Western Properties, LLC

Windingwalk Marketplace, LLC

All of the above-listed

subsidiaries are Restricted

Subsidiaries, except for Partners

Insurance Company, which is an

Unrestricted Subsidiary.

SCHEDULE 3.17

ENVIRONMENTAL MATTERS

None

SCHEDULE 3.18

INSURANCE

To be attached

Effective Date	Expiration Date		Named Insured
6/22/2001		6/21/2011	Rivermark Partners, LLC
8/1/2010		7/31/2011	J.F. Shea Co., Inc.
8/1/2010		7/31/2011	J.F. Shea Co., Inc.
8/1/2010		7/31/2011	J.F. Shea Co., Inc.
8/1/2010		7/31/2011	J.F. Shea Co., Inc.
8/1/2010		7/31/2011	J.F. Shea Co., Inc.
8/1/2010		7/31/2011	J.F. Shea Co., Inc., et al
8/1/2010		7/31/2011	J.F. Shea Co., Inc., et al.
8/1/2010		7/31/2011	Shea Homes, Limited Partnership
8/1/2010		7/31/2011	Shea Homes, Limited Partnership
12/31/2010		12/30/2011	J.F. Shea Co., Inc.
12/31/2010		12/30/2011	J.F. Shea Co., Inc.
4/1/2011		3/31/2012	J.F. Shea Co., Inc.
4/1/2011		3/31/2012	J.F. Shea Co., Inc.
4/1/2011		3/31/2012	J.F. Shea Co., Inc.
4/1/2011		3/31/2012	J.F. Shea Co., Inc.
5/15/2007		5/14/2012	Winding Walk Residential, LLC
6/25/2010		6/24/2013	AGS Jubilee, LLC
6/25/2010		6/24/2013	AGS Jubilee, LLC
9/1/2010		8/31/2013	Tonner Hills SSP, LLC
9/1/2010		8/31/2013	Tonner Hills SSP, LLC
9/1/2010		8/31/2013	Tonner Hills SSP, LLC
9/1/2010		8/31/2013	Tonner Hills SSP, LLC
12/31/2004		12/31/2014	Marina Community Partners, LLC
12/31/2004		12/31/2014	Marina Community Partners, LLC
12/31/2004		12/31/2014	Marina Community Partners, LLC
2/28/2006		12/31/2014	Marina Community Partners, LLC
6/9/2010		6/8/2015	MFS Cascades, LLC
6/9/2010		6/8/2015	MFS Cascades, LLC
6/9/2010		6/8/2015	MFS Cascades, LLC
1/1/2006		12/31/2015	Creekside at Meadow Park, LP
5/15/2006		5/14/2016	Shea Homes, LP
5/15/2006		5/14/2016	Shea Homes, LP
12/31/2003		12/30/2023	Tonner Hills SSP, LLC

Insurer	Line of Business	Policy Number
AIG — AISLIC	Pollution Legal Liability	PLC1957141
AIG — National Union Fire Insurance Co.	Umbrella/Excess	15972479
ACE — Illinois Union Insurance Co.	Contractor’s Pollution Liability	CPYG24880576002
Liberty Mutual Fire Insurance Co.	Auto Liability	AS2-661-066115-010
Liberty Mutual Fire Insurance Co.	Worker’s Compensation	WA2-66D-066115-030
Liberty Mutual Fire Insurance Co.	Worker’s Compensation	WC2-661-066115-070
Liberty Mutual Fire Insurance Co.	General Liability	TB2661066115020
SCOR — General Security Indemnity Co of Arizona	Umbrella/Excess	2010-10 F131435-1
Liberty Mutual Fire Insurance Co.	Worker’s Compensation	WA2-66D-066116-020
Liberty Mutual Fire Insurance Co.	General Liability	TB2-661-066116-010
Employers Fire Insurance Company	Property	YSP3478
ACE — ACE American Insurance Company	Property	D37744219003
AIG — National Union Fire Insurance Co.	Crime — Comprehensive 3D	16931168
ACE — Westchester Fire Insurance Co.	Errors & Omission	PendingPol04012011
AIG — National Union Fire Insurance Co.	Fiduciary Liability	17012916
AIG — National Union Fire Insurance Co.	Directors & Officers Liability	17012871
Lloyd’s of London	General Liability	595/XO028620W
Everest National Insurance Company	General Liability	71R2000396-101
Ironshore Specialty Insurance Company	General Liability	530000
AIG — Lexington Insurance Co.	General Liability	23462718
Ironshore Specialty Insurance Company	Umbrella/Excess	670300
Everest National Insurance Company	Umbrella/Excess	71R2000405-101
AIG — Lexington Insurance Co.	Umbrella/Excess	00-676-1861
Indian Harbor Insurance Company	Pollution Legal Liability	XEC0017728
Indian Harbor Insurance Company	Pollution Legal Liability	PEC0017726
Zurich — Steadfast Insurance Co.	Pollution Legal Liability	REL9006031-00
Indian Harbor Insurance Company	Pollution Legal Liability	PEC0020144
Ironshore Specialty Insurance Company	Umbrella/Excess	451700
AIG — Lexington Insurance Co.	General Liability	23462661
AIG — Lexington Insurance Co.	Umbrella/Excess	6761831
AIG — AISLIC	Pollution Legal Liability	PLS 1664986
AIG — AISLIC	Pollution Legal Liability	1813508
AIG — AISLIC	Pollution Legal Liability	1813428
AIG — AISLIC	Pollution Legal Liability	EPP7783999

Type	Insurer/Insurer Limit		Insurer/Insurer Aggregate Limit
Project Specific		15,000,000.00		15,000,000.00
Master		25,000,000.00		25,000,000.00
Master		5,000,000.00		5,000,000.00
Master		1,000,000.00		1,000,000.00
Master		1,000,000.00		1,000,000.00
Master		1,000,000.00		1,000,000.00
Master		3,000,000.00		6,000,000.00
Master		25,000,000.00		25,000,000.00
Master		1,000,000.00		1,000,000.00
Master		3,000,000.00		6,000,000.00
Master		74,500,000.00		74,500,000.00
Master		50,000,000.00		N/A
Master		5,000,000.00		5,000,000.00
Master		5,000,000.00		10,000,000.00
Master		5,000,000.00		5,000,000.00
Master		10,000,000.00		10,000,000.00
Project Specific		5,000,000.00		5,000,000.00
Project Specific		5,000,000.00		5,000,000.00
Project Specific		5,000,000.00		5,000,000.00
Project Specific		2,000,000.00		2,000,000.00
Project Specific		10,000,000.00		10,000,000.00
Project Specific		10,000,000.00		10,000,000.00
Project Specific		3,000,000.00		3,000,000.00
Project Specific		25,000,000.00		25,000,000.00
Project Specific		25,000,000.00		25,000,000.00
Project Specific		50,000,000.00		50,000,000.00
Project Specific		25,000,000.00		25,000,000.00
Project Specific		10,000,000.00		10,000,000.00
Project Specific		2,000,000.00		2,000,000.00
Project Specific		3,000,000.00		3,000,000.00
Project Specific		5,000,000.00		5,000,000.00
Project Specific		10,000,000.00		10,000,000.00
Project Specific		10,000,000.00		10,000,000.00
Project Specific		1,000,000.00		1,000,000.00

SCHEDULE 3.19(a)

UCC FILING OFFICES

Name	Form of Entity	Filing	Filing State
Highlands Ranch Development Corporation	Corporation	UCC	Colorado
Monty Green Holdings, LLC	Limited Liability Company	UCC	Delaware
Mountainbrook Village Company	Corporation	UCC	Arizona
Sand Creek Cattle Company	Corporation	UCC	Colorado
Serenade at Natomas, LLC	Limited Liability Company	UCC	California
Seville Golf and Country Club, LLC	Limited Liability Company	UCC	Arizona
SH Jubilee, LLC	Limited Liability Company	UCC	Delaware
SH Jubilee Management, LLC	Limited Liability Company	UCC	Delaware
Shea Brea Development, LLC	Limited Liability Company	UCC	Delaware
Shea Capital II, LLC	Limited Liability Company	UCC	Delaware
Shea Communities Marketing Company	Corporation	UCC	Delaware
Shea Financial Services, Inc.	Corporation	UCC	California
Shea Homes at Montage, LLC	Limited Liability Company	UCC	California
Shea Homes, Inc.	Corporation	UCC	Delaware
Shea Homes Southwest, Inc.	Corporation	UCC	Arizona
Shea Homes Vantis, LLC	Limited Liability Company	UCC	California
Shea Insurance Services, Inc.	Corporation	UCC	California
Shea La Quinta LLC	Limited Liability Company	UCC	California
Shea Ninth and Colorado, LLC	Limited Liability Company	UCC	Colorado
Shea Otay Village 11, LLC	Limited Liability Company	UCC	California

Name	Form of Entity	Filing		Filing State
Shea Proctor Valley, LLC	Limited Liability Company		UCC	California
Shea Properties of Colorado, Inc.	Corporation		UCC	Colorado
Shea Rivermark Village, LLC	Limited Liability Company		UCC	California
Shea Tonner Hills, LLC	Limited Liability Company		UCC	Delaware
Shea Victoria Gardens, LLC	Limited Liability Company		UCC	Florida
SHI JV Holdings, LLC	Limited Liability Company		UCC	Delaware
SHLP JV Holdings, LLC	Limited Liability Company		UCC	Delaware
Trilogy Antioch, LLC	Limited Liability Company		UCC	California
Tower 104 Gathering, LLC	Limited Liability Company		UCC	Colorado
Tower 104 Oil, LLC	Limited Liability Company		UCC	Colorado
UDC Homes Construction, Inc.	Corporation		UCC	Arizona
UDC Advisory Services, Inc.	Corporation		UCC	Illinois
Vistancia Construction, LLC	Limited Liability Company		UCC	Delaware
Vistancia Marketing, LLC	Limited Liability Company		UCC	Delaware

SCHEDULE 3.19(c)

MORTGAGE FILING OFFICES

COUNTY	STATE
San Louis Obispo	California
Riverside	California
Santa Clara	California
Yolo	California
Sacramento	California
Solano	California
Alameda	California
San Joaquin	California
Contra Costa	California
Orange	California
Ventura	California
San Diego	California
King	Washington
Volusia	Florida
Maricopa	Arizona
Pinal	Arizona
Denver	Colorado
Douglas	Colorado
Weld	Colorado
Jefferson	Colorado
Adams	Colorado

SCHEDULE 3.20(a)

OWNED REAL PROPERTY

Same as Schedule 1.10(c)

SCHEDULE 3.20(b)

LEASED REAL PROPERTY

To be attached

SCHEDULE 3.20(b)

LEASED REAL PROPERTY

Description	Lessor	Lessee	Address
Office Lease-Livermore	Shea Center Livermore, LLC	SHLP	2280 Shea Center Drive, Livermore, CA 94550
Office Lease-Roseville	Shea Center Roseville 1, LLC	SHLP	516 Gibson Drive, Roseville, CA 95678
Office Lease-Corona	Rexco Management	SHLP	1250 Corona Point Court #600, Corona, CA 92879
Office Lease	Moonstone Acquisitions LLC	SHLP	9990 Mesa Rim Rd, San Diego, CA 92121
Customer Care North County Office
Lease	Essex Realty Management, Inc.	SHLP	810 Los Vallecitos Blvd, Suite B, San Marcos, CA
Customer Care South County Office
Lease	Lewis Development	SHLP	925 Hale Place Suite B-16,Chula Vista, CA
Office Lease	Nationwide Realty Investors	SHLP	8800 N. Gainey Center Drive, Ste 350/370, Scottsdale, AZ 85258
Office Lease	Ridgeline Technology Center LLC	SHLP	9135 Ridgeline Blvd #100, Highlands Ranch, CO 80129
Office Lease-DC	HR Commerce Center	SHLP	9150 Commerce Center Circle #200, Highlands Ranch, CO 80129
			Reunion Rental Village Bldg #2, 18240 E 104th Ave, Commerce City,
Office Lease-DC	Reunion Village LLC	SHLP	CO 80022
Office Lease	Highlands Ranch Shea Center II, LLC	SHLP	1805 Shea Center Drive #450, Highlands Ranch, CO 80129
Office Rent/655	Shea Center Walnut, LLC	JFSCI	655 Brea Canyon Road, Walnut, CA 91789
Office Rent/657-1	Shea Center Walnut, LLC	JFSCI	655 Brea Canyon Road, Walnut, CA 91789
Office Rent/657-2	Shea Center Walnut, LLC	JFSCI	656 Brea Canyon Road, Walnut, CA 91789
Office Rent/657-3	Shea Center Walnut, LLC	JFSCI	657 Brea Canyon Road, Walnut, CA 91789
Office Rent/657-4	Shea Center Walnut, LLC	JFSCI	658 Brea Canyon Road, Walnut, CA 91789
Office Rent/657-5	Shea Center Walnut, LLC	JFSCI	659 Brea Canyon Road, Walnut, CA 91789
Marina Office	Fort Ord Reuse Authority	SHLP	2862 100 Twelfth Street, Marina, CA 93933

SCHEDULE 4.02(a)

LOCAL COUNSEL

GreenbergTraurig for the Arizona, Colorado and Florida Grantors

EXHIBIT A

[FORM OF]

ADMINISTRATIVE QUESTIONNAIRE

SHEA HOMES LIMITED PARTNERSHIP

Agent Information	Agent Closing Contact
Credit-Suisse AG	Fax: 212-322-2291
Eleven Madison Avenue	E-Mail: agency.loanops@credit-suisse.com
New York, NY 10010
Agent Wire Instructions
Bank of New York
ABA 021000018
Account Name: CS Agency Cayman Account
Account Number: 8900492627

It is very important that all of the requested information be completed accurately and that this questionnaire be returned promptly. If your institution is sub-allocating its allocation, please fill out an administrative questionnaire for each legal entity.

Legal Name of Lender to appear in Documentation:

Signature Block Information:

•      Signing Credit Agreement	¨  Yes	¨  No
•      Coming in via Assignment	¨  Yes	¨  No

Type of Lender:

(Bank, Asset Manager, Broker/Dealer, CLO/CDO; Finance Company, Hedge Fund, Insurance, Mutual Fund, Pension Fund, Other Regulated Investment Fund, Special Purpose Vehicle, Other — please specify)

Lender Parent:

Lender Domestic Address Lender Eurodollar Address

Contacts/Notification Methods: Borrowings, Paydowns, Interest, Fees, etc.

	Primary Credit ContacT	Secondary Credit Contact
Name:
Company:
Title:
Address:
Telephone:
Facsimile:
E-Mail Address:
	Primary Operations Contact	Secondary Credit Contact
Name:
Company:
Title:
Address:

Lender’s Domestic Wire Instructions

Bank Name:

ABA/Routing No.

Account Name:

Account No.:

FFC Account Name:

FFC Account No.

Attention:

Reference:

Tax Documents

NON-U.S. LENDER INSTITUTIONS:

I. Corporations:

If your institution is incorporated outside of the United States for U.S. Federal income tax purposes, and is the beneficial owner of the interest and other income it receives, you must complete one of the following three tax forms, as applicable to your institution: a.) Form W-8BEN (Certificate of Foreign Status of Beneficial Owner), b.) Form W-8ECI (Income Effectively Connected to a U.S. Trade or Business), or c.) Form W-8EXP (Certificate of Foreign Government or Governmental Agency).

A U.S. taxpayer identification number is required for any institution submitting Form W-8ECI. It is also required on Form W-8BEN for certain institutions claiming the benefits of a tax treaty with the U.S. Please refer to the instructions when completing the form applicable to your institution. In addition, please be advised that U.S. tax regulations do not permit the acceptance of faxed forms. An original tax form must be submitted.

II. Flow-Through Entities:

If your institution is organized outside the U.S., and is classified for U.S. Federal income tax purposes as either a Partnership, Trust, Qualified or Non-Qualified Intermediary, or other non-U.S. flow-through entity, an original Form W-8IMY (Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U.S. Branches for United States Tax Withholding) must be completed by the intermediary together with a withholding statement. Flow-through entities other than Qualified Intermediaries are required to include tax forms for each of the underlying beneficial owners.

Please refer to the instructions when completing this form. In addition, please be advised that U.S. tax regulations do not permit the acceptance of faxed forms. Original tax form(s) must be submitted.

U.S. LENDER INSTITUTIONS:

If your institution is incorporated or organized within the United States, you must complete and return Form W-9 (Request for Taxpayer Identification Number and Certification). Please be advised that we request that you submit an original Form W-9.

[Pursuant to the language contained in the tax section of the Second Amended and Restated Credit Agreement, the applicable tax form for your institution must be completed and returned prior to the first payment of income. Failure to provide the proper tax form when requested may subject your institution to U.S. tax withholding.]

EXHIBIT B

[FORM OF]

ASSIGNMENT AND ACCEPTANCE

Reference is made to the Letter of Credit Facility Agreement dated as of May [•], 2011 (as amended, restated, supplemented or otherwise modified from time to time, the “Letter of Credit Facility Agreement”), among Shea Homes Limited Partnership, a California limited partnership (the “Company”), Shea Homes Funding Corp., a Delaware corporation and wholly owned subsidiary of the Company (“Shea Corp.”), the Subsidiary Guarantors (as defined in the Letter of Credit Facility Agreement) party thereto, the Participants (as defined in the Letter of Credit Facility Agreement), and Credit Suisse AG, as administrative agent (in such capacity, the “Administrative Agent”) for the Participants.

1. The Assignor hereby sells and assigns, without recourse, to the Assignee, and the Assignee hereby purchases and assumes, without recourse, from the Assignor, effective as of the Effective Date set forth below (but not prior to the registration of the information contained herein in the Register pursuant to Section 9.04 of the Letter of Credit Facility Agreement), the interests set forth below (the “Assigned Interest”) in the Assignor’s rights and obligations under the Letter of Credit Facility Agreement and the other Credit Documents, including, without limitation, the amounts and percentages set forth below of (i) the Commitments of the Assignor on the Effective Date set forth below (the “Effective Date”) and (ii) participations in Letters of Credit which are outstanding on the Effective Date. Each of the Assignor and the Assignee hereby makes and agrees to be bound by all the representations, warranties and agreements set forth in Section 9.04(b) of the Letter of Credit Facility Agreement, a copy of which has been received by each such party. From and after the Effective Date (i) the Assignee shall be a party to and be bound by the provisions of the Letter of Credit Facility Agreement and, to the extent of the interests assigned by this Assignment and Acceptance, have the rights and obligations of a Participant thereunder and under the Credit Documents and (ii) the Assignor shall, to the extent of the interests assigned by this Assignment and Acceptance, relinquish its rights and be released from its obligations under the Letter of Credit Facility Agreement; provided that the obligations of the Assignor under Section 9.16 of the Letter of Credit Facility Agreement shall survive the execution of this Assignment and Acceptance and the assignment of interests effected hereby.

2. This Assignment and Acceptance is being delivered to the Administrative Agent together with (i) if the Assignee is organized under the laws of a jurisdiction outside the United States, any forms referred to in Section 2.09(f) of the Letter of Credit Facility Agreement, duly completed and executed by such Assignee, (ii) if the Assignee is not already a Participant under the Letter of Credit Facility Agreement, a completed Administrative Questionnaire in the form of Exhibit A to the Letter of Credit Facility Agreement and (iii) if required by Section 9.04(b) of the Letter of Credit Facility Agreement, a processing and recordation fee of $3,500.

3. This Assignment and Acceptance shall be governed by and construed in accordance with the laws of the State of New York.

EXHIBIT B

Date of Assignment:    

Legal Name of Assignor (“Assignor”):    

Legal Name of Assignee (“Assignee”):    

Effective Date of Assignment (“Effective Date”):

/Commitment	Principal Amount Assigned 1	Percentage Assigned of Commitment1 (set forth, to at least 8 decimals, as a percentage of the aggregate Commitments of all Participants thereunder)
[•]	$	%
[•]	$	%
[•]	$	%

[Remainder of page intentionally left blank]

¹  Amount of Commitments assigned is governed by Section 9.04(b) of the Letter of Credit Facility Agreement.

EXHIBIT B

The terms set forth above are hereby agreed to:		Accepted:
, as Assignor			CREDIT SUISSE AG, , as Administrative Agent and Issuing Bank2
by:			by:
	Name:			Name:
	Title:			Title:
			by:
				Name:
				Title:
				SHEA HOMES LIMITED PARTNERSHIP
			by:
, as Assignee				Name:
				Title:
by:			by:
	Name:			Name:
	Title:			Title:
				SHEA HOMES FUNDING CORP.,
			by:
				Name:
				Title:
			by:
				Name:
				Title:

² To the extent such consents are required under Section 9.04(b) of the Letter of Credit Facility Agreement.

Exhibit C

Form of Security Agreement

EXECUTION COPY

SECURITY AGREEMENT

dated as of

May 10, 2011

among

SHEA HOMES LIMITED PARTNERSHIP,

SHEA HOMES FUNDING CORP.,

THE GUARANTORS IDENTIFIED HEREIN,

CREDIT SUISSE AG,

as Administrative Agent

and

WELLS FARGO BANK, NATIONAL ASSOCIATION,

as Collateral Agent

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

TABLE OF CONTENTS

ARTICLE I
Definitions
SECTION 1.01. Defined Terms	1
SECTION 1.02. Other Defined Terms	1
ARTICLE II
Reserved.
ARTICLE III
Pledge of Securities
SECTION 3.01. Pledge	8
SECTION 3.02. Delivery of the Pledged Collateral	10
SECTION 3.03. Representations, Warranties and Covenants	10
SECTION 3.04. Certification of Limited Liability Company and Limited Partnership Interests	11
SECTION 3.05. Registration in Nominee Name; Denominations	12
SECTION 3.06. Voting Rights; Dividends and Interest	12
ARTICLE IV
Security Interests in Personal Property
SECTION 4.01. Security Interest	14
SECTION 4.02. Representations and Warranties	17
SECTION 4.03. Covenants	19
SECTION 4.04. Other Actions	22
SECTION 4.05. Covenants Regarding Patent, Trademark and Copyright Collateral	25
ARTICLE V
Remedies
SECTION 5.01. Remedies Upon Default	26
SECTION 5.02. Application of Proceeds	28
SECTION 5.03. Grant of License to Use Intellectual Property	29
SECTION 5.04. Securities Act	30

ii

ARTICLE VI
Indemnity, Subrogation and Subordination
SECTION 6.01. Indemnity and Subrogation	30
SECTION 6.02. Contribution and Subrogation	31
SECTION 6.03. Subordination	31
ARTICLE VII
Miscellaneous
SECTION 7.01. Notices	31
SECTION 7.02. Waivers; Amendment	32
SECTION 7.03. Collateral Agent’s Fees and Expenses; Indemnification	32
SECTION 7.04. Successors and Assigns	33
SECTION 7.05. Survival of Agreement	33
SECTION 7.06. Counterparts; Effectiveness; Several Agreement	33
SECTION 7.07. Severability	34
SECTION 7.08. Reserved.	34
SECTION 7.09. Governing Law; Jurisdiction; Consent to Service of Process	34
SECTION 7.10. WAIVER OF JURY TRIAL	35
SECTION 7.11. Headings	35
SECTION 7.12. Security Interest Absolute	35
SECTION 7.13. Termination or Release	35
SECTION 7.14. Additional Guarantor	36
SECTION 7.15. Collateral Agent Appointed Attorney-in-Fact	36
SECTION 7.16. Intercreditor Agreement Govern	37

iii

Schedules
Schedule I	Guarantors
Schedule II	Pledged Equity Interests; Pledged Debt Securities
Schedule III	Intellectual Property
Schedule IV	Commercial Tort Claims
Exhibits
Exhibit I	Form of Supplement
Exhibit II	Form of Perfection Certificate

iv

SECURITY AGREEMENT dated as of May 10, 2011 (this “Agreement”), among Shea Homes Limited Partnership, Shea Homes Funding Corp., the Guarantors from time to time party hereto, Credit Suisse AG, as Administrative Agent under the LC Facility Agreement and Wells Fargo Bank, National Association, as Collateral Agent.

Reference is made to (i) the Indenture dated as of May 10, 2011 (as amended, supplemented or otherwise modified from time to time, the “Indenture”), among Shea Homes Limited Partnership, a California limited partnership (the “Company”), Shea Homes Funding Corp., a Delaware corporation (the “Corporate Issuer” and, together with the Company, the “Issuers”), the Guarantors party thereto and Wells Fargo Bank, National Association, as Trustee, (ii) the Letter of Credit Facility Agreement dated as of May 10, 2011 (as amended, supplemented or otherwise modified from time to time, the “LC Facility Agreement”) among the Company, the Corporate Issuer, the guarantors party thereto, Credit Suisse AG, as administrative agent (in such capacity, the “Administrative Agent”) and issuing bank and the participants from time to time party thereto and (iii) the Intercreditor Agreement dated as of May 10, 2011 (as amended, supplemented or otherwise modified from time to time, the “Intercreditor Agreement”), among the Administrative Agent, the Collateral Agent, the Company, the Corporate Issuer, the Trustee and the other parties party thereto. As an inducement to the Holders to purchase Notes from the Issuers, and the Issuing Bank and Participants to extend credit to the Issuers, the Restricted Subsidiaries and their respective joint ventures, the Issuers and the Guarantors have agreed to enter into this Agreement to grant the Collateral Agent (for the benefit of the Secured Parties) a lien on the Collateral (as defined below).

Accordingly, the parties hereto agree as follows:

ARTICLE I

Definitions

SECTION 1.01. Defined Terms. (a) Each capitalized term used but not defined herein shall have the meaning specified in the Intercreditor Agreement and, if not defined therein, then in the Indenture or the LC Facility Agreement, as applicable, as in effect on the date hereof. Terms defined here by reference to the Intercreditor Agreement, the Indenture or the LC Facility Agreement have the meanings set forth in such documents, as in effect on the date hereof. Each term defined in the New York UCC and not defined in this Agreement shall have the meaning specified therein. The term “instrument” shall have the meaning specified in Article 9 of the New York UCC.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

“Control” has the following meanings:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

“LC Facility Obligations” means (a)(i) the due and punctual payment by the Credit Parties of (1) each payment required to be made by the Credit Parties or joint ventures under the LC Facility Agreement in respect of any Letter of Credit, when and as due (including interest accruing during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding), including payments in respect of reimbursement of disbursements, interest thereon and obligations to provide cash collateral and (2) all other monetary obligations of the Credit Parties to any of the Secured Parties under the LC Facility Documents, including obligations to pay fees, expense reimbursement obligations and indemnification obligations, whether primary, secondary, direct, contingent, fixed or otherwise (including monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding), (ii) the due and punctual performance of all other obligations of the Credit Parties under or pursuant to the LC Facility Documents, and (iii) the due and punctual payment and performance of all the obligations of each other Credit Party under or pursuant to the LC Facility Documents (including monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding) or (b) any one or more refinancings of the then outstanding LC Facility Obligations, provided that all commitments under the predecessor letter of credit facility have been terminated, the Participants have no further obligation to issue or extend letters of credit and all outstanding letters of credit have been cash collateralized or other arrangements reasonably satisfactory to the issuing bank or applicable Participant shall have been made with respect thereto.

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

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

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

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

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

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

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

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

“Patents” means with respect to any Person all the following now owned or hereafter acquired by such Person: (a) all letters patent of the United States or the equivalent thereof in any other country, all registrations and recordings thereof, and all applications for letters patent of the United States or the equivalent thereof in any other

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country, including registrations, recordings and pending applications in the United States Patent and Trademark Office or any similar offices in any other country, including those listed on Schedule III, and (b) all reissues, continuations, divisions, continuations-in-part, renewals or extensions thereof, and the inventions disclosed or claimed therein, including the right to make, use and/or sell the inventions disclosed or claimed therein.

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

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

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

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

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

“Real Property Collateral Management Agreement” means the Real Property Collateral Management Agreement dated as of May 10, 2011, among the Issuers and the Collateral Agent.

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

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

“Security Documents” shall mean, this Agreement and each of the security agreements, mortgages and other instruments and documents executed and delivered pursuant to any of the foregoing or otherwise executed and delivered to secure the Obligations.

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

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

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

ARTICLE II

Reserved.

ARTICLE III

Pledge of Securities

SECTION 3.01. Pledge. (a) As security for the payment or performance, as the case may be, in full of the Obligations, each Grantor hereby assigns and pledges to the Collateral Agent, its successors and assigns, for the benefit of the Secured Parties, and hereby grants to the Collateral Agent, its successors and assigns, for the benefit of the Secured Parties, a security interest in, all such Grantor’s right, title and interest in, to and under (i)(x) the shares of capital stock and other Equity Interests owned by it including those listed on Schedule II. (y) any other Equity Interests obtained in the future by such Grantor and (z) the certificates representing all such Equity Interests (collectively, the “Pledged Equity Interests”); (ii)(x) the debt securities owned by it, including those listed opposite the name of such Grantor on Schedule II. (y) any debt securities in the future issued to such Grantor and (z) the promissory notes and any other instruments evidencing all such debt securities (the “Pledged Debt Securities”); (iii) all other property that may be delivered to and held by the Collateral Agent pursuant to the terms of this Section 3.01(a); (iv) subject to Section 3.06, all payments of principal or interest, dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of, in exchange for or upon the conversion of, and all other

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Proceeds received in respect of, the securities referred to in clauses (i) and (ii) above; (v) subject to Section 3.06, all rights and privileges of such Grantor with respect to the securities and other property referred to in clauses (i), (ii), (iii) and (iv) above; and (vi) all Proceeds of any of the foregoing (the items referred to in clauses (i) through (vi) above being collectively referred to as the “Pledged Collateral”)

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

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

(d) Notwithstanding the foregoing, unless and until the Discharge of LC Facility Obligations has occurred, any Pledged Collateral (or Article 9 Collateral, as the case may be) that would otherwise become Excluded Stock Collateral pursuant to Section 3.01(b) shall remain Pledged Collateral (or Article 9 Collateral, as the case may be) granted hereunder to secure the LC Facility Obligations.

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SECTION 3.02. Delivery of the Pledged Collateral. (a) Each Grantor agrees promptly to deliver or cause to be delivered to the Collateral Agent any and all Pledged Securities.

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

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

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

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

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

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

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

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

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

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

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

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

SECTION 3.04. Certification of Limited Liability Company and Limited Partnership Interests. Each Grantor agrees that interests in any wholly owned limited liability company or limited partnership owned by such Grantor and pledged hereunder shall be represented by a certificate, shall be a “security” within the meaning of Article 8

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

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

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

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

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

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

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

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

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

ARTICLE IV

Security Interests in Personal Property

SECTION 4.01. Security Interest. (a) As security for the payment or performance, as the case may be, in full of the Obligations, each Grantor hereby grants to the Collateral Agent, its successors and assigns, for the benefit of the Secured Parties, a security interest (the “Security Interest”) in, all right, title and interest in and to any and all the following assets and properties now owned or at any time hereafter acquired by such Grantor or in which such Grantor now has or at any time in the future may acquire any right, title or interest (collectively, the “Article 9 Collateral”):

(i) all Accounts;

(ii) all Chattel Paper;

(iii) all cash and Deposit Accounts;

(iv) all Documents;

(v) all Equipment;

(vi) all General Intangibles;

(vii) all Instruments;

(viii) all Inventory; (ix) all Investment Property;

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(x) Letter-of-Credit rights;

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

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

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

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

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

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

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

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

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

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

(G) any leasehold interests in real property;

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

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

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

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

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

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

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

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

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

(b)(i) The Perfection Certificate has been duly prepared, completed and executed and the information set forth therein, including the exact legal name of each Grantor, is correct and complete as of the Issue Date; (ii) the Uniform Commercial Code financing statements (including fixture filings, as applicable) or other appropriate filings, recordings or registrations prepared by the Collateral Agent based upon the information provided to the Collateral Agent in the Perfection Certificate for filing in each governmental, municipal or other office specified in Schedule 6 to the Perfection Certificate (or specified by notice from the Issuers to the Collateral Agent after the Issue Date in the case of filings, recordings or registrations required by Section 4.22 of the Indenture and Section 5.05 of the LC Facility Agreement), are all the filings, recordings and registrations (other than filings required to be made in the United States Patent and Trademark Office and the United States Copyright Office in order to perfect the Security Interest in Article 9 Collateral consisting of United States Patents, Trademarks and Copyrights) that are necessary to publish notice of and protect the validity of and to establish a legal, valid and perfected security interest in favor of the Collateral Agent (for the benefit of the Secured Parties) in respect of all Article 9 Collateral in which the Security Interest may be perfected by filing, recording or registration in the United States (or any political subdivision thereof) and its territories and possessions, and no further or subsequent filing, refiling, recording, rerecording, registration or reregistration is necessary in any such jurisdiction, except as provided under applicable law with respect to the filing of amended financing statements or continuation statements; (iii) each Grantor represents and warrants that a fully executed agreement in the form hereof (or a fully executed short form agreement (A) in the case of Trademarks and Copyrights, in form and substance substantially similar to the short form agreements delivered on the Issue Date or (B) in the case of Patents, in form and substance reasonably satisfactory to

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the Collateral Agent), and containing a description of all Article 9 Collateral consisting of Intellectual Property shall have been received and recorded within three months after the execution of this Agreement with respect to United States Patents and United States registered Trademarks (and Trademarks for which United States registration applications are pending) and within one month after the execution of this Agreement with respect to United States registered Copyrights has been delivered to the Collateral Agent for recording by the United States Patent and Trademark Office and the United States Copyright Office pursuant to 35 U.S.C. § 261, 15 U.S.C. § 1060 or 17 U.S.C. § 205 and the regulations thereunder, as applicable, and otherwise as may be required pursuant to the laws of any other necessary jurisdiction, to protect the validity of and to establish a legal, valid and perfected security interest in favor of the Collateral Agent (for the benefit of the Secured Parties) in respect of all Article 9 Collateral consisting of Patents, Trademarks and Copyrights in which a security interest may be perfected by filing, recording or registration in the United States (or any political subdivision thereof) and its territories and possessions, and no further or subsequent filing, refiling, recording, rerecording, registration or reregistration is necessary (other than such actions as are necessary to perfect the Security Interest with respect to any Article 9 Collateral consisting of Patents, Trademarks and Copyrights (or registration or application for registration thereof) acquired or developed after the date hereof).

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

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

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any Grantor assigns any Article 9 Collateral or any security agreement or similar instrument covering any Article 9 Collateral with any foreign governmental, municipal or other office, which financing statement or analogous document, assignment, security agreement or similar instrument is still in effect, except, in each case, for Permitted Liens.

SECTION 4.03. Covenants. (a) Each Grantor agrees promptly to notify the Collateral Agent in writing of any change in (i) corporate name, (ii) the location of its chief executive office, its principal place of business or its principal accounting office, (iii) its identity or type of organization or corporate structure, (iv) its Federal Taxpayer Identification Number or organizational identification number or (v) its jurisdiction of organization. Each Grantor agrees to promptly provide the Collateral Agent with certified organizational documents reflecting any of the changes described in the first sentence of this paragraph. Each Grantor agrees not to effect or permit any change referred to in the preceding sentence unless all filings have been made (or provisions reasonably satisfactory to the Administrative Agent or Applicable Authorized Representative to make such filings prior to the lapse of the perfected security interest granted herein shall have been made) under the Uniform Commercial Code or otherwise that are required in order for the Collateral Agent to continue at all times following such change to have a valid, legal and perfected security interest, having the priority required by this Agreement, in all the Article 9 Collateral. Each Grantor agrees promptly to notify the Collateral Agent if (i) any material portion of the Article 9 Collateral owned or held by such Grantor is damaged, destroyed, or subject to condemnation and (ii) such Article 9 Collateral is material to the business of the Company and the Subsidiary Guarantors as a whole.

(b) Each year, at the time of delivery of annual financial statements with respect to the preceding fiscal year pursuant to Section 4.19(a) of the Indenture and Section 5.01 of the LC Facility Agreement, the Issuers shall deliver to the Collateral Agent a certificate executed by the chief financial officer and the chief legal officer of the Issuers (i) setting forth the information required pursuant to the Perfection Certificate or confirming that there has been no change in such information since the date of such certificate or the date of the most recent certificate delivered pursuant to this Section 4.03(c) and (ii) certifying that all Uniform Commercial Code financing statements (including fixture filings, as applicable) or other appropriate filings recordings or registrations, including all refilings, rerecordings and registrations, containing a description of the Collateral have been filed of record in each governmental, municipal or other appropriate office in each jurisdiction identified pursuant to clause (a) of this Section 4.03 to the extent necessary to protect and perfect the Security Interest for a period of not less than 18 months after the date of such certificate (except as noted therein with respect to any continuation statements to be filed within such period). Each certificate delivered pursuant to this Section 4.03(c) shall identify in the format of Schedule III all registered Intellectual Property and applications for registration (other than any Intellectual Property that is Excluded Property) of any Grantor in existence on the date thereof and not then listed on such Schedules or previously so identified to the Collateral Agent.

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(c) Each Grantor shall, at its own expense, take any and all actions necessary to defend title to the Article 9 Collateral against all Persons and to defend the Security Interest of the Collateral Agent in the Article 9 Collateral and the priority thereof against any Lien not permitted pursuant to Section 4.08 of the Indenture and Section 6.05 of the LC Facility Agreement.

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

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

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

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(f) At its option following the occurrence and during the continuance of an Event of Default, the Collateral Agent may discharge past due taxes, assessments, charges, fees, Liens, security interests or other encumbrances at any time levied or placed on the Article 9 Collateral and not permitted pursuant to Section 4.08 of the Indenture and Section 6.05 of the LC Facility Agreement, and may pay for the maintenance and preservation of the Article 9 Collateral to the extent any Grantor fails to do so as required by the Indenture, the LC Facility Agreement or this Agreement, and each Grantor jointly and severally agrees to reimburse the Collateral Agent on demand for any payment made or any expense incurred by the Collateral Agent pursuant to the foregoing authorization, provided that nothing in this paragraph shall be interpreted as excusing any Grantor from the performance of, or imposing any obligation on the Collateral Agent or any Secured Party to cure or perform, any covenants or other promises of any Grantor with respect to taxes, assessments, charges, fees, Liens, security interests or other encumbrances and maintenance as set forth herein, in the Note Documents or in the LC Facility Documents.

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

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

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

(j) Upon the occurrence and continuance of an Event of Default, none of the Grantors will, without the Collateral Agent’s prior written consent, grant any

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extension of the time of payment of any Accounts included in the Article 9 Collateral, compromise, compound or settle the same for less than the full amount thereof, release, wholly or partly, any Person liable for the payment thereof or allow any credit or discount whatsoever thereon, other than extensions, compromises, settlements, releases, credits or discounts granted or made in the ordinary course of business and consistent with its current practices and in accordance with such prudent and standard practice used in industries that are the same as or similar to those in which such Grantor is engaged.

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

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

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

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

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

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

(c) Investment Property. Except to the extent otherwise provided in Article III, if any Grantor shall at any time hold or acquire any certificated securities, such Grantor shall promptly endorse, assign and deliver the same to the Collateral Agent, accompanied by such instruments of transfer or assignment duly executed in blank as the Collateral Agent may from time to time specify. If any securities now or hereafter acquired by any Grantor are uncertificated and are issued to such Grantor or its nominee directly by the issuer thereof, such Grantor shall promptly notify the Collateral Agent thereof and, pursuant to an agreement in form and substance reasonably satisfactory to the Collateral Agent, either (i) cause the issuer to agree to comply with instructions from the Collateral Agent as to such securities, without further consent of any Grantor or such nominee, or (ii) arrange for the Collateral Agent to become the registered owner of the securities. If any securities, whether certificated or uncertificated, or other investment property now or hereafter acquired by any Grantor are held by such Grantor or its nominee through a securities intermediary or commodity intermediary in a Securities Account that is not an Excluded Account, such Grantor shall immediately notify the Collateral Agent thereof and, pursuant to an agreement in form and substance reasonably satisfactory to the Collateral Agent, either (i) cause such securities intermediary or commodity intermediary, as the case may be, to agree to comply with entitlement orders or other instructions from the Collateral Agent to such securities intermediary as to such security entitlements or to apply any value distributed on account of any commodity contract as directed by the Collateral Agent to such commodity intermediary, as the case may be, in each case without further consent of any Grantor, such nominee, or any other Person, or (ii) in the case of Financial Assets or other Investment Property held through a securities intermediary, arrange for the

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Collateral Agent to become the entitlement holder with respect to such Investment Property, with the Grantor being permitted, only with the consent of the Collateral Agent, to exercise rights to withdraw or otherwise deal with such Investment Property. The Collateral Agent agrees with each of the Grantors that the Collateral Agent shall not give any such entitlement orders or instructions or directions to any such issuer, securities intermediary or commodity intermediary, and shall not withhold its consent to the exercise of any withdrawal or dealing rights by any Grantor, unless an Event of Default has occurred and is continuing, or, after giving effect to any such investment and withdrawal rights, would occur. The provisions of this paragraph shall not apply to any Financial Assets credited to a securities account for which the Collateral Agent is the securities intermediary.

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

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

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

SECTION 4.05. Covenants Regarding Patent, Trademark and Copyright Collateral. (a) Each Grantor agrees that it will not do any act or omit do to any act (and will exercise commercially reasonable efforts to prevent its licensees from doing any act omitting to do any act) whereby any Patent material to the conduct of the businesses of a Grantor may become invalidated or dedicated to the public, and agrees that it shall continue to mark any products covered by a Patent that is material to the conduct of such Grantor’s business with the relevant patent number as necessary and sufficient to establish and preserve its maximum rights under applicable patent laws.

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

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

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

(e) Contemporaneously with the delivery of quarterly financial statements to the Trustee pursuant to Section 4.19(a) of the Indenture and to the Administrative Agent pursuant to Section 5.01 of the LC Facility Agreement, each Grantor shall (i) notify the Collateral Agent of any application for any Patent, Trademark or Copyright (or for the registration of any Trademark or Copyright) with the United States Patent and

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Trademark Office, United States Copyright Office or any office or agency in any political subdivision of the United States or in any other country or any political subdivision thereof since the last such notification (or, in the case of the first quarter following the Issue Date, since the Issue Date), (ii) execute and deliver any and all agreements, instruments, documents and papers necessary to evidence the Collateral Agent’s first-priority security interest in such Patent, Trademark or Copyright and (iii) each Grantor hereby appoints the Collateral Agent as its attorney-in-fact to execute and file such writings for the foregoing purposes, all acts of such attorney being hereby ratified and confirmed; such power, being coupled with an interest, is irrevocable.

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

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

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

ARTICLE V

Remedies

SECTION 5.01. Remedies Upon Default. Upon the occurrence and during the continuance of an Event of Default, each Grantor agrees to deliver each item of tangible Collateral to the Collateral Agent on demand, and it is agreed that the Collateral Agent shall, upon the occurrence and during the continuance of an Event of Default, have the right to take any of or all the following actions at the same or different times: (a) with respect to any Article 9 Collateral consisting of Intellectual Property, on

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

The Collateral Agent shall give the applicable Grantors 10 days’ written notice (which each Grantor agrees is reasonable notice within the meaning of Section 9-611 of the New York UCC or its equivalent in other jurisdictions) of the Collateral Agent’s intention to make any sale of Collateral. Such notice, in the case of a public sale, shall state the time and place for such sale and, in the case of a sale at a broker’s board or on a securities exchange, shall state the board or exchange at which such sale is to be made and the day on which the Collateral or portion thereof, will first be offered for sale at such board or exchange. Any such public sale shall be held at such time or times within ordinary business hours and at such place or places as the Collateral Agent may fix and state in the notice (if any) of such sale. At any such sale, the Collateral, or portion thereof, to be sold may be sold in one lot as an entirety or in separate parcels, as the Collateral Agent may (in its sole and absolute discretion) determine. The Collateral Agent shall not be obligated to make any sale of any Collateral if it shall determine not to do so, regardless of the fact that notice of sale of such Collateral shall have been given. The Collateral Agent may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for sale, and such sale may, without further notice, be made at the time and place to which the same was so adjourned. In case any sale of all or any part of the Collateral is made on credit or for

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future delivery, the Collateral so sold may be retained by the Collateral Agent until the sale price is paid by the purchaser or purchasers thereof, but the Collateral Agent shall not incur any liability in case any such purchaser or purchasers shall fail to take up and pay for the Collateral so sold and, in case of any such failure, such Collateral may be sold again upon like notice. At any public (or, to the extent permitted by law, private) sale made pursuant to this Agreement, any Secured Party may bid for or purchase, free (to the extent permitted by law) from any right of redemption, stay, valuation or appraisal on the part of any Grantor (all said rights being also hereby waived and released to the extent permitted by law), the Collateral or any part thereof offered for sale and may make payment on account thereof by using any claim then due and payable to such Secured Party from any Grantor as a credit against the purchase price, and such Secured Party may, upon compliance with the terms of sale, hold, retain and dispose of such property without further accountability to any Grantor therefor. For purposes hereof, a written agreement to purchase the Collateral or any portion thereof shall be treated as a sale thereof; the Collateral Agent shall be free (if such agreement cannot be reasonably rescinded) to consummate such sale pursuant to such agreement and no Grantor shall be entitled to the return of the Collateral or any portion thereof subject thereto, notwithstanding the fact that after the Collateral Agent shall have entered into such an agreement all Events of Default shall have been remedied and the Obligations paid in full. As an alternative to exercising the power of sale herein conferred upon it, the Collateral Agent may proceed by a suit or suits at law or in equity to foreclose this Agreement and to sell the Collateral or any portion thereof pursuant to a judgment or decree of a court or courts having competent jurisdiction or pursuant to a proceeding by a court-appointed receiver. Any sale pursuant to the provisions of this Section 5.01 shall be deemed to conform to the commercially reasonable standards as provided in Section 9-610(b) of the New York UCC or its equivalent in other jurisdictions.

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

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

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

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

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

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

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

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

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

ARTICLE VI

Indemnity, Subrogation and Subordination

SECTION 6.01. Indemnity and Subrogation. In addition to all such rights of indemnity and subrogation as the Guarantors may have under applicable law (but subject to Section 6.03), the Issuers agree that (a) in the event a payment in respect of any obligation shall be made by any Guarantor under the Indenture or the LC Facility Agreement, the Issuers shall indemnify such Guarantor for the full amount of such payment and such Guarantor shall be subrogated to the rights of the Person to whom such

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payment shall have been made to the extent of such payment and (b) in the event any assets of any Guarantor shall be sold pursuant to this Agreement or any other Security Document to satisfy in whole or in part any Obligation owed to any Secured Party, the Issuers shall indemnify such Guarantor in an amount equal to the greater of the book value or the fair market value of the assets so sold.

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

SECTION 6.03. Subordination. (a) Notwithstanding any provision of this Agreement to the contrary, all rights of the Guarantors under Sections 6.01 and 6.02 and all other rights of the Guarantors of indemnity, contribution or subrogation under applicable law or otherwise shall be fully subordinated to the payment in full in cash of the Obligations. No failure on the part of the Issuers or any Guarantor to make the payments required by Sections 6.01 and 6.02 (or any other payments required under applicable law or otherwise) shall in any respect limit the obligations and liabilities of any Guarantor with respect to its obligations hereunder, and each Guarantor shall remain liable for the full amount of the obligations of such Guarantor hereunder.

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

ARTICLE VII

Miscellaneous

SECTION 7.01. Notices. All communications and notices hereunder shall (except as otherwise expressly permitted herein) be in writing and given as provided in Section 13.03 of the Indenture and Section 9.01 of the LC Facility Agreement, as applicable. All communications and notices hereunder to any Guarantor shall be given to it in care of the Issuers as provided in Section 9.01 of the LC Facility Agreement or, if the LC Facility is no longer in effect, as provided in Section 13.03 of the Indenture.

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

(b) Neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Collateral Agent and the Grantor or Grantors with respect to which such waiver, amendment or modification is to apply, subject to any consent required in accordance with Sections 9.01 and 9.02 of the Indenture and Section 9.08 of the LC Facility Agreement.

SECTION 7.03. Collateral Agent’s Fees and Expenses; Indemnification. (a) The parties hereto agree that the Collateral Agent shall be entitled to reimbursement of its fees, expenses and other amounts owed to it under this Agreement, Sections 7 and 8 of the Real Property Collateral Management Agreement and Section 2.01(b) of the Intercreditor Agreement.

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

(c) Any such amounts payable as provided hereunder shall be additional Obligations secured hereby and by the other Security Documents. The provisions of this

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Section 7.03 shall remain operative and in full force and effect regardless of the termination of this Agreement or any other Note Document, the consummation of the transactions contemplated hereby, the repayment of any of the Obligations, the invalidity or unenforceability of any term or provision of this Agreement or any other Note Document or any investigation made by or on behalf of the Collateral Agent or any other Secured Party. All amounts due under this Section 7.03 shall be payable on written demand therefor.

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

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

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

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

SECTION 7.08. Reserved.

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

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

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

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

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SECTION 7.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER NOTE DOCUMENT, ANY OTHER LC FACILITY DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 7.10.

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

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

SECTION 7.13. Termination or Release. (a) This Agreement, the Security Interest and all other security interests granted hereby shall terminate when (i) all the Obligations have been paid in full or (ii) upon discharge of the Indenture or defeasance of the Notes as set forth in Article VIII of the Indenture and the LC Facility Obligations have been paid in full in cash or immediately available funds and the Participants have no further commitment to extend credit under the LC Facility Agreement and the LC Exposure has been reduced to zero (or cash-collateralized or

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supported by back-to-back letters of credit in form and substance and from an issuing bank reasonably satisfactory to the Issuing Bank and the Administrative Agent) and each Issuing Bank has no further obligations to issue Letters of Credit under the LC Facility Agreement.

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

(c) In connection with any disposition of Collateral to any Person other than the Company, the Corporate Issuer or any of the Restricted Subsidiaries (but excluding any transaction subject to Section 4.10 of the Indenture and Section 6.04 of the LC Facility Agreement where the recipient is required to become the obligor on the Notes or a Guarantee) that is permitted by the Indenture and the LC Facility Agreement, the security interest in such Collateral shall be automatically released.

(d) With the consent of the requisite Secured Parties in accordance with Section 9.02 of the Indenture and Section 9.08 of the LC Facility Agreement including consents obtained in connection with a tender offer or exchange offer for, or purchase of, Notes, the Security Interest in any Collateral, the release of which is the subject of such consents, shall be automatically released.

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

SECTION 7.14. Additional Guarantor. Pursuant to Section 4.22 of the Indenture and Section 5.05 of the LC Facility Agreement, each Person that becomes a Guarantor under the Indenture or LC Facility Agreement after the Issue Date is required to enter into this Agreement as a Grantor upon becoming such a Guarantor. Upon execution and delivery by the Collateral Agent and such a Guarantor of an instrument in the form of Exhibit I hereto, such Guarantor shall become a Grantor hereunder with the same force and effect as if originally named as a Grantor herein. The execution and delivery of any such instrument shall not require the consent of any other Grantor hereunder. The rights and obligations of each Grantor hereunder shall remain in full force and effect notwithstanding the addition of any new Grantor as a party to this Agreement.

SECTION 7.15. Collateral Agent Appointed Attorney-in-Fact. Each Grantor hereby appoints the Collateral Agent the attorney-in-fact of such Grantor for the purpose of carrying out the provisions of this Agreement and taking any action and

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

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

[Signature Pages Follow]

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EXHIBIT D

Form of Intercreditor Agreement

EXECUTION COPY

INTERCREDITOR AGREEMENT

dated as of May 10, 2011

among

SHEA HOMES LIMITED PARTNERSHIP,

SHEA HOMES FUNDING CORP.,

the other GRANTORS party hereto,

WELLS FARGO BANK, NATIONAL ASSOCIATION

in its capacity as the Collateral Agent,

WELLS FARGO BANK, NATIONAL ASSOCIATION

as the Authorized Representative for the Indenture Secured Parties solely in its capacity

as Trustee under the Indenture,

CREDIT SUISSE AG,

as the LC Facility Authorized Representative,

and

each ADDITIONAL AUTHORIZED REPRESENTATIVE from time to time party

hereto

INTERCREDITOR AGREEMENT dated as of May 10, 2011 (as amended, supplemented or otherwise modified from time to time, this “Agreement”), among SHEA HOMES LIMITED PARTNERSHIP, a California limited partnership (the “Company”), SHEA HOMES FUNDING CORP., a Delaware corporation (the “Corporate Issuer”, and together with the Company, the “Issuers”), the other GRANTORS (as defined below) party hereto, WELLS FARGO BANK, NATIONAL ASSOCIATION, in its capacity as collateral agent for the Pari-Passu Lien Secured Parties (as defined below) (in such capacity, the “Collateral Agent”), WELLS FARGO BANK, NATIONAL ASSOCIATION, as the Authorized Representative for the Indenture Secured Parties solely in its capacity as trustee under the Indenture (as defined below) (in such capacity, the “Trustee”), CREDIT SUISSE AG, as the Authorized Representative for the LC Facility Secured Parties (in such capacity, the “LC Facility Authorized Representative”), and each Additional Authorized Representative from time to time party hereto, as the Authorized Representative for any Pari-Passu Lien Secured Parties of any other Class.

In consideration of the mutual agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Collateral Agent, the Trustee, for itself and on behalf of its Related Secured Parties, the LC Facility Authorized Representative, for itself and on behalf of its Related Secured Parties, and each Additional Authorized Representative, for itself and on behalf of its Related Secured Parties, agree as follows:

ARTICLE I

Definitions

SECTION 1.01. Certain Defined Terms. Capitalized terms used but not otherwise defined herein have the meanings assigned to such terms in the Indenture referred to below. As used in this Agreement, the following terms have the meanings specified below:

“Additional Authorized Representative” has the meaning assigned to such term in Article VI.

“Additional Authorized Representative Joinder Agreement” means a supplement to this Agreement substantially in the form of Exhibit I, appropriately completed.

“Additional Pari-Passu Lien Credit Documents” means the indentures or other agreements under which Additional Pari-Passu Lien Obligations of any Class are issued or incurred and all other notes, instruments, agreements and other documents evidencing or governing Additional Pari-Passu Lien Obligations of such Class or providing any guarantee, Lien or other right in respect thereof.

“Additional Pari-Passu Lien Obligations” means all Obligations of the Issuers and the other Grantors that shall have been designated as such pursuant to Article VI. Additional Pari-Passu Lien Obligations shall include Post-Petition Interest.

“Additional Pari-Passu Lien Secured Parties” means the holders of any Additional Pari-Passu Lien Obligations.

“Agreement” has the meaning assigned to such term in the preamble hereto.

“Applicable Authorized Representative” means, as of the Issue Date, the Trustee (in its capacity as the Authorized Representative of the Indenture Secured Parties). The Trustee (and any subsequent Applicable Authorized Representative) will remain the Applicable Authorized Representative until the earlier of (1) such time as the Notes Obligations (or the applicable Class of Specified Pari-Passu Lien Obligations represented by the then-Applicable Authorized Representative) cease to represent the largest principal amount outstanding of any Class of Specified Pari-Passu Lien Obligations, in which case the Applicable Authorized Representative shall be the Authorized Representative representing the Class of Specified Pari-Passu Lien Obligations constituting the largest principal amount outstanding of any such Class, and (2) the Non-Controlling Authorized Representative Enforcement Date, in which case the Applicable Authorized Representative shall be the Major Non-Controlling Authorized Representative.

“Authorized Representatives” means the Trustee (in its capacity as the Authorized Representative of the Indenture Secured Parties), the LC Facility Authorized Representative and each Additional Authorized Representative.

“Bankruptcy Case” has the meaning assigned to such term in Section 2.07.

“Bankruptcy Code” means Title 11 of the United States Code, as amended.

“Bankruptcy Law” means the Bankruptcy Code and any similar Federal, state or foreign law for the relief of debtors.

“Business Day” means any day that is not a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to remain closed.

“Class”, when used in reference to (a) any Pari-Passu Lien Obligations, refers to whether such Pari-Passu Lien Obligations are the Notes Obligations, the LC Facility Obligations or the Additional Pari-Passu Obligations of any Series, (b) any Authorized Representative, refers to whether such Authorized Representative is the

Trustee, the LC Facility Authorized Representative or the Additional Authorized Representative with respect to the Additional Pari-Passu Lien Obligations of any Series, (c) any Pari-Passu Lien Secured Parties, refers to whether such Pari-Passu Lien Secured Parties are the Indenture Secured Parties, the LC Facility Secured Parties or the Additional Pari-Passu Lien Secured Parties and (d) any Pari-Passu Lien Credit Documents, refers to whether such Pari-Passu Lien Credit Documents are the Notes Documents, the LC Facility Documents or the Additional Pari-Passu Lien Credit Documents with respect to Additional Pari-Passu Lien Obligations of any Series.

“Collateral” means all assets of the Grantors now or hereafter subject to a Lien created pursuant to any Pari-Passu Lien Security Document to secure any Pari-Passu Lien Obligations.

“Collateral Agent” has the meaning assigned to such term in the preamble hereto.

“Controlling Secured Parties” means, at any time with respect to any Shared Collateral, the Secured Parties of the same Class as the Authorized Representative that is the Applicable Authorized Representative with respect to such Shared Collateral at such time.

“Default” means a “Default” (or a similar event, however denominated) as defined in any Pari-Passu Lien Credit Document.

“DIP Financing” has the meaning assigned to such term in Section 2.07.

“DIP Financing Liens” has the meaning assigned to such term in Section 2.07.

“DIP Lenders” has the meaning assigned to such term in Section 2.07.

“Discharge” means, with respect to any Shared Collateral and Pari-Passu Lien Obligations of any Class (other than the LC Facility Obligations), the date on which Pari-Passu Lien Obligations of such Class are no longer secured by Liens on such Shared Collateral. The term “Discharged” shall have a corresponding meaning.

“Discharge of LC Facility Obligations” shall mean, except to the extent otherwise provided in Section 2.08, payment in full in cash (except for contingent indemnities and cost and reimbursement obligations to the extent no claim has been made) of (a) principal of and interest (including any Post-Petition Interest) and premium, if any, on all Indebtedness outstanding under the LC Facility Documents and, with respect to letters of credit outstanding thereunder, the obligations thereunder shall have been cash collateralized or other arrangements reasonably satisfactory to the Issuing Bank (as defined in the LC Facility Agreement) or applicable Participants (as defined in the LC Facility Agreement) under the LC Facility Documents in their sole discretion shall have been made with respect thereto, in each case concurrently with the termination of all commitments to issue or extend letters of credit, and (b) any other LC Facility Obligations that are due and payable or otherwise accrued and owing at or prior to the

time such principal and interest are paid; provided, however, that the Discharge of LC Facility Obligations shall be deemed not to have occurred if such payments are made with the proceeds of other LC Facility Obligations that are used to modify, extend, refinance, renew, replace or refund such LC Facility Obligations. In the event the LC Facility Obligations are modified and such modified LC Facility Obligations are paid over time or otherwise modified pursuant to Section 1129 of the Bankruptcy Code, the LC Facility Obligations shall be deemed to be discharged when the final payment is made, in cash, in respect of such Indebtedness and any Obligations pursuant to such new Indebtedness shall have been satisfied.

“Event of Default” means an “Event of Default” (or a similar event, however denominated) as defined in any Pari-Passu Lien Credit Document.

“Excluded Land Collateral” means Property (as defined in the Collateral Management Agreement) located in a designated “flood hazard area” in any Flood Insurance Rate Map published by the Federal Emergency Management Agency (or any successor agency) for the duration of such designation.

“Grantor Joinder Agreement” means a supplement to this Agreement substantially in the form of Exhibit II, appropriately completed.

“Grantors” means, at any time, the Issuers and each of their Subsidiaries that, at such time, has granted a security interest in any of its assets pursuant to any Pari-Passu Lien Security Document to secure any Pari-Passu Lien Obligations of any Class. The Persons that are Grantors on the date hereof are those Guarantors party hereto.

“Indenture” means the Indenture dated as of May 10, 2011 among the Issuers, the Trustee and the other parties thereto.

“Indenture Secured Parties” means the Persons holding Notes Obligations, including the Trustee.

“Insolvency or Liquidation Proceeding” means:

(a) any case commenced by or against any Grantor under any Bankruptcy Law, any other proceeding for the reorganization, recapitalization or adjustment or marshalling of the assets or liabilities of any Grantor, any receivership or assignment for the benefit of creditors relating to any Grantor or any similar case or proceeding relative to any Grantor or its creditors, as such, in each case whether or not voluntary;

(b) any liquidation, dissolution, marshalling of assets or liabilities or other winding up of or relating to any Grantor, in each case whether or not voluntary and whether or not involving bankruptcy or insolvency; or

(c) any other proceeding of any type or nature in which substantially all claims of creditors of any Grantor are determined and any payment or distribution is or may be made on account of such claims.

“LC Facility Agreement” means the Letter of Credit Facility Agreement dated as of May 10, 2011, among the Company, the Corporate Issuer, the Guarantors party thereto, Credit Suisse AG, as administrative agent (in such capacity, the “Administrative Agent”) and as issuing bank, and the Participants party thereto.

“LC Facility Authorized Representative” has the meaning assigned to such term in the preamble hereto.

“LC Facility Documents” means (a) the LC Facility Agreement, the Security Documents (as such term is defined in the LC Facility Agreement), the Intercreditor Agreement and any other document designated by the Administrative Agent as an LC Facility Document and (b) any other related document or instrument executed and delivered pursuant to any LC Facility Document described in clause (a) evidencing or governing any LC Facility Obligations thereunder.

“LC Facility Obligations” has the meaning assigned to such term in the Security Agreement. LC Facility Obligations shall include Post-Petition Interest.

“LC Facility Secured Parties” means the holders of any LC Facility Obligations.

“Major Non-Controlling Authorized Representative” means, with respect to any Shared Collateral, the Authorized Representative of the same Class as the Class of the Specified Pari-Passu Lien Obligations (other than the Specified Pari-Passu Lien Obligations of the same Class as the Class of the Controlling Secured Parties with respect to such Shared Collateral) secured by valid and perfected Liens on such Shared Collateral the aggregate amount of which exceeds the aggregate amount of Specified Pari-Passu Lien Obligations of any other Class (other than the Specified Pari-Passu Lien Obligations of the same Class as the Class of the Controlling Secured Parties with respect to such Shared Collateral) secured by valid and perfected Liens on such Shared Collateral.

“Non-Controlling Authorized Representative” means, at any time with respect to any Shared Collateral, any Authorized Representative (other than the LC Facility Authorized Representative) that is not the Applicable Authorized Representative at such time with respect to such Shared Collateral.

“Non-Controlling Authorized Representative Enforcement Date” means, with respect to any Non-Controlling Authorized Representative in respect of any Shared Collateral, the date that is 90 days (throughout which 90-day period such Non-Controlling Authorized Representative was the Major Non-Controlling Authorized Representative with respect to such Shared Collateral) after the occurrence of both (a) an Event of Default (under and as defined in the Pari-Passu Lien Credit Document under which such Non-Controlling Authorized Representative is the Authorized Representative) and (b) the Collateral Agent’s and each other Authorized Representative’s receipt of written notice from such Non-Controlling Authorized Representative certifying that (i) such Non-Controlling Authorized Representative is the Major Non-Controlling Authorized Representative with respect to such Shared Collateral

and that an Event of Default (under and as defined in the Pari-Passu Lien Credit Document under which such Non-Controlling Authorized Representative is the Authorized Representative) has occurred and is continuing and (ii) the Specified Pari-Passu Lien Obligations of the Class with respect to which such Non-Controlling Authorized Representative is the Authorized Representative are currently due and payable in full (whether as a result of acceleration thereof or otherwise) in accordance with the terms of the Pari-Passu Lien Credit Documents of such Class; provided, however, that the Non-Controlling Authorized Representative Enforcement Date shall be stayed and shall not occur (and shall be deemed not to have occurred for all purposes hereof) with respect to any Shared Collateral (A) at any time the Collateral Agent (pursuant to instructions from the LC Facility Representative or the Applicable Authorized Representative) has commenced and is diligently pursuing any enforcement action with respect to such Shared Collateral or (B) at any time the Grantor that has granted a security interest in such Shared Collateral is then a debtor under or with respect to (or otherwise subject to) any Insolvency or Liquidation Proceeding.

“Non-Controlling Secured Parties” means, at any time with respect to any Shared Collateral, the Specified Pari-Passu Lien Secured Parties that are not Controlling Secured Parties at such time with respect to such Shared Collateral.

“Notes” shall mean any securities issued under the Indenture.

“Notes Obligations” shall mean all Obligations in respect of the Notes or arising under the Notes Documents or any of them, including all fees and expenses of the Collateral Agent and the Trustee thereunder. Notes Obligations shall include Post-Petition Interest.

“Notes Documents” means (a) the Notes, the Indenture, the Pari-Passu Lien Security Documents and the Intercreditor Agreement and (b) any other related document or instrument executed and delivered pursuant to any Notes Document described in clause (a) evidencing or governing any Notes Obligations thereunder.

“Obligations” means with respect to any Indebtedness, all obligations (whether in existence on the Issue Date or arising afterwards, absolute or contingent, direct or indirect) for or in respect of principal (when due, upon acceleration, upon redemption, upon mandatory repayment or repurchase pursuant to a mandatory offer to purchase, or otherwise), premium, interest, penalties, fees, indemnification, reimbursement and other amounts payable and liabilities with respect to such Indebtedness, including all interest accrued or accruing after the commencement of any bankruptcy, insolvency or reorganization or similar case or proceeding at the contract rate (including, without limitation, any contract rate applicable upon default) specified in the relevant documentation, whether or not the claim for such interest is allowed as a claim in such case or proceeding.

“Pari-Passu Lien Credit Documents” means, collectively, (a) the Notes Documents, (b) the LC Facility Documents and (c) the Additional Pari-Passu Lien Credit Documents, in each case including such documents after giving effect to any increase,

extension, renewal, replacement, restatement, supplement, restructuring, repayment, refunding or Refinancing of the Pari-Passu Lien Obligations corresponding thereto in accordance with Section 2.01(c).

“Pari-Passu Lien Obligations” means (a) the Notes Obligations, (b) the LC Facility Obligations and (c) the Additional Pari-Passu Lien Obligations.

“Pari-Passu Lien Secured Parties” means (a) the Indenture Secured Parties, (b) the LC Facility Secured Parties, (c) the Additional Pari-Passu Lien Secured Parties and (d) the Collateral Agent.

“Pari-Passu Lien Security Documents” means the Security Agreement and each other agreement entered into in favor of the Collateral Agent for the purpose of securing Pari-Passu Lien Obligations of any Class.

“Person” means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity.

“Possessory Collateral” means any Shared Collateral in the possession of the Collateral Agent (or its agents or bailees), to the extent that possession thereof perfects a Lien thereon under the Uniform Commercial Code of any jurisdiction.

“Post-Petition Interest” means any interest accruing subsequent to the filing of a petition in bankruptcy, reorganization or similar proceeding at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable state, federal or foreign law.

“Proceeds” has the meaning assigned to such term in Section 2.01(b).

“Real Property Collateral Management Agreement” means the Real Property Collateral Management Agreement dated as of May 10, 2011, among the Company, the Corporate Issuer and Wells Fargo Bank, National Association, as collateral agent for the Pari-Passu Lien Secured Parties.

“Refinance” means, in respect of any Indebtedness, to refinance, extend, renew, refund, repay, prepay, purchase, redeem, defease or retire, or to issue other Indebtedness in exchange or replacement for, such Indebtedness, in whole or in part. “Refinanced” and “Refinancing” shall have correlative meanings.

“Related Secured Parties” means, with respect to the Authorized Representative of any Class, the Pari-Passu Lien Secured Parties of such Class.

“Security Agreement” shall mean the Security Agreement dated as of May 10, 2011, among the Issuers, the Grantors party thereto and the Collateral Agent, as amended and restated or otherwise modified from time to time.

“Series”, when used in reference to Additional Pari-Passu Lien Obligations, refers to such Additional Pari-Passu Lien Obligations as shall have been issued or incurred pursuant to the same indentures or other agreements and with respect to which the same Person acts as the Authorized Representative.

“Shared Collateral” means, at any time, Collateral on which the Collateral Agent shall have at such time a valid and perfected Lien for the benefit of Pari-Passu Lien Secured Parties of any two or more Classes. If Pari-Passu Lien Obligations of more than two Classes are outstanding at any time, then any Collateral shall constitute Shared Collateral with respect to Pari-Passu Lien Obligations or Pari-Passu Lien Secured Parties of any Class only if the Collateral Agent has at such time a valid and perfected Lien on such Collateral securing Pari-Passu Lien Obligations of such Class for the benefit of the Pari-Passu Lien Secured Parties of such Class.

“Specified Pari-Passu Lien Obligations” means all Pari-Passu Lien Obligations other than the LC Facility Obligations.

“Specified Pari-Passu Lien Secured Parties” means the holders of all Specified Pari-Passu Lien Obligations.

“Trustee” has the meaning assigned to such term in the preamble hereto.

“Uniform Commercial Code” means the Uniform Commercial Code as in effect from time to time in the applicable jurisdiction.

SECTION 1.02. Terms Generally. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”. The word “will” shall be construed to have the same meaning and effect as the word “shall”. Unless the context requires otherwise, (a) any definition of or reference to any agreement, instrument, other document, statute or regulation herein shall be construed as referring to such agreement, instrument, other document, statute or regulation as from time to time amended, supplemented or otherwise modified, (b) any reference herein to any Person shall be construed to include such Person’s successors and assigns, but shall not be deemed to include the subsidiaries of such Person unless express reference is made to such subsidiaries, (c) the words “herein”, “hereof” and “hereunder”, and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, Sections and Exhibits shall be construed to refer to Articles and Sections of, and Exhibits to, this Agreement and (e) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights.

SECTION 1.03. Concerning the Collateral Agent and the Authorized Representatives. (a) Each acknowledgement, agreement, consent and waiver (whether express or implied) in this Agreement made by the Collateral Agent or the Trustee, whether on behalf of itself or, in the case of the Trustee, on behalf of any other Indenture Secured Party, is made in reliance on the authority granted to the Collateral Agent or the Trustee, respectively, pursuant to the authorization thereof under this Agreement and the Indenture, respectively. It is understood and agreed that the Collateral Agent and the Trustee shall not be responsible for or have any duty to ascertain or inquire into whether any other Indenture Secured Party is in compliance with the terms of this Agreement, and no party hereto or any other Pari-Passu Lien Secured Party shall have any right of action whatsoever against the Collateral Agent or the Trustee for any failure of any other Indenture Secured Party to comply with the terms hereof or for any other Indenture Secured Party taking any action contrary to the terms hereof.

(b) Each acknowledgement, agreement, consent and waiver (whether express or implied) in this Agreement made by the Authorized Representative of any Class not referred to in paragraph (a) above, whether on behalf of itself or any of its Related Secured Parties, is made in reliance on the authority granted to such Authorized Representative pursuant to the authorization thereof under the Pari-Passu Lien Credit Documents of such Class. It is understood and agreed that any such Authorized Representative shall not be responsible for or have any duty to ascertain or inquire into whether any of its Related Secured Parties is in compliance with the terms of this Agreement, and no party hereto or any other Pari-Passu Lien Secured Party shall have any right of action whatsoever against such Authorized Representative for any failure of any of its Related Secured Parties to comply with the terms hereof or for any of its Related Secured Parties taking any action contrary to the terms hereof.

ARTICLE II

Priorities and Agreements with Respect to Shared Collateral

SECTION 2.01. Equal Priority. (a) Notwithstanding the date, time, method, manner or order of grant, attachment or perfection of any Lien on any Shared Collateral securing Pari-Passu Lien Obligations of any Class, and notwithstanding any provision of the Uniform Commercial Code of any jurisdiction, any other applicable law or any Pari-Passu Lien Credit Document, or any other circumstance whatsoever, each Authorized Representative, for itself and on behalf of its Related Secured Parties, agrees that valid and perfected Liens on any Shared Collateral securing Pari-Passu Lien Obligations of any Class shall be of equal priority with valid and perfected Liens on such Shared Collateral securing Pari-Passu Lien Obligations of each other Class.

(b) Each Authorized Representative, for itself and on behalf of its Related Secured Parties, agrees that, notwithstanding any provision of any Pari-Passu Lien Credit Document to the contrary (but subject to Sections 2.12, 2.13 and 2.14), if (i) an Event of Default shall have occurred and is continuing and such Authorized Representative or any of its Related Secured Parties is taking action to enforce rights or exercise remedies in respect of any Shared Collateral, (ii) any distribution is made in respect of any Shared Collateral in any Insolvency or Liquidation Proceeding or (iii) such Authorized Representative or any of its Related Secured Parties receives any payment with respect to

any Shared Collateral pursuant to any intercreditor agreement (other than this Agreement), then the proceeds of any sale, collection or other liquidation of any Shared Collateral obtained by such Authorized Representative or any of its Related Secured Parties on account of such enforcement of rights or exercise of remedies, and any such distributions or payments received by such Authorized Representative or any of its Related Secured Parties (all such proceeds, distributions and payments being collectively referred to as “Proceeds”), shall be applied as follows:

(1) FIRST, to the payment of all agent’s fees and collateral management fees of the Collateral Agent and all fees, costs and expenses incurred by the Collateral Agent in connection with the collection of proceeds or sale of any Collateral or otherwise in connection with the Pari-Passu Lien Security Documents, the Real Property Collateral Management Agreement and this Agreement, including all court costs, the fees and expenses of its agents and legal counsel, all amounts payable in respect of Indemnified Liabilities (as defined in the Real Property Collateral Management Agreement) to the extent such Indemnified Liabilities are matured, payable and owing to the Collateral Agent and its related Indemnified Parties (as defined in the Real Property Collateral Management Agreement), the repayment of all advances made by the Collateral Agent on behalf of either of the Issuers or any Guarantor and any other costs or expenses incurred by the Collateral Agent in connection with the exercise of any right or remedy of any of the Pari-Passu Lien Secured Parties;

(2) SECOND, to the payment of all amounts owing to Authorized Representatives (in their capacity as such);

(3) THIRD, to the payment of all LC Facility Obligations (including obligations to provide cash collateral) on a pro rata basis based on the respective amounts of LC Facility Obligations then outstanding;

(4) FOURTH, to the payment of any Specified Pari-Passu Lien Obligations (including the Notes Obligations) on a pro rata basis based on the respective amounts of such Specified Pari-Passu Lien Obligations then outstanding; and

(5) FIFTH, to the Grantors, their successors or assigns, or as a court of competent jurisdiction may otherwise direct.

(c) It is acknowledged that the Pari-Passu Lien Obligations of any Class may, subject to the limitations set forth in the Pari-Passu Lien Credit Documents, be increased, extended, renewed, replaced, restated, supplemented, restructured, repaid, refunded, Refinanced or otherwise amended or modified from time to time, all without affecting the priorities set forth in this Section 2.01 or the provisions of this Agreement defining the relative rights of the Pari-Passu Lien Secured Parties of any Class; provided, however, that upon the Refinancing of any Class of Pari-Passu Lien Obligations, the Authorized Representative of such Class shall provide prompt notice thereof to the Collateral Agent; and provided further, however, that upon the Refinancing of the LC

Facility Obligations in accordance with the terms of the LC Facility Documents, such notice shall identify the Person that shall succeed, and the parties hereto acknowledge that such identified Person shall be permitted to succeed, the LC Facility Authorized Representative in its capacity as such under this Agreement.

SECTION 2.02. Enforcement by the Collateral Agent. If (a) any Event of Default under the Indenture (or any event of default under the Pari-Passu Lien Credit Document for which the Applicable Authorized Representative is the Authorized Representative) or an Event of Default under the LC Facility Agreement shall have occurred and be continuing, (b) an Insolvency or Liquidation Proceeding with respect to either of the Issuers or any Guarantor is occurring or (c) the LC Facility Obligations have been accelerated pursuant to applicable law, the Collateral Agent shall act in relation to the Collateral in accordance with the instructions of (i) on or prior to the date of the Discharge of LC Facility Obligations, the LC Facility Authorized Representative and the Applicable Authorized Representative and (ii) after the date of the Discharge of LC Facility Obligations, the Applicable Authorized Representative.

(b) The Collateral Agent shall disregard any instructions from any other Person to exercise any right or remedy hereunder with respect to the Collateral if those instructions are inconsistent with this Agreement.

(c) Any Person entitled to instruct the Collateral Agent to exercise any right or remedy hereunder with respect to the Collateral may give or refrain from giving instructions to the Collateral Agent to exercise or refrain from exercising any right or remedy with respect to the Collateral as it sees fit in accordance with the other provisions of the Pari-Passu Lien Security Documents, the Real Property Collateral Management Agreement and this Agreement. Prior to the Discharge of LC Facility Obligations, each instruction to exercise any right or remedy with respect to the Collateral shall be accompanied by a certification by the instructing party or parties, as the case may be, that the requirements of Sections 2.02(d), 2.02(e) and 2.02(f) have been satisfied (together with such instruction, a “Certified Instruction”).

(d) Subject to paragraph (e) below, on or prior to the date of the Discharge of LC Facility Obligations, before giving any instructions to the Collateral Agent to exercise any right or remedy hereunder with respect to the Collateral, the LC Facility Authorized Representative and the Applicable Authorized Representative shall consult with one another and with the Collateral Agent in good faith, with a view to coordinating those instructions, for a period of up to 45 days or such shorter period as the LC Facility Authorized Representative and the Applicable Authorized Representative may agree (the “Initial Consultation Period”), which Initial Consultation Period shall commence, with respect to any such instruction, upon the LC Facility Authorized Representative or the Applicable Authorized Representative notifying both the Collateral Agent and the other such party that the relevant party seeks to provide a Certified Instruction to the Collateral Agent, and shall continue notwithstanding the failure of such other party to timely respond or engage in such consultation. For the avoidance of doubt, the Collateral Agent shall be entitled to rely on such notice to it (without any requirement to confirm that such notice has been given to such other party) in determining that the Initial Consultation Period has commenced.

(e) The LC Facility Authorized Representative and the Applicable Authorized Representative shall not be obligated to consult in accordance with paragraph (d) above if the LC Facility Authorized Representative and the Applicable Authorized Representative determine in good faith that to enter into such consultations and thereby delay the commencement of enforcement of the Collateral could reasonably be expected to have a material adverse effect on (A) their ability to enforce the Collateral or (B) the realization of any proceeds of any enforcement of the Collateral.

(f) The LC Facility Authorized Representative and the Applicable Authorized Representative hereby agree that shortening or eliminating the requirement of (in accordance with 2.02(d) and 2.02(e), respectively) the Initial Consultation Period with respect to any Certified Instruction is contingent upon the LC Facility Authorized Representative and the Applicable Authorized Representative jointly notifying the Collateral Agent to such effect.

(g) The Collateral Agent shall inform each Authorized Representative promptly upon receipt of any instructions under this Section 2.02 to initiate an Initial Consultation Period or Certified Instructions to exercise any right or remedy with respect to the Collateral. Prior to the Discharge of LC Facility Obligations, the Collateral Agent may rely upon any Certified Instruction in exercising any such right or remedy; provided, however, that it may not exercise any such right or remedy following its receipt of such Certified Instruction until the earlier of (a) the sixth Business Day after the date on which it has informed each Authorized Representative of such Certified Instruction under this Section 2.02 and (b) the date on which it has received a joint Certified Instruction from the LC Facility Authorized Representative and the Applicable Authorized Representative with respect to the exercise of such right or remedy.

SECTION 2.03. Competing Instructions to the Collateral Agent. (a) If (x) a Certified Instruction given to the Collateral Agent by the LC Facility Authorized Representative or the Applicable Authorized Representative conflicts with the Certified Instruction given to the Collateral Agent by the other such party or (y) the LC Facility Authorized Representative or the Applicable Authorized Representative contests any Certified Instruction by notifying the Collateral Agent prior to the sixth Business Day after receiving notice from the Collateral Agent of such Certified Instruction in accordance with Section 2.02(g): (i) the Collateral Agent shall promptly notify the LC Facility Authorized Representative and the Applicable Authorized Representative of such conflict; and (ii) following such notification, the LC Facility Authorized Representative and the Applicable Authorized Representative shall consult with one another in good faith for 15 days (the “Additional Consultation Period”) with a view to resolving such conflict; provided, however, that the Additional Consultation Period shall end immediately if the LC Facility Authorized Representative and the Applicable Authorized Representative determine in good faith (and give the Collateral Agent notice in writing prior to the commencement thereof) that such consultation and thereby the delay in the enforcement of the Collateral could reasonably be expected to have a material adverse

effect on (A) their ability to enforce any of the Collateral or (B) the realization of any proceeds of any enforcement of the Collateral; provided, however, that any such Additional Consultation Period may only be shortened to the extent that the LC Facility Authorized Representative and the Applicable Authorized Representative jointly notify the Collateral Agent to such effect.

(b) If, following the end of the Additional Consultation Period, the Collateral Agent has not received joint instructions from the LC Facility Authorized Representative and the Applicable Authorized Representative, the Collateral Agent shall enforce the Collateral in accordance with the instructions of the LC Facility Authorized Representative as evidenced in the relevant Certified Instruction, notwithstanding any outstanding dispute as to any party’s compliance with the procedural requirements pertaining to the Initial Consultation Period, which Certified Instruction the Collateral Agent shall be entitled to rely upon in taking action to enforce rights or exercise remedies in respect of any Shared Collateral.

SECTION 2.04. Actions with Respect to Shared Collateral; Prohibition on Certain Contests. (a) Notwithstanding anything to the contrary in the Pari-Passu Lien Credit Documents (other than this Agreement), (i) only the Collateral Agent shall, and shall have the right to, exercise, or refrain from exercising, any rights, remedies and powers with respect to the Shared Collateral, including any action to enforce its security interest in or realize upon any Shared Collateral and any right, remedy or power with respect to any Shared Collateral under any intercreditor agreement (other than this Agreement), and then only on the instructions of the Applicable Authorized Representative and, if on or prior to the date of the Discharge of LC Facility Obligations, the LC Facility Authorized Representative, (ii) the Collateral Agent shall not be required to, and shall not, follow any instructions or directions with respect to Shared Collateral (including with respect to any intercreditor agreement with respect to any Shared Collateral) from any Authorized Representative (or the Related Secured Parties thereof), other than the Applicable Authorized Representative and, if on or prior to the date of the Discharge of LC Facility Obligations, the LC Facility Authorized Representative, and (iii) no Authorized Representative (or any Related Secured Parties thereof), other than the Applicable Authorized Representative and, if on or prior to the date of the Discharge of LC Facility Obligations, the LC Facility Authorized Representative, shall, or shall instruct the Collateral Agent to, commence any judicial or nonjudicial foreclosure proceedings with respect to, seek to have a trustee, receiver, liquidator or similar official appointed for or over, attempt any action to take possession of, take any other action to enforce its security interest in or realize upon, or exercise any other right, remedy or power with respect to (including any right, remedy or power under any intercreditor agreement other than this Agreement) any Shared Collateral, whether under any Pari-Passu Lien Credit Document, applicable law or otherwise, it being agreed that only the Collateral Agent, acting on the instructions of the Applicable Authorized Representative (and, if on or prior to the date of the Discharge of LC Facility Obligations, the LC Facility Authorized Representative) and in accordance with the applicable Pari-Passu Lien Security Documents, the Real Property Collateral Management Agreement and this Agreement, shall be entitled to take any such actions or exercise any such rights, remedies and powers with respect to Shared Collateral. Notwithstanding the equal

priority of the Liens established under Section 2.01(a), the Collateral Agent (acting on the instructions of the Applicable Authorized Representative and, if on or prior to the date of the Discharge of LC Facility Obligations, the LC Facility Authorized Representative) may deal with the Shared Collateral as if the Class of Specified Pari-Passu Lien Obligations then represented by the Applicable Authorized Representative and, if on or prior to the date of the Discharge of LC Facility Obligations, the LC Facility Obligations, are the only Classes of Pari-Passu Lien Obligations outstanding. No Authorized Representative of any Class of Specified Pari-Passu Lien Obligations (other than the Applicable Authorized Representative), or the Related Secured Party thereof, may contest, protest or object to any foreclosure proceeding or action brought by the Collateral Agent (acting on the instructions of the Applicable Authorized Representative and, if on or prior to the date of the Discharge of LC Facility Obligations, the LC Facility Authorized Representative), or any other exercise by the Collateral Agent, the Applicable Authorized Representative, the Controlling Secured Parties, the LC Facility Authorized Representative or the LC Facility Secured Parties of any rights, remedies or powers with respect to the Shared Collateral. Nothing in this paragraph shall be construed to limit the rights and priorities of the Collateral Agent, any Authorized Representative or any other Pari-Passu Lien Secured Party with respect to any Collateral not constituting Shared Collateral.

(b) The Collateral Agent and each of the Authorized Representatives agrees that it will not accept any Lien on any asset of any Grantor securing Pari-Passu Lien Obligations of any Class for the benefit of any Pari-Passu Lien Secured Party of such Class other than a lien which the Company has certified is permitted by the Pari-Passu Lien Security Documents, the Pari-Passu Lien Credit Documents and this Agreement.

(c) Each of the Authorized Representatives agrees, for itself and on behalf of its Related Secured Parties, that neither such Authorized Representative nor its Related Secured Parties will (and each hereby waives any right to) challenge or contest or support any other Person in challenging or contesting, in any proceeding (including any Insolvency or Liquidation Proceeding), (i) the validity, attachment, creation, perfection, priority or enforceability of a Lien held by or on behalf of the Collateral Agent or any other Authorized Representative or any of its Related Secured Parties in all or any part of the Collateral, (ii) the validity, enforceability or effectiveness of any Pari-Passu Lien Obligation of any Class, any Pari-Passu Lien Security Document of any Class or the Real Property Collateral Management Agreement or (iii) the validity, enforceability or effectiveness of the priorities, rights or duties established by, or other provisions of, any Pari-Passu Security Documents, this Agreement or the Real Property Collateral Management Agreement; provided, however, that nothing in this Agreement shall be construed to prevent or impair the rights of the Collateral Agent, any Authorized Representative or any of its Related Secured Parties to enforce this Agreement.

SECTION 2.05. No Interference; Payment Over. (a) Each of the Authorized Representatives, for itself and on behalf of its Related Secured Parties, agrees that (i) neither such Authorized Representative nor its Related Secured Parties will (and each hereby waives any right to) take or cause to be taken any action the purpose of

which is, or could reasonably be expected to be, to interfere, hinder or delay, in any manner, whether by judicial proceedings or otherwise, any sale, transfer or other disposition of the Shared Collateral by the Collateral Agent, (ii) except as provided in Sections 2.02, 2.03 and 2.04, neither such Authorized Representative nor its Related Secured Parties shall have any right (A) to direct the Collateral Agent or any other Pari-Passu Lien Secured Party to exercise any right, remedy or power with respect to any Shared Collateral (including pursuant to any intercreditor agreement) or (B) to consent to the exercise by the Collateral Agent or any other Pari-Passu Lien Secured Party of any right, remedy or power with respect to any Shared Collateral, (iii) neither such Authorized Representative nor its Related Secured Parties will (and each hereby waives any right to) institute any suit or proceeding, or assert in any suit or proceeding any claim, against the Collateral Agent or any other Pari-Passu Lien Secured Party seeking damages from or other relief by way of specific performance, instructions or otherwise with respect to any Shared Collateral, and none of the Collateral Agent, the Applicable Authorized Representative or any other Pari-Passu Lien Secured Party shall be liable for any action taken or omitted to be taken by the Collateral Agent, such Applicable Authorized Representative or such other Pari-Passu Lien Secured Party with respect to any Shared Collateral in accordance with the provisions of this Agreement, and (iv) neither such Authorized Representative nor its Related Secured Parties will (and each hereby waives any right to) seek to have any Shared Collateral or any part thereof marshaled upon any foreclosure or other disposition of such Shared Collateral; provided, however, that nothing in this Agreement shall be construed to prevent or impair the rights of the Collateral Agent or any Authorized Representative or any of its Related Secured Parties to enforce this Agreement.

(b) Each Authorized Representative, on behalf of itself and its Related Secured Parties, agrees that if such Authorized Representative or any of its Related Secured Parties shall at any time after the occurrence and during the continuation of an Event of Default obtain possession of any Shared Collateral or receive any Proceeds (other than as a result of any application of Proceeds pursuant to Section 2.01(b)) at any time prior to the Discharge of LC Facility Obligations and the Discharge of Pari-Passu Lien Obligations of each other Class, (i) such Authorized Representative or its Related Secured Party, as the case may be, shall promptly inform each Authorized Representative thereof, (ii) such Authorized Representative or its Related Secured Party shall hold such Shared Collateral or Proceeds in trust for the benefit of the Pari-Passu Lien Secured Parties of any Class entitled thereto pursuant to Section 2.01 and (iii) such Authorized Representative or its Related Secured Party shall promptly transfer such Shared Collateral or Proceeds to the Collateral Agent for distribution in accordance with Section 2.01(b). Furthermore, in the event of any Insolvency or Liquidation Proceeding in which a determination is made that any Lien encumbering any Shared Collateral is not enforceable for any reason, each Authorized Representative (on behalf of itself and its Related Secured Parties) agrees that, prior to the Discharge of LC Facility Obligations and the Discharge of Pari-Passu Lien Obligations of each other Class, any distribution or recovery it may receive with respect to, or allocable to, the value of the assets intended to constitute such Shared Collateral or any proceeds thereof shall be segregated and held in trust and forthwith paid over to the Collateral Agent for the benefit of the Pari-Passu Lien Secured Parties (in accordance with Section 2.01, notwithstanding such determination) in

the same form as received, without recourse, representation or warranty (other than a representation of such Authorized Representative that it has not otherwise sold, assigned or transferred or pledged any right, title or interest in and to such distribution or recovery) but with any necessary endorsements or as a court of competent jurisdiction may otherwise direct. The Collateral Agent and each Authorized Representative, on behalf of itself and its Related Secured Parties, agrees that if the Collateral Agent or such Authorized Representative (or any of its Related Secured Parties) shall at any time, other than when an Event of Default has occurred and is continuing, obtain possession of any Shared Collateral or receive any Proceeds (other than as a result of any application of Proceeds pursuant to Section 2.01(b)) thereof, the Collateral Agent or such Authorized Representative (or its Related Secured Party), as the case may be, will convey such Shared Collateral or Proceeds, as the case may be, to the Grantors.

SECTION 2.06. Automatic Release of Liens; Amendments to Pari-Passu Lien Security Documents. (a) Notwithstanding anything to the contrary in the Pari-Passu Lien Credit Documents or Pari-Passu Lien Security Documents (but subject to the provisions of Section 11.04 of the Indenture in the case of the release of the Collateral from the Liens of the Security Documents), if at any time the Collateral Agent forecloses upon or otherwise exercises rights, remedies and powers against any Shared Collateral resulting in a disposition thereof, then (whether or not any Insolvency or Liquidation Proceeding is pending at the time) the Liens on such Shared Collateral in favor of the Collateral Agent, for the benefit of the Pari-Passu Lien Secured Parties of all Classes, will automatically be released and discharged; provided, however, that any Proceeds realized therefrom shall be applied pursuant to Section 2.01(b).

(b) Each of the Authorized Representatives, for itself and on behalf of its Related Secured Parties, acknowledges and agrees that (i) the Collateral Agent may enter into any amendment or other modification to the Real Property Collateral Management Agreement or any Pari-Passu Lien Security Document so long as the Collateral Agent receives a certificate of the Issuers stating that such amendment or other modification is permitted by the terms of the Pari-Passu Lien Credit Documents of each Class and (ii) the Collateral Agent may enter into any amendment or other modification to the Real Property Collateral Management Agreement or any Pari-Passu Lien Security Document solely as such Pari-Passu Lien Security Document relates to Pari-Passu Lien Obligations of a particular Class so long as the Collateral Agent receives a certificate of the Issuers stating that (A) such amendment or modification is in accordance with the Pari-Passu Lien Credit Documents of such Class and (B) such amendment or modification does not adversely affect the interests of the Pari-Passu Lien Secured Parties of any other Class.

(c) Each Authorized Representative agrees to execute and deliver (at the sole cost and expense of the Grantors) all such consents, confirmations, authorizations and other instruments as shall reasonably be requested by the Collateral Agent to evidence and confirm any release of Shared Collateral or amendment or modification to the Real Property Collateral Management Agreement or any Pari-Passu Lien Security Document provided for in this Section.

SECTION 2.07. Certain Agreements with Respect to Bankruptcy and Insolvency Proceedings. The Authorized Representative of each Class, for itself and on behalf of its Related Secured Parties, agrees that, if the Issuers or any other Grantor shall become subject to a case (a “Bankruptcy Case”) under the Bankruptcy Code and shall, as debtor-in-possession, move for approval of financing (“DIP Financing”) to be provided by one or more lenders (the “DIP Lenders”) under Section 364 of the Bankruptcy Code or any equivalent provision of any other Bankruptcy Law or the use of cash collateral under Section 363 of the Bankruptcy Code or any equivalent provision of any other Bankruptcy Law, neither such Authorized Representative nor its Related Secured Parties will raise any objection to any such financing or to the Liens on the Shared Collateral securing any such financing (“DIP Financing Liens”) or to any use of cash collateral that constitutes Shared Collateral, in each case unless the Applicable Authorized Representative or, if on or prior to the date of the Discharge of LC Facility Obligations, the LC Facility Authorized Representative, shall then oppose or object to such DIP Financing or such DIP Financing Liens or such use of cash collateral (and (i) to the extent that such DIP Financing Liens are senior to the Liens on any such Shared Collateral for the benefit of the LC Facility Secured Parties or the Controlling Secured Parties, each Non-Controlling Secured Party (and, in the case of DIP Financing Liens senior to Liens on Shared Collateral for the benefit of the LC Facility Secured Parties, the Controlling Secured Parties) will subordinate its or their Liens (as applicable) with respect to such Shared Collateral on the same terms as the Liens of the LC Facility Secured Parties or the Controlling Secured Parties (as applicable, and in each case, other than any Liens of the LC Facility Secured Parties or Controlling Secured Parties constituting DIP Financing Liens) are subordinated thereto, and (ii) to the extent that such DIP Financing Liens rank pari passu with the Liens on any such Shared Collateral granted to secure the Pari-Passu Lien Obligations of the LC Facility Secured Parties or the Controlling Secured Parties, each Non-Controlling Secured Party (and, in the case of DIP Financing Liens that rank pari-passu with the Liens on any such Shared Collateral granted to secure the Pari-Passu Lien Obligations of the LC Facility Secured Parties, the Controlling Secured Parties) will confirm the priorities with respect to such Shared Collateral as set forth herein), in each case so long as (A) the Pari-Passu Lien Secured Parties of such Class retain the benefit of their Liens on all such Shared Collateral subject to the DIP Financing Liens, including proceeds thereof arising after the commencement of the Bankruptcy Case, with such Liens having the same priority with respect to Liens of the Pari-Passu Lien Secured Parties of any other Class (other than any Liens of the Pari-Passu Lien Secured Parties of such other Class constituting DIP Financing Liens) as existed prior to the commencement of the Bankruptcy Case, (B) the Pari-Passu Lien Secured Parties of such Class are granted Liens on any additional collateral provided to the Pari-Passu Lien Secured Parties of any other Class as adequate protection or otherwise in connection with such DIP Financing or use of cash collateral, with such Liens having the same priority with respect to Liens of the Pari-Passu Lien Secured Parties of any other Class (other than any Liens of the Pari-Passu Lien Secured Parties of such other Class constituting DIP Financing Liens) as existed prior to the commencement of the Bankruptcy Case, (C) if any amount of such DIP Financing or cash collateral is applied to repay any Pari-Passu Lien Obligations, such amount is applied in accordance with Section 2.01(b), and (D) if the Pari-Passu Lien Secured Parties of any Class are granted adequate protection, including

in the form of periodic payments, in connection with such DIP Financing or use of cash collateral, the proceeds of such adequate protection are applied in accordance with Section 2.01(b); provided, however, that the Pari-Passu Lien Secured Parties of each Class shall have a right to object to the grant, as security for the DIP Financing, of a Lien on any Collateral subject to Liens in favor of the Pari-Passu Lien Secured Parties of such Class or its Authorized Representative that shall not constitute Shared Collateral; and provided further that any Pari-Passu Lien Secured Party receiving adequate protection granted in connection with the DIP Financing or such use of cash collateral shall not object to any other Pari-Passu Lien Secured Party receiving adequate protection comparable to any such adequate protection granted to such Pari-Passu Lien Secured Party.

SECTION 2.08. Reinstatement. If, in any Insolvency or Liquidation Proceeding or otherwise, all or part of any payment with respect to the Pari-Passu Lien Obligations of any Class previously made shall be rescinded for any reason whatsoever (including an order or judgment for disgorgement of a preference under the Bankruptcy Code or any similar law), then the terms and conditions of Article II shall be fully applicable thereto until all the Pari-Passu Lien Obligations of such Class shall again have been paid in full in cash.

SECTION 2.09. Insurance and Condemnation Awards. As between the Pari-Passu Lien Secured Parties, the Collateral Agent, acting at the instruction of the Applicable Authorized Representative and, if on or prior to the date of the Discharge of LC Facility Obligations, the LC Facility Authorized Representative (for the avoidance of doubt, subject to Sections 2.02 and 2.03), shall have the exclusive right, subject to the rights of the Grantors under the Pari-Passu Lien Security Documents, to settle and adjust claims in respect of Shared Collateral under policies of insurance covering or constituting Shared Collateral and to approve any award granted in any condemnation or similar proceeding, or any deed in lieu of condemnation, in respect of the Shared Collateral; provided, however, that any Proceeds arising therefrom shall be subject to Section 2.01(b).

SECTION 2.10. Refinancings. The Pari-Passu Lien Obligations of any Class may be Refinanced, in whole or in part, in each case, without notice to, or the consent of, any Pari-Passu Lien Secured Party of any other Class, all without affecting the priorities provided for herein or the other provisions hereof; provided, however, that nothing in this Section shall affect any limitation on any such Refinancing that is set forth in the Pari-Passu Lien Credit Documents of any Class; and provided further, however, that, if any obligations of the Grantors in respect of such Refinancing Indebtedness shall be secured by Liens on any Shared Collateral, then such obligations and the holders thereof shall be subject to and bound by the provisions of this Agreement and the Authorized Representative of the holders of any such Refinancing Indebtedness shall have executed an Additional Authorized Representative Joinder Agreement.

SECTION 2.11. Possessory Collateral Agent as Gratuitous Bailee for Perfection. (a) The Collateral Agent agrees to hold any Shared Collateral constituting Possessory Collateral that is part of the Collateral in its possession or control (or in the

possession or control of its agents or bailees) as gratuitous bailee for the benefit of each Pari-Passu Lien Secured Party and any assignee solely for the purpose of perfecting the security interest granted in such Possessory Collateral, if any, pursuant to the applicable Pari-Passu Lien Security Documents, in each case subject to the terms and conditions of this Section. Pending delivery to the Collateral Agent, each Authorized Representative agrees to hold any Shared Collateral constituting Possessory Collateral, from time to time in its possession, as gratuitous bailee for the benefit of each Pari-Passu Lien Secured Party and any assignee, solely for the purpose of perfecting the security interest granted in such Possessory Collateral, if any, pursuant to the applicable Pari-Passu Lien Security Documents, in each case, subject to the terms and conditions of this Section.

(b) The duties or responsibilities of the Collateral Agent and each Authorized Representative under this Section shall be limited solely to holding any Shared Collateral constituting Possessory Collateral as gratuitous bailee for the benefit of each Pari-Passu Lien Secured Party for purposes of perfecting the Lien held by such Pari-Passu Lien Secured Parties therein. Except for the exercise of reasonable care in the custody of any Collateral in its possession and the accounting for moneys actually received by it hereunder, the Collateral Agent shall have no duty as to any Collateral or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral.

SECTION 2.12. Permitted Priority Liens. The Pari-Passu Lien Secured Parties hereby authorize and instruct the Collateral Agent to, and the Collateral Agent hereby agrees that it shall, execute and deliver such lien subordination, non-disturbance, attornment and other similar agreements as the Company may from time to time request, in form and substance reasonably satisfactory to the Applicable Authorized Representative and, if on or prior to the date of the Discharge of LC Facility Obligations, the LC Facility Authorized Representative, so long as the Company delivers to the Collateral Agent an Officers’ Certificate certifying that the Lien or other encumbrance proposed to be made senior to the Pari-Passu Lien Obligations is permitted to be incurred under the Pari-Passu Lien Credit Documents and is a Permitted Priority Lien.

SECTION 2.13. Excluded Stock Collateral. Each Authorized Representative, for itself and on behalf of its Related Secured Parties, agrees that, notwithstanding any provision of any Pari-Passu Lien Credit Document to the contrary, if, prior to the Discharge of LC Facility Obligations, (i) an Event of Default shall have occurred and is continuing and such Authorized Representative or any of its Related Secured Parties is taking action to enforce rights or exercise remedies in respect of any Excluded Stock Collateral (as defined in the Security Agreement), (ii) any distribution is made in respect of any Excluded Stock Collateral in any Insolvency or Liquidation Proceeding or (iii) such Authorized Representative or any of its Related Secured Parties receives any payment with respect to any Excluded Stock Collateral pursuant to any intercreditor agreement (other than this Agreement), then the proceeds of any sale, collection or other liquidation of any Excluded Stock Collateral obtained by such Authorized Representative or any of its Related Secured Parties on account of such enforcement of rights or exercise of remedies, and any such distributions or payments received by such Authorized Representative or any of its Related Secured Parties shall be applied in accordance with clauses (1), (2), (3) and (5), but not clause (4), of Section 2.01(b).

SECTION 2.14. Excluded Land Collateral. Each Authorized Representative, for itself and on behalf of its Related Secured Parties, agrees that, notwithstanding any provision of any Pari-Passu Lien Credit Document to the contrary, if (i) an Event of Default shall have occurred and is continuing and such Authorized Representative or any of its Related Secured Parties is taking action to enforce rights or exercise remedies in respect of any Excluded Land Collateral, (ii) any distribution is made in respect of any Collateral in any Insolvency or Liquidation Proceeding or (iii) such Authorized Representative or any of its Related Secured Parties receives any payment with respect to any Excluded Land Collateral pursuant to any intercreditor agreement (other than this Agreement), then the proceeds of any sale, collection or other liquidation of any Excluded Land Collateral obtained by such Authorized Representative or any of its Related Secured Parties on account of such enforcement of rights or exercise of remedies, and any such distributions or payments received by such Authorized Representative or any of its Related Secured Parties shall be applied in accordance with clauses (1), (2), (4) and (5), but not clause (3), of Section 2.01(b).

SECTION 2.15. Miscellaneous. Unless and until otherwise instructed by an Authorized Representative, the Collateral Agent may consider all Collateral as Shared Collateral. Each Authorized Representative hereby agrees that (i) upon a change in the Authorized Representative serving as Applicable Authorized Representative, the incumbent Applicable Authorized Representative shall provide prompt notice to the Collateral Agent as to the successor thereof, (ii) upon the assignment of any party’s rights and obligations under this Agreement, the assigning party shall provide prompt notice to the Collateral Agent as to the assignee thereof and (iii) upon a change in the principal amount outstanding of any Class of Specified Pari Passu-Lien Obligations, the Applicable Authorized Representative shall notify the Collateral Agent as to such change. Furthermore, the LC Facility Authorized Representative hereby agrees to provide prompt notice to the Collateral Agent upon the Discharge of LC Facility Obligations.

ARTICLE III

Determinations with Respect to Obligations and Liens

Whenever, in connection with the exercise of its rights or the performance of its obligations hereunder, the Collateral Agent or the Authorized Representative of any Class shall be required to determine the existence or amount of any Pari-Passu Lien Obligations of any Class, or the Shared Collateral subject to any Lien securing the Pari-Passu Lien Obligations of any Class (and whether such Lien constitutes a valid and perfected Lien), it may request that such information be furnished to it in writing by the Authorized Representative of such Class and shall be entitled to make such determination on the basis of the information so furnished; provided, however, that if, notwithstanding such request, the Authorized Representative of the applicable Class shall fail or refuse reasonably promptly to provide the requested information, the requesting Collateral

Agent or Authorized Representative shall be entitled to make any such determination by such method as it may, in the exercise of its good faith judgment, determine, including by reliance upon an Officers’ Certificate. The Collateral Agent and each Authorized Representative may rely conclusively, and shall be fully protected in so relying, on any determination made by it in accordance with the provisions of the preceding sentence (or as otherwise directed by a court of competent jurisdiction) and shall have no liability to any Grantor, any Pari-Passu Lien Secured Party or any other Person as a result of such determination or any action or not taken pursuant thereto.

ARTICLE IV

Concerning the Collateral Agent

SECTION 4.01. Appointment and Authority. (a) Each of the Authorized Representatives, for itself and on behalf of its Related Secured Parties, hereby irrevocably appoints Wells Fargo Bank, National Association to act as the Collateral Agent hereunder and under each of the Pari-Passu Lien Security Documents and the Real Property Collateral Management Agreement, and authorizes the Collateral Agent to take such actions and to exercise such powers as are delegated to the Collateral Agent by the terms hereof or thereof, including for purposes of acquiring, holding and enforcing any and all Liens on Collateral granted by any Grantor to secure any of the Pari-Passu Lien Obligations, together with such actions and powers as are reasonably incidental thereto (including, for the avoidance of doubt, (i) entering into the Real Property Collateral Management Agreement and (ii) establishing and maintaining accounts at such banking institutions necessary or appropriate to receive and distribute Proceeds in accordance with Section 2.01 and the Pari-Passu Lien Security Documents and the Real Property Collateral Management Agreement). In addition, to the extent required under the laws of any jurisdiction other than the United States, each of the Authorized Representatives, for itself and on behalf of its Related Secured Parties, hereby grants to the Collateral Agent any required powers of attorney to execute any Pari-Passu Lien Security Document governed by the laws of such jurisdiction on such Pari-Passu Lien Secured Party’s behalf. Without limiting the generality of the foregoing, the Collateral Agent is hereby expressly authorized to execute any and all documents (including releases) with respect to the Shared Collateral, and the rights of the Pari-Passu Lien Secured Parties with respect thereto, as contemplated by and in accordance with the provisions of this Agreement and the Pari-Passu Lien Security Documents.

(b) Each of the Authorized Representatives, for itself and on behalf of its Related Secured Parties, acknowledges and agrees that the Collateral Agent shall be entitled, for the benefit of the Pari-Passu Lien Secured Parties, to sell, transfer or otherwise dispose of or deal with any Shared Collateral as provided herein and in the Pari-Passu Lien Security Documents and the Real Property Collateral Management Agreement, without regard to any rights, remedies or powers to which the Non-Controlling Secured Parties would otherwise be entitled to as a result of their Non-Controlling Secured Obligations. Without limiting the foregoing, each of the Authorized Representatives, for itself and on behalf of its Related Secured Parties, agrees that none of the Collateral Agent, the Applicable Authorized Representative, the LC Facility

Authorized Representative or any other Pari-Passu Lien Secured Party shall have any duty or obligation first to marshal or realize upon any type of Shared Collateral (or any other Collateral securing any of the Pari-Passu Lien Obligations), or to sell, dispose of or otherwise liquidate all or any portion of such Shared Collateral (or any other Collateral securing any Pari-Passu Lien Obligations), in any manner that would maximize the return to the Non-Controlling Secured Parties, notwithstanding that the order and timing of any such realization, sale, disposition or liquidation may affect the amount of proceeds actually received by the Non-Controlling Secured Parties from such realization, sale, disposition or liquidation. Each of the Authorized Representatives, for itself and on behalf of its Related Secured Parties, waives any claim they may now or hereafter have against the Collateral Agent or the Authorized Representative or any Pari-Passu Lien Secured Party of any other Class arising out of (i) any actions that the Collateral Agent or any such Authorized Representative or Pari-Passu Lien Secured Party takes or omits to take (including actions with respect to the creation, perfection or continuation of Liens on any Collateral, actions with respect to the foreclosure upon, sale or other disposition, release or depreciation of, or failure to realize upon, any of the Collateral and actions with respect to the collection of any claim for all or any part of the Pari-Passu Lien Obligations from any account debtor, guarantor or any other party) in accordance with the Pari-Passu Lien Security Documents or the Real Property Collateral Management Agreement or any other agreement related thereto or to the collection of the Pari-Passu Lien Obligations or the valuation, use, protection or release of any security for the Pari-Passu Lien Obligations, (ii) any election by any Applicable Authorized Representative, LC Facility Authorized Representative or Pari-Passu Lien Secured Parties, in any proceeding instituted under the Bankruptcy Code, of the application of Section 1111(b) of the Bankruptcy Code or (iii) subject to Section 2.07, any borrowing by, or grant of a security interest or administrative expense priority under Section 364 of the Bankruptcy Code or any equivalent provision of any other Bankruptcy Law by, the Issuers or any of its Subsidiaries, as debtor-in-possession. Notwithstanding any other provision of this Agreement, the Collateral Agent shall not accept any Shared Collateral in full or partial satisfaction of any Pari-Passu Lien Obligations pursuant to Section 9-620 of the Uniform Commercial Code of any jurisdiction without the consent of each Authorized Representative representing Pari-Passu Lien Secured Parties for whom such Collateral constitutes Shared Collateral.

(c) Each of the Authorized Representatives, for itself and on behalf of its Related Secured Parties, acknowledges and agrees that, upon any other obligations being designated hereunder as Additional Pari-Passu Lien Obligations or any other Person becoming an Additional Authorized Representative or any other Persons becoming Additional Pari-Passu Lien Secured Parties, the Collateral Agent will continue to act in its capacity as Collateral Agent in respect of the then existing Authorized Representatives and Pari-Passu Lien Secured Parties and such Additional Authorized Representative and Additional Pari-Passu Lien Secured Parties.

SECTION 4.02. Rights as a Pari-Passu Lien Secured Party. The Person serving as the Collateral Agent hereunder shall have the same rights and powers in its capacity as a Pari-Passu Lien Secured Party of any Class as any other Pari-Passu Lien Secured Party of such Class and may exercise the same as though it were not the

Collateral Agent and the term “Pari-Passu Lien Secured Party”, “Pari-Passu Lien Secured Parties”, “Indenture Secured Party”, “Indenture Secured Parties”, “Additional Pari-Passu Lien Secured Party” or “Additional Pari-Passu Lien Secured Parties”, as applicable, shall, unless otherwise expressly indicated or unless the context otherwise requires, include the Person serving as the Collateral Agent hereunder in its individual capacity. The Person serving as the Collateral Agent and its Affiliates may accept deposits from, lend money to, act as the financial advisor or in any other advisory capacity for and generally engage in any kind of business with the Issuers or any of their Subsidiaries or any other Affiliate thereof as if such Person were not the Collateral Agent hereunder and without any duty to account therefor to any other Pari-Passu Lien Secured Party.

SECTION 4.03. Exculpatory Provisions. The Collateral Agent shall not have any duties or obligations except those expressly set forth herein and in the other Pari-Passu Lien Security Documents and the Real Property Collateral Management Agreement. Without limiting the generality of the foregoing, the Collateral Agent:

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

(ii) shall not have any duty to take or refrain from taking any discretionary action or exercise or refrain from exercising any discretionary powers, except discretionary rights and powers expressly contemplated hereby or by the Pari-Passu Lien Security Documents or the Real Property Collateral Management Agreement that the Collateral Agent is required to exercise as directed in writing by the Applicable Authorized Representative and, if on or prior to the date of the Discharge of LC Facility Obligations, the LC Facility Authorized Representative; provided, however, that the Collateral Agent shall not be required to take any action that, in its opinion or the opinion of its counsel, may expose the Collateral Agent, its agent or counsel to liability or that is contrary to any Pari-Passu Lien Security Document or applicable law;

(iii) shall not be under any obligation to exercise any of the rights or powers vested in it hereby or by the Pari-Passu Lien Security Documents or the Real Property Collateral Management Agreement as directed in writing by the Applicable Authorized Representative and, if on or prior to the date of the Discharge of LC Facility Obligations, the LC Facility Authorized Representative, unless such Authorized Representative has offered to the Collateral Agent reasonable security or indemnity reasonably satisfactory to it against the costs, expenses and liabilities that might be incurred by it in compliance with such request or direction;

(iv) shall not be required to expend or risk its own funds or otherwise incur any financial liability in the performance of its duties hereunder, or in the exercise of its rights or powers, unless it receives indemnity satisfactory to it against any loss, liability or expense;

(v) may rely upon and enforce for its own benefit each and all of the rights, powers, immunities, indemnities and benefits of the Trustee under Article VII of the Indenture, each of which shall also be deemed to be for the benefit of the Collateral Agent;

(vi) shall not, except as expressly set forth in this Agreement, the Real Property Collateral Management Agreement and in the Pari-Passu Lien Security Documents, have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Issuers or any of their Subsidiaries or any of their respective Affiliates that is communicated to or obtained by the Person serving as the Collateral Agent or any of its Affiliates in any capacity;

(v) shall not be liable for any action taken or not taken by it (A) with the consent or at the request of (in accordance with the provisions of this Agreement) the Applicable Authorized Representative or the LC Facility Authorized Representative, (B) in the absence of its own gross negligence or wilful misconduct or (C) in reliance on an Officers’ Certificate stating that such action is permitted by the terms of this Agreement;

(vi) shall be deemed not to have knowledge of any Default or Event of Default under any Pari-Passu Lien Credit Documents of any Class unless and until notice describing such Default or Event Default is given to the Collateral Agent by the Authorized Representative of such Class or the Issuers in accordance with the applicable Pari-Passu Lien Credit Document;

(vii) shall not be responsible for or have any duty to ascertain or inquire into (A) any statement, warranty or representation made in or in connection with this Agreement or any Pari-Passu Lien Security Document or the Real Property Collateral Management Agreement, (B) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith, (C) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein or therein or the occurrence of any Default or Event of Default, (D) the validity, enforceability, effectiveness or genuineness of this Agreement, any Pari-Passu Lien Security Document, the Real Property Collateral Management Agreement or any other agreement, instrument or document, or the validity, attachment, creation, perfection, priority or enforceability of any Lien purported to be created by the Pari-Passu Lien Security Documents, (E) the value or the sufficiency of any Collateral for Pari-Passu Lien Obligations of any Class or (F) the satisfaction of any condition set forth in any Pari-Passu Lien Credit Document, any Pari Passu Lien Security Document or the Real Property Collateral Management Agreement, other than to confirm receipt of items expressly required to be delivered to the Collateral Agent; and

(viii) shall be deemed not to have knowledge of the Discharge of LC Facility Obligations, a change in the principal amounts of the Classes of Specified Pari Passu Lien Obligations, the identity of any Authorized Representative or the identity of the Authorized Representative serving as Applicable Authorized Representative until notice of such Discharge or change is given to the Collateral Agent in accordance with Section 2.15.

SECTION 4.04. Reliance by Collateral Agent. The Collateral Agent shall be entitled to rely, and shall not incur any liability for relying, upon any notice, request, certificate, consent, statement, instrument, document or other writing (including any electronic message, Internet or intranet website posting or other distribution) believed by it to be genuine and to have been signed, sent or otherwise authenticated by the proper Person. The Collateral Agent also shall be entitled to rely, and shall not incur any liability for relying, upon any statement made to it orally or by telephone and believed by it to have been made by the proper Person. The Collateral Agent may consult with legal counsel of its selection (who may be counsel for the Issuers, any other Grantor or any Authorized Representative), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts.

SECTION 4.05. Delegation of Duties. The Collateral Agent may perform any and all of its duties and exercise its rights and powers hereunder or under any other Pari-Passu Lien Security Document or the Real Property Collateral Management Agreement by or through any one or more sub-agents appointed by the Collateral Agent and the Collateral Agent shall not be responsible for any misconduct or negligence of any such sub-agent appointed with due care. The Collateral Agent and any such sub-agent may perform any and all of its duties and exercise its rights and powers by or through their respective Affiliates. The exculpatory provisions of this Article shall apply to any such sub-agent and to the Affiliates of the Collateral Agent and any such sub-agent, and shall apply to their respective activities as the Collateral Agent.

SECTION 4.06. Resignation of Collateral Agent. The Collateral Agent may at any time give notice of its resignation as Collateral Agent under this Agreement, the Real Property Collateral Management Agreement and the Pari-Passu Lien Security Documents to each Authorized Representative and the Company. Upon receipt of any such notice of resignation, the Applicable Authorized Representative (and, if on or prior to the date of the Discharge of LC Facility Obligations, the LC Facility Authorized Representative) shall have the right, in consultation with the Company, to appoint a successor. If no such successor shall have been so appointed by the Applicable Authorized Representative (and, if on or prior to the date of the Discharge of LC Facility Obligations, by the LC Facility Authorized Representative) and shall have accepted such appointment within 30 days after the retiring Collateral Agent gives notice of its resignation, then the retiring Collateral Agent may, on behalf of the Pari-Passu Lien Secured Parties, appoint a successor Collateral Agent reasonably satisfactory to the Applicable Authorized Representative (and, if on or prior to the date of the Discharge of LC Facility Obligations, the LC Facility Authorized Representative); provided, however, that if the Collateral Agent shall notify each Authorized Representative and the Company that no qualifying Person has accepted such appointment, then such resignation shall nonetheless become effective in accordance with such notice and (a) the retiring

Collateral Agent shall be discharged from its duties and obligations hereunder and under the Pari-Passu Lien Security Documents and the Real Property Collateral Management Agreement (except that in the case of any Collateral held by the Collateral Agent on behalf of the Pari-Passu Lien Secured Parties under any Pari-Passu Lien Security Document, the retiring Collateral Agent shall continue to hold such Collateral solely for purposes of maintaining the perfection of the security interests of the Pari-Passu Lien Secured Parties therein until such time as a successor Collateral Agent is appointed but with no obligation to take any further action at the request of the Applicable Authorized Representative or any other Pari-Passu Lien Secured Parties) and (b) all payments, communications and determinations provided to be made by, to or through the Collateral Agent shall instead be made by or to each Authorized Representative directly, until such time as the Applicable Authorized Representative and, if on or prior to the date of the Discharge of LC Facility Obligations, the LC Facility Authorized Representative, appoint a successor Collateral Agent as provided above. Upon the acceptance of a successor’s appointment as Collateral Agent hereunder and under the Pari-Passu Lien Security Documents and the Real Property Collateral Management Agreement, such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring (or retired) Collateral Agent, and the retiring Collateral Agent shall be discharged from all of its duties and obligations hereunder or under the Pari-Passu Lien Security Documents and the Real Property Collateral Management Agreement (if not already discharged therefrom as provided above). Notwithstanding the resignation of the Collateral Agent hereunder and under the Pari-Passu Lien Security Documents and the Real Property Collateral Management Agreement, the provisions of this Article and the equivalent provision of any Additional Pari-Passu Lien Credit Document shall continue in effect for the benefit of such retiring Collateral Agent, its sub-agents and their respective Related Secured Parties in respect of any actions taken or omitted to be taken by any of them while the retiring Collateral Agent was acting as Collateral Agent. Upon any notice of resignation of the Collateral Agent hereunder and under the Pari-Passu Lien Security Documents and the Real Property Collateral Management Agreement, the Company agrees to use commercially reasonable efforts to transfer (and maintain the validity and priority of) the Liens in favor of the retiring Collateral Agent under the Pari-Passu Lien Security Documents to the successor Collateral Agent.

SECTION 4.07. Collateral Matters. Each of the Pari-Passu Lien Secured Parties irrevocably authorizes and directs the Collateral Agent:

(a) to release any Lien on any property granted to or held by the Collateral Agent under any Pari-Passu Lien Security Document or the Real Property Collateral Management Agreement in accordance with Sections 2.04 and 2.06, in accordance with the Real Property Collateral Management Agreement or upon receipt of an Officers’ Certificate stating that such release is permitted by the terms of the Pari-Passu Lien Credit Documents; and

(b) to release any Grantor from its obligations under the Pari-Passu Lien Security Documents or the Real Property Collateral Management Agreement upon receipt of an Officers’ Certificate and Opinion of Counsel stating that such release is permitted by the terms of the Pari-Passu Lien Credit Documents; neither of which shall require the instruction of any Authorized Representative in accordance with Section 2.02 or 2.03.

ARTICLE V

No Liability

SECTION 5.01. Information. Neither the Collateral Agent nor the Authorized Representative or Pari-Passu Lien Secured Parties of any Class shall have any duty to disclose to any Pari-Passu Lien Secured Party of any other Class any information relating to the Issuers or any of their Subsidiaries, or any other circumstance bearing upon the risk of nonpayment of any of the Pari-Passu Lien Obligations, that is known or becomes known to any of them or any of their Affiliates. If the Collateral Agent or the Authorized Representative or any Pari-Passu Lien Secured Party of any Class, in its sole discretion, undertakes at any time or from time to time to provide any such information to, as the case may be, the Authorized Representative or any Pari-Passu Lien Secured Party of any other Class, it shall be under no obligation (i) to make, and shall not be deemed to have made, any express or implied representation or warranty, including with respect to the accuracy, completeness, truthfulness or validity of the information so provided, (ii) to provide any additional information or to provide any such information on any subsequent occasion or (iii) to undertake any investigation.

SECTION 5.02. No Warranties or Liability. (a) Each Authorized Representative, for itself and on behalf of its Related Secured Parties, acknowledges and agrees that neither the Collateral Agent nor the Authorized Representative or any Pari-Passu Lien Secured Party of any other Class has made any express or implied representation or warranty, including with respect to the execution, validity, legality, completeness, collectability or enforceability of any of the Pari-Passu Lien Credit Documents, the ownership of any Shared Collateral or the perfection or priority of any Liens thereon. The Authorized Representative and the Pari-Passu Lien Secured Parties of any Class will be entitled to manage and supervise their loans and other extensions of credit in the manner determined by them.

(b) No Authorized Representative or Pari-Passu Lien Secured Parties of any Class shall have any express or implied duty to the Authorized Representative or any Pari- Passu Lien Secured Party of any other Class to act or refrain from acting in a manner that allows, or results in, the occurrence or continuance of a Default or an Event of Default under any Pari-Passu Lien Credit Document (other than, in each case, this Agreement), regardless of any knowledge thereof that they may have or be charged with.

ARTICLE VI

Additional Pari-Passu Lien Obligations

The Issuers may, at any time and from time to time, subject to any limitations contained in the Pari-Passu Lien Credit Documents in effect at such time, designate additional Indebtedness and related obligations that are, or are to be, secured by

Liens on any assets of either of the Issuers or any other Grantor that would, if such Liens were granted, constitute Shared Collateral as “Additional Pari-Passu Lien Obligations” by delivering to the Collateral Agent and each Authorized Representative party hereto at such time an Officers’ Certificate:

(a) describing the Indebtedness and other obligations being designated as Additional Pari-Passu Lien Obligations, and including a statement of the maximum aggregate outstanding principal amount of such Indebtedness as of the date of such certificate;

(b) setting forth the Additional Pari-Passu Lien Credit Documents under which such Additional Pari-Passu Lien Obligations are issued or incurred or the guarantees of such Additional Pari-Passu Lien Obligations are, or are to be, created, and attaching copies of such Additional Pari-Passu Lien Credit Documents as each Grantor has executed and delivered to the Person that serves as the administrative agent, trustee or a similar representative for the holders of such Additional Pari-Passu Lien Obligations (such Person being referred to as the “Additional Authorized Representative”) with respect to such Additional Pari-Passu Lien Obligations on the closing date of such Additional Pari-Passu Lien Obligations, certified as being true and complete by an Officers’ Certificate;

(c) identifying the Person that serves as the Additional Authorized Representative;

(d) certifying that the incurrence of such Additional Pari-Passu Lien Obligations, the creation of the Liens securing such Additional Pari-Passu Lien Obligations and the designation of such Additional Pari-Passu Lien Obligations as “Additional Pari-Passu Lien Obligations” hereunder do not violate or result in a default under any provision of any Pari-Passu Lien Credit Documents in effect at such time;

(e) certifying that the Additional Pari-Passu Lien Credit Documents authorize the Additional Authorized Representative to become a party hereto by executing and delivering an Additional Authorized Representative Joinder Agreement and provide that upon such execution and delivery, such Additional Pari-Passu Lien Obligations and the holders thereof shall become subject to and bound by the provisions of this Agreement; and

(f) attaching a fully completed Authorized Representative Joinder Agreement executed and delivered by the Additional Authorized Representative.

Upon the delivery of such certificate and the related attachments as provided above, the obligations designated in such notice as “Additional Pari-Passu Lien Obligations” shall become Additional Pari-Passu Lien Obligations for all purposes of this Agreement.

ARTICLE VII

Miscellaneous

SECTION 7.01. Notices. All notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows:

(a) if to any Grantor, to it (or, in the case of any Grantor other than the Company, to it in care of the Company) at 655 Brea Canyon Road, Walnut, California 91788-0487, Attention of Chief Financial Officer (Fax No. (909) 869-0849);

(b) if to the Collateral Agent, to it at Wells Fargo Bank, National Association, 45 Broadway, 14^th Floor, New York, NY 10006, Fax 212-515-1589, Attn: Julius Zamora;

(c) if to the Trustee (in its capacity as the Authorized Representative of the Indenture Secured Parties), to it at 707 Wilshire Blvd, 17^th Floor, Los Angeles, CA 90017, Attention: Corporate Trust Department;

(d) if to the LC Facility Authorized Representative, to it at Credit Suisse, Eleven Madison Avenue, New York, NY 10010, Attention of Agency Group (Fax No. (212) 325-8304); and

(e) if to any other Additional Authorized Representative, to it at the address set forth in the applicable Joinder Agreement.

Any party hereto may change its address or facsimile number for notices and other communications hereunder by notice to the other parties hereto. All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt (if a Business Day) and on the next Business Day thereafter (in all other cases) if delivered by hand or overnight courier service or sent by facsimile or on the date five Business Days after dispatch by certified or registered mail if mailed, in each case delivered, sent or mailed (properly addressed) to such party as provided in this Section or in accordance with the latest unrevoked direction from such party given in accordance with this Section. As agreed to in writing by any party hereto from time to time, notices and other communications to such party may also be delivered by e-mail to the e-mail address of a representative of such party provided from time to time by such party.

SECTION 7.02. Waivers; Amendment; Joinder Agreements. (a) No failure or delay on the part of any party hereto in exercising any right or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the parties hereto are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of

this Agreement or consent to any departure by any party therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice or demand on any party hereto in any case shall entitle such party to any other or further notice or demand in similar or other circumstances.

(b) Neither this Agreement nor any provision hereof may be waived, amended or otherwise modified except pursuant to an agreement or agreements in writing entered into by the Collateral Agent and each Authorized Representative then party hereto; provided, however, that no such agreement shall by its terms amend, modify or otherwise affect the rights or obligations of any Grantor without the Company’s prior written consent; provided further, however, that (i)(A) without the consent of any party hereto other than the Issuers, this Agreement may be supplemented by an Authorized Representative Joinder Agreement, and an Additional Authorized Representative may become a party hereto, in accordance with Article VI, and (B) without the consent of any party hereto, this Agreement may be supplemented by a Grantor Joinder Agreement, and a Subsidiary may become a party hereto, in accordance with Section 7.13, and (ii) in connection with any Refinancing of Pari-Passu Lien Obligations of any Class, or the incurrence of Additional Pari-Passu Lien Obligations of any Class, the Collateral Agent and the Authorized Representatives then party hereto shall enter (and are hereby authorized to enter without the consent of any other Pari-Passu Lien Secured Party), at the request of the Collateral Agent, any Authorized Representative or the Company, into such amendments or modifications of this Agreement as are reasonably necessary to reflect such Refinancing or such incurrence and are reasonably satisfactory to the Collateral Agent and each such Authorized Representative.

SECTION 7.03. Parties in Interest. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, as well as the other Pari-Passu Lien Secured Parties, all of whom are intended to be bound by, and to be third party beneficiaries of, this Agreement.

SECTION 7.04. Effectiveness; Survival. This Agreement shall become effective when executed and delivered by the parties hereto. All covenants, agreements, representations and warranties made by any party in this Agreement shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of this Agreement. This Agreement shall continue in full force and effect notwithstanding the commencement of any Insolvency or Liquidation Proceeding against the Issuers or any of their Subsidiaries. The reimbursement and indemnification obligations in favor of Collateral Agent hereunder, including without limitation the items set forth in 2.01(b)(FIRST) shall remain operative and in full force and effect regardless of the termination of this Agreement or any Note Documents or LC Facility Documents, the consummation of the transactions contemplate hereby and thereby and payment of the obligations thereunder.

SECTION 7.05. Counterparts. This Agreement may be executed in counterparts, each of which shall constitute an original but all of which when taken together shall constitute a single contract. Delivery of an executed signature page to this Agreement by facsimile or other electronic transmission shall be as effective as delivery of a manually signed counterpart of this Agreement.

SECTION 7.06. Severability. Any provision of this Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction. The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.

SECTION 7.07. Governing Law. This Agreement shall be construed in accordance with and governed by the law of the State of New York.

SECTION 7.08. Submission to Jurisdiction Waivers; Consent to Service of Process. The Collateral Agent and each Authorized Representative, for itself and on behalf of its Related Secured Parties, irrevocably and unconditionally:

(a) submits for itself and its property in any legal action or proceeding relating to this Agreement and the Pari-Passu Lien Security Documents and the Real Property Collateral Management Agreement, or for recognition and enforcement of any judgment in respect thereof, to the exclusive general jurisdiction of the courts of the State of New York, the courts of the United States of America for the Southern District of New York and appellate courts from any thereof;

(b) consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same;

(c) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to such Person (or its Authorized Representative) at the address referred to in Section 7.01;

(d) agrees that nothing herein shall affect the right of any other party hereto (or any Pari-Passu Lien Secured Party) to effect service of process in any other manner permitted by law or shall limit the right of any party hereto (or any Pari-Passu Lien Secured Party) to sue in any other jurisdiction; and

(e) waives, to the maximum extent not prohibited by law, any right it may have to claim or recover in any legal action or proceeding referred to in this Section any special, exemplary, punitive or consequential damages.

SECTION 7.09. WAIVER OF JURY TRIAL. EACH PARTY HERETO WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

SECTION 7.10. Headings. Article and Section headings used herein are for convenience of reference only, are not part of this Agreement and are not to affect the construction of, or to be taken into consideration in interpreting, this Agreement.

SECTION 7.11. Conflicts. In the event of any conflict or inconsistency between the provisions of this Agreement (including Section 2.06 hereof) and the provisions of any of the Pari-Passu Lien Credit Documents, the provisions of this Agreement shall control.

SECTION 7.12. Provisions Solely to Define Relative Rights. The provisions of this Agreement are and are intended solely for the purpose of defining the relative rights of the Pari-Passu Lien Secured Parties in relation to one another. Except as expressly provided in this Agreement, none of the Company, any other Grantor, any other Subsidiary or any other creditor of any of the foregoing shall have any rights or obligations hereunder, and none of the Company, any other Grantor or any other Subsidiary may rely on the terms hereof. Nothing in this Agreement is intended to or shall impair the obligations of the Company or any other Grantor, which are absolute and unconditional, to pay the Pari-Passu Lien Obligations as and when the same shall become due and payable in accordance with their terms.

SECTION 7.13. Additional Grantors. In the event any Subsidiary of the Company shall have granted a Lien on any of its assets to secure any Pari-Passu Lien Obligations, the Company shall cause such Subsidiary, if not already a party hereto, to become a party hereto as a “Grantor”. Upon the execution and delivery by any such Subsidiary of a Grantor Joinder Agreement, such Subsidiary shall become a party hereto and a Grantor hereunder with the same force and effect as if originally named as such herein. The execution and delivery of any such instrument shall not require the consent of any other party hereto. The rights and obligations of each party hereto shall remain in full force and effect notwithstanding the addition of any new Grantor as a party to this Agreement.

SECTION 7.14. Integration. This Agreement, together with the other Pari-Passu Lien Credit Documents, represents the agreement of each of the Grantors and the Pari-Passu Lien Secured Parties with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by any Grantor, the Collateral Agent or any other Pari-Passu Lien Secured Party relative to the subject matter hereof not expressly set forth or referred to herein or in the other Pari-Passu Lien Credit Documents.

SECTION 7.15. Further Assurances. Each of the Collateral Agent, each Authorized Representative and the Grantors agrees that it will execute, or will cause to be executed, any and all further documents, agreements and instruments, and take all such further actions, as may be required under any applicable law, or which the Collateral Agent or any Authorized Representative may reasonably request, to effectuate the terms of this Agreement, including the relative Lien priorities provided for herein.

SECTION 7.16. Security Agreement. In addition to the foregoing rights, in acting hereunder and by virtue of this Agreement, the Collateral Agent shall have all of the rights, protections and immunities granted to it under the Security Agreement, all of which are incorporated by reference herein.

EXHIBIT I to

INTERCREDITOR AGREEMENT

[FORM OF] ADDITIONAL AUTHORIZED REPRESENTATIVE AGENT JOINDER AGREEMENT NO. [        ] dated as of [         ], [         ] (this “Joinder Agreement”) to the INTERCREDITOR AGREEMENT dated as of May 10, 2011 (as amended, supplemented or otherwise modified from time to time, the “Intercreditor Agreement”), among SHEA HOMES LIMITED PARTNERSHIP, a California limited partnership (the “Company”), SHEA HOMES FUNDING CORP., a Delaware corporation (together with the Company, the “Issuers”), the other GRANTORS party thereto, WELLS FARGO BANK, NATIONAL ASSOCIATION, as collateral agent for the Pari-Passu Lien Secured Parties (in such capacity, the “Collateral Agent”), and WELLS FARGO BANK, NATIONAL ASSOCIATION, as the Authorized Representative for the Indenture Secured Parties in its capacity as trustee under the Indenture, CREDIT SUISSE AG, as the Authorized Representative for the LC Facility Secured Parties, and each Additional Authorized Representative from time to time party thereto, as the Authorized Representative for any Pari-Passu Lien Secured Parties of any other Class.

Capitalized terms used herein but not otherwise defined herein shall have the meanings assigned to such terms in the Intercreditor Agreement.

The Issuers and the other Grantors propose to issue or incur “Additional Pari-Passu Lien Obligations” designated by the Issuers as such in accordance with Article VI of the Intercreditor Agreement in an Officers’ Certificate delivered concurrently herewith to the Collateral Agent and the Authorized Representatives (the “Additional Pari-Passu Lien Obligations”). The Person identified in the signature pages hereto as the “Additional Authorized Representative” (the “Additional Authorized Representative”) will serve as the administrative agent, trustee or a similar representative for the holders of the Additional Pari-Passu Lien Obligations (the “Additional Pari-Passu Lien Secured Parties”).

The Additional Authorized Representative wishes, in accordance with the provisions of the Intercreditor Agreement, to become a party to the Intercreditor Agreement and to acquire and undertake, for itself and on behalf of the Additional Pari-Passu Lien Secured Parties, the rights and obligations of an “Additional Authorized Representative” and “Secured Parties” thereunder.

Accordingly, the Additional Authorized Representative, for itself and on behalf of its Related Secured Parties, and the Issuers agree as follows, for the benefit of the Collateral Agent, the existing Authorized Representatives and the existing Pari-Passu Lien Secured Parties:

SECTION 1.01. Accession to the Intercreditor Agreement. The Additional Authorized Representative hereby (a) accedes and becomes a party to the Intercreditor Agreement as an “Additional Authorized Representative”, (b) agrees, for itself and on behalf of the Additional Pari-Passu Lien Secured Parties, to all the terms and provisions of the Intercreditor Agreement and (c) acknowledges and agrees that (i) the Additional Pari-Passu Lien Obligations and Liens on any Collateral securing the same shall be subject to the provisions of the Intercreditor Agreement and (ii) the Additional Authorized Representative and the Additional Pari-Passu Lien Secured Parties shall have the rights and obligations specified under the Intercreditor Agreement with respect to an “Authorized Representative” and a “Pari-Passu Lien Secured Party”, respectively, and shall be subject to and bound by the provisions of the Intercreditor Agreement.

SECTION 1.02. Representations and Warranties of the Additional Authorized Representative. The Additional Authorized Representative represents and warrants to the Collateral Agent, the existing Authorized Representatives and the existing Pari-Passu Lien Secured Parties that (a) it has full power and authority to enter into this Joinder Agreement, in its capacity as the Additional Authorized Representative, (b) this Joinder Agreement has been duly authorized, executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms, and (c) the Additional Pari-Passu Lien Credit Documents relating to the Additional Pari-Passu Lien Obligations provide that, upon the Additional Authorized Representative’s execution and delivery of this Joinder Agreement, (i) the Additional Pari-Passu Lien Obligations and Liens on any Collateral securing the same shall be subject to the provisions of the Intercreditor Agreement and (ii) the Additional Authorized Representative and the Additional Pari-Passu Lien Secured Parties shall have the rights and obligations specified therefor under, and shall be subject to and bound by the provisions of, the Intercreditor Agreement.

SECTION 1.03. Parties in Interest. This Joinder Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, as well as the other Pari-Passu Lien Secured Parties, all of whom are intended to be bound by, and to be third party beneficiaries of, this Agreement.

SECTION 1.04. Counterparts. This Joinder Agreement may be executed in counterparts, each of which shall constitute an original but all of which when taken together shall constitute a single contract. Delivery of an executed signature page to this Agreement by facsimile or other electronic transmission shall be as effective as delivery of a manually signed counterpart of this Joinder Agreement.

SECTION 1.05. Governing Law. This Joinder Agreement shall be construed in accordance with and governed by the law of the State of New York.

SECTION 1.06. Notices. All communications and notices hereunder shall be in writing and given as provided in Section 7.01 of the Intercreditor Agreement. All communications and notices hereunder to the Additional Authorized Representative shall be given to it at the address set forth under its signature hereto, which information supplements Section 7.01 to the Intercreditor Agreement.

SECTION 1.07. Expenses. The Issuers agree to reimburse the Collateral Agent and each of the Authorized Representatives for its reasonable out-of-pocket expenses in connection with this Joinder Agreement, including the reasonable fees, other charges and disbursements of counsel for the Collateral Agent and any of the Authorized Representatives.

SECTION 1.08. Incorporation by Reference. The provisions of Sections 7.04, 7.06, 7.08, 7.09, 7.10, 7.11 and 7.12 of the Intercreditor Agreement are hereby incorporated by reference, mutatis mutandis, as if set forth in full herein.

IN WITNESS WHEREOF, the Additional Authorized Representative and the Issuers have duly executed this Joinder Agreement to the Intercreditor Agreement as of the day and year first above written.

[        ], AS ADDITIONAL AUTHORIZED REPRESENTATIVE,
by
	Name: Title:

Address for notices:
	attention of:
	Facsimile:

SHEA HOMES LIMITED PARTNERSHIP,
by
	Name: Title:

SHEA HOMES FUNDING CORP.,
by
	Name: Title:

Acknowledged by: WELLS FARGO BANK, NATIONAL ASSOCIATION, solely in its capacity as the Collateral Agent,
by
	Name: Title:

WELLS FARGO BANK, NATIONAL ASSOCIATION, solely in its capacity as Trustee and Authorized Representative for the Indenture Secured Parties
by
	Name: Title:

CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH, as the LC Facility Authorized Representative
by
	Name: Title:

by
	Name: Title:

EXHIBIT II to

INTERCREDITOR AGREEMENT

[FORM OF] GRANTOR JOINDER AGREEMENT NO. [ ] dated as of [ ], [ ] (this “Joinder Agreement”) to the INTERCREDITOR AGREEMENT dated as of May 10, 2011 (as amended, supplemented or otherwise modified from time to time, the “Intercreditor Agreement”), among SHEA HOMES LIMITED PARTNERSHIP, a California limited partnership (the “Company”), SHEA HOMES FUNDING CORP., a Delaware corporation (together with the Company, the “Issuers”), the other GRANTORS party thereto, WELLS FARGO BANK, NATIONAL ASSOCIATION, as collateral agent for the Pari-Passu Lien Secured Parties (as defined below) (in such capacity, the “Collateral Agent”), and WELLS FARGO BANK, NATIONAL ASSOCIATION, as the Authorized Representative for the Indenture Secured Parties in its capacity as trustee under the Indenture (as defined below), CREDIT SUISSE AG, as the Authorized Representative for the LC Facility Secured Parties and each Additional Authorized Representative from time to time party thereto, as the Authorized Representative for any Pari-Passu Lien Secured Parties of any other Class.

Capitalized terms used herein but not otherwise defined herein shall have the meanings assigned to such terms in the Intercreditor Agreement.

[            ], a [            ] [corporation] and a Subsidiary of the Issuers (the “Additional Grantor”), has granted a Lien on all or a portion of its assets to secure Pari-Passu Lien Obligations and such Additional Grantor is not a party to the Intercreditor Agreement.

The Additional Grantor wishes to become a party to the Pari-Passu Lien Intercreditor Agreement and to acquire and undertake the rights and obligations of a Grantor thereunder. The Additional Grantor is entering into this Joinder Agreement in accordance with the provisions of the Intercreditor Agreement in order to become a Grantor thereunder.

Accordingly, the Additional Grantor agrees as follows, for the benefit of the Collateral Agent, the Authorized Representatives and the Pari-Passu Lien Secured Parties:

SECTION 1.01. Accession to the Intercreditor Agreement. The Additional Grantor (a) hereby accedes and becomes a party to the Intercreditor Agreement as a “Grantor”, (b) agrees to all the terms and provisions of the Intercreditor Agreement and (c) acknowledges and agrees that the Additional Grantor shall have the rights and obligations specified under the Intercreditor Agreement with respect to a “Grantor” and shall be subject to and bound by the provisions of the Intercreditor Agreement.

SECTION 1.02. Representations and Warranties of the Additional Grantor. The Additional Grantor represents and warrants to the Collateral Agent, the Authorized Representatives and the Pari-Passu Lien Secured Parties that this Joinder Agreement has been duly authorized, executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms.

SECTION 1.03. Parties in Interest. This Joinder Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, as well as the other Pari-Passu Lien Secured Parties, all of whom are intended to be third party beneficiaries of this Agreement.

SECTION 1.04. Counterparts. This Joinder Agreement may be executed in counterparts, each of which shall constitute an original but all of which when taken together shall constitute a single contract. Delivery of an executed signature page to this Agreement by facsimile or other electronic transmission shall be as effective as delivery of a manually signed counterpart of this Joinder Agreement.

SECTION 1.05. Governing Law. This Joinder Agreement shall be construed in accordance with and governed by the law of the State of New York.

SECTION 1.06. Notices. All communications and notices hereunder shall be in writing and given as provided in Section 7.01 of the Intercreditor Agreement.

SECTION 1.07. Expenses. The Grantor agrees to reimburse the Collateral Agent and each of the Authorized Representatives for its reasonable out-of-pocket expenses in connection with this Joinder Agreement, including the reasonable fees, other charges and disbursements of counsel for the Collateral Agent and any of the Authorized Representatives.

SECTION 1.08. Incorporation by Reference. The provisions of Sections 7.04, 7.06, 7.08, 7.09, 7.10, 7.11 and 7.12 of the Intercreditor Agreement are hereby incorporated by reference, mutatis mutandis, as if set forth in full herein.

IN WITNESS WHEREOF, the Additional Grantor has duly executed this Joinder Agreement to the Intercreditor Agreement as of the day and year first above written.

[NAME OF SUBSIDIARY],
by
	Name: Title:

EXHIBIT E

Form of Mortgage

RECORDING REQUESTED BY

AND WHEN RECORDED MAIL TO:

WELLS FARGO BANK, NATIONAL

ASSOCIATION

45 Broadway, 14^th Floor

New York, NY 10006

Attention: Julius R. Zamora, Vice President

Re: [PROPERTY CID]

THIS DEED OF TRUST SECURES AN AGREEMENT WHICH PROVIDES FOR A VARIABLE INTEREST

RATE AND THE RIGHT TO REPAY AND REBORROW ON A REVOLVING BASIS

DEED OF TRUST

WITH ABSOLUTE ASSIGNMENT OF LEASES AND RENTS,

SECURITY AGREEMENT AND FIXTURE FILING

THE PARTIES TO THIS DEED OF TRUST WITH ABSOLUTE ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND FIXTURE FILING (“Deed of Trust”), made as of July [•], 2011, are [SHEA HOMES LIMITED PARTNERSHIP, a California limited partnership] (“Trustor”)¹, FIDELITY NATIONAL TITLE COMPANY, a California corporation (“Trustee”), and WELLS FARGO BANK, NATIONAL ASSOCIATION, solely in its capacity as collateral agent for the Pari-Passu Lien Secured Parties (as such term is defined in the Intercreditor Agreement, as such term is defined below) (in such capacity, and including any successor collateral agent appointed under the Intercreditor Agreement, “Beneficiary”).

ARTICLE 1. GRANT IN TRUST

1.1 GRANT. For the purposes of and upon the terms and conditions in this Deed of Trust, Trustor irrevocably grants, bargains, sells, releases, warrants, transfers, mortgages, pledges, conveys and assigns to Trustee, in trust for the benefit of Beneficiary, with power of sale and right of entry and possession, all of that real property located in the City of [•], County of [•], State of California, described on Exhibit A attached hereto, together with all right, title, interest, and privileges of Trustor in and to any declaration of covenants, conditions and restrictions, reciprocal easement agreement, or other similar agreements with respect to the Subject Property (as defined below), all streets, ways, roads, and alleys used in connection with or pertaining to such real property, all development rights or credits, air rights, water, water rights and water stock related to the real property, and all minerals, oil and gas, and other hydrocarbon substances in, on or under the real property, and all appurtenances, easements, rights and rights of way appurtenant or related thereto; all buildings, other improvements and fixtures now or hereafter located on the real property, including, but not limited to, all apparatus, equipment, and appliances used in the operation or occupancy of the real property, it being intended by the parties that all such items shall be conclusively considered to be a part of the real property, whether or not attached or affixed to the real property (the “Improvements”); all interest or estate

¹  NOTE: Add Exhibit B—Non-Issuer Trustor Rider if the Trustor is not also an Issuer.

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which Trustor may hereafter acquire in the property described above, and all additions and accretions thereto, and the proceeds of any of the foregoing; (all of the foregoing being collectively referred to as the “Subject Property”). The listing of specific rights or property shall not be interpreted as a limit of general terms.

ARTICLE 2. OBLIGATIONS SECURED

2.1 OBLIGATIONS SECURED. Trustor makes this Deed of Trust for the purpose of securing the following obligations (“Secured Obligations”):

(a) Payment and performance of the “Pari-Passu Lien Obligations”, including the “Additional Pari-Passu Lien Obligations”, as such terms are defined in the Intercreditor Agreement (“Intercreditor Agreement”) dated as of May 10, 2011 by and among Shea Homes Limited Partnership, a California limited partnership, and Shea Homes Funding Corp., a Delaware corporation (together, the “Issuers”), and the Grantors party thereto, Beneficiary and Authorized Representatives (as such terms are defined therein) from time to time party thereto; and

(b) Payment and performance of all covenants and obligations of Trustor under this Deed of Trust; and

(c) Payment and performance of the “Notes Obligations”, as such term is defined in (i) the Indenture dated as of May 10, 2011 (the “Indenture”) among the Issuers, the Guarantors, as such term is defined therein, from time to time party thereto, and Wells Fargo Bank, National Association, as Trustee, and (ii) the Security Agreement defined in Section 2.1(d); and

(d) Payment and performance of the “LC Facility Obligations” as such term is defined in the Security Agreement (“Security Agreement”) dated as of May 10, 2011 by and among the Issuers, the Guarantors identified therein, Credit Suisse AG, as Administrative Agent and the Collateral Agent (together with the other documents evidencing, securing or executed in connection with the Letter of Credit Facility Agreement dated as of May 10, 2011 (the “LC Facility Agreement”) among the Issuers, the Guarantors identified therein and the participants party thereto and the Indenture and the other documents evidencing, securing or executed in connection with the Indenture, the “Pari-Passu Lien Credit Documents”); and

(e) Payment and performance of all covenants and obligations, if any, of any rider attached as an Exhibit to this Deed of Trust; and

(f) Payment and performance of all future advances and other obligations that the then record owner of all or part of the Subject Property may agree to pay and/or perform (whether as principal, surety or guarantor) for the benefit of Beneficiary and/or the Pari-Passu Lien Secured Parties, when such future advance or obligation is evidenced by a writing which recites that it is secured by this Deed of Trust; and

(g) Intentionally omitted; and

(h) All modifications, extensions and renewals of any of the obligations secured hereby, however evidenced, including, without limitation: (i) modifications of the required principal payment dates or interest payment dates or both, as the case may be, deferring or

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accelerating payment dates wholly or partly; or (ii) modifications, extensions or renewals at a different rate of interest whether or not, in the case of a note, the modification, extension or renewal is evidenced by a new or additional promissory note or notes.

Notwithstanding anything else contained herein, in no event shall this Deed of Trust secure the LC Facility Obligations (other than LC Facility Obligations which are also Notes Obligations) during any period that the Subject Property encumbered by this Deed of Trust is located in a designated “flood hazard area” in any Flood Insurance Rate Map published by the Federal Emergency Management Agency (or any successor agency), provided that this Deed of Trust shall continue to secure the other Secured Obligations during any such period and shall secure the LC Facility Obligations if and when such Subject Property is no longer located in a designated “flood hazard area” in any Flood Insurance Rate Map published by the Federal Emergency Management Agency (or any successor agency).

2.2 OBLIGATIONS. The term “obligations” is used herein in its broadest and most comprehensive sense and shall be deemed to include, without limitation, all interest and charges, prepayment charges (if any), late charges and loan fees at any time accruing or assessed on any of the Secured Obligations.

2.3 INCORPORATION. All terms of the Secured Obligations and the documents evidencing such obligations are incorporated herein by this reference. All persons who may have or acquire an interest in the Subject Property shall be deemed to have notice of the terms of the Secured Obligations and to have notice, if provided therein, that: (a) the documents evidencing the Secured Obligations may permit borrowing, repayment and re-borrowing so that repayments shall not reduce the amounts of the Secured Obligations; and (b) the rate of interest on one or more Secured Obligations may vary from time to time. Trustor acknowledges and agrees that the Secured Obligations constitute an extension of credit to the Issuers and Guarantors as defined in the Indenture and Guarantors as defined in the LC Facility Agreement, that Trustor has and will benefit from the extension of such credit, and that Trustor has received good and valuable consideration for the grant of this Deed of Trust.

ARTICLE 3. ASSIGNMENT OF LEASES AND RENTS

3.1 ASSIGNMENT. Trustor hereby irrevocably and unconditionally assigns to Beneficiary all of Trustor’s right, title and interest in, to and under: (a) all leases of the Subject Property or any portion thereof, and all other agreements of any kind relating to the use or occupancy of the Subject Property or any portion thereof, whether now existing or entered into after the date hereof (“Leases”); and (b) the rents, receipts, royalties, proceeds, revenue, income, issues, deposits and profits of the Subject Property, including, without limitation, all amounts payable and all rights and benefits of whatever nature accruing to Trustor under the Leases (“Payments”). The term “Leases” shall also include all guarantees of and security for the lessees’ performance thereunder, and all amendments, extensions, renewals or modifications thereto which are permitted hereunder. This is a present and absolute assignment, not an assignment for security purposes only, and Beneficiary’s right to the Leases and Payments is not contingent upon, and may be exercised without possession of, the Subject Property.

3.2 GRANT OF LICENSE. Beneficiary confers upon Trustor a license (“License”) to collect and retain the Payments as they become due and payable, until the occurrence of a Default (as hereinafter defined). Upon a Default, the License shall be automatically revoked and Beneficiary may collect and apply the Payments pursuant to Section 6.4 without notice and without taking possession of the Subject Property. Trustor hereby irrevocably authorizes and directs the

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lessees under the Leases to rely upon and comply with any notice or demand by Beneficiary for the payment to Beneficiary of any rental or other sums which may at any time become due under the Leases, or for the performance of any of the lessees’ undertakings under the Leases, and the lessees shall have no right or duty to inquire as to whether any Default has actually occurred or is then existing hereunder. Trustor hereby relieves the lessees from any liability to Trustor by reason of relying upon and complying with any such notice or demand by Beneficiary. Any payments collected by Trustor from and after the date on which a Default occurred and is continuing shall be held by Trustor in trust for Beneficiary.

3.3 EFFECT OF ASSIGNMENT. The foregoing irrevocable assignment shall not cause Beneficiary to be: (a) a mortgagee in possession; (b) responsible or liable for the control, care, management or repair of the Subject Property or for performing any of the terms, agreements, undertakings, obligations, representations, warranties, covenants and conditions of the Leases; or (c) responsible or liable for any waste committed on the Subject Property by the lessees under any of the Leases or by any other parties; for any dangerous or defective condition of the Subject Property; or for any negligence in the management, upkeep, repair or control of the Subject Property resulting in loss or injury or death to any lessee, licensee, employee, invitee or other person. Beneficiary and Trustee shall not directly or indirectly be liable to Trustor or any other person as a consequence of: (i) the exercise or failure to exercise by Beneficiary or Trustee, or any of their respective employees, agents, contractors or subcontractors, any of the rights, remedies or powers granted to Beneficiary or Trustee hereunder; or (ii) the failure or refusal of Beneficiary to perform or discharge any obligation, duty or liability of Trustor arising under the Leases.

3.4 INTENTIONALLY OMITTED.

3.5 COVENANTS. Trustor covenants and agrees at Trustor’s sole cost and expense to: (a) deliver to Beneficiary fully executed, counterpart original(s) of each and every Lease if requested to do so; and (b) execute and record such additional assignments of any Lease as required by the Authorized Representative or specific subordinations (or subordination, attornment and non-disturbance agreements executed by the lessor and lessee) of any Lease to the Deed of Trust as Trustor may from time to time request, in form and substance reasonably satisfactory to the Applicable Authorized Representative and, if on or prior to the date of discharge of the LC Facility Obligations, the LC Authorized Representative, so long as Trustor delivers to Beneficiary an Officer’s Certificate certifying that such subordination is permitted under the Pari-Passu Credit Documents and is a Permitted Priority Lien. Capitalized terms in this Section 3.5 not otherwise defined herein shall have the meanings ascribed to such terms in the Intercreditor Agreement.

ARTICLE 4. SECURITY AGREEMENT AND FIXTURE FILING

4.1 SECURITY INTEREST. Trustor hereby grants and assigns to Beneficiary as of the date hereof a security interest, to secure payment and performance of all of the Secured Obligations, in all of the following described personal property in which Trustor now or at any time hereafter has any interest (collectively, the “Collateral”):

All goods, building and other materials, supplies, inventory, work in process, equipment, machinery, fixtures, furniture, furnishings, signs and other personal property and embedded software included therein and supporting information, wherever situated, which are or are to be incorporated into, used in connection with, or appropriated for use on (i) the real property described on Exhibit A attached hereto and incorporated by reference herein or (ii) any

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existing or future improvements on the real property; together with all rents and security deposits derived from the Subject Property; all inventory, accounts, cash receipts, deposit accounts, accounts receivable, contract rights, licenses, agreements, general intangibles, payment intangibles, software, chattel paper (whether electronic or tangible), instruments, documents, promissory notes, drafts, letters of credit, letter of credit rights, supporting obligations, insurance policies, insurance and condemnation awards and proceeds, proceeds of the sale of promissory notes, any other rights to the payment of money, trade names, trademarks and service marks arising from or related to the ownership, management, leasing, operation, sale or disposition of the Subject Property or any business now or hereafter conducted thereon by Trustor; all development rights and credits, and any and all permits, consents, approvals, licenses, authorizations and other rights granted by, given by or obtained from, any governmental entity with respect to the Subject Property; all water and water rights, wells and well rights, canals and canal rights, ditches and ditch rights, springs and spring rights, and reservoirs and reservoir rights appurtenant to or associated with the Subject Property, whether decreed or undecreed, tributary, non-tributary or not non-tributary, surface or underground or appropriated or unappropriated, and all shares of stock in water, ditch, lateral and canal companies, well permits and all other evidences of any of such rights; all deposits or other security now or hereafter made with or given to utility companies by Trustor with respect to the Subject Property; all advance payments of insurance premiums made by Trustor with respect to the Subject Property; all plans, drawings and specifications relating to the Subject Property; all reserves, deferred payments, deposits, accounts, refunds, cost savings and payments of any kind related to the Subject Property or any portion thereof; together with all replacements and proceeds of, and additions and accessions to, any of the foregoing; together with all books, records and files relating to any of the foregoing.

As to all of the above described personal property which is or which hereafter becomes a “fixture” under applicable law, this Deed of Trust constitutes a fixture filing under the California Uniform Commercial Code, as amended or recodified from time to time (“UCC”), and is acknowledged and agreed to be a “construction mortgage” under the UCC.

4.2 REPRESENTATIONS AND WARRANTIES. Trustor represents and warrants that: (a) Trustor’s principal place of business is located at the address shown in Section 7.11; and (b) Trustor’s legal name is exactly as set forth on the first page of this Deed of Trust.

4.3 COVENANTS. Trustor agrees: (a) to execute and deliver such documents as are necessary to create, perfect and continue the security interests contemplated hereby; (b) not to change its name, and as applicable, its chief executive office, its principal residence or the jurisdiction in which it is organized and/or registered without giving Beneficiary prior written notice thereof; (c) to cooperate with Beneficiary in perfecting all security interests granted herein and in obtaining such agreements from third parties as are necessary, proper or convenient in connection with the preservation, perfection or enforcement of any of its rights hereunder; and (d) that Beneficiary is authorized to file financing statements and continuation statements in the name of Trustor to perfect Beneficiary’s security interest in Collateral.

4.4 RIGHTS OF BENEFICIARY. In addition to Beneficiary’s rights as a “Pari-Passu Lien Secured Party” under the UCC, Beneficiary may, but shall not be obligated to, at any time without notice and at the expense of Trustor: (a) give notice to any person of Beneficiary’s rights hereunder and enforce such rights at law or in equity; (b) insure, protect, defend and preserve the Collateral or any rights or interests of Beneficiary therein; (c) inspect the Collateral; and (d) endorse, collect and receive any right to payment of money owing to Trustor under or from the Collateral.

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4.5 RIGHTS OF BENEFICIARY ON DEFAULT. Upon the occurrence of a Default (hereinafter defined) under this Deed of Trust, then in addition to all of Beneficiary’s rights as a “Secured Party” under the UCC or otherwise at law:

(a) Beneficiary may (i) upon written notice, require Trustor to assemble any or all of the Collateral and make it available to Beneficiary at a place designated by Beneficiary; (ii) without prior notice, enter upon the Subject Property or other place where any of the Collateral may be located and take possession of, collect, sell, lease, license and dispose of any or all of the Collateral, and store the same at locations acceptable to Beneficiary at Trustor’s expense; and (iii) sell, assign and deliver at any place or in any lawful manner all or any part of the Collateral and bid and become the purchaser at any such sales;

(b) Beneficiary may, for the account of Trustor and at Trustor’s expense: (i) operate, use, consume, sell, lease, license or dispose of the Collateral as Beneficiary deems appropriate for the purpose of performing any or all of the Secured Obligations; (ii) enter into any agreement, compromise, or settlement, including insurance claims, which Beneficiary may deem desirable or proper with respect to any of the Collateral; and (iii) endorse and deliver evidences of title for, and receive, enforce and collect by legal action or otherwise, all indebtedness and obligations now or hereafter owing to Trustor in connection with or on account of any or all of the Collateral; and

(c) In disposing of Collateral hereunder, Beneficiary may disclaim all warranties of title, possession, quiet enjoyment and the like. Any proceeds of any disposition of any Collateral shall be applied in accordance with the terms and conditions of the Intercreditor Agreement.

Notwithstanding any other provision hereof, Beneficiary shall not be deemed to have accepted any property other than cash in satisfaction of any obligation of Trustor to Beneficiary unless Trustor shall make an express written election of said remedy under UCC §9620, or other applicable law. Trustor agrees that Beneficiary shall have no obligation to process or prepare any Collateral for sale or other disposition.

4.6 INTENTIONALLY OMITTED.

4.7 POSSESSION AND USE OF COLLATERAL. Except as otherwise provided in this Section or the Pari-Passu Lien Credit Documents, so long as no Default exists under this Deed of Trust or the Pari-Passu Lien Credit Documents, Trustor may possess, use, move, transfer or dispose of any of the Collateral in the ordinary course of Trustor’s business in accordance with the terms of the Pari-Passu Lien Credit Documents.

ARTICLE 5. RIGHTS AND DUTIES OF THE PARTIES

5.1 INTENTIONALLY OMITTED.

5.2 TAXES AND ASSESSMENTS. Subject to Trustor’s rights to contest payment of taxes as may be provided in the Pari-Passu Lien Credit Documents, Trustor shall pay prior to delinquency all taxes, assessments, levies and charges imposed by any public or quasi-public authority or utility company which are or which may become a lien upon or cause a loss in value of the Subject Property or any interest therein. Trustor shall also pay prior to delinquency all taxes, assessments, levies and charges imposed by any public authority upon Beneficiary by reason of its interest in any Secured Obligation or in the Subject Property, or by reason of any payment made to Beneficiary pursuant to any Secured Obligation; provided, however, Trustor shall have no obligation to pay taxes which may be imposed from time to time upon Beneficiary or Secured Parties and which are measured by and imposed upon Beneficiary’s or any Secured Party’s net income.

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5.3 INTENTIONALLY OMITTED.

5.4 PERFORMANCE OF SECURED OBLIGATIONS. Trustor shall promptly pay and perform each Secured Obligation when due.

5.5 LIENS, ENCUMBRANCES AND CHARGES. To the extent required by the Pari-Passu Lien Credit Documents, Trustor shall immediately discharge any lien not permitted thereunder. Subject to the provisions of the Pari-Passu Lien Credit Documents, if any, regarding mechanics’ liens, Trustor shall pay when due all obligations secured by or which may become liens and encumbrances which shall now or hereafter encumber or appear to encumber all or any part of the Subject Property or Collateral, or any interest therein, whether senior or subordinate hereto.

5.6 INTENTIONALLY OMITTED.

5.7 MAINTENANCE AND PRESERVATION OF THE SUBJECT PROPERTY. Trustor shall insure and maintain the Subject Property and Collateral pursuant to the terms and conditions of the Pari-Passu Lien Credit Documents.

5.8 DEFENSE AND NOTICE OF LOSSES, CLAIMS AND ACTIONS. At Trustor’s sole expense, Trustor shall protect, preserve and defend the Subject Property and Collateral and title to and right of possession of the Subject Property and Collateral, the security hereof and the rights and powers of Beneficiary, Trustee and Secured Parties hereunder against all adverse claims.

5.9 ACCEPTANCE OF TRUST; POWERS AND DUTIES OF TRUSTEE.

(a) Trustee accepts this trust when this Deed of Trust is recorded. Except as may be required by applicable law, Trustee or Beneficiary may from time to time apply to any court of competent jurisdiction for aid and direction in the execution of the trust hereunder and the enforcement of the rights and remedies available hereunder, and may obtain orders or decrees directing or confirming or approving acts in the execution of said trust and the enforcement of said remedies.

(b) Trustee shall not be required to take any action toward the execution and enforcement of the trust hereby created or to institute, appear in, or defend any action, suit, or other proceeding in connection therewith where, in his opinion, such action would be likely to involve him in expense or liability, unless requested so to do by a written instrument signed by Beneficiary and, if Trustee so requests, unless Trustee is tendered security and indemnity reasonably satisfactory to Trustee against any and all cost, expense, and liability arising therefrom. Trustee shall not be responsible for the execution, acknowledgment, or validity of the Pari-Passu Lien Credit Documents, or for the proper authorization thereof, or for the sufficiency of the lien and security interest purported to be created hereby, and Trustee makes no representation in respect thereof or in respect of the rights, remedies, and recourses of Beneficiary.

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(c) With the approval of Beneficiary, Trustee shall have the right to take any and all of the following actions: (i) to select, employ, and advise with counsel (who may be, but need not be, counsel for Beneficiary) upon any matters arising hereunder, including the preparation, execution, and interpretation of this Deed of Trust, and shall be fully protected in relying as to legal matters on the advice of counsel, (ii) to execute any of the trusts and powers hereof and to perform any duty hereunder either directly or through his agents or attorneys, and (iii) any and all other lawful action as Beneficiary may instruct Trustee to take to protect or enforce Beneficiary’s rights hereunder. Trustee shall not be personally liable in case of entry by Trustee, or anyone entering by virtue of the powers herein granted to Trustee, upon the Subject Property for debts contracted for or liability or damages incurred in the management or operation of the Subject Property. Trustee shall have the right to rely on any instrument, document, or signature authorizing or supporting any action taken or proposed to be taken by Trustee hereunder, believed by Trustee in good faith to be genuine. Trustee shall be entitled to reimbursement for reasonable expenses incurred by Trustee in connection with the exercise of any remedy permitted to it hereunder, and in connection with a reconveyance pursuant to Section 5.14. AS MORE SPECIFICALLY SET FORTH IN SECTION 5.10 BELOW, TRUSTOR WILL, FROM TIME TO TIME, PAY THE REASONABLE COMPENSATION DUE TO TRUSTEE HEREUNDER AND REIMBURSE TRUSTEE FOR, AND INDEMNIFY AND HOLD HARMLESS TRUSTEE AGAINST, ANY AND ALL LIABILITY AND REASONABLE EXPENSES WHICH MAY BE INCURRED BY TRUSTEE IN THE PERFORMANCE OF TRUSTEE’S DUTIES OTHER THAN THAT WHICH MAY BE INCURRED DUE TO TRUSTEE’S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.

(d) All moneys received by Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, but need not be segregated in any manner from any other moneys (except to the extent required by applicable law) and Trustee shall be under no liability for interest on any moneys received by Trustee hereunder.

(e) Should any deed, conveyance, or instrument of any nature be required from Trustor by any Trustee or substitute Trustee to more fully and certainly vest in and confirm to the Trustee or substitute Trustee such estates, rights, powers, and duties, then, upon request by the Trustee or substitute Trustee, any and all such deeds, conveyances and instruments shall be made, executed, acknowledged, and delivered and shall be caused to be recorded and/or filed by Trustor.

(f) By accepting or approving anything required to be observed, performed, or fulfilled or to be given to Trustee pursuant to the terms of this Deed of Trust, including without limitation, any deed, conveyance, instrument, officer’s certificate, balance sheet, statement of profit and loss or other financial statement, survey, appraisal, or insurance policy, Trustee shall not be deemed to have warranted, consented to, or affirmed the sufficiency, legality, effectiveness, or legal effect of the same, or of any term, provision, or condition thereof, and such acceptance or approval thereof shall not be or constitute any warranty or affirmation with respect thereto by Trustee.

5.10 COMPENSATION; EXCULPATION; INDEMNIFICATION.

(a) Trustor shall pay Trustee’s reasonable fees and reimburse Trustee for reasonable expenses incurred in connection with the exercise of any remedy permitted to Trustee hereunder, or in connection with a reconveyance pursuant to Section 5.14. Beneficiary shall not directly or indirectly be liable to Trustor or any other person as a consequence of (i) the exercise of the rights, remedies or powers granted to Beneficiary in this Deed of

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Trust; (ii) the failure or refusal of Beneficiary to perform or discharge any obligation or liability of Trustor under any agreement related to the Subject Property or Collateral or under this Deed of Trust; or (iii) any loss sustained by Trustor or any third party resulting from Beneficiary’s failure (whether by malfeasance, nonfeasance or refusal to act) to lease the Subject Property after a Default (hereinafter defined) or from any other act or omission (regardless of whether same constitutes negligence) of Beneficiary in managing the Subject Property after a Default unless the loss is caused by the gross negligence or willful misconduct of Beneficiary and no such liability shall be asserted against or imposed upon Beneficiary, and all such liability is hereby expressly waived and released by Trustor.

(b) TRUSTOR INDEMNIFIES TRUSTEE AND BENEFICIARY AGAINST, AND HOLDS TRUSTEE AND BENEFICIARY HARMLESS FROM, ALL LOSSES, DAMAGES, LIABILITIES, CLAIMS, CAUSES OF ACTION, JUDGMENTS, COURT COSTS, ATTORNEYS’ FEES AND OTHER LEGAL EXPENSES, COST OF EVIDENCE OF TITLE, COST OF EVIDENCE OF VALUE, AND OTHER EXPENSES WHICH EITHER MAY SUFFER OR INCUR: (i) BY REASON OF THIS DEED OF TRUST; (ii) BY REASON OF THE EXECUTION OF THIS DEED OF TRUST OR IN PERFORMANCE OF ANY ACT REQUIRED OR PERMITTED HEREUNDER OR BY LAW; (iii) AS A RESULT OF ANY FAILURE OF TRUSTOR TO PERFORM TRUSTOR’S OBLIGATIONS; OR (iv) BY REASON OF ANY ALLEGED OBLIGATION OR UNDERTAKING ON BENEFICIARY’S PART TO PERFORM OR DISCHARGE ANY OF THE REPRESENTATIONS, WARRANTIES, CONDITIONS, COVENANTS OR OTHER OBLIGATIONS CONTAINED IN ANY OTHER DOCUMENT RELATED TO THE SUBJECT PROPERTY. THE ABOVE OBLIGATION OF TRUSTOR TO INDEMNIFY AND HOLD HARMLESS TRUSTEE AND BENEFICIARY SHALL SURVIVE THE RELEASE AND CANCELLATION OF THE SECURED OBLIGATIONS AND THE RELEASE AND RECONVEYANCE OR PARTIAL RELEASE AND RECONVEYANCE OF THIS DEED OF TRUST.

(c) Trustor shall pay all amounts and indebtedness arising under this Section 5.10 immediately upon demand by Trustee or Beneficiary together with interest thereon from the date the indebtedness arises at the rate of interest then applicable to the principal balance of the Secured Obligations as specified therein.

5.11 SUBSTITUTION OF TRUSTEES. From time to time, by a writing, signed and acknowledged by Beneficiary and recorded in the Office of the Recorder of the County in which the Subject Property is situated, Beneficiary may appoint another trustee to act in the place and stead of Trustee or any successor. Such writing shall set forth any information required by law. The recordation of such instrument of substitution shall discharge Trustee herein named and shall appoint the new trustee as the trustee hereunder with the same effect as if originally named Trustee herein. A writing recorded pursuant to the provisions of this Section 5.11 shall be conclusive proof of the proper substitution of such new Trustee.

5.12 INTENTIONALLY OMITTED.

5.13 RELEASES, EXTENSIONS, MODIFICATIONS AND ADDITIONAL SECURITY. Without notice to or the consent, approval or agreement of any persons or entities having any interest at any time in the Subject Property and Collateral or in any manner obligated under the Secured Obligations (“Interested Parties”), Beneficiary may, from time to time, release any person or entity from liability for the payment or performance of any Secured Obligation, take any action or make

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any agreement extending the maturity or otherwise altering the terms or increasing the amount of any Secured Obligation, or accept additional security or release all or a portion of the Subject Property and Collateral and other security for the Secured Obligations. None of the foregoing actions shall release or reduce the personal liability of any of said Interested Parties, or release or impair the priority of the lien of and security interests created by this Deed of Trust upon the Subject Property and Collateral.

5.14 RECONVEYANCE. Upon Beneficiary’s written request, and upon surrender to Trustee for cancellation of this Deed of Trust or a certified copy in accordance with the Collateral Management Agreement thereof and any note, instrument, or instruments setting forth all obligations secured hereby, Trustee shall reconvey, without warranty, the Subject Property or that portion thereof then held hereunder. To the extent permitted by law, the reconveyance may describe the grantee as “the person or persons legally entitled thereto” and the recitals of any matters or facts in any reconveyance executed hereunder shall be conclusive proof of the truthfulness thereof. Neither Beneficiary nor Trustee shall have any duty to determine the rights of persons claiming to be rightful grantees of any reconveyance. When the Subject Property has been fully reconveyed, the last such reconveyance shall operate as a reassignment of all future rents, issues and profits of the Subject Property to the person or persons legally entitled thereto. [In addition to the foregoing, Trustee shall from time to time, upon the written request of Trustor, reconvey portions of the Subject Property which are being sold by Trustor to third parties as provided in the Pari-Passu Lien Credit Documents.

5.15 SUBROGATION. Beneficiary shall be subrogated to the lien of all encumbrances, whether released of record or not, paid in whole or in part by Beneficiary pursuant to the Pari-Passu Lien Credit Documents or with the proceeds of any loan secured by this Deed of Trust.

ARTICLE 6. DEFAULT PROVISIONS

6.1 DEFAULT. For all purposes hereof, the term “Default” shall mean the existence of any Event of Default as defined in any Pari-Passu Lien Credit Document.

6.2 RIGHTS AND REMEDIES. At any time after Default, Beneficiary and Trustee shall each have all the following rights and remedies:

(a) With or without notice, to declare all Secured Obligations immediately due and payable;

(b) With or without notice, and without releasing Trustor from any Secured Obligation, and without becoming a mortgagee in possession, to cure any breach or Default of Trustor and, in connection therewith, to enter upon the Subject Property and do such acts and things as Beneficiary or Trustee deem necessary or desirable to protect the security hereof, including, without limitation: (i) to appear in and defend any action or proceeding purporting to affect the security of this Deed of Trust or the rights or powers of Beneficiary or Trustee under this Deed of Trust; (ii) to pay, purchase, contest or compromise any encumbrance, charge, lien or claim of lien which, in the sole judgment of either Beneficiary or Trustee, is or may be senior in priority to this Deed of Trust, the judgment of Beneficiary or Trustee being conclusive as between the parties hereto; (iii) to obtain insurance if and to the extent that the insurance coverages maintained by Trustor do not satisfy the requirements of the Pari-Passu Lien Credit Documents; (iv) to pay any premiums or charges with respect to insurance required to be carried under this Deed of Trust; or (v) to employ counsel, accountants, contractors and other appropriate persons.

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(c) To commence and maintain an action or actions in any court of competent jurisdiction to foreclose this instrument as a mortgage or to obtain specific enforcement of the covenants of Trustor hereunder, and Trustor agrees that such covenants shall be specifically enforceable by injunction or any other appropriate equitable remedy and that for the purposes of any suit brought under this subparagraph, Trustor waives the defense of laches and any applicable statute of limitations;

(d) To apply to a court of competent jurisdiction for and obtain the ex parte appointment of a receiver of the Subject Property as a matter of strict right and without regard to the adequacy of the security for the repayment of the Secured Obligations, the existence of a declaration that the Secured Obligations are immediately due and payable, or the filing of a notice of default, and Trustor hereby consents to such ex parte appointment of a receiver and waives notice of any hearing or proceeding for such appointment;

(e) To enter upon, possess, manage and operate the Subject Property or any part thereof, to take and possess all documents, books, records, papers and accounts of Trustor or the then owner of the Subject Property, to make, terminate, enforce or modify Leases of the Subject Property upon such terms and conditions as Beneficiary deems proper, to make repairs, alterations and improvements to the Subject Property as necessary, in Trustee’s or Beneficiary’s sole judgment, to protect or enhance the security hereof;

(f) To execute a written notice of such Default and of its election to cause the Subject Property to be sold to satisfy the Secured Obligations. As a condition precedent to any such sale, Trustee shall give and record such notice as the law then requires. When the minimum period of time required by law after such notice has elapsed, Trustee, without notice to or demand upon Trustor except as required by law, shall sell the Subject Property at the time and place of sale fixed by it in the notice of sale, at one or several sales, either as a whole or in separate parcels and in such manner and order, all as Beneficiary in its sole discretion may determine, at public auction to the highest bidder for cash, in lawful money of the United States, payable at time of sale. Neither Trustor nor any other person or entity other than Beneficiary shall have the right to direct the order in which the Subject Property is sold. Subject to requirements and limits imposed by law, Trustee may from time to time postpone sale of all or any portion of the Subject Property by public announcement at such time and place of sale. Trustee shall deliver to the purchaser at such sale a deed conveying the Subject Property or portion thereof so sold, but without any covenant or warranty, express or implied. The recitals in the deed of any matters or facts shall be conclusive proof of the truthfulness thereof. Any person, including Trustee, Trustor or Beneficiary may purchase at the sale;

(g) To resort to and realize upon the security hereunder and any other security now or later held by Beneficiary concurrently or successively and in one or several consolidated or independent judicial actions or lawfully taken non-judicial proceedings, or both, and to apply the proceeds received upon the Secured Obligations all in such order and manner as Trustee and Beneficiary, or either of them, determine in their sole discretion.

(h) Upon sale of the Subject Property at any judicial or non-judicial foreclosure, Beneficiary may credit bid (as determined by Beneficiary in its sole and absolute discretion) all or any portion of the Secured Obligations. In determining such credit bid, all or any of the following may be taken into account: (i) appraisals of the Subject Property as such appraisals may be discounted or adjusted; (ii) expenses and costs incurred by Beneficiary with respect to the Subject Property prior to foreclosure; (iii) expenses and

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costs which Beneficiary anticipates will be incurred with respect to the Subject Property after foreclosure, but prior to resale, including, without limitation, costs of structural reports and other due diligence, costs to carry the Subject Property prior to resale, costs of resale (e.g. commissions, attorneys’ fees, and taxes), costs of any hazardous materials clean-up and monitoring, costs of deferred maintenance, repair, refurbishment and retrofit, costs of defending or settling litigation affecting the Subject Property, and lost opportunity costs (if any), including the time value of money during any anticipated holding period by Beneficiary; (iv) declining trends in real property values generally and with respect to properties similar to the Subject Property; (v) anticipated discounts upon resale of the Subject Property as a distressed or foreclosed property; (vi) the fact of additional collateral (if any), for the Secured Obligations; and (vii) such other factors or matters that may be appropriate under the circumstances. In regard to the above, Trustor acknowledges and agrees that: (w) all or none of the foregoing factors may be considered by the applicable parties to determine the amount of its credit bid; (x) this Section does not impose upon Beneficiary any additional obligations that are not imposed by law at the time the credit bid is made; (y) the amount of Beneficiary’s credit bid need not have any relation to any loan-to-value ratios specified in the Pari-Passu Lien Credit Documents or previously discussed between Trustor, any Secured Party and Beneficiary; and (z) Beneficiary’s credit bid may be higher or lower than any appraised value of the Subject Property.

(i) No right or remedy herein conferred upon or reserved to Trustee or Beneficiary is intended to be exclusive of any other right or remedy, and each and every right and remedy shall be cumulative and in addition to any other right or remedy under this Deed of Trust, or under applicable law, whether now or hereinafter existing; the failure of Trustee or Beneficiary to insist at any time upon the strict observance or performance of any provision of this Deed of Trust or to exercise any right or remedy provided for herein or under applicable law, shall not impair any such right or remedy nor be construed as a waiver or relinquishment thereof.

6.3 APPLICATION OF FORECLOSURE SALE PROCEEDS. After deducting all costs, fees and expenses of Trustee, and of this trust, including, without limitation, cost of evidence of title and attorneys’ fees in connection with sale and costs and expenses of sale and of any judicial proceeding wherein such sale may be made, Trustee shall apply all proceeds of any foreclosure sale in accordance with the terms and conditions of the Intercreditor Agreement.

6.4 APPLICATION OF OTHER SUMS. All sums received by Beneficiary under Section 6.2 or Section 3.2, less all costs and expenses incurred by Beneficiary or any receiver under Section 6.2 or Section 3.2, including, without limitation, attorneys’ fees, shall be applied in accordance with the terms and conditions of the Intercreditor Agreement.

6.5 NO CURE OR WAIVER. Neither Beneficiary’s nor Trustee’s nor any receiver’s entry upon and taking possession of all or any part of the Subject Property and Collateral, nor any collection of rents, issues, profits, insurance proceeds, condemnation proceeds or damages, other security or proceeds of other security, or other sums, nor the application of any collected sum to any Secured Obligation, nor the exercise or failure to exercise of any other right or remedy by Beneficiary or Trustee or any receiver shall cure or waive any breach, Default or notice of default under this Deed of Trust, or nullify the effect of any notice of default or sale (unless all Secured Obligations then due have been paid and performed and Trustor has cured all other defaults), or impair the status of the security, or prejudice Beneficiary or Trustee in the exercise of any right or remedy, or be construed as an affirmation by Beneficiary of any tenancy, lease or option or a subordination of the lien of or security interests created by this Deed of Trust.

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6.6 PAYMENT OF COSTS, EXPENSES AND ATTORNEYS’ FEES. Trustor agrees to pay to Beneficiary promptly upon demand therefor all reasonable costs and expenses incurred by Trustee and Beneficiary pursuant to Section 6.2 (including, without limitation, court costs and reasonable attorneys’ fees, whether incurred in litigation or not) with interest from the date of expenditure until said sums have been paid at a rate of interest equal to 7.5% per annum. In addition, Trustor shall pay to Trustee all Trustee’s fees hereunder and shall reimburse Trustee for all reasonable expenses incurred in the administration of this trust, including, without limitation, any attorneys’ fees.

6.7 POWER TO FILE NOTICES AND CURE DEFAULTS. Trustor hereby irrevocably appoints Beneficiary and its successors and assigns, as its attorney-in-fact, which agency is coupled with an interest, after a failure by Trustor to do so promptly after request, (a) to execute and/or record any notices of completion, cessation of labor, or any other notices that are appropriate to protect Beneficiary’s interest, (b) upon the issuance of a deed pursuant to the foreclosure of the lien of this Deed of Trust or the delivery of a deed in lieu of foreclosure, to execute all instruments of assignment or further assurance with respect to the Subject Property and Collateral, Leases and Payments in favor of the grantee of any such deed, as may be necessary or desirable for such purpose, (c) to prepare, execute and file or record financing statements, continuation statements, applications for registration and like papers necessary to create, perfect or preserve Beneficiary’s security interests and rights in or to any of the Subject Property and Collateral, and (d) upon the occurrence of an event, act or omission which, with notice or passage of time or both, would constitute a Default, Beneficiary may perform any obligation of Trustor hereunder; provided, however, that: (i) Beneficiary as such attorney-in-fact shall only be accountable for such funds as are actually received by Beneficiary; and (ii) Beneficiary shall not be liable to Trustor or any other person or entity for any failure to act (whether or not such failure constitutes negligence) by Beneficiary under this Section; and further provided that Beneficiary shall not exercise such power of attorney until such time as Beneficiary has requested Trustor take an action and Trustor has not complied within a timely manner following such request.

ARTICLE 7. MISCELLANEOUS PROVISIONS

7.1 ADDITIONAL PROVISIONS. The Pari-Passu Lien Credit Documents contain or incorporate by reference the entire agreement of the parties with respect to matters contemplated herein and supersede all prior negotiations. The Pari-Passu Lien Credit Documents and other documents described therein grant further rights to the Pari-Passu Lien Secured Parties and Beneficiary and contain further agreements and affirmative and negative covenants by Trustor which apply to this Deed of Trust and to the Subject Property and Collateral and such further rights and agreements are incorporated herein by this reference.

7.2 MERGER. No merger shall occur as a result of Beneficiary’s acquiring any other estate in, or any other lien on, the Subject Property unless Beneficiary consents to a merger in writing.

7.3 OBLIGATIONS OF TRUSTOR, JOINT AND SEVERAL. If more than one person has executed this Deed of Trust as “Trustor”, the obligations of all such persons hereunder shall be joint and several.

7.4 INTENTIONALLY OMITTED.

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7.5 WAIVER OF MARSHALLING RIGHTS. Trustor, for itself and for all parties claiming through or under Trustor, and for all parties who may acquire a lien on or interest in the Subject Property and Collateral, hereby waives all rights to have the Subject Property and Collateral and/or any other property, which is now or later may be security for any Secured Obligation (“Other Property”) marshalled upon any foreclosure of the lien of this Deed of Trust or on a foreclosure of any other lien or security interest against any security for any of the Secured Obligations. Beneficiary shall have the right to sell, and any court in which foreclosure proceedings may be brought shall have the right to order a sale of, the Subject Property and any or all of the Collateral or Other Property as a whole or in separate parcels, in any order that Beneficiary may designate.

7.6 RULES OF CONSTRUCTION. When the identity of the parties or other circumstances make it appropriate the masculine gender includes the feminine and/or neuter, and the singular number includes the plural. The term “Subject Property” and “Collateral” means all and any part of the Subject Property and Collateral, respectively, and any interest in the Subject Property and Collateral, respectively.

7.7 SUCCESSORS IN INTEREST. The terms, covenants, and conditions herein contained shall be binding upon and inure to the benefit of the heirs, successors and assigns of the parties hereto.

7.8 EXECUTION IN COUNTERPARTS. To facilitate execution, this document may be executed in as many counterparts as may be convenient or required. It shall not be necessary that the signature or acknowledgment of, or on behalf of, each party, or that the signature of all persons required to bind any party, or the acknowledgment of such party, appear on each counterpart. All counterparts shall collectively constitute a single document. It shall not be necessary in making proof of this document to produce or account for more than a single counterpart containing the respective signatures of, or on behalf of, and the respective acknowledgments of, each of the parties hereto. Any signature or acknowledgment page to any counterpart may be detached from such counterpart without impairing the legal effect of the signatures or acknowledgments thereon and thereafter attached to another counterpart identical thereto except having attached to it additional signature or acknowledgment pages.

7.9 GOVERNING LAW. In all respects, including without limitation matters of construction, validity, enforceability and performance, this Deed of Trust, the other documents governing the Secured Obligations, and the obligations arising hereunder and thereunder shall be governed by, and construed in accordance with, the laws of the State of New York applicable to contracts made and performed in such state and any applicable law of the United States of America, except that at all times the provisions for enforcement of Beneficiary’s right to foreclose this Deed of Trust and Beneficiary’s other rights and remedies under this Deed of Trust, and the creation, perfection, priority and enforcement of liens and the security interests created by this Deed of Trust shall be governed by and construed according to the law of the state where the Subject Property is located. Except as provided in the immediately preceding sentence, Trustor hereby unconditionally and irrevocably waives, to the fullest extent permitted by law, any claim to assert that the law of any jurisdiction other than the State of New York governs this Deed of Trust.

7.10 INCORPORATION. Exhibits A and B, if any, all as attached, are incorporated into this Deed of Trust by this reference.

7.11 NOTICES. All notices, demands or other communications required or permitted to be given pursuant to the provisions of this Deed of Trust shall be in writing and shall be considered as properly given if delivered personally or sent by first class United States Postal Service mail, postage prepaid, except that notice of Default may be sent by certified mail, return receipt

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requested, or by Overnight Express Mail or by overnight commercial courier service, charges prepaid. Notices so sent shall be effective three (3) days after mailing, if mailed by first class mail, and otherwise upon receipt at the address set forth below; provided, however, that non-receipt of any communication as the result of any change of address of which the sending party was not notified or as the result of a refusal to accept delivery shall be deemed receipt of such communication. For purposes of notice, the address of the parties shall be:

Trustor:	Shea Homes Limited Partnership
	c/o J.F. Shea Co., Inc.
	655 Brea Canyon Road
	Walnut, California 91789
	Attn: Chief Financial Officer and General Counsel
	Facsimile Number: (909) 869-0849
	Telephone Number: (909) 594-9500
Trustee:	Fidelity National Title Company
	1300 Dove Street, Suite 310
	Newport Beach, CA 92660
	Attention: Art Cheyne
	Facsimile Number: (949) 221-4747
	Telephone Number: (949) 477-3639
Beneficiary:	Wells Fargo Bank, National Association, as collateral agent
	45 Broadway, 14th Floor
	New York, NY 10006
	Attention: Julius Zamora, Vice President
	Facsimile Number: (866) 297-2015
	Telephone Number: (212) 515-1570
With a copy to:	Reed Smith LLP
	1901 Avenue of the Stars, Suite 700,
	Los Angeles, CA 90067-6078
	Attention: Nikki H. Kolhoff
	Facsimile Number: (310) 734-5299
	Telephone Number: (310) 734-5209

Any party shall have the right to change its address for notice hereunder to any other location within the continental United States by the giving of thirty (30) days notice to the other party in the manner set forth hereinabove. Trustor shall forward to Beneficiary, without delay, any notices, letters or other communications delivered to the Subject Property or to Trustor naming Beneficiary, “Secured Party” or any similar designation as addressee, or which could reasonably be deemed to affect the ability of Trustor to perform its obligations to the Pari-Passu Lien Secured Parties under the Pari-Passu Lien Credit Documents or any other document described therein.

[Signatures appear on following page.]

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EXHIBIT E

Form of Mortgage

IN WITNESS WHEREOF, Trustor has executed this Deed of Trust as of the day and year set forth above.

TRUSTOR:
[SHEA HOMES LIMITED PARTNERSHIP, a California limited partnership
By:	J.F. Shea, L.P., a Delaware limited partnership, Its sole General Partner

By: JFS Management, L.P., a Delaware limited partnership, Its sole General Partner

By: J.F. Shea Construction Management, Inc., a California corporation, Its sole General Partner

By:
	Name:
	Title:

By:
	Name:
	Title:]

(ALL SIGNATURES MUST BE ACKNOWLEDGED)

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STATE OF CALIFORNIA

COUNTY OF                                          ss

On                                                               , 2011, before me,                                                                                                        , notary public,

personally appeared                                                                                                                                                                 , who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.

WITNESS my hand and official seal

Signature                                                                                       

My commission expires                                                              .

STATE OF CALIFORNIA

COUNTY OF                                          ss

On                                                               , 2011, before me,                                                                                                        , notary public,

personally appeared                                                                                                                                                             , who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.

WITNESS my hand and official seal

Signature                                                                                       

My commission expires                                                               .

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EXHIBIT A

DESCRIPTION OF SUBJECT PROPERTY

Exhibit A to Deed of Trust with Absolute Assignment of Leases and Rents, Security Agreement and Fixture Filing dated as of July [•], 2011 executed by [Shea Homes Limited Partnership, a California limited partnership], as Trustor, to Fidelity National Title Company, a California corporation, as Trustee, for the benefit of Wells Fargo Bank, National Association, solely in its capacity as collateral agent for the Pari-Passu Lien Secured Parties, as Beneficiary.

[From applicable Title Commitment/Pro-Forma Policy]

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EXHIBIT B

[NON-ISSUER TRUSTOR RIDER]

Exhibit B to Deed of Trust with Absolute Assignment of Leases and Rents, Security Agreement and Fixture Filing dated as of July [•], 2011, executed by [NON-ISSUER TRUSTOR], a [•], as Trustor, to Fidelity National Title Company, a California corporation, as Trustee, for the benefit of WELLS FARGO BANK, NATIONAL ASSOCIATION, solely in its capacity as collateral agent for the Pari-Passu Lien Secured Parties, as Beneficiary (“Deed of Trust”).

Trustor hereby acknowledges that the Deed of Trust secures obligations of a party, or parties, not identical to the party, or parties, constituting Trustor, and that Trustor nevertheless agrees as follows:

1. CONDITIONS TO EXERCISE OF RIGHTS. Trustor hereby waives any right it may now or hereafter have to require Beneficiary, as a condition to the exercise of any remedy or other right against Trustor hereunder or under any other document executed by Trustor in connection with any Secured Obligation: (a) to proceed against any Issuer (as defined in the Deed of Trust) or other person, or against any other collateral assigned to Beneficiary by Trustor or any Issuer or other person; (b) to pursue any other right or remedy in Beneficiary’s power; (c) to give notice of the time, place or terms of any public or private sale of real or personal property collateral assigned to Beneficiary by any Issuer or other person (other than Trustor), or otherwise to comply with the California Commercial Code (as modified or recodified from time to time) with respect to any such personal property collateral; or (d) to make or give (except as otherwise expressly provided in the Pari-Passu Lien Credit Documents (as defined in the Deed of Trust)) any presentment, demand, protest, notice of dishonor, notice of protest or other demand or notice of any kind in connection with any Secured Obligation or any collateral (other than the Subject Property) for any Secured Obligation.

2. DEFENSES. Trustor hereby waives any defense it may now or hereafter have that relates to: (a) any disability or other defense of any Issuer or other person; (b) the cessation, from any cause other than full performance, of the obligations of Issuer or any other person; (c) the application of the proceeds of any Secured Obligation, by any Issuer or other person, for purposes other than the purposes represented to Trustor by any Issuer or otherwise intended or understood by Trustor or any Issuer; (d) any act or omission by Beneficiary which directly or indirectly results in or contributes to the release of any Issuer or other person or any collateral for any Secured Obligation; (e) the unenforceability or invalidity of any collateral assignment (other than this Deed of Trust) or guaranty with respect to any Secured Obligation, or the lack of perfection or continuing perfection or lack of priority of any lien (other than the lien hereof) which secures any Secured Obligation; (f) any failure of Beneficiary to marshal assets in favor of Trustor or any other person; (g) any modification of any Secured Obligation, including any renewal, extension, acceleration or increase in interest rate; (h) any and all rights and defenses arising out of an election of remedies by Beneficiary, even though that election of remedies, such as a nonjudicial foreclosure with respect to security for a guaranteed obligation, has destroyed Trustor’s rights of subrogation and reimbursement against the principal by the operation of Section 580d of the California Code of Civil Procedure or otherwise; (i) any law which provides that the obligation of a surety or guarantor must neither be larger in amount nor in other respects more burdensome than that of the principal or which reduces a surety’s or guarantor’s obligation in proportion to the principal obligation; (j) any failure of Beneficiary to file or enforce a claim in any bankruptcy or other proceeding with respect to any person; (k) the election by Beneficiary, in any bankruptcy proceeding of any person, of the application or non-application of Section 1111(b)(2) of the United States Bankruptcy Code; (l) any extension of credit or the grant of any lien under Section

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364 of the United States Bankruptcy Code; (m) any use of cash collateral under Section 363 of the United States Bankruptcy Code; or (n) any agreement or stipulation with respect to the provision of adequate protection in any bankruptcy proceeding of any person. Trustor further waives any and all rights and defenses that Trustor may have because Issuer’s debt is secured by real property; this means, among other things, that: (1) Beneficiary may collect from Trustor without first foreclosing on any real or personal property collateral pledged by Issuer; (2) if Beneficiary forecloses on any real property collateral pledged by Issuer, then (A) the amount of the debt may be reduced only by the price for which that collateral is sold at the foreclosure sale, even if the collateral is worth more than the sale price, and (B) Beneficiary may collect from Trustor even if Beneficiary, by foreclosing on the real property collateral, has destroyed any right Trustor may have to collect from Issuer. The foregoing sentence is an unconditional and irrevocable waiver of any rights and defenses Trustor may have because Issuer’s debt is secured by real property. These rights and defenses being waived by Trustor include, but are not limited to, any rights or defenses based upon Section 580a, 580b, 580d or 726 of the California Code of Civil Procedure. Without limiting the generality of the foregoing or any other provision hereof, Trustor further expressly waives to the extent permitted by law any and all rights and defenses, including without limitation any rights of subrogation, reimbursement, indemnification and contribution, which might otherwise be available to Trustor under California Civil Code Sections 2787 to 2855, inclusive, 2899 and 3433, or under California Code of Civil Procedure Sections 580a, 580b, 580d and 726, or any of such sections.

3. SUBROGATION. Trustor hereby waives, until such time as all Secured Obligations are fully performed: (a) any right of subrogation against any Issuer that relates to any Secured Obligation; (b) any right to enforce any remedy Trustor may now or hereafter have against any Issuer that relates to any Secured Obligation; and (c) any right to participate in any collateral now or hereafter assigned to Beneficiary with respect to any Secured Obligation.

4. ISSUER INFORMATION. Trustor warrants and agrees: (a) that the Pari-Passu Lien Secured Parties would not have consummated their respective portions of the transactions contemplated by the Pari-Passu Lien Credit Documents but for this Deed of Trust; (b) that Trustor has not relied, and will not rely, on any representations or warranties by Beneficiary to Trustor with respect to the credit worthiness of any Issuer or the prospects of repayment of any Secured Obligation from sources other than the Subject Property; (c) that Trustor has established and/or will establish adequate means of obtaining from each Issuer on a continuing basis financial and other information pertaining to the business operations, if any, and financial condition of each Issuer; (d) that Trustor assumes full responsibility for keeping informed with respect to each Issuer’s business operations, if any, and financial condition; (e) that Beneficiary shall have no duty to disclose or report to Trustor any information now or hereafter known to Beneficiary with respect to any Issuer, including, without limitation, any information relating to any of Issuer’s business operations or financial condition; and (f) that Trustor is familiar with the terms and conditions of the Pari-Passu Lien Credit Documents and all of the other documents described in the Pari-Passu Lien Credit Documents and consents to all provisions thereof.

5. REINSTATEMENT OF LIEN. Beneficiary’s rights hereunder shall be reinstated and revived, and the enforceability of this Deed of Trust shall continue, with respect to any amount at any time paid on account of any Secured Obligation which Beneficiary is thereafter required to restore or return in connection with a bankruptcy, insolvency, reorganization or similar proceeding with respect to any Issuer.

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6. SUBORDINATION. Until all of the Secured Obligations have been fully paid and performed: (a) Trustor hereby agrees that all existing and future indebtedness and other obligations of each Issuer to Trustor (collectively, the “Subordinated Debt”) shall be and are hereby subordinated to all Secured Obligations which constitute obligations of the applicable Issuer, and the payment thereof is hereby deferred in right of payment to the prior payment and performance of all such Secured Obligations; (b) Trustor shall not collect or receive any cash or non-cash payments on any Subordinated Debt or transfer all or any portion of the Subordinated Debt; and (c) in the event that, notwithstanding the foregoing, any payment by, or distribution of assets of, any Issuer with respect to any Subordinated Debt is received by Trustor, such payment or distribution shall be applied to reduce the outstanding Secured Obligations and any such sums received by Trustor shall be held in trust by Trustor for such purpose.

7. INTENTIONALLY OMITTED.

8. LAWFULNESS AND REASONABLENESS. Trustor warrants that all of the waivers in this Deed of Trust are made with full knowledge of their significance, and of the fact that events giving rise to any defense or other benefit waived by Trustor may destroy or impair rights which Trustor would otherwise have against Beneficiary, Issuer and other persons, or against collateral. Trustor agrees that all such waivers are reasonable under the circumstances and further agrees that, if any such waiver is determined (by a court of competent jurisdiction) to be contrary to any law or public policy, the other waivers herein shall nonetheless remain in full force and effect.

9. ENFORCEABILITY. Trustor hereby acknowledges that: (a) the obligations undertaken by Trustor in this Deed of Trust are complex in nature, and (b) numerous possible defenses to the enforceability of these obligations may presently exist and/or may arise hereafter, and (c) as part of Beneficiary’s consideration for entering into this transaction, Beneficiary has specifically bargained for the waiver and relinquishment by Trustor of all such defenses, and (d) Trustor has had the opportunity to seek and receive legal advice from skilled legal counsel in the area of financial transactions of the type contemplated herein. Given all of the above, Trustor does hereby represent and confirm to Beneficiary that Trustor is fully informed regarding, and that Trustor does thoroughly understand: (i) the nature of all such possible defenses, and (ii) the circumstances under which such defenses may arise, and (iii) the benefits which such defenses might confer upon Trustor, and (iv) the legal consequences to Trustor of waiving such defenses. Trustor acknowledges that Trustor makes this Deed of Trust with the intent that this Deed of Trust and all of the informed waivers herein shall each and all be fully enforceable by Beneficiary, and that Beneficiary is induced to enter into this transaction in material reliance upon the presumed full enforceability thereof.

10. INTENTIONALLY OMITTED.

11. INTEGRATION; INTERPRETATION. This Deed of Trust, the Pari-Passu Lien Credit Documents and the other transaction documents described in the Pari-Passu Lien Credit Documents contain or expressly incorporate by reference the entire agreement of the parties with respect to the matters contemplated therein and supersede all prior negotiations or agreements, written or oral. This Deed of Trust and the Pari-Passu Lien Credit Documents shall not be modified except by written instrument executed by all parties. Any reference to the Pari-Passu Lien Credit Documents and all of the other documents described in the Pari-Passu Lien Credit Documents includes any amendments, renewals or extensions now or hereafter approved by Beneficiary in writing.

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EXHIBIT F

SUPPLEMENT NO.              dated as of [ ] (this “Supplement”), to the Letter of Credit Facility Agreement dated as of May 10, 2011 (the “LC Facility Agreement”), among Shea Homes Limited Partnership, a California limited partnership (the “Company”), Shea Homes Funding Corp., a Delaware corporation (“Shea Corp.”), the Guarantors party thereto (each such Guarantor individually a “Guarantor” and, collectively, the “Guarantors”), the Participants from time to time party thereto, and Credit Suisse AG, as administrative agent (the “Administrative Agent”) and issuing bank.

A. Reference is made to the Security Agreement dated as of May 10, 2011, among the Company, Shea Corp., each Guarantor listed on Schedule I thereto and Wells Fargo Bank, National Association, as collateral agent.

B. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the LC Facility Agreement.

C. The Guarantors have entered into the LC Facility Agreement in order to induce the Issuing Banks and Participants to extend credit to the Company, Shea Corp., the Restricted Subsidiaries and their respective joint ventures. Section 5.05 of the LC Facility Agreement provides that additional Subsidiaries of the Company may become Guarantors under the LC Facility Agreement and may become party to the LC Facility Agreement by execution and delivery of an instrument in the form of this Supplement. The undersigned Subsidiary (the “New Guarantor”) is executing this Supplement in accordance with the requirements of the LC Facility Agreement to become a party to the LC Facility Agreement as consideration for extensions of credit to be granted pursuant the LC Facility Agreement.

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

SECTION 1. In accordance with Section 10.08 of the LC Facility Agreement, the New Guarantor by its signature below becomes a Guarantor under the LC Facility Agreement with the same force and effect as if originally named therein as a Guarantor and the New Guarantor hereby (a) agrees to all the terms and provisions of the LC Facility Agreement applicable to it as a Guarantor thereunder and (b) represents and warrants that the representations and warranties made by it as a Guarantor thereunder are true and correct on and as of the date hereof. In furtherance of the foregoing, the New Guarantor irrevocably and unconditionally guarantees, jointly with the other Guarantors and severally, as a primary obligor and not merely as a surety, the due and punctual payment and performance of the Obligations. Each reference to a “Guarantor” or in the LC Facility Agreement shall be deemed to include the New Guarantor. The LC Facility Agreement is hereby incorporated herein by reference.

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

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

SECTION 4. The New Guarantor hereby represents and warrants that set forth on Schedule I attached hereto is a schedule with the true and correct legal name of the New Guarantor, its jurisdiction of formation and the location of its chief executive office.

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

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

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

SECTION 8. All communications and notices hereunder shall be in writing and given as provided in Section 9.01 of the LC Facility Agreement.

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

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

[NAME OF NEW GUARANTOR],
by
	Name: Title:
	Legal Name: Jurisdiction of Formation: Location of Chief Executive office:

[•], as Administrative Agentby
by
	Name:
	Title:

EX-10.5

Exhibit 10.5

SERVICES AGREEMENT

(J.F. Shea Co., Inc.)

THIS SERVICES AGREEMENT (this “Agreement”) is dated as of May 1, 2011 (the “Effective Date”) is between SHEA HOMES LIMITED PARTNERSHIP, a California limited partnership, SHEA HOMES, INC., a Delaware corporation, and the parties listed on Exhibit A attached hereto (collectively, “Shea Homes”) and J.F. SHEA CO., INC., a Nevada corporation (“JFSCI”).

R E C I T A L S

A. Shea Homes is a homebuilder with operations in California, Arizona, Colorado, Florida, Nevada and Washington States.

B. JFSCI holds an interest in Shea Homes and other related entities and has historically provided management and other services to Shea Homes, including, without limitation, financial, accounting, tax, human resource, investment, risk management and insurance, treasury, banking, audit, information and technology, intellectual property, marketing, licensing and legal services to Shea Homes.

C. The services that are presently being provided by JFSCI to Shea Homes, together with services that have historically been provided and that may be provided again in the future, shall be collectively referred to herein as the “Services.”

D. This Agreement shall formalize and document Shea Homes and JFSCI’s historic and ongoing relationship and practices, including the payment of fees and the reimbursement of costs by Shea Homes to JFSCI for the Services.

A G R E E M E N T

NOW THEREFORE, in consideration of the mutual promises contained herein, and further good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Shea Homes and JFSCI hereby agree as follows

1. Appointment. Shea Homes hereby retains JFSCI to perform the Services and JFSCI hereby agrees to perform the Services on the terms and conditions hereinafter set forth. JFSCI shall perform the Services in a professional manner, in accordance with good and accepted practices consistent with practices performed by others who perform services similar to the Services. The parties executing this Agreement on behalf of Shea Homes acknowledge and agree that they have the authority to bind each of the entities listed on Exhibit A attached hereto and that such parties shall be deemed to be a party to this Agreement as if such entities had also signed this Agreement.

2. Term. This Agreement shall commence on the Effective Date and, subject to the provisions of Section 5 respecting termination, terminate on the ten (10) year anniversary of the Effective Date. This Agreement shall be automatically renewed for successive one (1) year renewal terms, subject, however, to the provisions of Section 5 respecting termination.

3. Compensation of JFSCI. JFSCI shall be compensated as follows during the term of this Agreement:

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a. Service Fee. Historically JFSCI has not charged Shea Homes a fee for performing the Services, but rather it has merely been reimbursed its expenses in the manner described in Section 3(b) below. JFSCI reserves the right to charge a reasonable fee in the future provided that such fee does not exceed the fee typically charged by unaffiliated providers of services similar to the Services and in no event shall the annual fee exceed ten percent (10%) of the annual expense reimbursement due to JFSCI under Section 3(b).

b. Expenses. Shea Homes shall reimburse JFSCI for any expenses paid by the JFSCI on behalf of the Shea Homes or in furtherance JFSCI’s obligations under this Agreement. Expenses incurred by JFSCI on behalf of Shea Homes and other affiliates shall be reasonably prorated by JFSCI in such manner as JFSCI shall determine in good faith and in accordance with past historical practice.

4. Hold Harmless.

a. Except as provided in Section 4(b) below, Shea Homes shall indemnify, defend and hold harmless JFSCI from any and all actions, administrative proceedings, causes of action, charges, claims, commissions, costs, including, but not limited to, all attorneys’ fees, at both the trial and appellate levels, and other expenses of litigation, damages, decrees, demands, duties, expenses, fees, fines, judgments, liabilities, losses, obligations, orders, penalties, recourses, remedies, responsibilities, rights, suits and undertakings of every nature and kind whatsoever at law or in equity, whether meritorious or frivolous (all of said matters being herein collectively called “Claims”) arising out of or relating to the Services

b. JFSCI shall indemnify, defend and hold harmless Shea Homes from any and all Claims arising out of, or in any manner connected with, any criminal, willful and wanton or grossly negligent act or omission of JFSCI arising out of or relating to the Services.

5. Termination.

a. Without Cause. During the term of this Agreement, any party may terminate this Agreement with respect to such party upon three hundred sixty-five (365) days’ prior written notice to the other parties hereto.

b. JFSCI Default. Notwithstanding Section 5(a), (i) if JFSCI shall default in the performance of any of JFSCI’s obligations under this Agreement and such default shall continue for sixty (60) days after written notice from Shea Homes to JFSCI designating such default, or if such default cannot be cured within a sixty (60) day period, if JFSCI has not commenced such cure and is not diligently pursuing such cure during such sixty (60) day period, Shea Homes may terminate this Agreement by written notice to JFSCI given at any time thereafter while such default shall be continuing, in which event this Agreement shall terminate upon the giving of such notice (unless such notice shall specify that such termination shall be effective at a later date, in which event the term shall terminate upon the later date so specified).

c. Shea Homes’ Default. Notwithstanding Section 5(a), if Shea Homes shall default on its obligation to make any payment to JFSCI pursuant to this Agreement and such default shall continue for ten (10) days after written notice from JFSCI to Shea Homes designating such default, then JFSCI may terminate this Agreement. If Shea Homes shall default in the performance of any of its other obligations under this Agreement, then the notice and cure periods referenced in Section 5(b) above shall apply (except that JFSCI shall be required to deliver notice, Shea Homes shall be required to cure and JFSCI shall have the right to terminate).

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d. Duties after Termination. Notwithstanding the termination of this Agreement under this Section 5, JFSCI shall furnish to Shea Homes, or to anyone designated by Shea Homes, all such information, and take all such action as Shea Homes shall reasonably require in order to effectuate a professional, orderly and systematic ending of JFSCI’s duties and activities hereunder.

e. Shea Homes’ Obligation to Pay. Unless Shea Homes terminates this Agreement by reason of JFSCI’s default, Shea Homes shall immediately pay to JFSCI all sums due JFSCI under this Agreement up to the effective termination date.

6. Notices. All notices required or permitted by any party under this Agreement shall be served upon any party by (a) personal delivery, (b) by United States mail, postage prepaid, by registered or certified mail, return receipt requested, (c) by facsimile or email followed by a written notice sent in accordance with (a), (b) or (d), or (d) by overnight courier, addressed to the respective parties at their respective addresses as set forth below:

To Shea Homes:

655 Brea Canyon Road

Walnut, California 91789

Attn: Bruce Varker, CFO, Shea Homes

To JFSCI:

655 Brea Canyon Road

Walnut, California 91789

Attn: James Shontere, CFO, JFSCI

Delivery shall be deemed complete on the earlier of actual receipt if personally delivered, or upon completion of transmission if by facsimile or email, two (2) postal delivery days after mailing, or one (1) business day after deposit with an overnight courier. The addresses to which notices and demands shall be delivered or sent may be changed from time to time, by notice served as provided above by any party to the other parties.

7. Miscellaneous.

a. No Joint Venture. Nothing herein shall be deemed or construed to create any partnership, joint venture or other form of joint enterprise between the parties hereto.

b. Agreement Not Assignable. This Agreement is personal in nature, and neither party may, without the express prior written consent of the other party, assign or transfer its rights hereunder, nor permit any assignee or transferee to assume its obligations hereunder. Notwithstanding the foregoing, JFSCI may assign this Agreement to an affiliate or other party that is under the same management or control as JFSCI.

c. Entire Agreement and Binding Effect. This Agreement shall constitute the entire agreement between the parties hereto with respect to the subject matter hereof and supersede all prior written and oral representation and statements between the parties. No modification or amendment of this agreement shall be effective unless made by supplemental agreement in writing, executed by both of the parties hereto. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto, and to the extent assignment does not violate the provisions of Section 7(b) hereof, upon their respective successors and assigns.

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d. California Law. This Agreement is made under and shall be governed by the internal laws of the State of California without reference to choice of law or conflicts of law provisions. Any court of competent jurisdiction within the State of California shall be the proper forum for bringing an action to enforce or construe the provisions of this Agreement. If any court of competent jurisdiction is unable to construe any provision of this Agreement or holds any part thereof to be invalid, such holding shall in no way affect the validity of the remainder of this Agreement.

e. Counterparts. This Agreement may be executed in multiple identical counterparts, each of which shall be deemed an original, and counterpart signature pages may be detached and assembled to form a single original document. This Agreement may be executed and delivered by the exchange of electronic facsimile or email copies of counterparts of the signature page, which shall be considered the equivalent of ink signature pages for all purposes.

f. Attorneys’ Fees. In any action at law or in any other proceeding to enforce any of the provisions or rights under this Agreement, the prevailing party shall be entitled to costs, expenses, and reasonable attorneys’ fees (including, without limitation, costs, expenses, and fees in connection with any appeal).

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IN WlTNESS WHEREOF, Shea Homes and JFSCI have each caused their duly authorized officers to execute this Agreement as of the day and year first written above.

SHEA HOMES

SHEA HOMES LIMITED PARTNERSHIP, a California limited partnership
By:	/s/    James Shontere
Name:	James Shontere
Title:	Secretary
By:	/s/    Robert O’Dell
Name:	Robert O’Dell
Title:	Treasurer

SHEA HOMES, INC. a Delaware corporation
By:	/s/    James Shontere
Name:	James Shontere
Title:	Secretary
By:	/s/    Robert O’Dell
Name:	Robert O’Dell
Title:	Treasurer

JFSCI

J.F. SHEA CO., INC., a Nevada corporation
By:	/s/    James Shontere
Name:	James Shontere
Title:	Secretary
By:	/s/    Robert O’Dell
Name:	Robert O’Dell
Title:	Treasurer

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EXHIBIT A

PARTIES TO THE AGREEMENT

In addition to the parties executing this Agreement on behalf of Shea Homes, the following subsidiaries of Shea Homes shall also be parties to this Agreement:

All subsidiaries of Shea Homes Limited Partnership

All subsidiaries of Shea Homes, Inc.

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EX-10.6

Exhibit 10.6

SERVICES AGREEMENT

(J.F. Shea, L.P. and J.F. Shea Construction Management, Inc.)

THIS SERVICES AGREEMENT (this “Agreement”) is dated as of May 1, 2011 (the “Effective Date”) is between SHEA HOMES LIMITED PARTNERSHIP, a California limited partnership, SHEA HOMES, INC., a Delaware corporation, and the parties listed on Exhibit A attached hereto (collectively, “Shea Homes”) and J.F. SHEA, L.P., a Delaware limited partnership, and J.F. SHEA CONSTRUCTION MANAGEMENT, INC., a California corporation (collectively “General Partners”).

R E C I T A L S

A. Shea Homes is a homebuilder with operations in California, Arizona, Colorado, Florida, Nevada and Washington States.

B. General Partners are the direct and indirect general partners of Shea Homes Limited Partnership and have historically provided management, licensing and other services to Shea Homes.

C. The services that are presently being provided by General Partners to Shea Homes, together with services that have historically been provided and that may be provided again in the future, shall be collectively referred to herein as the “Services.”

D. This Agreement shall formalize and document Shea Homes and General Partners’ historic and ongoing relationship and practices, including the payment of fees and the reimbursement of costs by Shea Homes to General Partners for the Services.

A G R E E M E N T

NOW THEREFORE, in consideration of the mutual promises contained herein, and further good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Shea Homes and General Partners hereby agree as follows

1. Appointment. Shea Homes hereby retains General Partners to perform the Services and General Partners hereby agrees to perform the Services on the terms and conditions hereinafter set forth. General Partners shall perform the Services in a professional manner, in accordance with good and accepted practices consistent with practices performed by others who perform services similar to the Services. The parties executing this Agreement on behalf of Shea Homes acknowledge and agree that they have the authority to bind each of the entities listed on Exhibit A attached hereto and that such parties shall be deemed to be a party to this Agreement as if such entities had also signed this Agreement.

2. Term. This Agreement shall commence on the Effective Date and, subject to the provisions of Section 5 respecting termination, terminate on the ten (10) year anniversary of the Effective Date. This Agreement shall be automatically renewed for successive one (1) year renewal terms, subject, however, to the provisions of Section 5 respecting termination.

3. Compensation of General Partners. General Partners shall be compensated as follows during the term of this Agreement:

a. Service Fee. Historically General Partners not charged Shea Homes a fee for performing the Services, but rather they have merely been reimbursed its expenses in the manner described in Section 3(b) below. General Partners reserve the right to charge

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a reasonable fee in the future provided that such fee does not exceed the fee typically charged by unaffiliated providers of services similar to the Services and in no event shall the annual fee exceed ten percent (10%) of the annual expense reimbursement due to General Partners under Section 3(b).

b. Expenses. Shea Homes shall reimburse General Partners for any expenses paid by the General Partners on behalf of the Shea Homes or in furtherance of General Partners’ obligations under this Agreement. Expenses incurred by General Partners on behalf of Shea Homes and other affiliates shall be reasonably prorated by General Partners in such manner as General Partners shall determine in good faith and in accordance with past historical practice.

4. Hold Harmless.

a. Except as provided in Section 4(b) below, Shea Homes shall indemnify, defend and hold harmless General Partners from any and all actions, administrative proceedings, causes of action, charges, claims, commissions, costs, including, but not limited to, all attorneys’ fees, at both the trial and appellate levels, and other expenses of litigation, damages, decrees, demands, duties, expenses, fees, fines, judgments, liabilities, losses, obligations, orders, penalties, recourses, remedies, responsibilities, rights, suits and undertakings of every nature and kind whatsoever at law or in equity, whether meritorious or frivolous (all of said matters being herein collectively called “Claims”) arising out of or relating to the Services

b. General Partners shall indemnify, defend and hold harmless Shea Homes from any and all Claims arising out of, or in any manner connected with, any criminal, willful and wanton or grossly negligent act or omission of General Partners arising out of or relating to the Services.

5. Termination.

a. Without Cause. During the term of this Agreement, any party may terminate this Agreement with respect to such party upon three hundred sixty-five (365) days’ prior written notice to the other parties hereto.

b. General Partners’ Default. Notwithstanding Section 5(a), (i) General Partners shall default in the performance of any of General Partners’ obligations under this Agreement and such default shall continue for sixty (60) days after written notice from Shea Homes to General Partners designating such default, or if such default cannot be cured within a sixty (60) day period, if General Partners has not commenced such cure and is not diligently pursuing such cure during such sixty (60) day period, Shea Homes may terminate this Agreement by written notice to General Partners given at any time thereafter while such default shall be continuing, in which event this Agreement shall terminate upon the giving of such notice (unless such notice shall specify that such termination shall be effective at a later date, in which event the term shall terminate upon the later date so specified).

c. Shea Homes’ Default. Notwithstanding Section 5(a), if Shea Homes shall default on its obligation to make any payment to General Partners pursuant to this Agreement and such default shall continue for ten (10) days after written notice from General Partners to Shea Homes designating such default, then General Partners may terminate this Agreement. If Shea Homes shall default in the performance of any of its other obligations under this Agreement, then the notice and cure periods referenced in Section 5(b) above shall apply (except that General Partners shall be required to deliver notice, Shea Homes shall be required to cure and General Partners shall have the right to terminate).

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d. Duties after Termination. Notwithstanding the termination of this Agreement under this Section 5, General Partners shall furnish to Shea Homes, or to anyone designated by Shea Homes, all such information, and take all such action as Shea Homes shall reasonably require in order to effectuate a professional, orderly and systematic ending of General Partners duties and activities hereunder.

e. Shea Homes’ Obligation to Pay. Unless Shea Homes terminates this Agreement by reason of General Partners’ default, Shea Homes shall immediately pay to General Partners all sums due General Partners under this Agreement up to the effective termination date.

6. Notices. All notices required or permitted by any party under this Agreement shall be served upon any party by (a) personal delivery, (b) by United States mail, postage prepaid, by registered or certified mail, return receipt requested, (c) by facsimile or email followed by a written notice sent in accordance with (a), (b) or (d), or (d) by overnight courier, addressed to the respective parties at their respective addresses as set forth below:

To Shea Homes:

655 Brea Canyon Road

Walnut, California 91789

Attn: Bruce Varker, CFO, Shea Homes

To General Partners:

655 Brea Canyon Road

Walnut, California 91789

Attn: Peter Shea, Jr., CEO

Delivery shall be deemed complete on the earlier of actual receipt if personally delivered, or upon completion of transmission if by facsimile or email, two (2) postal delivery days after mailing, or one (1) business day after deposit with an overnight courier. The addresses to which notices and demands shall be delivered or sent may be changed from time to time, by notice served as provided above by any party to the other parties.

7. Miscellaneous.

a. No Joint Venture. Nothing herein shall be deemed or construed to create any partnership, joint venture or other form of joint enterprise between the parties hereto.

b. Agreement Not Assignable. This Agreement is personal in nature, and neither party may, without the express prior written consent of the other party, assign or transfer its rights hereunder, nor permit any assignee or transferee to assume its obligations hereunder. Notwithstanding the foregoing, General Partners may assign this Agreement to an affiliate or other party that is under the same management or control as General Partners.

c. Entire Agreement and Binding Effect. This Agreement shall constitute the entire agreement between the parties hereto with respect to the subject matter hereof and supersede all prior written and oral representation and statements between the parties. No

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modification or amendment of this agreement shall be effective unless made by supplemental agreement in writing, executed by both of the parties hereto. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto, and to the extent assignment does not violate the provisions of Section 7(b) hereof, upon their respective successors and assigns.

d. California Law. This Agreement is made under and shall be governed by the internal laws of the State of California without reference to choice of law or conflicts of law provisions. Any court of competent jurisdiction within the State of California shall be the proper forum for bringing an action to enforce or construe the provisions of this Agreement. If any court of competent jurisdiction is unable to construe any provision of this Agreement or holds any part thereof to be invalid, such holding shall in no way affect the validity of the remainder of this Agreement.

e. Counterparts. This Agreement may be executed in multiple identical counterparts, each of which shall be deemed an original, and counterpart signature pages may be detached and assembled to form a single original document. This Agreement may be executed and delivered by the exchange of electronic facsimile or email copies of counterparts of the signature page, which shall be considered the equivalent of ink signature pages for all purposes.

f. Attorneys’ Fees. In any action at law or in any other proceeding to enforce any of the provisions or rights under this Agreement, the prevailing party shall be entitled to costs, expenses, and reasonable attorneys’ fees (including, without limitation, costs, expenses, and fees in connection with any appeal).

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IN WlTNESS WHEREOF, Shea Homes and General Partners have each caused their duly authorized officers to execute this Agreement as of the day and year first written above.

SHEA HOMES

SHEA HOMES LIMITED PARTNERSHIP, a California limited partnership
By:	/s/    James Shontere
Name:	James Shontere
Title:	Secretary

By:	/s/     Robert O’Dell
Name:	Robert O’Dell
Title:	Treasurer

SHEA HOMES, INC. a Delaware corporation
By:	/s/    James Shontere
Name:	James Shontere
Title:	Secretary

By:	/s/    Robert O’Dell
Name:	Robert O’Dell
Title:	Treasurer

GENERAL PARTNERS

J.F. SHEA, L.P. a Delaware limited partnership
By:	/s/    James Shontere
Name:	James Shontere
Title:	Secretary

By:	/s/    Robert O’Dell
Name:	Robert O’Dell
Title:	Treasurer

S-1

JF SHEA CONSTRUCTION MANAGEMENT, INC.,

a California corporation
By:	/s/     James Shontere
Name:	James Shontere
Title:	Secretary

By:	/s/    Robert O’Dell
Name:	Robert O’Dell
Title:	Treasurer

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EXHIBIT A

PARTIES TO THE AGREEMENT

In addition to the parties executing this Agreement on behalf of Shea Homes, the following subsidiaries of Shea Homes shall also be parties to this Agreement:

All subsidiaries of Shea Homes Limited Partnership

All subsidiaries of Shea Homes, Inc.

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EX-23.5

Exhibit 23.5

Consent of Independent Registered Public Accounting Firm

We consent to the reference to our firm under the caption “Experts” and to the use of our report dated March 28, 2011 (except Notes 18, 20, 21, and 22, as to which date is December 22, 2011) with respect to the consolidated financial statements of Shea Homes Limited Partnership for the year ended December 31, 2010, in the Registration Statement (Amendment No. 2 to Form S-4 No. 333-177328) and related Prospectus of Shea Homes Limited Partnership for the registration of $750,000,000 of 8.625% Senior Secured Notes due 2019 and $750,000,000 of Guarantees of 8.625% Senior Secured Notes due 2019 and to the inclusion therein.

/s/ Ernst & Young LLP

Los Angeles, California

January 23, 2012