10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2010

OR

oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                    to                   

Commission file number: 0-17189

CALIFORNIA COASTAL COMMUNITIES, INC.

(Exact name of registrant as specified in its charter)

Delaware	02-0426634
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
6 Executive Circle, Suite 250 Irvine, California	92614
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (949) 250-7700

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x  NO o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o No o

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 definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o	Accelerated filer ¨
Non-accelerated filer o	Smaller reporting company x
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES o  NO x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of May 13, 2010 there were 10,995,902 shares of Common Stock, par value $.05 outstanding

CALIFORNIA COASTAL COMMUNITIES, INC.

(DEBTOR-IN-POSSESSION)

FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2010

INDEX

Cautionary Statement About Forward-Looking Statements			3
Part I -	Financial Information:		5
	Item 1.	Consolidated Financial Statements	5
		Consolidated Balance Sheets - March 31, 2010 (unaudited) and December 31, 2009	5
		Consolidated Statements of Operations - Three Months Ended March 31, 2010 and 2009 (unaudited)	6
		Consolidated Statements of Cash Flows -Three Months Ended March 31, 2010 and 2009 (unaudited)	7
		Notes to Consolidated Financial Statements	8
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37
	Item 4.	Controls and Procedures	38
Part II -	Other Information:		38
	Item 1.	Legal Proceedings	38
	Item 6.	Exhibits	38
SIGNATURE			39

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CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Exchange Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that relate to future events or our future financial performance. In addition, other statements we may make from time to time, such as press releases, oral statements made by our officials and other reports that we file with the Securities and Exchange Commission may also contain such forward-looking statements. Undue reliance should not be placed on these statements which involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue,” or the negative of such terms or other comparable terminology.

These forward-looking statements include, but are not limited to:

·the impact, effect and eventual result of the Chapter 11 Cases in restructuring our debt obligations under the Revolving Loan and Term Loan;

·our and the other Debtors’ ability to remain as a debtors-in-possession during the pendency of the Chapter 11 Cases;

·our ability to create stockholder value;

·our compliance with future debt covenants and actions we may take with respect thereto;

·economic changes nationally or in local markets, including changes in consumer confidence, volatility of mortgage interest rates and inflation;

·continued or increased downturn in the homebuilding industry;

·statements about our strategies, plans, objectives, goals, expectations and intentions;

·information relating to anticipated operating results, financial resources, changes in revenues, changes in profitability, interest expense, growth and expansion;

·the impact of demographic trends and supply constraints on the demand for and supply of housing;

·housing market conditions in the geographic markets in which we operate;

·the number and types of homes and number of acres of land that we may develop and sell;

·our ability to deliver homes from backlog;

·the timing and outcomes of regulatory approval processes or administrative proceedings, which may result in delays in land entitlement, development, construction, or the opening of new communities;

·our ability to secure materials and subcontractors;

·our ability to produce the liquidity and capital necessary to service our debt, fund operations, expand and take advantage of future opportunities if current market conditions persist;

·our cost of and ability to access additional capital;

·our ability to realize the value of our net operating loss carry forwards;

·our ability to continue relationships with current or future partners;

·the effectiveness and adequacy of our disclosure and internal controls;

3

·the impact of recent accounting pronouncements; and

·stock market valuations.

Any or all of the forward-looking statements included in this report and in any other reports or public statements made by us may turn out to be inaccurate. This can occur as a result of incorrect assumptions or as a consequence of known or unknown risks and uncertainties. These risks and uncertainties include the unpredictability of the Chapter 11 bankruptcy process; competitive environment in which we operate; local, regional and national economic conditions; the effects of the current national credit market crisis, inflation and the recession; our ability to comply with the covenants and amortization schedules contained in our Revolving and Term Loan agreements; the demand for homes; adverse market conditions that could result in additional inventory impairments, including an oversupply of unsold homes, declining home prices, and increased foreclosure and short sale activity; declines in consumer confidence; increases in competition; fluctuations in interest rates and the availability of mortgage financing; mortgage foreclosure rates; the availability and cost of land for future growth; the availability of capital, including access under our existing credit facilities; uncertainties and fluctuations in capital and securities markets; changes in tax laws and their interpretation; legal proceedings; the ability of customers to finance the purchase of homes or sell existing homes; the availability and cost of labor and materials; the amount of our debt and the impact of restrictive covenants in our loan agreements; adverse weather conditions; domestic and international political events; geopolitical risks and the uncertainties created by terrorist attacks; the effects of governmental regulation, including regulations concerning development of land, the home building industry, sales and customer financing processes, and the environment; and other risks discussed in our filings with the Securities and Exchange Commission. Many factors mentioned in this report or in other reports or public statements made by us, such as government regulation and the competitive environment, will be important in determining our future performance. Consequently, actual results may differ materially from those that might be anticipated from our forward-looking statements. You should not place undue reliance on any of these forward-looking statements because they are based on current expectations or beliefs regarding future events or circumstances, which involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by these forward-looking statements.

Although we believe that our strategies, plans, objectives, goals, expectations and intentions reflected in, or suggested by these forward-looking statements are reasonable given current information available to us, we can give no assurance that any of them will be achieved. Forward-looking statements speak only as of the date they are made. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. However, any further disclosures made on related subjects in our subsequent reports on Forms 10-K, 10-Q and 8-K should be consulted.

These forward-looking statements should be considered in light of the information included in this report and our other filings with the Securities and Exchange Commission, including, without limitation, the “Risk Factors” and the description of trends and other factors in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” set forth in this Form 10-Q and in our Form 10-K for the year ended December 31, 2009. You should also read the following “Consolidated Financial Statements” and the related notes.

We assume no, and hereby disclaim any, obligation to update any of the foregoing or any other forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason after the date of this Form 10-Q. We nonetheless reserve the right to make such updates from time to time by press release, periodic report or other method of public disclosure without the need for specific reference to this Form 10-Q or any other report filed by us. No such update shall be deemed to indicate that other statements not addressed by such update remain correct or create an obligation to provide any other updates.

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PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements.

CALIFORNIA COASTAL COMMUNITIES, INC.

(DEBTOR-IN-POSSESSION)

CONSOLIDATED BALANCE SHEETS

(unaudited)

(in millions)

	March 31, 2010			December 31, 2009
ASSETS
Cash and cash equivalents	$	4.7		$	8.9
Restricted cash	0.8			0.8
Real estate inventories	239.2			235.4
Other assets, net	4.3			4.8
	$	249.0		$	249.9
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities not subject to compromise:
Accounts payable and accrued liabilities	$	4.3		$	2.9
Model home financing	22.5			22.5
Other liabilities	0.4			0.4
Total liabilities not subject to compromise	27.2			25.8
Liabilities subject to compromise:
Accounts payable and accrued liabilities	1.0			0.9
Revolving loan	81.7			81.7
Term loan	99.8			99.8
Other liabilities	8.3			8.3
Total liabilities subject to compromise	190.8			190.7
Commitments and contingencies
Stockholders’ equity:
Common Stock—$.05 par value; 13,500,000 shares authorized; 10,995,902 and 10,995,902 shares issued and outstanding, respectively	0.5			0.5
Excess Stock—$.05 par value; 13,500,000 shares authorized; no shares outstanding	—			—
Additional paid-in capital	59.5			59.5
Accumulated deficit	(26.4		)	(24.0		)
Accumulated other comprehensive loss, net	(2.6		)	(2.6		)
Total stockholders’ equity	31.0			33.4
	$	249.0		$	249.9

See the accompanying notes to Consolidated Financial Statements.

5

CALIFORNIA COASTAL COMMUNITIES, INC.

(DEBTOR-IN-POSSESSION)

CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per share amounts)

(unaudited)

	Three Months Ended March 31,
	2010			2009
Revenues:
Homebuilding	$	3.0		$	12.8
Costs of sales:
Homebuilding	2.6			8.8
Loss on impairment of real estate inventories	—			3.2
	2.6			12.0
Gross operating profit	0.4			0.8
Selling, general and administrative expenses	1.4			1.5
Reorganization costs	1.3			—
Interest expense	—			0.7
Gain on debt restructuring	—			(20.7		)
Other expense, net	0.1			0.4
(Loss) income before income taxes	(2.4		)	18.9
Income tax expense	—			7.7
Net (loss) income	$	(2.4	)	$	11.2
Net (loss) earnings per common share:
Basic and diluted	$	(0.22	)	$	1.02
Common equivalent shares:
Basic and diluted	11.0			11.0

See the accompanying notes to Consolidated Financial Statements.

6

CALIFORNIA COASTAL COMMUNITIES, INC.

(DEBTOR-IN-POSSESSION)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(unaudited)

	Three Months Ended March 31,
	2010			2009
Cash flows from operating activities:
Net (loss) income	$	(2.4	)	$	11.2
Adjustments to reconcile net loss to cash used in operating activities:
Gain on debt restructuring	—			(20.7		)
Model homes depreciation	0.1			0.1
Deferred taxes	(1.0		)	7.7
Deferred tax asset valuation allowance	1.0			—
Gains on sales of real estate inventories	(0.4		)	(4.0		)
Loss on impairment of real estate inventories	—			3.2
Proceeds from sale of real estate inventories, net	2.8			12.5
Investments in real estate inventories	(5.8		)	(7.6		)
Non-cash reorganization items	0.6			—
Changes in assets and liabilities:
Decrease in other assets	0.1			1.2
Increase in accounts payable, accrued and other liabilities	0.8			1.9
Cash (used in) provided by operating activities	(4.2		)	5.5
Cash flows from financing activities:
Borrowings of revolving loan	—			13.2
Repayments of revolving loan	—			(10.1		)
Repayments of term loan	—			(1.8		)
Repayments of other project debt	—			(0.5		)
Deferred financing costs	—			(0.2		)
Cash provided by financing activities	—			0.6
Net (decrease) increase in cash and cash equivalents	(4.2		)	6.1
Cash and cash equivalents - beginning of period	8.9			2.3
Cash and cash equivalents - end of period	$	4.7		$	8.4
Supplemental disclosures of cash flow information:
Cash paid during the period for income taxes	$	—		$	0.1
Cash paid during the period for reorganization items	0.7			—
Supplemental disclosures of non-cash investing and financing activities:
Amortization of deferred financing costs capitalized in real estate inventories	$	0.5		$	0.6
Decrease in project debt and accrued liabilities due to debt restructuring	$	—		$	28.7

See the accompanying notes to Consolidated Financial Statements.

7

CALIFORNIA COASTAL COMMUNITIES, INC.

(DEBTOR-IN-POSSESSION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1 - Basis of Presentation

The accompanying Consolidated Financial Statements have been prepared by California Coastal Communities, Inc. and its consolidated subsidiaries (the “Company”), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The Company believes that these unaudited Consolidated Financial Statements reflect all material adjustments (consisting only of normal recurring adjustments) and disclosures necessary for the fair presentation of the results of operations and statements of financial position when read in conjunction with the Consolidated Financial Statements and Notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009. Intercompany accounts and transactions have been eliminated.

The results for interim periods are not necessarily indicative of the results to be expected for the full year. This report contains forward-looking statements. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties that actual events or results may differ materially from those described herein as a result of various factors, including without limitation, the factors discussed generally in this report.

Going Concern and Financial Reporting in Reorganization

While the Company is striving to restructure its senior secured revolving credit agreement (“Revolving Loan”) and senior secured term loan agreement (“Term Loan”) debt through the Chapter 11 reorganization process described below in Note 2, there can be no assurance that the Company will be able to successfully execute such plan. In the event that the Company is not successful in that regard, substantial doubt would exist as to its ability to continue as a going concern. The accompanying Consolidated Financial Statements have been prepared assuming that the Company will continue as a going concern and contemplate the realization of assets and the satisfaction of liabilities in the normal course of business. As a result of the Chapter 11 reorganization process described below, the realization of assets and the satisfaction of liabilities are subject to uncertainty. While operating as “debtors-in-possession” under Chapter 11, the Debtors may sell or otherwise dispose of or liquidate assets or settle liabilities, subject to the approval of the Bankruptcy Court or as otherwise permitted in the ordinary course of business, in amounts other than those reflected in the accompanying Consolidated Financial Statements. Further, a plan of reorganization could materially change the amounts and classifications of assets and liabilities in the historical consolidated financial statements. The accompanying Consolidated Financial Statements do not include any direct adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities or any other adjustments that might be necessary should the Company be unable to continue as a going concern or as a consequence of the Chapter 11 Cases.

Note 2 — Chapter 11 Proceedings and Plans of Management

On October 27, 2009, the Company and certain of its direct and indirect wholly-owned subsidiaries (collectively with the Company, the “Debtors”) filed voluntary petitions (the “Chapter 11 Petitions”) for relief under chapter 11 of title 11 (“Chapter 11”) of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Central District of California (the “Bankruptcy Court”). The Chapter 11 Petitions are being jointly administered under the caption In re California Coastal Communities, Inc., Case No. 09-21712-TA (the “Chapter 11 Cases”). The Debtors continue to operate their businesses and manage their properties as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. The Debtors have obtained the Bankruptcy Court’s approval to, among other things, continue to pay critical vendors with lien rights, sell homes free and clear of all liens on an interim basis, use cash collateral on an interim basis, honor homeowner warranties, meet payroll obligations and provide employee benefits. There can be no assurance that the Company and the other Debtors will be able to successfully develop, execute, confirm and consummate one or more plans of reorganization with respect to the Chapter 11 Cases that are acceptable to the Bankruptcy Court and the creditors and other parties in interest, or continue to operate as debtors-in-possession until the Chapter 11 Cases have been fully adjudicated.

8

The Company has 13 direct or indirect consolidated subsidiaries which are not guarantors of the $81.7 million Revolving Loan or the $99.8 million Term Loan and are not Debtors in the Chapter 11 Cases. These subsidiaries are former owners of businesses unrelated to the Company’s current operations and have no current material operations.

Plans of Management

On March 26, 2010, the Company filed a proposed disclosure statement and proposed joint plan of reorganization with the Bankruptcy Court, neither of which has been approved by the Bankruptcy Court. The proposed joint plan provides for the extension of the Revolving Loan and the Term Loan to enable the Company to complete construction and sale of the homes at its Brightwater project. Throughout the Chapter 11 reorganization process the Company has tried and will continue to try to work with the various members of its lending syndicate to determine whether a consensual restructuring of the Revolving Loan and the Term Loan can be accomplished. However, a majority of the Company’s lenders are opposed to the plan as filed, and there can be no assurance that the Company and the other Debtors will be able to successfully confirm, consummate and execute a plan of reorganization with respect to the Chapter 11 Cases that is acceptable to the Bankruptcy Court and the creditors and other parties in interest. A court hearing on the adequacy of the disclosure statement was held on May 12, 2010. The Company expects the Court to enter an order approving the disclosure statement containing certain revisions. The Court scheduled a valuation hearing for July 15, 2010 and a plan confirmation hearing for July 28, 2010.

The Company and the other Debtors continue to operate their business as debtors-in-possession. The Company has incurred and will continue to incur significant costs associated with the reorganization which are expected to significantly affect the Company’s results of operations. During the three months ended March 31, 2010, the Company incurred reorganization costs aggregating approximately $1.3 million and has incurred total reorganization costs of $2.6 million through such date.

The Company has maintained business operations through the reorganization process. The Company’s liquidity and capital resources, however, are significantly affected by the Chapter 11 Cases, which have resulted in various restrictions on its activities, limitations on financing and a need to obtain Bankruptcy Court approval for various matters. In particular, the Debtors are not permitted to make any payments on pre-petition liabilities without prior Bankruptcy Court approval. However, the Debtors have been granted relief in order to continue wage and salary payments and other employment benefits to employees as well as other related pre-petition obligations; to continue to construct and sell homes; and to pay certain pre-petition trade claims held by critical vendors with lien rights. The Company’s authorization to continue to use cash collateral and to sell homes free and clear of liens with the consent of the lending syndicate is currently scheduled to terminate on June 30, 2010.

Under the priority schedule established by the Bankruptcy Code, certain post-petition and pre-petition liabilities need to be satisfied before general unsecured creditors and equity holders are entitled to receive any distribution. At this time, it is not possible to predict with certainty the effect of the Chapter 11 Cases on the Company’s business or various creditors, or when the Company will emerge from these proceedings. Future results will depend upon the confirmation and successful implementation of a plan of reorganization. The continuation of the Chapter 11 Cases, particularly if a plan of reorganization is not timely confirmed, could further adversely affect the Company’s operations.

The Company depends on cash flows generated from operations and available borrowing capacity to fund its Brightwater development, and to meet its debt service and working capital requirements. However, the Company’s ability to continue to generate sufficient cash flows has been and will continue to be adversely affected by continued difficulties in the homebuilding industry, continued weakness in the California economy, and negative publicity and prospective homebuyer concerns related to the bankruptcy. While the Company generated 31 net sales orders in the first nine months of 2009, it generated only two net sales orders at Brightwater during the fourth quarter of 2009, which the Company believes reflects the negative impact of the Chapter 11 Cases, as well as the seasonal slowdown in sales. Thus far in 2010, the pace of sales has continued to be slow, with only six net sales generated through May 10, 2010 compared with seven net sales during the comparable period of 2009.

Due to cash requirements for on-going home construction and scheduled debt amortization, the Company’s ability to meet future loan repayment requirements will depend on the confirmation of a plan of reorganization by the Bankruptcy Court. Based on Brightwater sales in 2009 and the first quarter of 2010, the current pace of home sales is not expected to generate sufficient cash flow to meet the Company’s currently scheduled loan repayments for the Revolving Loan and Term Loan as described in greater detail in Notes 5 and 6.

9

Continuing negative conditions in the housing and credit markets give rise to uncertainty as to the Company’s present and future ability to meet its projected home sale closings and whether modified or new financings can be obtained in order for the Company to meet its debt obligations. There can be no assurance that the Company will be successful in any of these endeavors. While the national credit markets appear to be improving, there is limited availability of financing for small businesses which presents significant uncertainty as to the ability of the Company to secure replacement financing, if needed, and the terms of such financing if it is available. The current housing and mortgage markets also present significant uncertainty as to the Company’s ability to achieve sufficient positive cash flow from operations required to satisfy its debt obligations and meet financial covenant requirements. See Notes 5 and 6 for further discussion.

While the Company is striving to restructure its Revolving Loan and Term Loan debt through the Chapter 11 Cases, unless the Company is successful in amending and extending the terms of the Revolving Loan and Term Loan agreements, the Company does not believe that its cash, cash equivalents and future real estate sales proceeds will be sufficient to meet its debt obligations or to meet anticipated operating and project development costs for Brightwater, and general and administrative expenses during the next 12 months. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Consolidated Financial Statements herein do not include any adjustments that might result from the outcome of this uncertainty.

Liabilities Subject to Compromise

Liabilities subject to compromise refers to pre-petition obligations which may be impacted by the Chapter 11 Cases. These amounts represent the Company’s current estimate of known or potential pre-petition obligations to be resolved in connection with the Chapter 11 Cases. Differences between estimated liabilities and the claims filed or to be filed will be investigated and resolved in connection with the claims resolution process. The Company continues to evaluate these liabilities throughout the continuation of the Chapter 11 Cases and adjusts amounts as necessary. Such adjustments may be material. Due to the expected number of creditors, the claims resolution process may take considerable time to complete. Accordingly, the ultimate number and amount of allowed claims is not presently known.

Reorganization Costs

Reorganization costs include legal and professional fees incurred in connection with the Chapter 11 Cases. During the three months ended March 31, 2010, the Company incurred $1.3 million of reorganization costs and paid approximately $700,000 of such costs. The Company has incurred total reorganization costs of $2.6 million from October 2009 through March 31, 2010.

Nasdaq Delisting

The Company’s common stock is currently trading over-the-counter in the recently created OTCQB marketplace under the trading symbol “CALCQ.” The trading of the Company’s common stock in the over-the-counter market rather than on Nasdaq may negatively impact the trading price and the levels of liquidity available to its stockholders. In addition, securities that trade over-the-counter are not eligible for margin loans and will make the Company’s common stock subject to the provisions of Rule 15g-9 of the Securities Exchange Act of 1934, as amended, commonly referred to as the “penny stock rule.”

On October 28, 2009, the Company received a letter from Nasdaq notifying it that it had determined to delist the Company’s common stock from trading as a result of the commencement of the Chapter 11 Cases.  The Company appealed the Nasdaq determination on December 3, 2009 and, on December 29, 2009, the Nasdaq Hearings Panel granted the Company’s request to remain listed, subject to certain conditions, including (1) providing periodic updates as to the status of the Brightwater credit facilities restructuring efforts; and (2) emerging from the Chapter 11 process no later than April 26, 2010. On April 9, 2010, the Company received a delisting determination notice from the Nasdaq Hearings Panel informing the Company that its common stock would be delisted from the Nasdaq Stock Market as a result of the Company’s inability to emerge from the Chapter 11 process by the April 26 deadline. The Nasdaq Listings and Hearings Review Council subsequently denied the Company’s request to review the Nasdaq Hearings Panel’s determination and its common stock was delisted at the open of trading on April 27, 2010 when it commenced trading in the OTCQB marketplace.

The Company has filed an application with Nasdaq seeking the relisting of its securities on The Nasdaq Stock Market following the Company’s emergence from the Chapter 11 process.  In that regard, all companies, whether listed on Nasdaq or not, are required to satisfy the initial listing requirements upon emergence from a Chapter 11 process to qualify for listing.  While the Company presently plans to take all necessary steps to ensure its compliance with the applicable requirements, there can be no assurance as to whether or when the Company’s common stock will be relisted on Nasdaq.

10

Note 3 - Significant Accounting Policies

Basis of Consolidation

The accompanying Consolidated Financial Statements include the accounts of the Company and all majority-owned and controlled subsidiaries and joint ventures. Certain of the Company’s wholly-owned subsidiaries are members in joint ventures which were involved in the development and sale of a residential project and residential loan production. The financial statements of joint ventures in which the Company has a controlling or majority economic interest (and thus are controlled by the Company) are consolidated with the Company’s financial statements. The Company’s investments in unconsolidated joint ventures are accounted for using the equity method when the Company does not have voting or economic control of the venture operations, as further described in Note 5 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009. All significant intercompany accounts and transactions have been eliminated in consolidation.

Consequences of Chapter 11 Cases

Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 852-10-45, “Reorganizations — Other Presentation Matters,” which is applicable to companies in Chapter 11, generally does not change the manner in which financial statements are prepared. However, it does require that the financial statements for periods subsequent to the filing of the Chapter 11 Cases distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Amounts that can be directly associated with the reorganization and restructuring of the business must be reported separately as reorganization items in the statements of operations beginning in the quarter ending December 31, 2009. The balance sheet must distinguish pre-petition liabilities subject to compromise from both those pre-petition liabilities that are not subject to compromise and from post-petition liabilities. Liabilities that may be affected by a plan of reorganization must be reported at the amounts expected to be allowed, even if they may be settled for lesser amounts. In addition, cash provided or used by reorganization items must be disclosed separately in the statement of cash flows. The Company applied ASC 852-10-45 effective on October 27, 2009 and is segregating those items as outlined above for all reporting periods subsequent to such date.

Subsequent Events

In the preparation of this Quarterly Report on Form 10-Q, the Company evaluated events for accounting treatment and disclosure that occurred after the balance sheet date but before the financial statements were issued or were available to be issued.

Reinstatement of 5% Ownership Limitation

On May 13, 2010, the Company reinstated a ban on acquisitions of additional shares of its common stock, under certain circumstances, in order to preserve the tax benefits of the Company’s $164 million of net operating loss (“NOL”) carryovers. See Note 9 for additional discussion.

Cash Flows and Debt Compliance

Negative conditions in the current housing and credit markets give rise to uncertainty as to the Company’s present and future ability to meet its projected home sale closings and whether new or modified financings can be obtained, if needed. The Company, like many other homebuilders, is constantly evaluating potential alternatives regarding its capital structure including, but not limited to, various strategies for restructuring its debt and raising additional capital. There can be no assurance that the Company will be successful in any of these endeavors. The limited credit availability for small businesses presents uncertainty as to the ability of the Company to secure additional financing, if needed, and the terms of such financing if it is available, and as to the ability of the Company to achieve positive cash flow from operations required to satisfy its obligations. See Notes 5 and 6 below for further discussion.

11

Real Estate

Real estate inventories primarily consist of homes available for sale, homes under construction and lots under development and are carried at the lower of cost or fair value less costs to sell. The estimation process involved in the determination of fair value is inherently uncertain because it requires estimates as to future events and market conditions. Such estimation process assumes the Company’s ability to complete development and dispose of its real estate properties in the ordinary course of business based on management’s present plans and intentions. Economic, market, and environmental conditions will affect management’s development and marketing plans. In addition, the implementation of such development and marketing plans could be affected by the availability of future financing for development and construction activities. Accordingly, the ultimate values of the Company’s real estate properties depend upon future economic and market conditions, and the availability of financing.

The cost of sales of multi-unit projects is computed using the relative sales value method. Interest and other carrying costs are capitalized to real estate projects during their development and construction period.

Impairment of Long-Lived Assets

The Company assesses the impairment of real estate inventories and other long-lived assets in accordance with ASC 360-10-35, “Impairment or Disposal of Long-Lived Assets,” which requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment is evaluated by comparing an asset’s carrying value to the undiscounted estimated cash flows expected from the asset’s operations and eventual disposition. If the sum of the undiscounted estimated future cash flows is less than the carrying value of the asset, an impairment loss is recognized based on the fair value of the asset. If impairment occurs, the fair value of an asset is deemed to be the amount a willing buyer would pay a willing seller for such asset in a current transaction. Additionally, as appropriate, the Company identifies alternative courses of action to recover the carrying value of its long-lived assets and evaluates all likely alternatives under a probability-weighted approach as described in ASC 360-10-35.

During the three months ended March 31, 2010 and 2009, the Company recorded inland project impairment charges totaling zero and $3.2 million, respectively. See Note 4 — Real Estate Inventories.

In accordance with ASC 360-10-35, in developing estimated future cash flows for impairment testing for its real estate inventories, the Company has incorporated its own market assumptions including those regarding home prices, sales pace, sales and marketing costs, infrastructure and home-building costs, and financing costs regarding real estate inventories. The Company’s assumptions are based, in part, on general economic conditions, the current state of the homebuilding industry, expectations about the short- and long-term outlook for the housing market, and competition from other homebuilders in the areas in which the Company builds and sells homes. These assumptions can significantly affect the Company’s estimates of future cash flows. For those communities deemed to be impaired, the Company determines fair value based on discounted estimated future cash flows using estimated absorption rates for each community.

The estimation process involved in the determination of value is inherently uncertain since it requires estimates as to future events and market conditions. Such estimation process assumes the Company’s ability to complete development and disposition of its real estate properties in the ordinary course of business based on management’s present plans and intentions. Economic and market conditions may affect management’s development and marketing plans. In addition, the implementation of such development and marketing plans could be affected by the availability of future financing for development and construction activities. Accordingly, the amount ultimately realized from such project may differ materially from current estimates and the project’s carrying value.

Fair Value of Financial Instruments

The Company adopted ASC 820-10 “Fair Value Measurements and Disclosures,” as it applies to financial assets and liabilities measured at fair value on a recurring basis on January 1, 2008 and as it applies to non-financial assets and liabilities on January 1, 2009. The carrying amounts of the Company’s financial instruments including cash and cash equivalents, restricted cash, accounts payable and accrued liabilities, model home financing, and other liabilities approximate their respective fair values because of the relatively short period of time between origination of the instruments and their expected realization. Due to the Chapter 11 Cases and current default status of the Company’s Revolving Loan and Term Loan, the carrying amounts of the debt may not approximate fair value as of March 31, 2010. Accordingly, the fair value of debt that is included in liabilities subject to compromise in the Company’s consolidated balance sheets cannot be reasonably determined as of March 31, 2010, as the timing and amounts to be paid are subject to confirmation by the Bankruptcy Court. The Company has been notified that purchase/sale transactions involving the Revolving Loan and Term Loan have occurred between certain members of the loan syndicates and other financial or investment institutions. However, it is not practicable for the Company to determine the fair value of the Revolving Loan and Term Loan as the transactions are occurring in a private market.

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Income Taxes

The Company accounts for income taxes on the liability method, in accordance with ASC 740-10, “Income Taxes.” Deferred income taxes are determined based on the difference between the financial statement and tax bases of assets and liabilities, using enacted tax rates in effect in the years in which these differences are expected to reverse. The liability method requires an evaluation of the probability of being able to realize the future benefits indicated by deferred tax assets. A valuation allowance is established against a deferred tax asset if, based on the available evidence, it is “more likely than not” that such asset will not be realized. The realization of a deferred tax asset ultimately depends on the existence of sufficient taxable income in either the carryback or carryforward periods under tax law. The Company evaluates on a quarterly basis, whether a valuation allowance should be established based on its determination of whether it is “more likely than not” that some portion or all of the deferred tax assets will be realized. In the Company’s assessment, appropriate consideration is given to all positive and negative evidence related to the realization of the deferred tax assets. This assessment considers, among other matters, the nature, frequency and magnitude of current and cumulative income and losses, forecasts of future profitability, the duration of statutory carryback or carryforward periods, the Company’s experience with operating loss and tax credit carryforwards not expiring unused, and tax planning alternatives.

The Company’s assessment of the need for a valuation allowance on its deferred tax assets includes assessing the likely future tax consequences of events that have been recognized in the Company’s Consolidated Financial Statements or tax returns. The Company bases its estimate of deferred tax assets and liabilities on current tax laws and rates and, in certain cases, on business plans and other expectations about future outcomes. Changes in existing tax laws or rates could affect the Company’s actual tax results and its future business results may affect the amount of the Company’s deferred tax liabilities or the valuation of its deferred tax assets over time.

During the three months ended March 31, 2010 and 2009, the Company recorded valuation allowances on deferred tax assets totaling $1.0 million and zero, respectively. See Note 9—Income Taxes.

Due to uncertainties in the estimation process, particularly with respect to changes in facts and circumstances in future reporting periods (carryforward period assumptions), it is reasonably possible that actual results could differ from the estimates used in the Company’s historical analyses. The Company’s assumptions require significant judgment because the residential homebuilding industry is cyclical and is highly sensitive to changes in economic conditions. The Company’s current assessment of the need for a valuation allowance is primarily dependent upon utilization of tax net operating losses in the carryforward period and its future projected taxable income. The Chapter 11 filing constitutes significant negative evidence under ASC 740-10 as it represents uncertainties related to future projected taxable income. Additionally, there are critical uncertainties as to whether the Company will be able to continue selling homes at its Brightwater project using currently projected sales prices and absorption rates in light of the continuing deterioration in the housing and credit markets. If certainty increases regarding the Company’s projected results of operations and there is objectively verifiable evidence to support the realization of a portion of its deferred tax assets, an adjustment to the Company’s valuation allowance may be recorded to reflect greater expected utilization.

Homebuilding Revenues and Cost of Sales

The Company’s homebuilding operation generates revenues from the sale of homes to homebuyers. The majority of these homes are designed to appeal to move-up homebuyers and are generally offered for sale in advance of their construction. Sales contracts are usually subject to certain contingencies such as the buyer’s ability to qualify for financing. Revenue from the sale of homes is recognized at the close of escrow when title passes to the buyer and the earnings process is complete. As a result, the Company’s revenue recognition process does not involve significant judgments or estimates. However, the Company does rely on certain estimates to determine the related construction costs and resulting gross margins associated with revenues recognized. The cost of sales is recorded based upon total estimated costs within a subdivision and allocated using the relative sales value method. The Company’s construction costs are comprised of direct and allocated costs, including estimated costs for future warranties and indemnities. The Company’s estimates are based on historical results, adjusted for current factors.

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Earnings Per Common Share

Earnings per common share is accounted for in accordance with ASC 260-10, “Earnings Per Share.” Basic earnings per common share is computed using the weighted-average number of common shares outstanding for the period. Diluted earnings per common share is computed using the weighted-average number of common shares outstanding and the dilutive effect of potential common shares outstanding.

New Accounting Pronouncements

In January 2010, the FASB issued Accounting Standards Update (“ASU”) No. 2010-06 (“ASU 2010-06”), “Fair Value Measurements and Disclosures (Topic 820) — Improving Disclosures about Fair Value Measurements,” which requires new disclosures and clarifications of existing disclosures for recurring and nonrecurring fair value measurements. ASU 2010-06 is effective for interim and annual periods beginning after December 15, 2009. The adoption of ASU 2010-06 during the first quarter of 2010 did not have a material effect on our Consolidated Financial Statements.

Note 4 — Real Estate Inventories

Real estate inventories primarily consist of homes under construction and lots under development at Brightwater along with a five-acre project being planned for 22 homes, in Huntington Beach in coastal Orange County and one inland community in Lancaster in Los Angeles county planned for 73 homes. As of March 31, 2010, real estate inventories aggregated 364 lots and homes, including 17 model homes, six standing inventory homes completed and unsold, three homes completed and in escrow, and nine homes under construction and in escrow. Real estate inventories at March 31, 2010 included $238.6 million recorded for 274 lots and homes under development and 17 model homes held under a financing lease at the Brightwater community as well as a five-acre project outside the Brightwater community, which are located on a mesa north of the Bolsa Chica wetlands in Huntington Beach, California. The additional recorded value in real estate inventories reflects the fair value of 73 lots at the Company’s subsidiary’s inland project in Lancaster, California. The Company capitalizes carrying costs including interest and property taxes, as well as direct construction costs, to real estate inventories during the development and construction period.

The Brightwater planned community offers a broad mix of home choices, averaging 2,860 square feet and ranging in size from 1,710 square feet to 4,339 square feet. The community also has 37 acres of open space and conservation area. With 356 homes permitted on 68 acres, the resulting low-density plan equates to approximately five homes per acre, consistent and compatible with the neighboring Huntington Beach communities. The Company began selling and delivering homes at The Trails and The Sands in 2007. Sales of the larger two products, The Cliffs and The Breakers, began in February 2008 and the Company began delivering homes at The Cliffs and The Breakers neighborhoods during the third quarter of 2008.

The Company recorded impairment charges totaling zero and $3.2 million during the three months ended March 31, 2010 and 2009, respectively.

As required by ASC 360-10-35, should market conditions deteriorate in the future or other events occur that indicate the carrying amount of the Company’s real estate inventories may not be recoverable, the Company will reevaluate the expected cash flows from each project to determine whether any additional impairment exists at any point in time.

Capitalized interest is allocated to real estate inventories when incurred and charged to cost of sales when the related property is delivered. Changes in capitalized interest follow (in millions):

	Three Months Ended March 31,
	2010			2009
Capitalized interest, beginning of period	$	36.8		$	37.3
Interest incurred and capitalized	3.0			4.0
Charged to cost of sales	(0.6		)	(1.4		)
Charged to gain on debt restructuring	—			(4.2		)
Capitalized interest, end of period	$	39.2		$	35.7

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Note 5 — Revolving Loan

See Note 2 for a detailed discussion of the status of the Chapter 11 Cases which commenced October 27, 2009.

As of March 31, 2010 and December 31, 2009, $81.7 million was outstanding for both periods under the Revolving Loan. The Company did not pay $1.7 million of principal due on September 30, 2009, and received a notice of event of default from the agent for the lending syndicate on October 1, 2009. In addition, the Company did not pay an additional $10.0 million due on December 31, 2009 and $10.0 million due on March 31, 2010, resulting in an aggregate of $21.7 million of principal due and unpaid as of March 31, 2010. A major stockholder of the Company currently holds approximately 16% of the Revolving Loan.

Interest on the facility is calculated on the average outstanding daily balance and is paid monthly. Interest incurred on the Revolving Loan for the three months ended March 31, 2010 and 2009 was $900,000 and $1.2 million, respectively, at weighted-average interest rates of 3.50% and 3.80%, respectively. Following the Company’s $1.7 million principal payment default, effective October 1, 2009, interest began to accrue at the default rate specified in the loan; however, under the terms of the Bankruptcy Court’s cash collateral order, the Company continued paying interest at the non-default rate of 3.50% and was current on such interest payments as of March 31, 2010.

As of March 31, 2010, the Company has delivered 82 homes at Brightwater since inception of the project, including the 17 model homes included in the sale-leaseback transaction completed on December 31, 2008 and two homes (one Cliffs and one Breakers) delivered during the three months ended March 31, 2010. Due to the Chapter 11 Cases, no principal payments were made on the 12 homes delivered during the fourth quarter of 2009 and the first quarter of 2010.

As of March 31, 2010 and December 31, 2009, approximately $300,000 and $500,000, respectively, of deferred loan fees and closing costs related to the Revolving Loan are included in other assets and amortized over the life of the loan. Amortization of these costs is included in the capitalization of interest allocated to real estate inventories and charged to cost of sales when the related homes are delivered.

Under the Revolving Loan, the Company is required to comply with a number of covenants, including the following financial covenants which the Company considers to be the most restrictive of all of the debt covenants:

·A leverage covenant that prohibits the Company’s ratio of consolidated total liabilities to consolidated tangible net worth from exceeding a maximum ratio of 2.5 to 1.0. The calculation of the covenant excludes impairment charges related to inland projects and valuation allowances on deferred tax assets.

·A loan-to-value ratio, which prohibits the Company’s ratio of Revolving Loan debt outstanding to borrowing base value from exceeding a maximum ratio, regarding which the Company has been notified it is in default:

Reporting Period	Maximum Loan-to-Value Ratio
September 30, 2009 through March 30, 2010	35	%
March 31, 2010 and thereafter	30	%

·A minimum consolidated tangible net worth covenant of $80 million, excluding impairment charges for the Hearthside Lane and Las Colinas projects and valuation allowances on deferred tax assets.

·A prohibition on dividends.

As of March 31, 2010, the Company’s consolidated total liabilities are $218.0 million, tangible net worth after excluding the 2009 and 2008 inland impairment charges and valuation allowances on deferred tax assets is $105.4 million and the leverage ratio is 2.07. The Company is in compliance with the leverage and net worth covenants. However, the Company was notified on September 28, 2009 that it is not in compliance with the loan-to-value ratio covenant of the Revolving Loan based on an appraisal obtained in August 2009 by the agent for the Revolving Loan and Term Loan.  In addition, the Company is not in compliance with the minimum sales covenant which requires that the sum of the cumulative number of homes delivered as of March 31, 2010 plus 50% of the number of homes in escrow at March 31, 2010 equal or exceed 96. As of March 31, 2010, the Company had delivered 82 homes and had 12 homes in escrow for minimum sales of 88. Under the proposed Chapter 11 plan of reorganization, these covenants would be eliminated.

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While the sales pace at Brightwater was close to expectations at the beginning of 2009, the mix of sales was heavily weighted towards smaller homes which are generating less liquidity than the larger homes.  The Company did not meet its mandatory principal repayments due on September 30, 2009, December 31, 2009, or March 31, 2010 and does not expect to be able to fully re-pay the Revolving Loan by its current maturity date on June 30, 2010 from cash flow from operations.  The Company is striving to restructure the Revolving Loan and Term Loan through the Chapter 11 reorganization process to extend the maturity dates of the loans and defer scheduled amortization payments in order to accommodate the expected sales pace of the Brightwater project and provide sufficient liquidity to fund continued home construction.  There can be no assurance that the Company will be successful in any of these endeavors. While the national credit markets appear to be improving, there is limited availability of financing for small businesses, which presents significant uncertainty as to the ability of the Company to secure additional financing, and the terms of such financing if available. The current housing and jumbo mortgage markets also present uncertainty as to the ability of the Company to achieve sufficient positive cash flow from operations required to satisfy its debt obligations.

Note 6 —Term Loan

See Note 2 for detailed discussion of the status of the Chapter 11 Cases which commenced October 27, 2009.

As of March 31, 2010 and December 31, 2009, $99.8 million was outstanding for both periods under the Term Loan.  The Company did not pay $9.8 million due on December 31, 2009 and $15.0 million due on March 31, 2010, resulting in an aggregate of $24.8 million of principal due and unpaid as of March 31, 2010.  A major stockholder of the Company currently holds approximately 19% of the Term Loan.

Interest on the facility is calculated on the average outstanding daily balance and is paid monthly. Interest incurred on the Term Loan for the three months ended March 31, 2010 and 2009 was $1.3 million and $1.7 million, respectively, at weighted-average interest rates of 4.25% and 5.07%, respectively. Following the Company’s $1.7 million principal payment default on the Revolving Loan, effective October 1, 2009, interest under the Term Loan began to accrue at the default rate specified in the loan; however, under the terms of the Bankruptcy Court’s cash collateral order, the Company continued paying interest at the non-default rate of 4.25% and was current on such interest payments as of March 31, 2010.

The Term Loan is subject to mandatory repayments and commitment reductions based on 60% of the $600,000 release price on the first 70 units closed at the Brightwater project, and 60% of the $1 million release price per unit thereafter. As of September 30, 2009, the Company had delivered 70 homes. These mandatory repayments are applicable to the commitment reductions.  However, due to the Chapter 11 Cases, no principal payments were made on the additional 12 homes delivered during the fourth quarter of 2009 and first quarter of 2010.

As of March 31, 2010, the Company has delivered 82 homes at Brightwater since inception of the project, including the 17 model homes included in the sale-leaseback transaction completed on December 31, 2008 and two homes (one Cliffs and one Breakers) delivered during the three months ended March 31, 2010, and made cumulative mandatory repayments for the Term Loan of $25.2 million.

As of March 31, 2010 and December 31, 2009, approximately $1.6 million and $1.9 million, respectively, of deferred loan fees and closing costs related to the Term Loan are included in other assets and amortized over the life of the loan. Amortization of these costs is included in the capitalization of interest allocated to real estate inventories, and charged to cost of sales when the related homes are delivered.

Under the Term Loan, the Company is required to comply with a number of covenants, including the following financial covenants which the Company considers to be the most restrictive of all of the debt covenants:

·A leverage covenant that prohibits the Company’s ratio of consolidated total liabilities to consolidated tangible net worth from exceeding a maximum ratio of 2.50 to 1.0. The calculation of the covenant excludes impairment charges related to inland projects and valuation allowances on deferred tax assets.

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·A loan-to-value ratio, which prohibits the Company’s ratio of Term Loan debt outstanding to borrowing base value from exceeding a maximum ratio, regarding which the Company has been notified it is in default:

Reporting Period	Maximum Loan-to-Value Ratio
March 31, 2010 through September 29, 2010	60	%
September 30, 2010 and thereafter	45	%

·An interest coverage covenant which prohibits the Company’s ratio of EBITDA to interest incurred from being less than 2.00 to 1.00.

·A minimum consolidated tangible not worth covenant of $80 million, excluding impairment charges for inland projects and valuation allowances on deferred tax assets.

·A prohibition on dividends.

As of March 31, 2010, the Company’s consolidated total liabilities are $218.0 million, tangible net worth after excluding the 2009 and 2008 inland impairment charges and valuation allowances on deferred tax assets is $105.4 million and the leverage ratio is 2.07. The Company is in compliance with the aforementioned covenants except for the loan-to-value and interest coverage covenants. The Company was notified on September 28, 2009 that it is not in compliance with the loan-to-value ratio covenant of the Term Loan based on an August 2009 appraisal obtained by the agent for the Revolving Loan and Term Loan.  In addition, the Company is not in compliance with the minimum sales covenant which requires that the sum of the cumulative number of homes delivered as of March 31, 2010 plus 50% of the number of homes in escrow at March 31, 2010 equal or exceed 96. As of March 31, 2010, the Company had delivered 82 homes and had 12 homes in escrow for minimum sales of 88. Under the proposed Chapter 11 plan of reorganization, these covenants would be eliminated.

While the sales pace at Brightwater was close to expectations at the beginning of 2009, the mix of sales was heavily weighted towards smaller homes which are generating less liquidity than the larger homes.  Therefore, the Company did not make the mandatory repayments due on December 31, 2009 or March 31, 2010.  The Company is striving to restructure the Revolving Loan and Term Loan through the Chapter 11 reorganization process to extend the maturity dates of the loans and defer scheduled amortization payments in order to accommodate the expected sales pace of the Brightwater project and provide sufficient liquidity to fund continued home construction.  There can be no assurance that the Company will be successful in any of these endeavors. While the national credit markets appear to be improving, there is limited availability of financing for small business, which presents uncertainty as to the ability of the Company to secure additional financing, and the terms of such financing, if available. The current housing and mortgage markets also present uncertainty as to the ability of the Company to achieve sufficient positive cash flow from operations required to satisfy its debt obligations.

Note 7—Model Home Financing

On December 31, 2008, the Company entered into a sale-leaseback transaction for 17 model homes at its Brightwater project with an unrelated third party investor for $25.0 million, consisting of $22.5 million cash, $2.0 million deferred and payable in two years provided there has not been a significant decrease in the value of the model homes, and $500,000 payable for conversion of the model homes for sale to homebuyers upon termination of the lease agreement. The Company has an option to repurchase the model homes after at least 90% of the homes of the respective model type have sold, but no earlier than January 1, 2011. If the Company does not repurchase the models, after the lessor receives a 16% internal rate of return, the Company is entitled to receive 75% of any profit resulting from the sale of the models at the end of the lease. Due to the Company’s repurchase option and profit participation which constitute continuing interest, and in accordance with ASC 840-40, “Sale-Leaseback Transactions,” the Company accounted for the transaction as a financing transaction rather than as a sale and recorded model home financing debt of $22.5 million.

The Company utilized $10.2 million of the model home financing proceeds to make mandatory repayments under the Revolving Loan and Term Loan, thereby reducing the payments that would have been due in 2009. The Company used an additional $10.7 million of the proceeds to reduce the balance outstanding under the revolving credit agreement. See Notes 5 and 6 for additional discussion.

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In connection with the sale-leaseback transaction, the Company agreed to assign the first $500,000 of proceeds from sales commissions resulting from the eventual resale of the model homes, or additional purchase price received, to its partner in the Oxnard joint venture, which is an affiliate of the investor who purchased the model homes. The $500,000 payment represents additional capital contributions that become payable upon the dissolution of the joint venture.

The model home lease allowed the Company to utilize the 17 model homes for continued customer display for a term of three years expiring December 31, 2011, with two renewal options for one year each. As required by the lease agreement, the Company prepaid six months of rent totaling $1.6 million on December 31, 2008. During the three months ended March 31, 2010, the Company made model home lease payments totaling $788,000. Monthly lease payments of $262,500 per month are due through December 2010, and $279,167 per month in 2011. The future minimum lease payments under the terms of the related lease agreement are as follows (in millions):

Year	Amount
2010	$	2.4
2011	3.3
Total	$	5.7

Note 8 - Other Liabilities (Not Subject to Compromise and Subject to Compromise)

As of March 31, 2010 and December 31, 2009, other liabilities not subject to compromise included contingent indemnity and environmental obligations totaling $400,000.

As of March 31, 2010 and December 31, 2009, other liabilities subject to compromise were comprised of the following (in millions):

	Subject to Compromise
	March 31, 2010			December 31, 2009
Accrued pensions and benefits	$	5.5		$	5.5
Home warranty reserves	1.9			1.9
Contingent indemnity and environmental obligations	0.7			0.7
Capital contribution due to joint venture	0.5			0.5
Unamortized discount	(0.3		)	(0.3		)
	$	8.3		$	8.3

Contingent indemnity and environmental obligations primarily reflect reserves before related discount (recorded pursuant to Fresh-Start Reporting in 1997) for contingent indemnity obligations for businesses disposed of by former affiliates and unrelated to the Company’s current operations.

Home Warranty Reserve

The Company provides a home warranty reserve to reflect its contingent obligation for product liability. The Company generally records a provision as homes are delivered, based upon historical and industry experience, for the items listed in the homeowner warranty manual, which does not include items that are covered by manufacturers’ warranties or items that are not installed by the Company’s employees or contractors. The home warranty reserve activity is presented below (in millions):

	Three Months Ended March 31,
	2010		2009
Balance at beginning of period	$	1.9	$	1.7
Provision	—		—
Adjustment due to change in estimate	—		—
Payments	—		—
Balance at end of period	$	1.9	$	1.7

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Note 9 - Income Taxes

The following is a summary of the tax expense (benefit):

	Three Months Ended March 31,
	2010			2009
Current taxes	$	—		$	—
Deferred taxes	1.0			7.7
Valuation allowances on deferred tax assets	(1.0		)	—
Income tax expense (benefit)	$	—		$	7.7

During 2009 and the first quarter of 2010, the Company recorded valuation allowances for the entire amount of its net deferred tax assets due to uncertainties regarding the resolution of the Chapter 11 Cases filed October 27, 2009. The Chapter 11 filing constitutes significant negative evidence under ASC 740-10 as it represents uncertainties related to future projected taxable income. At this time, the Company is unable to conclude that it is “more likely than not” that the Company would be able to generate sufficient projected taxable income in future years in order to utilize its NOLs except to offset existing net deferred tax liabilities. The Company monitors the availability of real estate for development at economically viable prices, market conditions and other objectively verifiable economic factors affecting the Company’s operations, as well as other positive and negative factors, as it assesses valuation allowances against its deferred tax assets.

During the fourth quarter of 2009, the Company recorded a $950,000 tax receivable related to the November 6, 2009 passage of the Worker, Homeownership and Business Assistance Act of 2009 which allows businesses with NOLs for 2008 and 2009 to carry back losses for up to five years and suspends the 90% limitation on the use of any alternative tax NOL deduction attributable to carrybacks of the applicable NOL. The Company expects to file a refund claim for federal alternative minimum tax paid for years prior to 2009 and anticipates receiving the refund during 2010.

The federal NOLs available as of March 31, 2010 were approximately $164 million. The amount of federal NOLs which expire if not utilized is $49 million in 2010, $42 million in 2011, zero in 2012, 2013 and 2014, and $73 million thereafter.

The Internal Revenue Code (the “Code”) generally limits the availability of NOLs if an ownership change occurs within any three-year period under Section 382. If the Company were to experience an ownership change of more than 50%, the use of all remaining NOLs would generally be subject to an annual limitation equal to the value of the Company’s equity before the ownership change, multiplied by the long-term tax-exempt rate (4.03% as of May 2010) plus (ii) recognized built-in-gains, defined as those gains recognized within five years of the ownership change subject to an overall limitation of the net unrealized built-in gains existing as of the ownership change date. The Company estimates that after giving effect to various transactions by stockholders who hold a 5% or greater interest in the Company, it has experienced a three-year cumulative ownership shift of approximately 29% as of May 10, 2010, as computed in accordance with Section 382. While the Company’s net deferred tax assets are currently fully reserved due to the uncertainty of the timing and amount of future taxable income, if the Company generates taxable income in future periods, reversal of all or a portion of the valuation allowance could have a significant positive impact on net income in the period that it becomes more likely than not that the deferred tax assets will be utilized. In the event of an ownership change, the Company’s use of the NOLs may be limited and not fully available for realization.

On May 13, 2010, the Company reinstated a ban on acquisitions of additional shares of its common stock, under certain circumstances, in order to preserve the tax benefits of the Company’s $164 million of NOLs.  In accordance with provisions of the Company’s charter documents, unless the Company has previously consented in writing (i) no stockholder may acquire shares in an amount that would cause the stockholder to own 5% or more of the common stock; and (ii) no current 5% or greater stockholder may acquire any additional shares of common stock.

In September 2006, the Company’s Board of Directors suspended enforcement of the Company’s charter documents that restrict stockholders from acquiring more than 5% of the outstanding shares of common stock. At that time, the Board determined that such restrictions were not required to preserve the tax benefits of the Company’s NOLs. However, transactions by holders of over 5% of the Company’s common stock during the past three years necessitates the reinstatement of this control in order to ensure that the 50% change in ownership threshold is not exceeded which, under IRS rules, would severely limit the Company’s use of its NOLs.

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All acquisitions of the Company’s common stock in violation of its charter prohibitions are null and void, and the Company is empowered to effectively reverse the effect of any such acquisitions.  The Company’s Board of Directors may, but is not required to, entertain requests for permission to exceed the limitations on stock acquisitions under circumstances it determines are not likely to jeopardize the Company’s ability to preserve and use its NOLs.

Uncertain Tax Positions

The Company adopted the provisions of ASC 740-10 as it applies to uncertain tax positions on January 1, 2007. As a result of the implementation, during the first quarter of 2007, the Company recorded a $5.1 million decrease in deferred tax assets for unrecognized tax benefits, which was offset by an increase in deferred tax assets of $1.8 million for assets re-evaluated as recognizable. The net change in deferred tax assets of $3.3 million was recorded as a cumulative effect of a change in accounting principle and resulted in a decrease to the January 1, 2007 retained earnings balance of $200,000 and a decrease to the additional paid in capital balance of $3.1 million related to fresh-start accounting pursuant to a 1997 pre-packaged bankruptcy.

Of the Company’s unrecognized tax benefits of $4.9 million at March 31, 2010, $100,000 would decrease the Company’s effective tax rate if recognized. The Company expects that its unrecognized tax benefits will decrease by approximately $1.5 million within twelve months of the reporting date due to statute of limitations lapses.

The Company recognizes interest expense and penalties related to uncertain tax positions as interest or other expense. As of March 31, 2010, the Company has not recorded any interest or penalties related to unrecognized tax benefits, due to the substantial NOLs available.

Certain tax year filings remain open to Federal and California examination, which are the Company’s only tax jurisdictions. The years 2006 through 2009 and the years 2005 through 2009 remain open for Federal and California purposes, respectively, for which the Company utilized NOLs generated between 1990 and 1993 to offset taxable income. If uncertainties resulting in valuation allowances can be favorably resolved, the Company expects to utilize Federal NOLs generated in 1995 through 1997 and in 1999, 2006, 2007 and 2009 in future years. In addition, the Company would expect to utilize California NOL generated in 2007 and 2009 in future years.

Pursuant to ASC 718-740, “Stock Compensation — Income Taxes,” the Company has elected to recognize stock option deductions on the tax law ordering method, which maximizes the realization of the stock option deductions in the current year. While the Company realized the majority of its 2006 stock option deductions, approximately $400,000 of unrealized tax benefits related to stock option deductions are not reflected in the Consolidated Financial Statements. Upon realization of the tax benefits, the Company would increase its additional paid-in capital.

Note 10 - Commitments and Contingencies

Real Estate Matters

The Company has outstanding performance and surety bonds, for the benefit of city and county jurisdictions, related principally to its obligations for site improvements and fees at various projects as of March 31, 2010. At this time, the Company does not believe that a material amount of any currently outstanding performance or surety bonds will be called. The Company believes that all work required to be completed at this time under the bonding agreements has been completed and, therefore, draws upon these bonds, if any, will not have a material effect on the Company’s financial position, results of operations or cash flows.

Legal Proceedings

Other Litigation

There are various lawsuits and claims pending against the Company and certain subsidiaries. In the opinion of the Company’s management, ultimate liability, if any, will not have a material adverse effect on the Company’s financial condition or results of operations.

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California Department of Toxic Substances Control

In October 2006, the California Department of Toxic Substances Control (“DTSC”) filed a civil complaint against the Company’s Hearthside Residential Corp. subsidiary (“HRC”) in the Federal District Court for the Southern Division of the Central District of California The DTSC’s complaint requests that HRC pay for approximately $1.0 million of costs incurred by the DTSC, together with interest on that amount, primarily in connection with the oversight and remediation of PCB contamination found on residential properties never owned by HRC adjacent to a 43-acre site where HRC completed the removal of PCB contaminated soil during September 2005. HRC’s remediation process was approved by the DTSC in December 2005 when it issued a final acceptance of the remediation work. The complaint also seeks an order for HRC to pay any future costs which may be incurred in connection with further remediation, together with court costs and attorney’s fees.

Since May 2004, HRC has received invoices from DTSC seeking reimbursement for these costs; however, HRC contends, based upon advice of counsel, that it is not responsible for such costs because neither HRC nor any affiliate ever developed or built the neighboring residential properties, neither HRC nor any affiliate generated the contamination, the contamination did not emanate from the 43-acre site that HRC remediated, and, even if the contamination did emanate from the 43-acre site, it did not do so while HRC owned the site. Furthermore, HRC has also disputed such charges due to the fact that DTSC improperly submitted its bill. The Company’s subsidiary is vigorously defending itself in this matter. Therefore, the Company has not accrued for any of DTSC’s approximately $1.0 million of claims related to these residential properties.

Prior to the commencement of the trial that was scheduled for December 2, 2008, the District Court ruled that HRC can be held liable as a “current owner” of the site under applicable law. HRC applied to have that ruling certified for appeal. In March 2009, the District Court granted permission to hear HRC’s appeal and the appellate process commenced. Oral arguments are currently scheduled to be heard on June 9, 2010. HRC currently expects that it could take two to four months to complete the appellate process. There can be no assurance that HRC will receive a favorable ruling that it is not deemed to be a current owner of the site.  Once the appellate process is complete, the parties will return to the District Court within 30 to 60 days to commence a trial.

Corporate Indemnification Matters

The Company and its former affiliates have, through a variety of transactions effected since 1986, disposed of several assets and businesses, many of which are unrelated to the Company’s current operations. By operation of law or contractual indemnity provisions, the Company may have retained liabilities relating to certain of these assets and businesses. There is generally no maximum obligation or amount of indemnity provided for such liabilities. A portion of such liabilities is supported by insurance or by indemnities from certain of the Company’s previously affiliated companies. The Company believes its consolidated balance sheet reflects adequate reserves for these matters.

Note 11 — Stockholders’ Equity

As of March 31, 2010, total stockholders’ equity is $31.0 million, reflecting beginning stockholders’ equity of $33.4 million and net loss of $2.4 million during the three months ended March 31, 2010.

Note 12 — Stock Plan

1993 Stock Option/Stock Issuance Plan

The 1993 Stock Option/Stock Issuance Plan (“1993 Plan”) was approved at the 1994 Annual Meeting of Stockholders, reserving 7.5 million shares each of Series A Preferred Stock and Class A Common Stock for issuance to officers, key employees and consultants of the Company and its subsidiaries and the non-employee members of the Board of Directors (the “Board”). On April 28, 1997, in connection with the Recapitalization, a new class of Common Stock replaced the Series A Preferred Stock and Class A Common Stock, and the Compensation Committee of the Board authorized the grant of stock options for 759,984 shares, equivalent at that time to 6% of the Company’s fully diluted equity, for certain directors and officers. At the May 2004 and June 2006 stockholder meetings, the stockholders of the Company authorized an additional 150,000 and 250,000 stock options, respectively, for the 1993 Plan, resulting in total authorized grants of 1,159,984.

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During the three months ended March 31, 2010 and 2009, the Company issued a total of zero and 125,000 shares, respectively, of its common stock to three independent directors under the Director Fee Program, which is a component of the 1993 Plan. The Company is currently prohibited from issuing shares due to its bankruptcy proceedings. The 2009 restricted shares vested at a rate of 25% per quarter during 2009.

The Company did not grant any options during the three months ended March 31, 2010 and 2009. Pursuant to ASC 718-10, “Compensation — Stock Compensation,” the Company recorded zero and $18,000 of compensation expense during the three months ended March 31, 2010 and 2009, respectively, which is reflected in additional paid-in capital.

A summary of the status of the Company’s 1993 plan for the three months ended March 31, 2010 follows:

	Number of Options	Weighted-Average Exercise Price			Weighted-Average Remaining Life
Outstanding, January 1	17,500	$	21.58	(a)
Granted	—	$	—
Exercised	—	$	—
Outstanding, March 31	17,500	$	21.58	(a)	5.85 years
Fully vested and exercisable at March 31	17,500	$	21.58	(a)	5.85 years
Available for future grants at March 31	221,794

(a)           Adjusted for special dividend of $12.50

As of March 31, 2010, there were 17,500 options outstanding with a weighted-average exercise price of $21.58 (ranging from $13.35 to $25.99) and a weighted-average remaining life of 5.85 years. All outstanding stock options are fully vested. The aggregate intrinsic value of all outstanding, fully-vested and exercisable stock options at March 31, 2010 was zero.

The Company estimates the fair value of its stock options using the Black-Scholes option pricing model (the “Option Model”). The Option Model requires the use of subjective and complex assumptions, including the option’s expected term and the estimated future price volatility of the underlying stock, which determine the fair value of the share-based awards. The Company’s estimate of expected term is determined based on the weighted-average period of time that options granted are expected to be outstanding considering current vesting schedules and the historical exercise patterns of the existing option plan. The expected volatility assumption used in the Option Model is based on historical volatility on traded options on the Company’s stock in accordance with guidance provided in SFAS 123(R) and SAB 107. The risk-free interest rate used in the Option Model is based on the yield of U.S. Treasuries with a maturity closest to the expected term of the Company’s stock options.

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This item contains forward-looking statements that involve risks and uncertainties as set forth in “Cautionary Statements About Forward-Looking Statements” at the beginning of this Quarterly Report on Form 10-Q. Actual results may differ materially from those indicated in the forward-looking statements set forth below. Factors that may cause such a difference include, but are not limited to, those discussed in “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2009.

Status of Chapter 11 Cases

On October 27, 2009, California Coastal Communities, Inc. (“we”) and certain of our direct and indirect wholly-owned subsidiaries (collectively with us, the “Debtors”) filed voluntary petitions (the “Chapter 11 Petitions”) for relief under chapter 11 of title 11 (“Chapter 11”) of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Central District of California (the “Bankruptcy Court”). The Chapter 11 Petitions are being jointly administered under the caption In re California Coastal Communities, Inc., Case No. 09-21712-TA (the “Chapter 11 Cases”). The sole purpose of the Chapter 11 Cases is to restructure the debt obligations under our senior secured revolving credit agreement (“Revolving Loan”) and our senior secured term loan (“Term Loan”) for which KeyBank National Association (“KeyBank”) originally served as the agent to the lending syndicates. On February 26, 2010, KeyBank notified us and the lenders of their resignation as agent. Effective April 6, 2010, Wilmington Trust, FSB agreed to serve as agent for the syndicates. As of March 31, 2010, $81.7 million in principal amount was outstanding on the Revolving Loan and $99.8 million in principal amount was outstanding on the Term Loan. A major stockholder of the Company currently holds approximately 16% of the Revolving Loan and 19% of the Term Loan.

We and the other Debtors continue to operate our businesses and manage our properties as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. We have obtained the Bankruptcy Court’s approval to, among other things, continue to pay critical vendors with lien rights, sell homes free and clear of all liens on an interim basis, use cash collateral on an interim basis, honor homeowner warranties, meet payroll obligations and provide employee benefits. If the value of the Debtors’ assets and operations become materially impaired, our ability to continue as debtors-in-possession and to operate our business in the present mode could be jeopardized. During the three months ended March 31, 2010, we incurred costs totaling $1.3 million associated with the reorganization and have incurred total reorganization costs of $2.6 million through such date. We will continue to incur significant costs associated with the reorganization which are expected to adversely affect the results of our business operations.

On March 26, 2010, we filed a proposed disclosure statement and proposed joint plan of reorganization with the Bankruptcy Court, neither of which has been approved by the Bankruptcy Court. The proposed joint plan provides for the extension of the Revolving Loan and the Term Loan to enable us to complete construction and sale of the homes at our Brightwater project. Throughout the Chapter 11 reorganization process we have tried to work with the various members of our lending syndicate to determine whether a consensual restructuring of the Revolving Loan and the Term Loan can be accomplished. However, a majority of our lenders are opposed to our plan and there can be no assurance that we and the other Debtors will be able to successfully confirm, consummate and execute a plan of reorganization with respect to the Chapter 11 Cases that is acceptable to the Bankruptcy Court and the creditors and other parties in interest.  A court hearing on the adequacy of the disclosure statement was held on May 12, 2010. We expect the Court to enter an order approving the disclosure statement containing certain revisions. The Court has scheduled a valuation hearing for July 15, 2010 and a plan confirmation hearing for July 28, 2010

We have maintained business operations through the reorganization process. Our liquidity and capital resources, however, are significantly affected by the Chapter 11 Cases, which have resulted in various restrictions on our activities, limitations on financing and a need to obtain Bankruptcy Court approval for various matters. In particular, we and the other Debtors are not permitted to make any payments on pre-petition liabilities without prior Bankruptcy Court approval. While the Bankruptcy Court has consistently approved all of our requests to continue wage and salary payments and other employment benefits to employees, as well as other related pre-petition obligations, to continue to construct and sell homes, and to pay certain pre-petition trade claims held by critical vendors with lien rights; there can be no assurance that our future requests will be approved. Our authorization to continue to use cash collateral and sell homes free and clear of liens with the consent of our lending syndicate is currently scheduled to terminate on June 30, 2010.

Under the priority schedule established by the Bankruptcy Code, certain post-petition and pre-petition liabilities need to be satisfied before general unsecured creditors and equity holders are entitled to receive any distribution. At this time, it is not possible to predict with certainty the effect of the Chapter 11 Cases on our business or various creditors, or when we and the other Debtors will emerge from these proceedings. Future results will depend upon the confirmation and successful implementation of a plan of reorganization. The continuation of the Chapter 11 Cases, particularly if a plan of reorganization is not timely confirmed, could further adversely affect our operations.

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We depend on cash flows generated from operations and available borrowing capacity to fund our Brightwater development, and to meet our debt service and working capital requirements. However, our ability to continue to generate sufficient cash flows has been and will continue to be adversely affected by continued difficulties in the homebuilding industry, continued weakness in the California economy and negative publicity and prospective homebuyer concerns related to the bankruptcy. During the first three months of 2010, we generated five net sales orders at Brightwater, which is equal to net sales orders generated in the comparable period of 2009, and started construction of a limited number of speculative homes which are in greater demand in today’s market than contract homes that are constructed over a five to seven month period.

Due to cash requirements for ongoing home construction and debt amortization, our ability to meet future loan repayment requirements will depend on the results of the Chapter 11 Cases, as well as continued home sales at our Brightwater project.  Our goal is to restructure debt payments based on our current expectations for future sales over the next four years.  The inventories of resale homes in the Huntington Beach coastal zip codes have been declining, which reduces the supply of resale homes with which Brightwater may compete.

Continuing negative conditions in the housing and credit markets give rise to uncertainty as to our present and future ability to meet our projected home sale closings and whether modified financings can be obtained in order for us to meet our debt obligations. There can be no assurance that we will be successful in any of these endeavors. While the national credit markets appear to be improving, there is limited availability of financing for small businesses which presents significant uncertainty as to our ability to secure replacement financing and the terms of such financing if it is available. The current housing and jumbo mortgage markets also present significant uncertainty as to our ability to achieve sufficient positive cash flow from operations required to satisfy our debt obligations and meet financial covenant requirements.

While we are striving to restructure our debt through the Chapter 11 Cases, unless we are successful in amending and extending the terms of the Revolving Loan and Term Loan agreements, we do not believe that our cash, cash equivalents and future real estate sales proceeds will be sufficient to meet our debt obligations as currently structured or to meet anticipated operating and project development costs for Brightwater, and general and administrative expenses during the next 12 months. These factors raise substantial doubt about our ability to continue as a going concern. Our Consolidated Financial Statements set forth above do not include any adjustments that might result from the outcome of this uncertainty.

Nasdaq Delisting

Our common stock is currently trading over-the-counter in the recently created OTCQB marketplace under the trading symbol “CALCQ.” The trading of our common stock in the over-the-counter market rather than on Nasdaq may negatively impact the trading price and the levels of liquidity available to our stockholders. In addition, securities that trade over-the-counter are not eligible for margin loans and will make our common stock subject to the provisions of Rule 15g-9 of the Securities Exchange Act of 1934, as amended, commonly referred to as the “penny stock rule.”

On October 28, 2009, we received a letter from Nasdaq notifying us that it had determined to delist our common stock from trading as a result of our commencement of the Chapter 11 Cases.  We appealed the Nasdaq determination on December 3, 2009 and, on December 29, 2009, the Nasdaq Hearings Panel granted our request to remain listed, subject to certain conditions, including (1) providing periodic updates as to the status of the Brightwater credit facilities restructuring efforts; and (2) emerging from the Chapter 11 process no later than April 26, 2010. On April 9, 2010, we received a delisting determination notice from the Nasdaq Hearings Panel informing us that our common stock would be delisted from the Nasdaq Stock Market as a result of our inability to emerge from the Chapter 11 process by the April 26 deadline. The Nasdaq Listings and Hearings Review Council subsequently denied our request to review the Nasdaq Hearings Panel’s determination and our common stock was delisted at the open of trading on April 27, 2010 when it commenced trading in the OTCQB marketplace.

We have filed an application with Nasdaq seeking the relisting of our securities on The Nasdaq Stock Market following our emergence from the Chapter 11 process.  In that regard, all companies, whether listed on Nasdaq or not, are required to satisfy the initial listing requirements upon emergence from a Chapter 11 process to qualify for listing.  While we presently plan to take all necessary steps to ensure our compliance with the applicable requirements, there can be no assurance as to whether or when our common stock will be relisted on Nasdaq.

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Overview of California Coastal Communities, Inc. and Recent Industry Events.

We are a residential land development and homebuilding company with properties owned or controlled primarily in Orange County, California and also in Lancaster in Los Angeles county. Our primary asset is a 356-home luxury coastal community known as Brightwater in Huntington Beach, California. Our principal activities include:

·obtaining zoning and other entitlements for land we own or for third parties under consulting agreements;

·improving the land for residential development; and

·designing, constructing and selling single-family homes in Southern California.

Once our residential land is entitled, we may build homes, sell unimproved land to other developers or homebuilders, sell improved land to homebuilders, or participate in joint ventures with other developers, investors or homebuilders to finance and construct infrastructure and homes. The majority of our homes are designed to appeal to move-up homebuyers and are generally offered for sale in advance of their construction.

In view of the continuing significant economic downturn in the housing market, during the remaining nine months of 2010 our new home construction will be limited to our 356-home Brightwater project located on the Bolsa Chica mesa in Huntington Beach, California.

During the remaining nine months of 2010, our primary goals will be to:

·have our plan of reorganization to restructure our obligations under the Term Loan and the Revolving Loan confirmed by the Bankruptcy Court as soon as possible, which would enable us to emerge from Chapter 11 bankruptcy during 2010; and

·continue constructing, selling and delivering homes at Brightwater.

There can be no assurance that we will accomplish, in whole or in part, all or any of these strategic goals or any other strategic goals or opportunities that we may pursue.

Our total revenues for the three months ended March 31, 2010 and 2009 were $3.0 million and $12.8 million, respectively. For the three months ended March 31, 2010 and 2009, we delivered two and seven homes, respectively. Our total assets as of March 31, 2010 and December 31, 2009 were $249.0 million and $249.9 million, respectively, with Brightwater and other nearby properties constituting $238.6 million (96% of total assets) and $234.8 million (94% of total assets), respectively. Our homebuilding subsidiary, Hearthside Homes, Inc., has delivered over 2,300 homes to families throughout Southern California since its formation in 1994.

Prior to obtaining the Coastal Development Permit for our Brightwater project in December 2005, we historically maintained a minimal amount of leverage. In September 2006, we obtained $225 million of debt financing, as described in Notes 5 and 6 to the Consolidated Financial Statements, which provided $100 million for Brightwater construction and $125 million to fund a $12.50 per share special dividend paid to our stockholders in September 2006. As of March 31, 2010, we had $204.0 million of debt against $31.0 million of book equity.

We were formed in 1988 and our executive offices are located at 6 Executive Circle, Suite 250, Irvine, California 92614. Our website address is http://www.californiacoastalcommunities.com and our telephone number is (949) 250-7700. Through our website we make available our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to these reports filed or furnished pursuant to Section 13(d) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after they are filed with, or furnished to, the Securities and Exchange Commission. Copies of our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to these reports are available free of charge upon request. In addition, at our website: http://www.californiacoastalcommunities.com, we post copies of our Securities and Exchange Commission filings and press releases, as well as current versions of our code of ethics, audit committee charter and nominating committee charter.

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Homebuilding Outlook and Operating Strategy

The financial crisis and economic recession that worsened in 2008 and exacerbated the existing downturn in the homebuilding market persisted throughout 2009 and has continued through the first quarter of 2010. Specifically, the credit markets and the mortgage industry experienced a period of unparalleled turmoil and disruption characterized by bankruptcy, financial institution failure, consolidation and an unprecedented level of intervention by the United States federal government. This disruption on the credit markets has made it more difficult for homebuyers to obtain acceptable financing, particularly for jumbo-mortgages. In addition, the supply of new and resale homes in the marketplace remained excessive for the levels of consumer demand, particularly given the supply of foreclosed homes offered at substantially reduced prices. These pressures in the marketplace resulted in the use of increased sales incentives and price reductions in an effort to generate sales and reduce inventory levels by us and our competitors throughout 2009 and the first quarter of 2010. While there have been signs of improvement in the economy and financial markets during the first quarter of 2010, weakness in the homebuilding environment continued as unemployment remains at very high rates, and is expected to continue throughout the year.

Concern about the state of the economy and the job market continues to negatively affect consumer confidence, as unemployment rates continued to rise throughout 2009 in almost all of the metropolitan areas tracked by the U.S. Department of Labor. The unemployment rate in California was 13.0% at the end of the first quarter of 2010 compared with 11.2% at the end of the first quarter of 2009, while the unemployment rate in Orange County was 10.1% in March 2010 compared with 8.5% in March 2009. These adverse conditions have now persisted to varying degrees since the beginning of 2006 and their impact is reflected in our results for the first quarters of 2010 and 2009.  We believe that the weak demand we are experiencing, particularly for homes over $1.5 million, reflects the excess supply of higher end homes in the Huntington Beach market as well as homebuyers’ reluctance to make a purchasing decision until they are comfortable that home price declines are near bottom, that economic conditions have stabilized and that our company will successfully emerge from Chapter 11. However, the inventories of resale homes in the Huntington Beach coastal zip codes have been declining, which reduces the supply of resale homes with which Brightwater may compete, and the jumbo-mortgage market is showing signs of gradual improvement. There can be no assurance that these trends will continue.

During 2009, the California home-buyer tax credit enacted early in the year (which did not contain income or first-time buyer restrictions and was limited to new homes) appears to have boosted demand somewhat; however, the federal stimulus plan has not had much impact on sales at our Brightwater project due to its income and first-time buyer restrictions. As of August 31, 2009, all of the $100 million in California tax credits had been issued. On March 25, 2010, an additional $200 million of funding was approved by the State of California which will provide up to a $10,000 credit to first-time homebuyers or those purchasing a newly built home starting May 1, 2010.

While we have begun to see some positive signs that these negative trends in the overall economy are moderating, such as rising stock markets and fewer new unemployment claims, it remains uncertain when the housing market or the broader economy will experience a meaningful recovery. We anticipate that the overhang of bank-owned homes will continue to bloat the market throughout 2010 as lenders seek to unload their inventory of foreclosed homes. We believe the current conditions may improve during 2010; however there can be no assurance in that regard.  In addition, we expect that market conditions will remain challenging and we expect that our operations may sustain periodic losses until the homebuilding industry and economy, as a whole, demonstrate a sustained rebound. Further, until we are able to restructure our Revolving Loan and Term Loan debt through the Chapter 11 Cases, prospective buyers may be reluctant to purchase a home and we may continue to experience slower sales.

We maintain relationships with various mortgage providers and, with few exceptions, the mortgage providers that furnish our customers with mortgages continue to issue new commitments. Our buyers generally have been able to obtain adequate financing but the number of potential home buyers that can qualify under the tightened lending standards has diminished. The availability of certain mortgage financing products continues to be constrained due to increased scrutiny of once commonly-used mortgage products such as sub-prime, Alt-A, and other non-prime mortgage products. Further, throughout 2009, the interest rates on jumbo mortgages were significantly greater than interest rates on conforming mortgages, with spreads approximating 1% compared with historical spreads in the range of only .25% to .35%. As of April 2010, the spread has narrowed to approximately .50% to .80%. Mortgage market liquidity issues and more stringent underwriting criteria have impeded some of our home buyers from closing escrow, while others have found it more difficult to sell their existing homes as their buyers face the problem of obtaining a mortgage. Because we cannot predict the short-and long-term liquidity of the credit markets, we continue to caution that, with the uncertainties in these markets, the pace of home sales could remain depressed or slow further until these markets improve.

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In response to the ongoing crisis in the housing market and national credit markets, during the first three months of 2010 we:

·continued offering incentives for all of our homes in order to reduce inventory at Brightwater; and

·filed a proposed disclosure statement and proposed joint plan of reorganization for relief under Chapter 11 in the Bankruptcy Court in order to restructure approximately $182 million of indebtedness related to our Brightwater project.

We expect to continue operations at only the four Brightwater communities until we see reasonable signs of a housing market recovery.  If market conditions decline further, we may need to take additional charges for inventory impairments in future quarters.  In addition, we expect that our results for 2010 will be adversely affected by the costs of restructuring our debt through the Chapter 11 Cases.  Our results could also be adversely affected if general economic conditions do not improve further or deteriorate, if consumer confidence remains weak or declines further, if job losses continue or accelerate, if foreclosures or distressed sales increase, or if consumer mortgage lending becomes less available or more expensive, any or all of which would further diminish the prospects for a recovery in housing markets.

We believe that stability in the credit and capital markets and an eventual renewal of confidence in the national economy will play a major role in any turnaround in the homebuilding and mortgage lending industries. We also believe that a meaningful improvement in housing market conditions will require the restoration of consumer and credit market confidence that will support a decision to buy a home, which will in turn require a sustained decrease in inventory levels, price stabilization and reduced foreclosure rates.

As the housing market downturn persists, we will continue to adjust and reevaluate our operating strategy in an effort to reduce standing inventories while monitoring our margins and liquidity. Recognizing the challenges presented by the downturn in the homebuilding market, our current operating strategy includes:

·continuing to adjust our cost structure to today’s market conditions by controlling our headcount and overhead and rebidding subcontracts and materials in line with reduced demand;

·exercising tight control over cash flows;

·changing sales and marketing efforts to generate additional traffic;

·offering incentives and price reductions to reduce standing inventories and achieve acceptable levels of sales volume and cash flow;

·continuing to limit construction starts to align product available for sale with sales activity; and

·seeking to balance our short-term goal of selling homes in a depressed market and our long-term goal of maximizing the value of our communities.

During the first three months of 2010 and 2009, we delivered two and seven homes, respectively. As of May 10, 2010, six additional homes have been delivered, bringing year-to-date deliveries to eight homes, and seven additional homes are in escrow, as discussed further under Item 1—Business--Our Current and Future Homesites above.

Despite the challenges of the current California homebuilding market, we believe the potential for our Brightwater project remains high. Brightwater has not been immune to the effects of the unstable mortgage and housing markets; however, that impact appears less severe than the weakness we have seen in our inland markets. We believe that the reduced impact is a result of Brightwater’s superior coastal location, the extremely limited supply of new homes on the coast of Southern California and the absence of significant competition from other homebuilders in the Huntington Beach market due to the lack of available land for the development of new single family detached homes. We believe that Brightwater is in a location that is difficult to replace and in a market where approvals are increasingly difficult to achieve. We also believe that Brightwater has substantial embedded value that should not be sacrificed under current depressed market conditions but, rather, should be realized over time. Finally, we believe that Brightwater’s demographics remain strong due to the continuing regulation-induced constraints on lot supplies and the significant number of affluent households along the coast of Southern California. Therefore, we remain optimistic about continuing sales at Brightwater.

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While we generated 31 net sales orders in the first nine months of 2009, we generated only two net sales orders at Brightwater during the fourth quarter of 2009. We believe the deceleration in sales pace for the fourth quarter of 2009 primarily reflects the negative impact of the Chapter 11 announcement in October 2009. Our pace of sales since December 31, 2009 remained slow, with only five net sales generated through March 31, 2010. We anticipate that sales pace will continue to be negatively impacted until we successfully implement a Chapter 11 plan of reorganization.

We expect that market conditions may continue to be challenging throughout 2010, as unemployment rates remain elevated, foreclosure activity continues to be significant and consumer confidence continues to be eroded. Although substantially reduced home prices and relatively low consumer mortgage interest rates have improved housing affordability, many potential homebuyers remain tepid about purchasing a home in this unstable economic environment. This demand-side dynamic, in conjunction with a high level of foreclosures, is sustaining the oversupply of unsold new and existing homes and competitive pricing pressures that have generated the extremely challenging conditions our industry has experienced since the beginning of 2006.

While it is difficult to predict when a housing market and economic recovery will occur, we believe we have responded with the right strategies to the current and expected near-term housing market environment. We continue to evaluate additional operating and financing strategies to position ourselves for future opportunities. Longer term, we believe favorable demographics and population growth in southern California and a continuing desire for home ownership will drive demand for new homes in our markets, which will allow us to capitalize on the recovery in those markets when it occurs.

In the ordinary course of doing business, we must make estimates and judgments that affect decisions on how we operate and on the reported amounts of assets, liabilities, revenues and expenses. These estimates include, but are not limited to, those related to impairment of assets; capitalization of costs to inventory; cost of sales including estimates for financing, warranty, and other costs; and income taxes. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. On an ongoing basis, we evaluate and adjust our estimates based on the information then currently available. Actual results may differ from these estimates, assumptions and conditions.

Finally, our operating results during 2010 could be adversely affected if housing, credit market, or general economic conditions deteriorate, if job losses accelerate, if consumer mortgage lending becomes less available or more expensive, or if consumer confidence continues to fall, any or all of which would further diminish the prospects for a recovery in the housing market. We believe that there will not be a meaningful improvement in the housing market until there is a sustained decrease in inventory levels, price stabilization, reduced foreclosure rates, greater availability of jumbo-mortgage financing, and the restoration of consumer confidence that can support a decision to buy a home.

Our Current and Future Homesites

Our homebuilding operations include active projects in the Huntington Beach area of Southern California.  We delivered two homes (one Cliffs and one Breakers) during the three months ended March 31, 2010, compared with seven deliveries (one Sands, one Cliffs, three Breakers and two inland projects homes) during the comparable period in 2009. We acquired no single-family residential lots during the three months ended March 31, 2010 and 2009 and we have no contracts to acquire land or lots.

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The following chart describes our current projects, their location and our lot and standing home inventories as of March 31, 2010:

Project	Location	CommencedSales	Models(b)	Backlog	Standing Inventory	Specs Under Construction	Remaining Lots	Total Lot Inventory
Brightwater in Orange County (a):
The Trails	Huntington Beach	2007	4	5	1	3	20	33
The Sands	Huntington Beach	2007	4	1	2	3	53	63
The Cliffs	Huntington Beach	2008	4	5	1	—	89	99
The Breakers	Huntington Beach	2008	5	1	2	1	87	96
Subtotal—Orange County			17	12	6	7	249	291
Lancaster:
Unimproved lots	Lancaster	(c)	—	—	—	—	73	73
Total—All Projects			17	12	6	7	322	364

(a)Land acquired in 1970; commenced construction in 2006.

(b)We sold our 17 Brightwater models to an independent third-party investor on December 31, 2008; however, the transaction is accounted for as a financing and therefore those homes are included in our home inventories.

(c)To be determined subject to market conditions.

As of March 31, 2010, we had standing inventory of six Brightwater homes. During the three months ended March 31, 2010, net new orders decreased to five homes compared with seven homes during the comparable period in 2009 due to the absence of sales activity at our inland projects compared with the first quarter 2009. Cancellations as a percentage of new orders were 38% during the three months ended March 31, 2010, compared with approximately 30% during the comparable period in 2009. Backlog as of March 31, 2010 increased to 12 homes compared with eight homes as of March 31, 2009, reflecting five more Brightwater homes in escrow as of March 31, 2010, including four more of the larger Cliffs and Breakers homes.

Brightwater at Bolsa Chica

Brightwater is our coastal Orange County residential community, located on 105 acres of the Bolsa Chica mesa in the City of Huntington Beach, approximately 35 miles south of downtown Los Angeles. Brightwater was annexed into the City of Huntington Beach in 2008. Brightwater offers a broad mix of home choices averaging 2,860 square feet and ranging in size from 1,710 square feet to 4,339 square feet. Located near Pacific Coast Highway and overlooking the Pacific Ocean, Huntington Harbor and the restored 1,300-acre Bolsa Chica Wetlands, 63 of the 356 homes at Brightwater will have unobstructed ocean and/or wetlands views.

Brightwater is the largest property in our portfolio and, along with other nearby properties (including a five-acre parcel in the process of entitlement), comprises substantially all of our real estate inventories as of March 31, 2010. This project is located on one of the last large undeveloped coastal properties in Southern California. Brightwater is bordered on the north and east by residential development in the City of Huntington Beach and Huntington Harbor, to the south by open space and the 1,300-acre Bolsa Chica wetlands, and to the west by 120 acres of publicly-owned conservation land and open space on the lower bench of the Bolsa Chica mesa, Pacific Coast Highway, Bolsa Chica State Beach, and the Pacific Ocean. Brightwater also has 37 acres of open space and conservation area.

We completed construction of eight model homes at The Trails and The Sands neighborhoods in July 2007, held a grand opening in August 2007 and delivered the first nine homes in December 2007. During January 2008, we completed construction of nine additional model homes for The Cliffs and The Breakers and in February 2008 began selling homes to buyers who previously registered on our priority list. We held a grand opening for these neighborhoods in March 2008. These homes are larger than The Trails and The Sands, ranging from 2,724 to 4,339 square feet. We began delivering homes at The Cliffs and The Breakers during the third quarter of 2008. As of March 31, 2010, we have delivered an aggregate of 65 homes (excluding the 17 model homes) at Brightwater, including 29, 16, 10, and 10 homes at The Trails, The Sands, The Cliffs, and The Breakers, respectively.

Key facts and assumptions regarding the Brightwater development project include the following:

·Brightwater is expected to consist of 356 homes, including 106 homes at The Breakers, 109 homes at The Cliffs, 79 homes at The Sands and 62 homes at The Trails.

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·There are 63 homes at Brightwater which will have unobstructed views of the Pacific Ocean and/or the Bolsa Chica wetlands, including 36 homes at The Breakers (five delivered to date), 25 homes at The Cliffs and two homes at The Sands.

·Build-out of production homes, which is subject to market conditions, is currently expected to take approximately five years and be completed in 2014.

·Costs to improve the lots from their raw condition to finished lots, including County permits, City annexation fees and school fees, approximate $200,000 per lot. As of March 31, 2010, approximately 76% of these lot improvement costs have already been incurred.

·The direct costs (excluding indirect costs such as supervision, overhead, sales and marketing, warranty, insurance, etc.) of building homes at Brightwater are currently expected to range from approximately $125 to $140 per square foot.

·Indirect costs are expected to approximate 3% of sales revenues.

·Based on current sales price and cost projections, the various Brightwater products are currently expected to generate gross margins of approximately 5% to 22% due to our low carrying value in Brightwater. Gross margins for the larger homes at The Cliffs and The Breakers are currently expected to approximate 12% to 22%, while gross margins at The Trails and The Sands are currently expected to approximate 5% to 14%. The decrease in expected margins reflects expected increases in interest rates in connection with restructuring our debt, price reductions required to be competitive under current market conditions, additional incentives to sell standing inventory and greater use of third-party real estate brokers.

The estimation process involved in the determination of value is inherently uncertain because it requires estimates as to future events and market conditions. This estimation process assumes our ability to complete development and disposition of our real estate inventories in the ordinary course of business based on management’s present plans and intentions. Economic, market, and environmental conditions may affect our development and marketing plans. The development of Brightwater depends upon various factors. Accordingly, the amount ultimately realized from the Brightwater project may differ materially from our current estimates and the project’s carrying value.

Deliveries for the three months ended March 31, 2010 and 2009 were as follows:

		Deliveries
		March 31,
	Location	2010	2009
Brightwater
The Sands	Huntington Beach	—	1
The Cliffs	Huntington Beach	1	1
The Breakers	Huntington Beach	1	3
		2	5
Inland Empire/Lancaster
Completed Projects	Various	—	2
		2	7

Huntington Beach.  We completed construction of the first eight model homes for The Trails and The Sands products which range from 1,710 to 2,160 square feet during July 2007 and opened for sales in August 2007. We completed construction of nine model homes for The Cliffs and The Breakers in January 2008 and began selling homes in February 2008. We delivered nine homes at an average price of $1.2 million, or $609 per square foot during 2007 and 23 homes during 2008, at an average price of $1.4 million, or approximately $564 per square foot. We delivered 31 homes at an average price of $1.2 million (including three Breakers view homes averaging $3.2 million), or approximately $539 per square foot, during the year ended December 31, 2009. During the three months ended March 31, 2010, we delivered two homes at an average price of $1.5 million, or approximately $430 per square foot. As of May 10, 2010, seven Brightwater homes (including two homes with wetland and ocean views) are in escrow at an average price of $1.5 million, or approximately $542 per square foot, and 15 additional homes are completed or under construction and have been released for sale.

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The Trails and The Sands

We did not deliver any homes at The Trails and The Sands during the three months ended March 31, 2010. During the comparable period of 2009 we delivered one Sands home and generated $1.1 million in revenue and gross operating margins of 26.4%. We delivered an additional four Trails homes during May 2010 at an average price of $853,000. Homes at The Trails and The Sands are presently being offered at prices ranging from $810,000 to $1.0 million. As of May 10, 2010, three homes are in escrow at The Trails and The Sands, six homes are completed and unsold, and five homes are under construction and unsold.

The Cliffs and The Breakers

We delivered two and four homes at The Cliffs and The Breakers during the three months ended March 31, 2010 and 2009, respectively, and generated revenue of $3.0 million and $11.1 million, respectively, and gross operating margins of 12.1% and 33.0%, respectively. Three of the four homes delivered during the first quarter of 2009 were view homes with an average sales price of $3.2 million. The decrease in margins reflects the absence of view premiums for the two homes delivered during the first quarter of 2010, expected increases in interest rates in connection with restructuring our debt, price reductions required to be competitive under current market conditions, and greater use of third-party real estate brokers. We delivered an additional two Cliffs homes during April and May 2010 at an average price of $1.3 million. Homes at The Cliffs and The Breakers are presently being offered at prices ranging from $1.3 million to $3.2 million for 2,724 to 4,339 square foot homes. As of May 10, 2010, four homes are in escrow at The Cliffs and The Breakers, three homes are completed and unsold, and one home is under construction and unsold.

The Ridge

We are pursuing entitlement for 22 homes averaging 3,500 square feet in the City of Huntington Beach near our existing Brightwater project. Entitlement of these lots is subject to approval by the City of Huntington Beach and the California Coastal Commission, and is currently expected to take two to three years.  On April 27, 2010 the City of Huntington Beach Planning Commission approved The Ridge project and it is currently expected to be presented to the City Council for their approval in July 2010.

Lancaster.  In April 2005, we acquired 73 unentitled lots in the City of Lancaster in northern Los Angeles County through a subsidiary of Hearthside Homes, Inc. We have deferred the construction start for this 73-unit project, which has no recorded loan, until sales activity in this market improves significantly. The tentative map for this project is prepared, but we have delayed filing for approval in order to defer the entitlement fees required to be paid at the time of filing.

Critical Accounting Policies and Estimates

In the preparation of the Consolidated Financial Statements, we applied accounting principles generally accepted in the United States of America. The application of generally accepted accounting principles may require management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying results. Listed below are those policies and estimates that we believe are critical and require the use of complex judgment in their application. In particular, our critical accounting policies and estimates include the evaluation of the impairment of long-lived assets and the evaluation of the probability of being able to realize the future benefits indicated by our significant federal tax net operating losses, as discussed further in Notes 3, 4 and 9 to the Consolidated Financial Statements.

Basis of Consolidation

Our Consolidated Financial Statements include our accounts and all of our majority-owned and controlled subsidiaries and joint ventures. Certain of our wholly-owned subsidiaries are members in joint ventures involved in the development and sale of residential projects and residential loan production. The financial statements of joint ventures in which we generally have a controlling or majority economic interest (and thus are controlled by us) are consolidated with our financial statements. Our investments in unconsolidated joint ventures are accounted for using the equity method when we do not have voting or economic control of the venture operations. All significant intercompany accounts and transactions have been eliminated in consolidation.

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Impairment of Long-Lived Assets

We recorded inland project impairment charges totaling zero and $3.2 million during the three months ended March 31, 2010 and 2009, respectively.

We assess the impairment of real estate inventories and other long-lived assets in accordance with ASC 360-10-35 which requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment is evaluated by comparing an asset’s carrying value to the undiscounted estimated cash flows expected from the asset’s operations and eventual disposition. If the sum of the undiscounted estimated future cash flows is less than the carrying value of the asset, an impairment loss is recognized based on the fair value of the asset. If impairment occurs, the fair value of an asset is deemed to be the amount a willing buyer would pay a willing seller for such asset in a current transaction. Additionally, as appropriate, we identify alternative courses of action to recover the carrying value of our long-lived assets and evaluate all likely alternatives under a probability-weighted approach as described in ASC 360-10-35.

In accordance with ASC 360-10-35, in developing estimated future cash flows for impairment testing for our real estate inventories, we incorporated our own market assumptions including those regarding home prices, sales pace, sales and marketing costs, infrastructure and home-building costs, and financing costs regarding real estate inventories. Our assumptions are based, in part, on general economic conditions, the current state of the homebuilding industry, expectations about the short- and long-term outlook for the housing market, and competition from other homebuilders in the areas in which we build and sell homes. These assumptions can significantly affect our estimates of future cash flows. As required by ASC 360-10-35, should market conditions deteriorate in the future or other events occur that indicate the carrying amount of our real estate inventories may not be recoverable, we will reevaluate the expected cash flows from each project to determine whether any additional impairment exists at any point in time. For those communities deemed to be impaired, we determine fair value based on discounted estimated future cash flows using estimated absorption rates for each community.

We evaluated our Brightwater project for impairment as of December 31, 2009, and determined that no impairment was indicated based on our projection of the project’s future cash flows, including projected revenues, costs and gross margin.  We based our assumptions on our evaluation of projected prices while reflecting current marketing efforts, review of competitive home sales, characteristics of the Huntington Beach housing market, and current construction costs.  Our relatively lower book basis in Brightwater of $233.5 million as of March 31, 2010, is due in part to a fair value adjustment recorded in September 1997 under “Fresh Start” accounting.  Since 1997, we have recorded no impairment charges for Brightwater, primarily due to the long holding period and significant increases in home prices since 1997, before the current challenging conditions and price depreciation of the past two years.

The most critical factors in our Brightwater analysis are projected home prices and direct construction costs, as they are affected by market factors such as home sale competition, the availability of financing for home purchases and competition for direct construction goods and services.  Since opening for sales at Brightwater in August 2007, we have reduced prices and offered sales incentives in response to the recent difficult conditions in the housing market. We have reflected these price reductions in our projections which reduced average future projected gross margins for the project from approximately 30%-40% in 2007 to 6%-33% as of December 2009 and 5%-22% as of March 2010.  The decrease in expected margins also reflects greater expected use of third-party real estate brokers, particularly in the near-term, and expected increases in interest rates in connection with restructuring our debt.

Home prices and direct construction costs are the most critical factors in our impairment analysis and we estimate that a 1% change in home prices or direct construction costs would change gross margin by approximately .75% and ..25%, respectively. Due to their subjective and interrelated nature, we cannot meaningfully quantify the impact of potential changes for all of the factors considered in our impairment analysis. While there is risk that additional price reductions may be necessary, it appears unlikely that any future price reductions or direct construction cost increases would result in erosion of the entire positive cash flow that we are currently projecting and result in an impairment charge for this project. However, there can be no assurance in that regard because economic and housing market conditions may continue to worsen or other events beyond our control may occur which could result in a change in our assumptions.

In our analysis, we noted that the Brightwater project in Huntington Beach is in a mature housing market with very limited new home construction and a low supply of comparable resale homes with views or competitive features.  Further, Huntington Beach has consistently outperformed other coastal Orange County cities with average market times of four months compared with seven to eight months in neighboring coastal cities. Notably, since August 2009, supply at the $1.0 million to $1.5 million level has declined from nine months to five months as of May 2010. During the same time period, supply has declined from 21 months to 16 months at the $2.0 million and above level. In January 2009, the City of

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Huntington Beach’s credit rating was raised, reflecting the city’s built-out nature and expected economic resilience of the city’s households.  Huntington Beach is in coastal Orange County which is the subject of two widely respected annual economic forecasts which expect an increase in median home prices in 2010 and an increase in demand due to improved affordability.  Therefore, market data support our assumption that our Brightwater project in Huntington Beach will fare better than most surrounding Orange County communities and significantly better than projects in inland areas, resulting in reasonable expectations of price increases in future years given the limited supply of new homes along the coast of Southern California.

In our impairment analysis of the Brightwater project, we also consider projected construction and related costs and the availability of mortgage financing for our potential homebuyers.  While mortgage financing for our homes is still challenging, 30-year jumbo mortgage rates have decreased from a national average high of 8.4% in October 2008 to approximately 5.75% currently and lenders are beginning to relax down payment requirements which were as high as 30% for jumbo loans in the Fall of 2009.  With the conforming loan maximum in Orange County continuing at $729,750, a significant portion of our potential homebuyers are able to finance a substantial portion of their home purchase at historically low mortgage rates approximating 5.0%.

The estimation process involved in the determination of value is inherently uncertain since it requires estimates as to future events and market conditions. Such estimation process assumes the Company’s ability to complete development and disposition of its real estate properties in the ordinary course of business based on management’s present plans and intentions. Economic and market conditions may affect management’s development and marketing plans. In addition, the implementation of such development and marketing plans could be affected by the availability of future financing for development and construction activities. Accordingly, the amount ultimately realized from such project may differ materially from current estimates and the project’s carrying value.

We believe that the accounting for the impairment of long-lived assets is a critical accounting policy because the valuation analysis involves a number of assumptions that may differ from actual results and the impact of recognizing impairment losses has been material to our Consolidated Financial Statements. The critical assumptions in our evaluation of potential impairment of real estate inventories included projected sales prices, anticipated sales pace within each community, and applicable discount rates, any of which could change materially as economic conditions change.

Income Taxes

We account for income taxes on the liability method, in accordance with ASC 740-10, “Income Taxes.” Deferred income taxes are determined based on the difference between the financial statement and tax bases of assets and liabilities, using enacted tax rates in effect in the years in which these differences are expected to reverse. The liability method requires an evaluation of the probability of being able to realize the future benefits indicated by deferred tax assets. A valuation allowance is established against a deferred tax asset if, based on the available evidence, it is “more likely than not” that such asset will not be realized. The realization of a deferred tax asset ultimately depends on the existence of sufficient taxable income in either the carryback or carryforward periods under tax law. We evaluate on a quarterly basis, whether a valuation allowance should be established based on our determination of whether it is “more likely than not” that some portion or all of the deferred tax assets will be realized. In our assessment, appropriate consideration is given to all positive and negative evidence related to the realization of the deferred tax assets. This assessment considers, among other matters, the nature, frequency and magnitude of current and cumulative income and losses, forecasts of future profitability, the duration of statutory carryback or carryforward periods, our experience with operating loss and tax credit carryforwards not expiring unused, and tax planning alternatives.

Our assessment of the need for a valuation allowance on our deferred tax assets includes assessing the likely future tax consequences of events that have been recognized in our Consolidated Financial Statements or tax returns. We base our estimate of deferred tax assets and liabilities on current tax laws and rates and, in certain cases, on business plans and other expectations about future outcomes. Changes in existing tax laws or rates could affect our actual tax results and our future business results may affect the amount of our deferred tax liabilities or the valuation of our deferred tax assets over time.

On October 27, 2009, we filed Chapter 11 Petitions in the Bankruptcy Court. Due to uncertainties regarding the resolution of our Chapter 11 Cases and our ability to utilize our NOLs in the future, during 2009 we recorded a valuation allowance for the remaining amount of our net deferred tax assets. We recorded an additional valuation allowance of $1.0 million during the first quarter of 2010 related to deferred tax assets generated during the quarter.

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Due to uncertainties in the estimation process, particularly with respect to changes in facts and circumstances in future reporting periods (carryforward period assumptions), it is reasonably possible that actual results could differ from the estimates used in our historical analyses. Our assumptions require significant judgment because the residential homebuilding industry is cyclical and is highly sensitive to changes in economic conditions. Our current assessment of the need for a valuation allowance is primarily dependent upon utilization of tax net operating losses in the carryforward period and our future projected income. If our results of operations are more or less than projected and there is objectively verifiable evidence to support the realization of a different amount of our deferred tax assets, an adjustment to our valuation allowance may be required to reflect greater expected utilization.

We remain subject to the general rules of Section 382 of the Internal Revenue Code, which limit the availability of net operating losses if an ownership change occurs. If we were to experience another ownership change, the amount of net operating losses available would generally be limited to an annual amount equal to (i) the value of our equity immediately before the ownership change, multiplied by the long-term tax-exempt rate (4.03% as of May 2010) plus (ii) recognized built-in-gains, defined as those gains recognized within five years of the ownership change subject to an overall limitation of the net unrealized built-in gains existing as of the ownership change date. We estimate that after giving effect to various transactions by stockholders who hold a 5% or greater interest in the company, we have experienced a three-year cumulative ownership shift of approximately 29% as of May 10, 2010, as computed in accordance with Section 382. In the event of an ownership change, our use of our NOLs may be limited.

On May 13, 2010, we reinstated a ban on acquisitions of additional shares of our Common Stock, under certain circumstances, in order to preserve the tax benefits of our $164 million of NOLs.  In accordance with provisions of our charter documents, unless we have previously consented in writing (i) no stockholder may acquire shares in an amount that would cause the stockholder to own 5% or more of the common stock; and (ii) no current 5% or greater stockholder may acquire any additional shares of common stock.

All acquisitions of our common stock in violation of our charter prohibitions are null and void, and we are empowered to effectively reverse the effect of any such acquisitions.  Our Board of Directors may, but is not required to, entertain requests for permission to exceed the limitations on stock acquisitions under circumstances it determines are not likely to jeopardize our ability to preserve and use our NOLs.

Homebuilding Revenues and Cost of Sales

Our homebuilding operation generates revenues from the sale of homes to homebuyers. The majority of these homes are designed to appeal to move-up homebuyers and are generally offered for sale in advance of their construction. Sales contracts are usually subject to certain contingencies such as the buyer’s ability to qualify for financing. Revenue from the sale of homes is recognized at the close of escrow when title passes to the buyer and the earnings process is complete. As a result, our revenue recognition process does not involve significant judgments or estimates. However, we do rely on certain estimates to determine the related construction costs and resulting gross margins associated with revenues recognized. The cost of sales is recorded based upon total estimated costs within a subdivision and allocated using the relative sales value method. Our construction costs are comprised of direct and allocated costs, including estimated costs for future warranties and indemnities. Our estimates are based on historical results, adjusted for current factors.

Litigation Reserves

We and certain of our subsidiaries have been named as defendants in various cases arising in the normal course of business and regarding assets and businesses disposed of by us or our former affiliates. See Notes 8 and 10 to our Consolidated Financial Statements beginning on page 5. We have reserved for costs expected to be incurred with respect to these cases based upon information provided by our legal counsel. There can be no assurance that total litigation costs actually incurred will not exceed the amount of such reserve.

Recent Accounting Pronouncements

See discussion regarding New Accounting Pronouncements in Note 3 to the Consolidated Financial Statements.

Results of Operations

After filing the Chapter 11 Cases, we are required to periodically file various documents with, and provide certain information to the Bankruptcy Court, including statements of financial affairs, schedules of assets and liabilities, and monthly operating reports in forms prescribed by Chapter 11, as well as certain financial information on an unconsolidated basis. Such materials will be prepared according to requirements of Chapter 11. While we believe that these documents and reports provide then-current information required under Chapter 11, they are prepared only for the Debtors and, therefore, certain

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operational entities are excluded. In addition, they are prepared in a format different from that used in our Consolidated Financial Statements filed under the securities laws and they are unaudited. Accordingly, we believe that the substance and format do not allow meaningful comparison with our regular publicly-disclosed Consolidated Financial Statements. Moreover, the materials filed with the Bankruptcy Court are not prepared for the purpose of providing a basis for an investment decision relating to our securities, or for comparison with other financial information filed with the SEC.

The following tables set forth key operating and financial data for our homebuilding operations for the three months ended March 31, 2010 and 2009.

Backlog as of March 31

Homes in Backlog				Value ($ in millions)						Average Selling Price ($ in thousands)
2010	2009	Change		2010		2009		Change		2010		2009		Change
12	8	50.0	%	$	15.8	$	9.1	73.6	%	$	1,319	$	1,134	16.3	%

Homes Delivered
Three Months Ended March 31

Homes Delivered				Value ($ in millions)						Average Selling Price ($ in thousands)
2010	2009	Change		2010		2009		Change		2010		2009		Change
2	7	(71.4	)%	$	3.0	$	12.8	(76.6	)%	$	1,500	$	1,829	(18.0	)%

Three Months Ended March 31, 2010 Compared with the Three Months Ended March 31, 2009

We reported revenues of $3.0 million and gross operating profit of $400,000 for the first quarter of 2010, compared with $12.8 million in revenues and gross operating profit of $800,000 for the first quarter of 2009. Revenues in the current period reflect deliveries of two Brightwater homes. The comparable period of the prior year reflects deliveries of seven homes, including five homes at Brightwater and two inland homes. Gross operating profit for the first quarter of 2009 includes a non-cash impairment charge of $3.2 million, reflecting a fair value write-down for an inland project in Beaumont which was disposed on September 30, 2009.

We generated $3.6 million less in gross operating profit before impairment charges from home sales as a result of delivering only two homes at Brightwater which generated a 12.1% gross margin, compared with five Brightwater deliveries which generated a 32.2% gross margin during the comparable period in 2009. The decrease in gross margin reflects the fact that three of the five Brightwater homes delivered during the first quarter of 2009 included view premiums, compared with none in the first quarter of 2010. In addition, the decrease in gross margin during the first quarter of 2010 reflects expected increases in interest rates in connection with restructuring our debt as well as sales price reductions offered in response to the continuing difficult conditions in the housing market and greater use of third-party brokers.

Reorganization costs of $1.3 million during the first quarter of 2010 reflect legal and professional fees and other costs associated with the Chapter 11 bankruptcy proceedings.

The $700,000 decrease in interest expense compared with the first quarter of 2009 primarily reflects the absence of various inland projects which were sold or disposed in 2009 for which we are no longer incurring period costs.

Payments Under Contractual Obligations

Our purchase contracts which are made in the normal course of our homebuilding business for land acquisition and construction subcontracts are generally cancelable at will. Other contractual obligations including our tax liabilities, accrued benefit liability for a frozen retirement plan and other accrued pensions, home warranty reserves and contingent indemnity and environmental obligations are estimated based on various factors. Payments are not due as of a given date, but rather are dependent upon the incurrence of professional services, the lives of annuitants and other factors. The estimation process involved in the determination of carrying values of these obligations is inherently uncertain since it requires estimates as to future events and contingencies. We have provided additional disclosure below in Part II — Item 1 — Legal Proceedings, and in Note 10 to our Consolidated Financial Statements above.

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Liquidity and Capital Resources

On September 28, 2009, we received a notice of an event of default from the agent to the lending syndicate with respect to the loan-to-value covenant of the Revolving Loan that would give rise to the right to accelerate the indebtedness under the Revolving Loan and Term Loan. In addition, on October 1, 2009, we received a notice of an event of default with respect to our nonpayment of approximately $1.7 million of principal that was due on September 30, 2009 under the terms of the Revolving Loan that would also give rise to the right to accelerate the indebtedness under the Revolving Loan and Term Loan. As of March 31, 2010, $81.7 million and $99.8 million of principal was outstanding under the Revolving Loan and Term Loan, respectively.

The filing of the Chapter 11 Petitions on October 27, 2009, also constituted events of default under the Revolving Loan and the Term Loan that can trigger acceleration of the indebtedness.  However, the filing of the Chapter 11 Petitions automatically stayed those actions against us and the other Debtors.  Under the terms of Bankruptcy Court orders, we have continued to pay interest on the outstanding principal balance at pre-default interest rates.

While we are striving to restructure our debt through the Chapter 11 Cases, unless we are successful in amending and extending the terms of the Revolving Loan and Term Loan agreements, we do not believe that our cash, cash equivalents and future real estate sales proceeds will be sufficient to meet our debt obligations or to meet anticipated operating and project development costs for Brightwater, and general and administrative expenses during the next 12 months. These factors raise substantial doubt about our ability to continue as a going concern. The Consolidated Financial Statements herein do not include any adjustments that might result from the outcome of this uncertainty.

Year-over-year changes in the principal components of our liquidity and capital resources are as follows (in millions, except percentages):

	Three Months Ended
	March 31,
	2010			2009
Cash and cash equivalents	$	4.7		$	8.4
Cash (used in) provided by operating activities	(4.2		)	5.5
Cash provided by financing activities	—			0.6

The principal assets in our portfolio are residential lots which must be held over an extended period of time in order to be developed to a condition that, in management’s opinion, will ultimately maximize our return. Consequently, we require significant capital to finance our real estate development and homebuilding operations. Historically, sources of capital have included loan facilities secured by specific projects and available internal funds. Our unrestricted cash and cash equivalents as of March 31, 2010 aggregated $4.7 million, the use of which is subject to the Bankruptcy Court’s interim cash collateral order.

Since the filing of the Chapter 11 Cases we have only been paying interest under the Term and Revolving Loans as we continue to seek approval of our plan of reorganization to change principal payment schedules and to extend maturities.

March 31, 2010 Compared with December 31, 2009

Cash used in operating activities of $4.2 million for the first quarter of 2010 primarily reflects investments in Brightwater of $5.8 million, general and administrative costs of $1.4 million and restructuring costs of $1.3 million, which were partially offset by net proceeds from sales of $2.8 million and the increase in accounts payable and accrued liabilities discussed below.

The $1.5 million increase in accounts payable and accrued liabilities primarily reflects an increase of $700,000 for accrued reorganization costs, and increases in accrued amounts for other professional fees and Brightwater project construction.

Off Balance Sheet Financing

In the ordinary course of business, we may enter into land option contracts in order to procure land for the construction of homes. The use of such option agreements allows us to reduce the risks associated with land ownership and development; reduce our financial commitments, including interest and other carrying costs; and minimize land inventories. Under such land option contracts, we will fund a specified option deposit or earnest money deposit in consideration for the right to purchase land in the future, usually at a predetermined price. Our liability is generally limited to forfeiture of the nonrefundable deposits, letters of credit and other nonrefundable amounts incurred. As of March 31, 2010, we have no land option deposits and no third party guarantees.

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We also may acquire land and conduct residential construction activities through participation in joint ventures in which we hold less than a controlling interest. Through joint ventures, we reduce and share our risk and also reduce the amount invested in land, while increasing our access to potential future home sites. The use of joint ventures also, in some instances, enables us to acquire land which we might not otherwise obtain or access on as favorable terms, without the participation of a strategic partner. While we view the use of unconsolidated joint ventures as beneficial to our homebuilding activities, we do not view them as essential to those activities.

Under the requirements of ASC 810, “Consolidation” (“ASC 810”), certain of our land option contracts may create a variable interest for us, with the land seller being identified as a VIE. In compliance with ASC 810, we analyze our land option contracts and other contractual arrangements and consider whether we should consolidate the fair value of certain VIEs from which we are purchasing land under option contracts. As of March 31, 2010, we had no deposits with VIEs.

Impact of Inflation, Changing Prices and Economic Conditions

Real estate and residential housing prices are affected by a number of factors, including but not limited to uncertainty by potential homebuyers in the stability of the United States and global economy, inflation or deflation, interest rate changes, competition and the supply of new and existing homes to be purchased. Uncertainty in the stability of the national economy and significant volatility in the banking system and financial markets can, and has, caused potential homebuyers to refrain from committing to make significant purchases, including the purchase of new homes. In the event the volatility in the banking system and financial markets continues to remain high and the national economy does not stabilize in the near term, our ability to sell new homes to potential homebuyers can be impacted negatively.

The long-term impact of inflation may affect us through increased costs for land, land development, construction and overhead, as well as in increased sales prices of our homes. Our land acquisition costs are generally fixed, therefore, increases or decreases in the sales prices of homes will affect our profits. The sales price of each of our homes is fixed at the time a buyer enters into a contract to acquire a home. Therefore, if we sell our homes before we begin construction, any inflation of costs in excess of those anticipated may result in lower gross margins, unless these increased costs are recovered through higher sales prices.

Also, deflation can cause the market value of our land and constructed homes to decline which could negatively impact our results of operations. If interest rates increase, construction and financing costs, as well as the cost of borrowings, could also increase, which can result in lower gross margins on home sales. Increases in home mortgage interest rates make it more difficult for our customers to qualify for home mortgage loans, potentially decreasing home sales revenue. Increases in interest rates also may affect adversely the volume of mortgage loan originations. Increases in competition and the supply of unsold new and existing homes have had an adverse effect on our ability to generate new home orders and maintain home orders in backlog, and have had a significant negative impact on our results of operations and gross margins on home sales in our inland markets.

Interest rates, the length of time that land remains in inventory and the proportion of inventory that is financed affect our interest costs. If we are unable to raise sales prices enough to compensate for higher costs, or if mortgage interest rates increase significantly, affecting prospective buyers’ ability to adequately finance home purchases, our revenues, gross margins and net income would be adversely affected. Increases in sales prices, whether the result of inflation or demand, may affect the ability of prospective buyers to afford new homes.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

We utilize variable rate debt financing for acquisition, development and construction of homes. The interest rates on our debt approximate the current rates available for secured real estate financing with similar terms and maturities, and as a result, their carrying amounts approximate fair value. While changes in interest rates generally may not impact the fair market value of the debt instrument, they do affect our earnings and cash flows. Holding our variable rate debt balance constant as of March 31, 2010, each one point percentage increase in interest rates would result in an increase in variable rate interest incurred for the next 12 months of approximately $1.8 million.

37

We are exposed to market risks related to fluctuations in interest rates on our outstanding variable rate debt. We do not utilize swaps, forward or option contracts on interest rates, or other types of derivative financial instruments. We do not enter into or hold derivatives for trading or speculative purposes.

You should be aware that many of the statements contained in this section are forward looking and should be read in conjunction with our disclosures under the heading “Forward-Looking Statements.”

Item 4.  Controls and Procedures

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

Our chief executive officer and chief financial officer, with the assistance of management, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report (the “Evaluation Date”). Based on that evaluation, our chief executive officer and chief financial officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective to ensure that information required to be disclosed in our reports under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

However, no matter how well a control system is conceived and operated, it can provide only reasonable, not absolute, assurance that the objectives of the control system are met. In addition, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to costs. Therefore, no cost-effective control system and no evaluation of controls can provide absolute assurance that all control issues and instances of misstatements due to error or fraud, if any, within our company have been detected.

Changes in Internal Controls

There have been no changes in our internal control over financial reporting during the three months ended March 31, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1.    Legal Proceedings.

See Notes 8 and 10 to the Consolidated Financial Statements above, and Item 1 - Business - Corporate Indemnification Matters and Item 3 - Legal Proceedings in our Annual Report on Form 10-K for the year ended December 31, 2009.

Item 6.Exhibits.

10.05	California Coastal Communities, Inc. 401(k) Plan and Trust Agreement dated effective April 30, 2010.
31.1	Section 302 Certificate of Raymond J. Pacini, Chief Executive Officer of California Coastal Communities, Inc.
31.2	Section 302 Certificate of Sandra G. Sciutto, Chief Financial Officer of California Coastal Communities, Inc.
32.1	Section 906 Certificate of Raymond J. Pacini, Chief Executive Officer and Sandra G. Sciutto, Chief Financial Officer of California Coastal Communities, Inc.*

*These certifications are being furnished solely to accompany this report pursuant to 18 U.S.C. Section 1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

38

SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: May 13, 2010	CALIFORNIA COASTAL COMMUNITIES, INC.
	By:	/s/ Sandra G. Sciutto
		SANDRA G. SCIUTTO
		Senior Vice President and
		Chief Financial Officer

39

EX-10.05

Exhibit 10.05

California Coastal Communities 401(k) Plan

Nonstandardized 401(k) Plan

ADOPTION AGREEMENT #005

NONSTANDARDIZED 401(k) PLAN

[Related Employers only]

The undersigned Employer, by executing this Adoption Agreement, establishes a retirement plan and trust (collectively "Plan") under the Prudential Retirement Prototype Plan (basic plan document #03). The Employer, subject to the Employer's Adoption Agreement elections, adopts fully the Prototype Plan and Trust provisions. This Adoption Agreement, the basic plan document and any attached Appendices or agreements permitted or referenced therein, constitute the Employer's entire plan and trust document. All "Election" references within this Adoption Agreement are Adoption Agreement Elections. All "Article" or "Section" references are basic plan document references. Numbers in parentheses which follow election numbers are basic plan document references. Where an Adoption Agreement election calls for the Employer to supply text, the Employer (without altering the content of any existing printed text) may lengthen any space or line, or create additional tiers. When Employer-supplied text uses terms substantially similar to existed printed options, all clarifications and caveats applicable to the printed options apply to the Employer-supplied text unless the context requires otherwise. The Employer makes the following elections granted under the corresponding provisions of the basic plan document.

ARTICLE I

DEFINITIONS

1.       EMPLOYER (1.23).

Name:  California Coastal Communities, Inc.                                                                                                      0;                                       

          Address:  6 Executive Circle, #250, Irvine, California 92614                                                                                                                    

          Phone number:  (949) 250-7783                                                                  

          E-mail (optional):                                                                                         

          Employer's Taxable Year:  ends each December 31                                     

          EIN:  02-0426634                                                                                        

2.       PLAN (1.40).

Name:  California Coastal Communities 401(k) Plan                                                                                                     0;                            

          Plan number:  001                                                                                          (3-digit number for Form 5500 reporting)

          Trust EIN (optional):                                                                                    

3.       PLAN/LIMITATION YEAR (1.42/1.33). Plan Year and Limitation Year mean the 12 consecutive month period (except for a short Plan/Limitation Year) ending every (Complete (a) and (b)):

[Note: Complete any applicable blanks under Election 3 with a specific date, e.g., "June 30" OR "the last day of February" OR "the first Tuesday in January." In the case of a Short Plan Year or a Short Limitation Year, include the year, e.g., "May 1, 2008."]

(a)     Plan Year (Choose one of (1) or (2) and choose (3) if applicable):

(1)     [X]    December 31.

(2)     [   ]    Fiscal Plan Year: ending:                         .

(3)     [   ]    Short Plan Year: commencing:                          and ending:                         .

(b)     Limitation Year (Choose one of (1) or (2) and choose (3) if applicable):

(1)[X]    Generally same as Plan Year. The Limitation Year is the same as the Plan Year except where the Plan Year is a short year in which event the Limitation Year is always a 12 month period, unless the short Plan Year (and short Limitation Year) result from a Plan amendment.

(2)     [   ]    Different Limitation Year: ending:                         .

(3)     [   ]    Short Limitation Year: commencing:                          and ending:                         .

4.       EFFECTIVE DATE (1.19). The Employer's adoption of the Plan is a (Choose one of (a), (b), or (c). Choose (d) if applicable):

(a)     [   ]    New Plan. The Plan's Effective Date is:                         .

(b)[X]    Restated Plan. The Plan's restated Effective Date is:   January 1, 2002  . The Plan's original Effective Date was:   January 1, 2000  .

[Note: See Section 1.51 for the definition of Restated Plan. If this Plan is an EGTRRA restatement: (i) the EGTRRA restatement Effective Date must be the later of the beginning of the 2002 Plan Year or the Plan's original Effective Date; and (ii) if specific Plan provisions, as reflected in this Adoption Agreement, do not date back to the EGTRRA restatement Effective Date, indicate as such in Appendix A.]

© 2008 Prudential

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(c)[   ]    Restatement of surviving and merging plans. The Plan restates two (or more) plans (Complete (1) and (2). Choose (3) as applicable):

(1)This (surviving) Plan. The Plan's restated Effective Date is:                         . The Plan's original Effective Date was:                         .

[Note: If this Plan is an EGTRRA restatement: (i) the EGTRRA restatement Effective Date must be the later of the beginning of the 2002 Plan Year or the Plan's original Effective Date; and (ii) if specific Plan provisions, as reflected in this Adoption Agreement, do not date back to the EGTRRA restatement Effective Date, indicate as such in Appendix A.]

(2)Merging plan. The                                              Plan was or will be merged into this surviving Plan as of:                         . The merging plan's restated Effective Date is:                         . The merging plan's original Effective Date was:                         .

[See the Note under Election 4(c)(1) if this document is the merging plan's EGTRRA restatement.]

(3)[   ]    Additional merging plans. The following additional plans were or will be merged into this surviving Plan (Complete a. and b. as applicable):

Name of merging plan	Merger date	Restated Effective Date	Original Effective Date
a.	____________	____________	____________
b.	____________	____________	____________

(d)[   ]    Special Effective Date for Elective Deferral provisions:

5.       TRUSTEE (1.65). The Trustee executing this Adoption Agreement is (Choose one of (a), (b), (c), (d), or (e). Choose (f) if applicable):

(a)[   ]    A discretionary Trustee. See Section 8.02(A).

(b)[X]    A nondiscretionary (directed) Trustee or Custodian. See Section 8.02(B).

(c)[   ]    A Trustee under the Prudential Trust Company Trust Agreement, a separate trust agreement the Trustee has executed and that the IRS has approved for use with this Plan. Under this Election 5(c): (i) the Trustee is not executing the Adoption Agreement; and (ii) Article VIII of the basic plan document and any other basic plan document provisions which affect the Trustee do not apply, except as indicated otherwise in the separate trust agreement. See Section 8.11(C).

(d)[   ]    A Trustee under the Prudential Bank & Trust Company, FSB Trust Agreement, a separate trust agreement the Trustee has executed and that the IRS has approved for use with this Plan. Under this Election 5(d): (i) the Trustee is not executing the Adoption Agreement; and (ii) Article VIII of the basic plan document and any other basic plan document provisions which affect the Trustee do not apply, except as indicated otherwise in the separate trust agreement. See Section 8.11(C).

(e)[   ]    A Trustee under the Pre-Approved Trust Agreement, a separate trust agreement the Trustee has executed and that the IRS has approved for use with this Plan. Under this Election 5(e): (i) the Trustee is not executing the Adoption Agreement; and (ii) Article VIII of the basic plan document and any other basic plan document provisions which affect the Trustee do not apply, except as indicated otherwise in the separate trust agreement. See Section 8.11(C).

(f)[   ]    Permitted Trust amendments apply. Under Section 8.11 the Employer in Appendix C has made certain permitted amendments to the Trust. Such amendments do not constitute a separate trust under Election 5(c), 5(d), or 5(e).

6.       CONTRIBUTION TYPES (1.12). The Employer and/or Participants, in accordance with the Plan terms, make the following Contribution Types to the Plan/Trust (Choose one or more of (a) through (h) as applicable. Choose (i) if applicable):

(a)     [X]    Pre-Tax Deferrals. See Section 3.02 and Elections 20-23.

(b)[   ]    Roth Deferrals. See Section 3.02(E) and Elections 20, 21, and 23. [Note: The Employer may not limit Elective Deferrals to Roth Deferrals only.]

(c)[X]    Matching. See Sections 1.34 and 3.03 and Elections 24-26. [Note: The Employer may make an Operational QMAC without electing 6(c). See Section 3.03(C)(2).]

(d)[X]    Nonelective. See Sections 1.37 and 3.04 and Elections 27-29. [Note: The Employer may make an Operational QNEC without electing 6(d). See Section 3.04(C)(2).]

(e)[   ]    Safe Harbor/Additional Matching. The Plan is (or pursuant to a delayed election, may be) a safe harbor 401(k) Plan. The Employer will make (or under a delayed election, may make) Safe Harbor Contributions as it elects in Election 30. The Employer may or may not make Additional Matching Contributions as it elects in Election 30. See Election 26 as to matching Catch-Up Deferrals. See Section 3.05.

(f)[   ]    Employee (after-tax). See Section 3.09 and Election 35.

(g)[   ]    SIMPLE 401(k). The Plan is a SIMPLE 401(k) Plan. See Section 3.10. The Employer operationally will elect for each Plan Year to make a SIMPLE Matching Contribution or a SIMPLE Nonelective Contribution as described in Section 3.10(E). The

2

Employer must notify Participants of the Employer's SIMPLE contribution election and of the Participants' deferral election rights and limitations within a reasonable period of time before the 60th day prior to the beginning of the Plan Year. [Note: The Employer electing 6(g) may not elect any other Contribution Types except under Elections 6(a), 6(b), and 6(h).]

(h)[   ]    Designated IRA. See Section 3.12 and Election 36.

(i)[   ]    None (frozen plan). The Plan is/was frozen effective as of:                                               . See Sections 3.01(J) and 11.04.

[Note: Elections 20 through 30 and Elections 35 through 37 do not apply to any Plan Year in which the Plan is frozen.]

7.       DISABILITY (1.15). Disability means (Choose one of (a) or (b)):

(a)     [X]    Basic Plan. Disability as defined in Section 1.15(A).

(b)[   ]    Describe:                                                                                             & #160;                                                                                                             

[Note: The Employer may elect an alternative definition of Disability for purposes of Plan distributions. However, the use of an alternative definition may result in loss of favorable tax treatment of the Disability distribution.]

8.       EXCLUDED EMPLOYEES (1.21(D)). The following Employees are not Eligible Employees but are Excluded Employees (Choose one of (a) or (b)):

[Note: Regardless of the Employer's elections under Election 8: (i) Employees of any Related Employers (excluding the Signatory Employer) are Excluded Employees unless the Related Employer becomes a Participating Employer; and (ii) Reclassified Employees and Leased Employees are Excluded Employees unless the Employer in Appendix B elects otherwise. See Sections 1.21(B), 1.21(D)(3), and 1.23(D).]

(a)[   ]    No Excluded Employees. All Employees are Eligible Employees as to all Contribution Types.

(b)[X]    Exclusions. The following Employees are Excluded Employees (either as to all Contribution Types or to the designated Contribution Type) (Choose one or more of (1) through (7) as applicable):

[Note: For this Election 8, unless described otherwise in Election 8(b)(7), Elective Deferrals includes Pre-Tax Deferrals, Roth Deferrals, Employee Contributions and Safe Harbor Contributions. Matching includes all Matching Contributions except Safe Harbor Matching Contributions. Nonelective includes all Nonelective Contributions except Safe Harbor Nonelective Contributions.]

              (1)                                     (2)                     (3)                     (4)

             All                                  Elective

    Contributions                      Deferrals            Matching        Nonelective

(1)     [   ]    No exclusions. No exclusions as to the                       N/A                                    [   ]                    [   ]                    [   ]

designated Contribution Type.                             (See Election

                                                                                                 8(a))

(2)     [X]    Collective Bargaining (union) Employees.              [X]                OR               [   ]                    [   ]                    [   ]

As described in Code §410(b)(3)(A).

See Section 1.21(D)(1).

(3)     [   ]    Non-Resident Aliens. As described in Code             [   ]                OR               [   ]                    [   ]                    [   ]

§410(b)(3)(C). See Section 1.21(D)(2).

(4)     [X]    HCEs. See Section 1.21(E). See Election 30(e)          [   ]                OR               [   ]                    [X]                    [   ]

as to exclusion of some or all HCEs

from Safe Harbor Contributions.

(5)     [   ]    Hourly paid Employees.                                            [   ]                OR               [   ]                    [   ]                    [   ]

(6)     [   ]    Part-Time/Temporary/Seasonal Employees.           [   ]                OR               [   ]                    [   ]                    [   ]

See Section 1.21(D)(4). A Part-Time, Temporary

or Seasonal Employee is an Employee

whose regularly scheduled Service is less than

(specify a maximum of 1,000)

Hours of Service in the relevant Eligibility

Computation Period.

[Note: If the Employer under Election 8(b)(6) elects to treat Part-Time, Temporary and Seasonal Employees as Excluded Employees and any such an Employee actually completes at least 1,000 Hours of Service during the relevant Eligibility Computation Period, the Employee becomes an Eligible Employee. See Section 1.21(D)(4).]

(7)[   ]    Describe exclusion category and/or Contribution Type:                                                                                                                      (e.g., Exclude Division B Employees OR Exclude salaried Employees from Discretionary Matching Contributions.)

3

[Note: Any exclusion under Election 8(b)(7), except as to Part-Time/Temporary/Seasonal Employees, may not be based on age or Service or level of Compensation. See Election 14 for eligibility conditions based on age or Service.]

9.     COMPENSATION (1.11(B)). The following base Compensation (as adjusted under Elections 10 and 11) applies in allocating Employer Contributions (or the designated Contribution Type) (Choose one or more of (a) through (d) as applicable):

[Note: For this Election 9 all definitions include Elective Deferrals unless excluded under Election 11. See Section 1.11(D). Unless described otherwise in Election 9(d), Elective Deferrals includes Pre-Tax Deferrals, Roth Deferrals and Employee Contributions, Matching includes all Matching Contributions and Nonelective includes all Nonelective Contributions. In applying any Plan definition which references Section 1.11 Compensation, where the Employer in this Election 9 elects more than one Compensation definition for allocation purposes, the Plan Administrator will use W-2 Wages for such other Plan definitions if the Employer has elected W-2 Wages for any Contribution Type or Participant group under Election 9. If the Employer has not elected W-2 Wages, the Plan Administrator for such other Plan definitions will use 415 Compensation.]

              (1)                                     (2)                       (3)                   (4)

             All                                  Elective

    Contributions                      Deferrals            Matching        Nonelective

(a)     [   ]    W-2 Wages (plus Elective Deferrals).                                [   ]                OR               [   ]                    [   ]                    [   ]

See Section 1.11(B)(1).

(b)     [X]    Code §3401 Federal Income Tax                                       [X]                OR               [   ]                    [   ]                    [   ]

Withholding Wages (plus Elective

Deferrals). See Section 1.11(B)(2).

(c)     [   ]    415 Compensation (simplified).                                         [   ]                OR               [   ]                    [   ]                    [   ]

See Section 1.11(B)(3).

[Note: The Employer may elect an alternative

"general 415 Compensation" definition by

electing 9(c) and by electing the alternative

definition in Appendix B. See Section 1.11(B)(4).]

(d)[   ]    Describe Compensation by Contribution Type or by Participant group:                                                                                                  

[Note: Under Election 9(d), the Employer may: (i) elect Compensation from the elections available under Elections 9(a), (b), or (c), or a combination thereof as to a Participant group (e.g., W-2 Wages for Matching Contributions for Division A Employees and 415 Compensation in all other cases); and/or (ii) define the Contribution Type column headings in a manner which differs from the "all-inclusive" description in the Note immediately preceding Election 9(a) (e.g., Compensation for Safe Harbor Matching Contributions means W-2 Wages and for Additional Matching Contributions means 415 Compensation).]

10.     PRE-ENTRY/POST-SEVERANCE COMPENSATION (1.11(H)/(I)). Compensation under Election 9 (Complete (a). Choose (b). if applicable):

[Note: The Plan does not take into account Post-Severance Compensation unless the Employer elects otherwise in Appendix B or except as otherwise specified in a Plan amendment. For this Election 10, unless described otherwise in Election 10(b), Elective Deferrals includes Pre-Tax Deferrals, Roth Deferrals and Employee Contributions, Matching includes all Matching Contributions and Nonelective includes all Nonelective Contributions.]

              (1)                                     (2)                       (3)                   (4)

             All                                  Elective

    Contributions                      Deferrals            Matching        Nonelective

(a)     [X]    Pre-Entry Compensation. Includes (Choose

(1) and (2) as applicable):

(1)     [X]    Plan Year. Compensation for the entire                      [   ]                OR               [X]                    [X]                    [   ]

Plan Year which includes the Participant's

Entry Date.

(2)     [X]    Participating Compensation. Only Participating      [   ]                OR               [   ]                    [   ]                    [X]

Compensation. See Section 1.11(H)(1).

[Note: Under a Participating Compensation election, in applying any Adoption Agreement elected contribution limit or formula, the Plan Administrator will count only the Participant's Participating Compensation. See Section 1.11(H)(1) as to plan disaggregation.]

(b)[   ]    Describe Pre-Entry Compensation by Contribution Type or by Participant group:                                                                                

[Note: Under Election 10(b), the Employer may: (i) elect Compensation from the elections available under Election 10(a) or a combination thereof as to a Participant group (e.g., Participating Compensation for all Contribution Types as to Division A Employees, Plan Year Compensation for all Contribution Types to Division B Employees); and/or (ii) define the Contribution Type column headings in a manner which differs from the "all-inclusive" description in the Note immediately preceding Election 10(a) (e.g., Compensation for Nonelective Contributions is Participating Compensation and for Safe Harbor Nonelective Contributions is Plan Year Compensation).]

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11.     EXCLUDED COMPENSATION (1.11(G)). Apply the following Compensation exclusions to Elections 9 and 10 (Choose one of (a) or (b)):

(a)     [X]    No exclusions. Compensation as to all Contribution Types means Compensation as elected in Elections 9 and 10.

(b)     [   ]    Exclusions. Exclude the following (Choose one or more of (1) through (9) as applicable):

[Note: In a safe harbor 401(k) plan, allocations qualifying for the ADP or ACP test safe harbors must be based on a non-discriminatory definition of Compensation. If the Plan applies permitted disparity, allocations also must be based on a non-discriminatory definition of Compensation if the Plan is to avoid more complex testing. Elections 11(b)(4) through (b)(9) may cause allocation Compensation to fail to be non-discriminatory. In a non-safe harbor 401(k) plan, Elections 11(b)(4) through (b)(9) which result in Compensation failing to be non-discriminatory may result in more complex nondiscrimination testing. For this Election 11, unless described otherwise in Election 11(b)(9), Elective Deferrals includes Pre-Tax Deferrals, Roth Deferrals and Employee Contributions, Matching includes all Matching Contributions and Nonelective includes all Nonelective Contributions.]

              (1)                                     (2)                       (3)                   (4)

             All                                  Elective

    Contributions                      Deferrals            Matching        Nonelective

(1)     [   ]    No exclusions-limited. No                                         N/A                                   [   ]                      [   ]                  [   ]

exclusions as to the designated                                    (See

Contribution Type(s).                                           Election 11(a))

(2)     [   ]    Elective Deferrals. See Section 1.20.                          N/A                                   N/A                    [   ]                    [   ]

(3)     [   ]    Fringe benefits. As described in Treas.                      [   ]                OR              [   ]                     [   ]                    [   ]

Reg. §1.414(s)-1(c)(3).

(4)     [   ]    Compensation exceeding $           .                           [   ]                OR              [   ]                     [   ]                    [   ]

Apply this election to (Choose one of a. or b.):

a.       [   ]    All Participants. [Note: If the Employer

elects Safe Harbor Contributions under

Election 6(e), the Employer may not

elect 11(b)(4)a. to limit the Safe Harbor

Contribution allocation to the NHCEs.]

b.      [   ]    HCE Participants only.

(5)[   ]    Bonus.                                                                         [   ]                OR &# 160;            [   ]                     [   ]                    [   ]

(6)[   ]    Commission.                                                              [   ]                OR           
60;  [   ]                     [   ]                    [   ]

(7)[   ]    Overtime.                                                                    [   ]                OR       ;        [   ]                     [   ]                    [   ]

(8)     [   ]    Related Employers. See Section 1.23(C).

(If there are Related Employers, choose one or

both of a. and b. as applicable):

a.       [   ]    Non-Participating. Compensation paid to        [   ]                OR              [   ]                      [   ]                  [   ]

Employees by a Related Employer that is

not a Participating Employer.

b.      [   ]    Participating. As to the Employees of any       [   ]                OR              [   ]                      [   ]                  [   ]

Participating Employer, Compensation paid

by any other Participating Employer to its

Employees. See Election 28(g)(2)a.

(9)[   ]    Describe Compensation exclusion(s):

[Note: Under Election 11(b)(9), the Employer may: (i) describe Compensation from the elections available under Elections 11(b)(1) through (8), or a combination thereof as to a Participant group (e.g., No exclusions as to Division A Employees and exclude bonus as to Division B Employees); (ii) define the Contribution Type column headings in a manner which differs from the "all-inclusive" description in the Note immediately preceding Election 11(b)(1) (e.g., Elective Deferrals means §125 cafeteria deferrals only OR No exclusions as to Safe Harbor Contributions and exclude bonus as to Nonelective Contributions); and/or (iii) describe another exclusion (e.g., Exclude shift differential pay).]

5

12.     HOURS OF SERVICE (1.31). The Plan credits Hours of Service for the following purposes (and to the Employees described in Elections 12(d) or (e)) as follows (Choose one or more of (a) through (e) as applicable):

              (1)                                     (2)                       (3)                   (4)

             All                                                                                    Allocation

        Purposes                           Eligibility             Vesting         Conditions

(a)     [X]    Actual Method. See Section 1.31(A)(1).                             [   ]                OR              [   ]                      [X]                  [X]

(b)     [   ]    Equivalency Method:                          (e.g., daily,              [   ]                OR              [   ]                      [   ]                  [   ]

weekly, etc.). See Section 1.31(A)(2).

(c)     [X]    Elapsed Time Method. See Section 1.31(A)(3).                 [   ]                OR              [X]                      [   ]                  [   ]

(d)     [   ]    Actual (hourly) and Equivalency (salaried).                    [   ]                OR              [   ]                      [   ]                  [   ]

Actual Method for hourly paid Employees

and Equivalency Method:                         

(e.g., daily, weekly, etc.) for salaried Employees.

(e)[   ]    Describe method:                                                                                                                                                                                               

[Note: Under Election 12(e), the Employer may describe Hours of Service from the elections available under Elections 12(a) through (d), or a combination thereof as to a Participant group and/or Contribution Type (e.g., For all purposes, Actual Method applies to office workers and Equivalency Method applies to truck drivers).]

13.     ELECTIVE SERVICE CREDITING (1.56(C)). The Plan must credit Related Employer Service under Section 1.23(C) and also must credit certain Predecessor Employer/Predecessor Plan Service under Section 1.56(B). The Plan also elects under Section 1.56(C) to credit as Service the following Predecessor Employer service (Choose one of (a) or (b)):

(a)     [   ]    Not applicable. No elective Predecessor Employer Service crediting applies.

(b)[X]    Applies. The Plan credits the specified service with the following designated Predecessor Employers as Service for the Employer for the purposes indicated (Choose (1) and (2) as applicable. Complete (3). Choose (4) if applicable):

[Note: Any elective Service crediting under this Election 13 must be nondiscriminatory.]

(1)[   ]    All purposes. Credit Service for all purposes with Predecessor Employer(s):                                                                         (insert as many names as needed).

                                (1)                       (2)                         (3)

                                                                                 Contribution

                          Eligibility              Vesting               Allocation

(2)     [X]    Designated purposes. Credit Service with

the following Predecessor Employer(s) for

the designated purpose(s):

a.	Employer:  Koll Company; Koll Management Services, Inc.; Karsten Realty Advisors	[X]	[X]	[   ]
b.	Employer:                                                                                                                      ;	[   ]	[   ]	[   ]
c.	Employer:                                                                                                                      ;	[   ]	[   ]	[   ]

(3)Time period. Under Elections 13(b)(1) or (2), the Plan credits (Choose one or more of a., b., and c. as applicable):

a.[X]All. All Service under Election(s) 13(b)   (2)(a)  , regardless of when rendered.

b.[   ]Service after. All Service under Election(s) 13(b)            , which is or was rendered after:                                    (specify date).

c.[   ]Service before. All Service under Election(s) 13(b)            , which is or was rendered before:                                    (specify date).

(4)[   ]Describe elective Predecessor Employer Service crediting:                                 
60;                                                                                                                                                                                                                                                                                                                    .

[Note: Under Election 13(b)(4), the Employer may describe service crediting from the elections available under Elections 13(b)(1) through (3), or a combination thereof as to a Participant group and/or Contribution Type (e.g., For all purposes credit service with X only on/after 1/1/05 OR Credit all service for all purposes with entities the Employer acquires after 12/31/04 OR Service crediting for X Company applies only for purposes of Nonelective Contributions and not for Matching Contributions).]

6

ARTICLE II

ELIGIBILITY REQUIREMENTS

14.ELIGIBILITY (2.01). To become a Participant in the Plan, an Eligible Employee must satisfy (Choose one of (a) or (b)):

[Note: If the Employer under a safe harbor plan elects "early" eligibility for Elective Deferrals (e.g., less than one Year of Service and age 21), but does not elect early eligibility for any Safe Harbor Contributions, also see Election 30(f).]

(a)[   ]No conditions. No eligibility conditions as to all Contribution Types. Entry is on the Employment Commencement Date (if that date is also an Entry Date), or if later, upon the next following Plan Entry Date.

[Note: No eligibility conditions apply to Prevailing Wage Contributions unless the Prevailing Wage Contract provides otherwise. See Section 2.01(D).]

(b)[X]Conditions. The following eligibility conditions (either as to all Contribution Types or as to the designated Contribution Type) (Choose one or more of (1) through (8) as applicable):

[Note: For this Election 14, unless described otherwise in Election 14(b)(8)), or the context otherwise requires, Elective Deferrals includes Pre-Tax Deferrals, Roth Elective Deferrals and Employee Contributions, Matching includes all Matching Contributions (except Safe Harbor Matching Contributions under Section 3.05(E)(3) and Operational QMACs under Section 3.03(C)(2)) and Nonelective includes all Nonelective Contributions (except Safe Harbor Nonelective Contributions under Section 3.05(E)(2) and Operational QNECs under Section 3.04(C)(2)). Safe Harbor includes Safe Harbor Nonelective and Safe Harbor Matching Contributions. If the Employer elects more than one Year of Service as to Additional Matching, the Plan will not satisfy the ACP test safe harbor. See Section 3.05(F)(3).]

(1)(2)(3)(4)(5)

AllElective                                                                                                                                                                   &# 160;          Safe

ContributionsDeferralsMatching & #160;                     NonelectiveHarbor

(1)[   ]None. Entry on the EmploymentN/A[   ][   ][   ][   ]

Commencement Date (if that date(See Election

is also an Entry Date) or if later, upon14(a))

the next following Plan Entry Date.

(2)[X]Age   21   (not to exceed age 21).[X]OR[   ][   ]            & #160;                                        [   ][   ]

(3)[   ]One Year of Service. See Election 16(a).[   ]OR[   ]                  &# 160;                              [   ][   ]                      ;                                  [   ]

(4)[   ]Two Years of Service (without an intervening N/AN/A[   ]< /font>[   ]N/A

Break in Service). 100% vesting is required.

[Note: Two Years of Service does not apply to

Elective Deferrals, Safe Harbor Contributions

or SIMPLE Contributions.]

(5)[X]  2   month(s) (not exceeding 12 months[X]OR             ;       [   ][   ]                                                &# 160;    [   ][   ]

for Elective Deferrals, Safe Harbor Contributions

and SIMPLE Contributions and not exceeding 24

months for other contributions). If more than 12

months, 100% vesting is required. Service need

not be continuous (no minimum Hours of Service

required, and is mere passage of time).

(6)[   ] month(s) with at least Hours [   ]OR[   ][   ][   ][   ]

of Service in each month (not exceeding 12

months for Elective Deferrals, Safe Harbor

Contributions and SIMPLE Contributions and

not exceeding 24 months for other contributions).

If more than 12 months, 100% vesting is required.

If the Employee does not complete the designated

Hours of Service each month during the specified

monthly time period, the Employee is subject to

the one Year of Service (or two Years of Service

if elect more than 12 months) requirement with

1,000 Hours of Service per Year of Service. The

months during which the Employee completes the

specified Hours of Service (Choose one of a. or b.):

a.[   ]Consecutive. Must be consecutive.

b.[   ]Not consecutive. Need not be consecutive.

(7)[   ] Hours of Service within the [   ]OR[   ][   ][   ]                       
60;                               [   ]

time period following the Employee's Employment

7

Commencement Date (not exceeding 12 months for

Elective Deferrals, Safe Harbor Contributions and

SIMPLE Contributions and not exceeding 24 months

for other contributions). If more than 12 months,

100% vesting is required. If the Employee does not

complete the designated Hours of Service during the

specified time period (if any), the Employee is

subject to the one Year of Service (or two Years of

Service if elect more than 12 months) requirement

with 1,000 Hours of Service per Year of Service.

[Note: The Employer may complete the second blank in Election 14(b)(7) with "N/A" if the Employer wishes to impose an Hour of Service requirement without specifying a time period within which an Employee must complete the required Hours of Service.]

(8)[   ]Describe eligibility conditions:                                                                                                                                               ;                                                                                                                                                                          &# 160;                                                                                                                                                            

[Note: The Employer may use Election 14(b)(8) to describe different eligibility conditions as to different Contribution Types or Employee groups (e.g., As to all Contribution Types, no eligibility requirements for Division A Employees and one Year of Service as to Division B Employees). The Employer also may elect different ages for different Contribution Types and/or to specify different months or Hours of Service requirements under Elections 14(b)(5), (b)(6), or (b)(7) as to different Contribution Types. Any election must satisfy Code §410(a).]

15.SPECIAL ELIGIBILITY EFFECTIVE DATE (DUAL ELIGIBILITY) (2.01(E)). The eligibility conditions of Election 14 (Choose (a) or choose (b) and (c) as applicable):

(a)[X]No exceptions. Apply to all Employees.

[Note: Elections 15(b) or (c) may trigger a coverage failure under Code §410(b).]

(b)[   ]Waiver of eligibility conditions for certain Employees. For all Contribution Types, apply solely to an Eligible Employee employed or reemployed by the Employer after                          (specify date). If the Eligible Employee was employed or reemployed by the Employer by the specified date, the Employee will become a Participant on the latest of: (i) the Effective Date; (ii) the restated Effective Date; (iii) the Employee's Employment Commencement Date or Re-Employment Commencement Date; or (iv) on the date the Employee attains age             (not exceeding age 21).

[Note: If the Employer does not wish to impose an age condition under clause (iv) as part of the requirements for the eligibility conditions waiver, leave the age blank.]

(c)[   ]Describe special eligibility Effective Date(s):                                                                                                                                                                                                         
60;                                                                                                                                                                                                                                     

[Note: Under Election 15(c), the Employer may describe special eligibility Effective Dates as to a Participant group and/or Contribution Type (e.g., Eligibility conditions apply only as to Nonelective Contributions and solely as to the Eligible Employees of Division B who were hired or reemployed by the Employer after January 1, 2007).]

16.YEAR OF SERVICE - ELIGIBILITY (2.02(A)). (Choose (a), (b), and (c) as applicable):

[Note: If the Employer under Election 14 elects a one or two Year(s) of Service condition (including any requirement which defaults to such conditions under Elections 14(b)(6), (7), and (8)) or elects to apply a Year of Service for eligibility under any other Adoption Agreement election, the Employer should complete Election 16. The Employer should not complete Election 16 if it elects the Elapsed Time Method for eligibility.]

(a)[   ]Year of Service. An Employee must complete             Hour(s) of Service during the relevant Eligibility Computation Period to receive credit for one Year of Service under Article II. [Note: The number may not exceed 1,000. If left blank, the requirement is 1,000 Hours of Service. Under Elections 14(b)(6) and (b)(7) and under Election 14(b)(8) if it incorporates Elections 14(b)(6) or (7), the number is 1,000 and the Employer should not supply any other number in the blank.]

(b)[   ]Subsequent Eligibility Computation Periods. After the Initial Eligibility Computation Period described in Section 2.02(C)(2), the Plan measures Subsequent Eligibility Computation Periods as (Choose one of (1), (2), or (3)):

(1)[   ]Plan Year. The Plan Year, beginning with the Plan Year which includes the first anniversary of the Employee's Employment Commencement Date.

(2)[   ]Anniversary Year. The Anniversary Year, beginning with the Employee's second Anniversary Year.

(3)[   ]Split. The Plan Year as described in Election 16(b)(1) as to:                                    (describe Contribution Type(s)) and the Anniversary Year as described in Election 16(b)(2) as to:                                    (describe Contribution Type(s)).

[Note: To maximize delayed entry under a two Years of Service condition for Nonelective Contributions or Matching Contributions, the Employer should elect to remain on the Anniversary Year for such contributions.]

(c)[   ]Describe:                                        & #160;                                                                                                                                                                          0;                                                                                                                                                                          & #160;                                      (e.g., Anniversary Year as to Division A and Plan Year as to Division B.)

8

17.ENTRY DATE (2.02(D)). Entry Date means the Effective Date and (Choose one or more of (a) through (f) as applicable):

[Note: For this Election 17, unless described otherwise in Election 17(f), Elective Deferrals includes Pre-Tax Deferrals, Roth Elective Deferrals and Employee Contributions, Matching includes all Matching Contributions (except Operational QMACs under Section 3.03(C)(2)) and Nonelective includes all Nonelective Contributions (except Operational QNECs under Section 3.04(C)(2)). Entry as to Prevailing Wage Contributions is on the Employment Commencement Date unless the Prevailing Wage Contract provides otherwise. See Section 2.02(D).]

(1)                                                                        & #160;                                       (2)(3)(4)

All                                                                           0;                        Elective

ContributionsDeferralsMatchingNonelective

(a)[   ]Semi-annual. The first day of the first month [   ]OR                                  &# 160;       [   ][   ]                                     & #160;                 [   ]

and of the seventh month of the Plan Year.

(b)[   ]First day of Plan Year                                                       
60;                                                                                                                 [   ]OR[   ]                                                0;                   [   ][   ]

(c)[   ]First day of each Plan Year quarter                                                    &# 160;                                                [   ]OR              0;                            [   ][   ]                
60;                                      [   ]

(d)[X]The first day of each month[X]OR[   ][   ][   ]

(e)[   ]Immediate. Upon Employment Commencement Date[   ]OR[   ][   ][   ]

or if later, upon satisfaction of eligibility conditions.

(f)[   ]Describe Entry Date(s):                                                                                                                                               &# 160;                                                                                                                                                                           ;                                                                                                                                                                          &# 160;                                            

[Note: Under Election 17(f), the Employer may describe Entry Dates from the elections available under Elections 17(a) through (e), or a combination thereof as to a Participant group and/or Contribution Type or may elect additional Entry Dates (e.g., As to Matching Contributions excluding Additional Matching, immediate as to Division A Employees and semi-annual as to Division B Employees OR the earlier of the Plan's semi-annual Entry Dates or the entry dates under the Employer's medical plan).]

18.PROSPECTIVE/RETROACTIVE ENTRY DATE (2.02(D)). An Employee after satisfying the eligibility conditions in Election 14 will become a Participant (unless an Excluded Employee under Election 8) on the Entry Date (if employed on that date) (Choose one or more of (a) through (f) as applicable):

[Note: Unless otherwise excluded under Election 8, an Employee who remains employed by the Employer on the relevant date must become a Participant by the earlier of: (i) the first day of the Plan Year beginning after the date the Employee completes the age and service requirements of Code §410(a); or (ii) 6 months after the date the Employee completes those requirements. For this Election 18, unless described otherwise in Election 18(f), Elective Deferrals includes Pre-Tax Deferrals, Roth Deferrals and Employee Contributions, Matching includes all Matching Contributions (except Operational QMACs under Section 3.03(C)(2)) and Nonelective includes all Nonelective Contributions, (except Operational QNECs under Section 3.04(C)(2)).]

(1)                                                                        & #160;                                       (2)(3)(4)

All                                                                           0;                        Elective

ContributionsDeferralsMatchingNonelective

(a)[X]Immediately following or coincident with the date[X]OR& #160;                                         [   ][   ][   ]

the Employee completes the eligibility conditions.

(b)[   ]Immediately following the date the Employee[   ]OR[   ]                                                               0;    [   ][   ]

completes the eligibility conditions.

(c)[   ]Immediately preceding or coincident with the dateN/A                                                                                   0;                      N/A[   ]                            
60;                          [   ]

the Employee completes the eligibility conditions.

(d)[   ]Immediately preceding the date the EmployeeN/AN/A[   ][   ]

completes the eligibility conditions.

(e)[   ]Nearest the date the Employee completes the                                   
60;                                  N/AN/A[   ][   ]

eligibility conditions.

(f)[   ]Describe retroactive/prospective entry relative to Entry Date:                                                                                                                                          ;                                                                                                                                                                          &# 160;                                 

[Note: Under Election 18(f), the Employer may describe the timing of entry relative to an Entry Date from the elections available under Elections 18(a) through (e), or a combination thereof as to a Participant group and/or Contribution Type (e.g., As to Matching Contributions excluding Additional Matching nearest as to Division A Employees and immediately following as to Division B Employees).]

19.BREAK IN SERVICE – PARTICIPATION (2.03). The one year hold-out rule described in Section 2.03(C) (Choose one of (a), (b), or (c)):

(a)[X]Does not apply.

(b)[   ]Applies. Applies to the Plan and to all Participants.

9

(c)[   ]Limited application. Applies to the Plan, but only to a Participant who has incurred a Severance from Employment.

[Note: The Plan does not apply the rule of parity under Code §410(a)(5)(D) unless the Employer in Appendix B specifies otherwise. See Section 2.03(D).]

ARTICLE III

PLAN CONTRIBUTIONS AND FORFEITURES

20.ELECTIVE DEFERRAL LIMITATIONS (3.02(A)). The following limitations apply to Elective Deferrals under Elections 6(a) and 6(b), which are in addition to those limitations imposed under the basic plan document (Choose (a) or choose (b) and (c) as applicable):

(a)[X]None. No additional Plan imposed limits.

[Note: The Employer under Election 20 may not impose a lower deferral limit applicable only to Catch-Up Eligible Participants and the Employer's elections must be nondiscriminatory. The elected limits apply to Pre-Tax Deferrals and to Roth Deferrals unless described otherwise. Under a safe harbor plan: (i) NHCEs must be able to defer enough to receive the maximum Safe Harbor Matching and Additional Matching Contribution under the plan and must be permitted to defer any lesser amount; and (ii) the Employer may limit Elective Deferrals to a whole percentage of Compensation or to a whole dollar amount. See Section 1.54(C) as to administrative limitations on Elective Deferrals.]

(b)[   ]Additional Plan limit(s). (Choose (1) and (2) as applicable. Complete (3) if (1) or (2) is chosen):

(1)[   ]Maximum deferral amount. A Participant's Elective Deferrals may not exceed:                                              (specify dollar amount or percentage of Compensation).

(2)[   ]Minimum deferral amount. A Participant's Elective Deferrals may not be less than:                                              (specify dollar amount or percentage of Compensation).

(3)Application of limitations. The Election 20(b)(1) and (2) limitations apply based on Elective Deferral Compensation described in Elections 9 – 11. If the Employer elects Plan Year/Participation Compensation under column (1) and in Election 10 elects Participating Compensation, in the Plan Years commencing after an Employee becomes a Participant, apply the elected minimum or maximum limitations to the Plan Year. Apply the elected limitation based on such Compensation during the designated time period and only to HCEs as elected below. (Choose a. or choose b. and c. as applicable. Under each of a., b. or c. choose one of (1) or (2). Choose (3) if applicable):

                                                                                                                                                   0;                                                                                                                                                                          & #160;                                   (1)                                                                                                        0;  (2)(3)

Plan Year/Partic ipatingPayroll periodHCEs only

                                                                                                                                                                                                                                                                                                                              
60;     Compensation

a.[   ]Both. Both limits                                   & #160;                                                                                                                      [   ]                   &# 160;                                                                                   [   ]                                                       ;                                                 [   ]

under Elections 20(b)(1) and (2).

b.[   ]Maximum limit. The maximum[   ]                           & #160;                                                                           [   ]                                                              0;                                         [   ]

amount limit under Election 20(b)(1).

c.[   ]Minimum limit. The minimum[   ]                       & #160;                                                                               [   ]                                                          0;                                             [   ]

amount limit under Election 20(b)(2).

(c)[   ]Describe Elective Deferral limitation(s):                                                                                                                                            &# 160;                                                                                                                                                                           ;                                                                                                                                           

[Note: Under Election 20(c), the Employer: (i) may describe limitations on Elective Deferrals from the elections available under Elections 20(a) and (b) or a combination thereof as to a Participant group (e.g., No limit applies to Division A Employees. Division B Employees may not defer in excess of 10% of Plan Year Compensation); (ii) may elect a different time period to which the limitations apply; and/or (iii) may apply a different limitation to Pre-Tax Deferrals and to Roth Deferrals.]

21.AUTOMATIC DEFERRAL (3.02(B)). The Automatic Deferral provisions of Section 3.02(B) (Choose one of (a) or (b)):

(a)[X]Do not apply.

(b)[   ]Apply. The Automatic Deferral Effective Date is:                          (specify date). (Complete (1), (2), and (3). Choose (4) as applicable):

(1)Automatic Deferral Amount. The Employer, as to each Participant affected, will withhold as the Automatic Deferral Amount,            % from the Participant's Compensation each payroll period unless the Participant makes a Contrary Election.

(2)Participants affected. The Automatic Deferral applies to (Choose one of a., b., c., or d.):

a.[   ]All Participants. All Participants, regardless of any prior Salary Reduction Agreement, unless and until they make a Contrary Election after the Automatic Deferral Effective Date.

b.[   ]Election of at least Automatic Deferral amount. All Participants, except those who have in effect a Salary Reduction Agreement on the Automatic Deferral Effective Date provided that the Elective Deferral amount under the Agreement is at least equal to the Automatic Deferral Amount.

10

c.[   ]No existing Salary Reduction Agreement. All Participants, except those who have in effect a Salary Reduction Agreement on the Automatic Deferral Effective Date regardless of the Elective Deferral amount under the Agreement.

d.[   ]New Participants. Each Employee whose Entry Date is on or following the Automatic Deferral Effective Date.

(3)Scheduled increases. The Automatic Deferral Amount will or will not increase (as a percentage of Compensation) in Plan Years following the Plan Year containing the Automatic Deferral Effective Date (or, if later, the Plan Year in which the Automatic Deferral first applies to a Participant) as follows (Choose one of a., b., or c.):

a.[   ]No scheduled increase. The Automatic Deferral Amount applies in all Plan Years.

b.[   ]Scheduled increase. The Automatic Deferral Amount will increase as follows:

Plan Year of application to a ParticipantAutomatic Deferral Amount

1               0;                                                                                                                                                                          & #160;                             3%

2               0;                                                                                                                                                                          & #160;                             3%

3               0;                                                                                                                                                                          & #160;                             4%

4               0;                                                                                                                                                                          & #160;                             5%

5 and thereafter                                                                                                                                                             & #160;                       6%

c.[   ]Other scheduled increase. The Automatic Deferral Amount will increase as follows:

Plan Year of application to a ParticipantAutomatic Deferral Amount

                & #160;                                                                                                                                                                          0; %

                & #160;                                                                                                                                                                          0; %

                & #160;                                                                                                                                                                          0; %

                & #160;                                                                                                                                                                          0; %

                & #160;                                                                                                                                                                          0; %

                & #160;                                                                                                                                                                          0; %

                & #160;                                                                                                                                                                          0; %

(4)[   ]Describe Automatic Deferral:                                   & #160;                                                                                                                                                                          0;                                                                                                                                                                          & #160;                                                                                               

[Note: Under Election 21(b)(4), the Employer may describe Automatic Deferral provisions from the elections available under Election 21 and/or a combination thereof as to a Participant group (e.g., Automatic Deferrals do not apply to Division A Employees. All Division B Employee/Participants are subject to an Automatic Deferral Amount equal to 3% of Compensation effective as of January 1, 2008).]

22.CODA (3.02(C)). The CODA provisions of Section 3.02(C) (Choose one of (a) or (b)):

(a)[X]Do not apply.

(b)[   ]Apply. For each Plan Year for which the Employer makes a designated CODA contribution under Section 3.02(C), a Participant may elect to receive directly in cash not more than the following portion (or, if less, the Elective Deferral Limit) of his/her proportionate share of that CODA contribution (Choose one of (1) or (2)):

(1)[   ]All or any portion.

(2)[   ]%

23.CATCH-UP DEFERRALS (3.02(D)). A Catch-Up Eligible Participant (Choose one of (a) or (b)):

(a)[X]Permitted. May make Catch-Up Deferrals to the Plan.

(b)[   ]Not Permitted. May not make Catch-Up Deferrals to the Plan.

24.MATCHING CONTRIBUTIONS (EXCLUDING SAFE HARBOR MATCH AND ADDITIONAL MATCH UNDER SECTION 3.05) (3.03(A)). The Employer Matching Contributions under Election 6(c) are subject to the following additional elections regarding type (discretionary/fixed), rate/amount, limitations and time period (collectively, such elections are "the matching formula") and the allocation of Matching Contributions is subject to Section 3.06 except as otherwise provided (Choose one or more of (a) through (g) as applicable; then, for the elected match, complete (1), (2), and/or (3) as applicable. If the Employer completes (2) or (3), also complete one of (4), (5), or (6)):

[Note: If the Employer wishes to make any Matching Contributions that satisfy the ADP or ACP safe harbor, the Employer should make these Elections under Election 30, and not under this Election 24.]

11

	(1) Match Rate/Amt [$/% of Elective Deferrals]	(2) Limit on Deferrals Matched [$/% of Compensation]	(3) Limit on Match Amount [$/% of Compensation]	(4) Apply limit(s) per Plan Year ["true-up"]	(5) Apply limit(s) per  payroll period [no "true-up"]	(6) Apply limit(s) per designated time period [no "true-up"]
(a)[   ]Discretionary – see Section 1.34(B) (The Employer may, but is not required to complete (a)(1)-(6). See the "Note" following Election 24.)	______	______	______	[   ]	[   ]	[   ] ______

(b)[X]Fixed – uniform rate/amount	25 percent		6 percent	______	[   ]	[X]	[   ] ______
(c)[   ]Fixed – tiered	Elective Deferral % % % % %	Matching Rate % % % %	______	______	[   ]	[   ]	[   ] ______

(d)[   ]Fixed – Years of Service Years of Service Matching Rate % % % % ______ ______ [   ] [   ] [   ] ______

(1)"Years of Service" under this Election 24(d) means (Choose one of a. or b.):

a.[   ]Eligibility. Years of Service for eligibility in Election 16.

b.[   ]Vesting. Years of Service for vesting in Elections 42 and 43.

(e)[   ]Fixed – multiple formulas	Formula 1:	______	______	[   ]	[   ]	[   ] ______
	Formula 2:	______	______	[   ]	[   ]	[   ] ______
	Formula 3:	______	______	[   ]	[   ]	[   ] ______

(f)[X]Related and Participating Employers. If any Related and Participating Employers contribute Matching Contributions to the Plan, the following apply (Complete (1) and (2)):

(1)Matching formula. The matching formula for the Participating Employer(s) (Choose one of a. or b.):

a.[X]All the same. Is (are) the same as for the Signatory Employer under this Election 24.

b.[   ]At least one different. Is (are) as follows:                                                                                                                                            ;                                                      .

(2)Allocation sharing. The Plan Administrator will allocate the Matching Contributions made by the Signatory Employer and by any Participating Employer (Choose one of a. or b.):

a.[   ]Employer by Employer. Only to the Participants directly employed by the contributing Employer.

b.[X]Across Employer lines. To all Participants regardless of which Employer directly employs them and regardless of whether their direct Employer made Matching Contributions for the Plan Year.

[Note: The Employer should not elect 24(f) unless there are Related Employers which are also Participating Employers. See Section 1.23(D).]

12

(g)[   ]Describe:                                      0;                                                                                                                                                                          & #160;                                                                                                                                                                          0;                                         (e.g., A Discretionary Matching Contribution applies to Division A Participants. A Fixed Matching Contribution equal to 50% of Elective Deferrals not exceeding 6% of Plan Year Compensation applies to Division B Participants.)

[Note: See Section 1.34(A) as to Fixed Matching Contributions. A Participant's Elective Deferral percentage is equal to the Participant's Elective Deferrals divided by his/her Compensation. The matching rate/amount is the specified rate/amount of match for the corresponding Elective Deferral amount/percentage. Any Matching Contributions apply to Pre-Tax Deferrals and to Roth Deferrals unless described otherwise in Election 24(g). Matching Contributions for nondiscrimination testing purposes are subject to the targeting limitations. See Section 4.10(D). The Employer under Election 24(a) in its discretion may determine the amount of a Discretionary Matching Contribution and the matching contribution formula. Alternatively, the Employer in Election 24(a) may specify the Discretionary Matching Contribution formula.]

25.QMAC (PLAN-DESIGNATED) (3.03(C)(1)). The following provisions apply regarding Plan-Designated QMACs (Choose one of (a) or (b)):

[Note: Regardless of its elections under this Election 25, the Employer under Section 3.03(C)(2) may elect for any Plan Year where the Plan is using Current Year Testing to make Operational QMACs which the Plan Administrator will allocate only to NHCEs for purposes of correction of an ADP or ACP test failure.]

(a)[X]Not applicable. There are no Plan-Designated QMACs.

(b)[   ]Applies. There are Plan-Designated QMACs to which the following provisions apply (Complete (1) and (2)):

(1)Matching Contributions affected. The following Matching Contributions (as allocated to the designated allocation group under Election 25(b)(2)) are Plan-Designated QMACs (Choose one of a. or b.):

a.[   ]All. All Matching Contributions.

b.[   ]Designated. Only the following Matching Contributions under Election 24:                                                                                                                                                       0;                                              .

(2)Allocation Group. Subject to Section 3.06, allocate the Plan-Designated QMAC (Choose one of a. or b.):

a.[   ]NHCEs only. Only to NHCEs who make Elective Deferrals subject to the Plan-Designated QMAC.

b.[   ]All Participants. To all Participants who make Elective Deferrals subject to the Plan-Designated QMAC.

The Plan Administrator will allocate all other Matching Contributions as Regular Matching Contributions under Section 3.03(B), except as provided in Sections 3.03(C)(2) or 3.05.

[Note: See Section 4.10(D) as to targeting limitations applicable to QMAC nondiscrimination testing.]

26.MATCHING CATCH-UP DEFERRALS (3.03(D)). If a Participant makes a Catch-Up Deferral, the Employer (Choose one of (a) or (b)):

(a)[   ]Match. Will apply to the Catch-Up Deferral (Choose one of (1) or (2)):

(1)[   ]All. All Matching Contributions.

(2)[   ]Designated. The following Matching Contributions in Election 24:         .

(b)[X]No Match. Will not match any Catch-Up Deferrals.

[Note: Election 26 does not apply to a safe harbor 401(k) plan unless the Employer will apply the ACP test. See Elections 37(a)(2)b. and 37(a)(2)c.(ii). In this case, Election 26 applies only to Additional Matching, if any. A safe harbor 401(k) Plan will apply the Basic Match or Enhanced Match to Catch-Up Deferrals. If the Employer elects to apply the ACP test safe harbor under Election 37(a)(2)a. or 37(a)(2)c.(i), Election 26 does not apply and the Plan also will apply any Additional Match to Catch-Up Deferrals.]

27.NONELECTIVE CONTRIBUTIONS (TYPE/AMOUNT) INCLUDING PREVAILING WAGE CONTRIBUTIONS (3.04(A)). The Employer Nonelective Contributions under Election 6(d) are subject to the following additional elections as to type and amount (Choose one or more of (a) through (e) as applicable):

(a)[X]Discretionary. An amount the Employer in its sole discretion may determine.

(b)[   ]Fixed. (Choose one or more of (1), (2), and (3) as applicable):

(1)[   ]Uniform %.            % of each Participant's Compensation, per                          (e.g., Plan Year, month).

(2)[   ]Fixed dollar amount. $           , per                          (e.g., Plan Year, month, HOS, per Participant per month).

(3)[   ]Describe:                                              & #160;                                                                                                                                                                          0;                                                                                                                                                                          & #160;    (specify time period, e.g., per Plan Year quarter. If not specified, the time period is the Plan Year).

[Note: The Employer under Election 27(b)(3) may specify any Fixed Nonelective Contribution formula not described under Elections 27(b)(1) or (2) (e.g., For each Plan Year,2% of net profits exceeding $50,000) and/or the Employer may describe different Fixed Nonelective Contributions as applicable to different Participant groups (e.g., A Fixed Nonelective Contribution equal to 5% of Plan Year

13

Compensation applies to Division A Participants and a Fixed Nonelective Contribution equal to $500 per Participant each Plan Year applies to Division B Participants).]

(c)[   ]Prevailing Wage Contribution. The Prevailing Wage Contribution amount(s) specified for the Plan Year or other applicable period in the Employer's Prevailing Wage Contract(s). The Employer will make a Prevailing Wage Contribution only to Participants covered by the Contract and only as to Compensation paid under the Contract. If the Participant accrues an allocation of Employer Contributions (including forfeitures) under the Plan or any other Employer plan in addition to the Prevailing Wage Contribution, the Plan Administrator will (Choose one of (1) or (2)):

(1)[   ]No offset. Not reduce the Participant's Employer Contribution allocation by the amount of the Prevailing Wage Contribution.

(2)[   ]Offset. Reduce the Participant's Employer Contribution allocation by the amount of the Prevailing Wage Contribution.

(d)[X]Related and Participating Employers. If any Related and Participating Employers contribute Nonelective Contributions to the Plan, the contribution formula(s) (Choose one of (1) or (2)):

(1)[X]All the same. Is (are) the same as for the Signatory Employer under this Election 27.

(2)[   ]At least one different. Is (are) as follows:                                                                                                                                            ;                                   .

[Note: The Employer should not elect 27(d) unless there are Related Employers which are also Participating Employers. See Section 1.23(D). The Employer electing 27(d) also must complete Election 28(g) as to the allocation methods which apply to the Participating Employers.]

(e)[   ]Describe:                                        & #160;                                                                                                                                                                          0;                                                                                                                                                                          & #160;                                                                                                                                                                          0;                                                  

[Note: Under Election 27(e), the Employer may describe the amount and type of Nonelective Contributions from the elections available under Election 27 and/or a combination thereof as to a Participant group (e.g., A Discretionary Nonelective Contribution applies to Division A Employees. A Fixed Nonelective Contribution equal to 5% of Plan Year Compensation applies to Division B Employees).]

28.NONELECTIVE CONTRIBUTION ALLOCATION (3.04(B)). The Plan Administrator, subject to Section 3.06, will allocate to each Participant any Nonelective Contribution (excluding QNECs) under the following contribution allocation formula (Choose one or more of (a) through (h) as applicable):

(a)[X]Pro rata. As a uniform percentage of Participant Compensation.

(b)[   ]Permitted disparity. In accordance with the permitted disparity allocation provisions of Section 3.04(B)(2), under which the following permitted disparity formula and definition of "Excess Compensation" apply (Complete (1) and (2)):

(1)Formula (Choose one of a. or b.):

a.[   ]Two-tiered.

b.[   ]Four-tiered.

(2)Excess Compensation. For purposes of Section 3.04(B)(2), "Excess Compensation" means Compensation in excess of (Choose one of a. or b.):

a.[   ]Percentage amount.            % (not exceeding 100%) of the taxable wage base in effect on the first day of the Plan Year, rounded to the next highest $            (not exceeding the taxable wage base).

b.[   ]Dollar amount. The following amount: $            (not exceeding the taxable wage base in effect on the first day of the Plan Year).

(c)[   ]Incorporation of contribution formula. The Plan Administrator will allocate any Fixed Nonelective Contribution under Elections 27(b), 27(d) or 27(e), or any Prevailing Wage Contribution under Election 27(c), in accordance with the contribution formula the Employer adopts under those Elections.

(d)[   ]Classifications of Participants. In accordance with the classifications allocation provisions of Section 3.04(B)(3). The classifications are (Choose one of (1), (2), or (3)):

[Note: Typically, the Employer would elect 28(d) where it intends to satisfy nondiscrimination requirements using "cross-testing" under Treas. Reg. §1.401(a)(4)-8. However, choosing this election does not necessarily require application of cross-testing and the Plan may be able to satisfy nondiscrimination as to its classification-based allocations by testing allocation rates.]

(1)[   ]Each in own classification. Each Participant constitutes a separate classification.

(2)[   ]NHCEs/HCEs. Nonhighly Compensated Employee/Participants and Highly Compensated Employee/Participants.

(3)[   ]Describe the classifications:                                        ;                                                                                                                                                                          &# 160;                                                                                                                                                                           ;                                                                                                      

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[Note: Any classifications under Election 28(d) must result in a definitely determinable allocation under Treas. Reg. §1.401-1(b)(1)(ii) and must constitute a reasonable classification within the meaning of Treas. Reg. §1.410(b)-4(b). The number of allocation rates is subject to the limitations in Section 3.04(B)(3)(b). Standard interest and mortality assumptions under Treas. Reg. §1.401(a)(4)-12 apply. In the case of a self-employed Participant, the requirements of Treas. Reg. §1.401(k)-1(a)(6) apply and the allocation method should not result in a cash or deferred election for the self-employed Participant. The Employer by the due date of its tax return (including extensions) must advise the Plan Administrator or Trustee in writing as to the allocation rate applicable to each Participant under Election 28(d)(1) or applicable to each classification under Elections 28(d)(2) or (3) for the allocation Plan Year. Under Election 28(d)(1), the Employer may decide from year to year the classification (allocation rate) applicable to each Participant, without the need to amend the Plan to change the classification.]

(e)[   ]    Age-based. In accordance with the age-based allocation provisions of Section 3.04(B)(5). The Plan Administrator will use the Actuarial Factors based on the following assumptions (Complete both (1) and (2)):

(1)     Interest rate. (Choose one of a., b., or c.):

a.       [   ]    7.5%                 b.       [   ]    8.0%                 c.       [   ]    8.5%

(2)     Mortality table. (Choose one of a. or b.):

a.[   ]    UP-1984. See Appendix D.

b.[   ]    Alternative:                                              (Specify 1983 GAM, 1983 IAM, 1971 GAM or 1971 IAM and attach applicable tables using such mortality table and the specified interest rate as replacement Appendix D.)

(f)[   ]    Uniform points. In accordance with the uniform points allocation provisions of Section 3.04(B)(6). Under the uniform points allocation formula, a Participant receives (Choose one or both of (1) and (2). Choose (3) if applicable):

(1)[   ]    Years of Service.                          point(s) for each Year of Service. The maximum number of Years of Service counted for points is                         .

"Year of Service" under this Election 28(f) means (Choose one of a. or b.):

a.[   ]    Eligibility. Years of Service for eligibility in Election 16.

b.[   ]    Vesting. Years of Service for vesting in Elections 42 and 43.

[Note: A Year of Service must satisfy Treas. Reg. §1.401(a)(4)-11(d)(3) for the uniform points allocation to qualify as a safe harbor allocation under Treas. Reg. §1.401(a)(4)-2(b)(3).]

(2)[   ]    Age.                          point(s) for each year of age attained during the Plan Year.

(3)[   ]    Compensation.                          point(s) for each $             (not to exceed $200) increment of Plan Year Compensation.

(g)[X]    Related and Participating Employers. If any Related and Participating Employers contribute Nonelective Contributions to the Plan, the Plan Administrator will allocate the Nonelective Contributions made by the Participating Employer(s) under Election 27(d) (Complete (1) and (2)):

(1)Allocation Method. (Choose one of a. or b.):

a.[X]    All the same. Using the same allocation method as applies to the Signatory Employer under this Election 28.

b.[   ]    At least one different. Under the following allocation method(s):                                                                              .

(2)Allocation sharing. The Plan Administrator will allocate the Nonelective Contributions made by the Signatory Employer and by any Participating Employer (Choose one of a. or b.):

a.[   ]    Employer by Employer. Only to the Participants directly employed by the contributing Employer.

b.[X]    Across Employer lines. To all Participants regardless of which Employer directly employs them and regardless of whether their direct Employer made Nonelective Contributions for the Plan Year.

[Note: The Employer should not elect 28(g) unless there are Related Employers which are also Participating Employers. See Section 1.23(D) and Election 27(d). If the Employer elects 28(g)(2)a., the Employer should also elect 11(b)(8)b., to disregard the Compensation paid by "Y" Participating Employer in determining the allocation of the "X" Participating Employer contribution to a Participant (and vice versa) who receives Compensation from both X and Y. If the Employer elects 28(g)(2)b., the Employer should not elect 11(b)(8)b. Election 28(g)(2)a. does not apply to Safe Harbor Nonelective Contributions.]

(h)[   ]    Describe:                                                                                         &# 160;                                                                                                 (e.g., Pro rata as to Division A Participants and Permitted Disparity (two-tiered at 100% of the SSTWB) as to Division B Participants.)

15

29.     QNEC (PLAN-DESIGNATED) (3.04(C)(1)). The following provisions apply regarding Plan-Designated QNECs (Choose one of (a) or (b)):

[Note: Regardless of its elections under this Election 29, the Employer under Section 3.04(C)(2) may elect for any Plan Year where the Plan is using Current Year Testing to make Operational QNECs which the Plan Administrator will allocate only to NHCEs for purposes of correction of an ADP or ACP test failure.]

(a)[   ]    Not applicable. There are no Plan-Designated QNECs.

(b)[X]    Applies. There are Plan-Designated QNECs to which the following provisions apply (Complete (1), (2), and (3)):

(1)Nonelective Contributions affected. The following Nonelective Contributions (as allocated to the designated allocation group under Election 29(b)(2)) are Plan-Designated QNECs (Choose one of a. or b.):

a.[   ]    All. All Nonelective Contributions.

b.[X]    Designated. Only the following Nonelective Contributions under Election 27:  An amount the Employer in its sole discretion may determine up to the full amount of the Discretionary Nonelective Contribution under Election 27(a).          .

(2)Allocation Group. Subject to Section 3.06, allocate the Plan-Designated QNEC (Choose one of a. or b.):

a.[X]    NHCEs only. Only to NHCEs under the method elected in Election 29(b)(3).

b.[   ]    All Participants. To all Participants under the method elected in Election 29(b)(3).

(3)Allocation Method. The Plan Administrator will allocate a Plan-Designated QNEC using the following method (Choose one of a., b., c., or d.):

a.[X]    Pro rata.

b.[   ]    Flat dollar.

c.[   ]    Reverse. See Section 3.04(C)(3).

d.[   ]    Describe:                                                                                         & #160;                                                                            

[Note: Any allocation method the Employer elects under Election 29(b)(3)d. must be definitely determinable. See Section 4.10(D) as to targeting limitations applicable to QNEC nondiscrimination testing.]

30.     SAFE HARBOR 401(k) PLAN (SAFE HARBOR CONTRIBUTIONS/ADDITIONAL MATCHING CONTRIBUTIONS) (3.05). The Employer under Election 6(e) will (or in the case of the Safe Harbor Nonelective Contribution may) contribute the following Safe Harbor Contributions described in Section 3.05(E) and will or may contribute Additional Matching Contributions described in Section 3.05(F) (Choose one of (a), (b), (c), or (d) when and as applicable. Complete (e) and (h). Choose (f), (g), and (i) as applicable):

(a)[   ]    Safe Harbor Nonelective Contribution. The Safe Harbor Nonelective Contribution equals            % of a Participant's Compensation [Note: The amount in the blank must be at least 3%. The Safe Harbor Nonelective Contribution applies toward (offsets) most other Employer Nonelective Contributions. See Section 3.05(E)(11).]

(b)[   ]    Safe Harbor Nonelective Contribution/delayed year-by-year election (maybe and supplemental notices). In connection with the Employer's provision of the maybe notice under Section 3.05(I)(1), the Employer elects into safe harbor status by giving the supplemental notice and by making this Election 30(b) to provide for a Safe Harbor Nonelective Contribution equal to            % (specify amount at least equal to 3%) of a Participant's Compensation. This Election 30(b) and safe harbor status applies for the Plan Year ending:                                              (specify Plan Year end), which is the Plan Year to which the Employer's maybe and supplemental notices apply.

[Note: If the Employer makes a delayed election into safe harbor status under Section 3.05(I)(1), the Employer must amend the Plan to provide for a Safe Harbor Nonelective Contribution equal to at least 3% of each Participant's Compensation. The Employer may make this amendment by substitute Adoption Agreement page (electing Election 30(b)) or by another form of amendment under Section 11.02(B). An Employer using the maybe notice should not elect a Safe Harbor Nonelective Contribution under Election 30(a) unless the Employer intends to continue safe harbor status under this election in the subsequent Plan Year. By making its amendment into safe harbor status under Election 30(b), the Employer avoids the need to further amend the Plan if the Employer is not certain that it will apply the safe harbor in the subsequent Plan Year. By contrast, an Employer which gave the maybe notice and has decided to make the Safe Harbor Nonelective Contribution for that year and for future years should use Election 30(a). The Employer only elects 30(a) and should not elect 30(b) if prior to the Plan Year the Employer unequivocally decides to elect safe harbor status for the Plan Year and provides a safe harbor notice consistent with this election rather than giving the maybe notice. If the Employer gives the maybe notice and the Employer will or may make Matching Contributions, the Employer should elect Additional Matching under Election 30(h)(and should not elect Matching Contributions under Election 24) if it wishes to avoid ACP testing.]

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(c)[   ]    Basic Matching Contribution. A Matching Contribution equal to 100% of each Participant's Elective Deferrals not exceeding 3% of the Participant's Compensation, plus 50% of each Participant's Elective Deferrals in excess of 3% but not in excess of 5% of the Participant's Compensation. See Sections 1.34(E) and 3.05(E)(4). (Complete (1)):

(1)Time period. For purposes of this Election 30(c), "Compensation" and "Elective Deferrals" mean Compensation and Elective Deferrals for:                                             . [Note: The Employer must complete the blank line with the applicable time period for computing the Basic Match, such as "each payroll period," "each calendar month," "each Plan Year quarter" or "the Plan Year."]

(d)[   ]    Enhanced Matching Contribution. See Sections 1.34(F) and 3.05(E)(5). (Choose one of (1) or (2) and complete (3) for any election):

(1)[   ]    Uniform percentage. A Matching Contribution equal to            % of each Participant's Elective Deferrals but not as to Elective Deferrals exceeding            % of the Participant's Compensation.

(2)[   ]    Tiered formula. A Matching Contribution equal to the specified matching rate for the corresponding level of each Participant's Elective Deferral percentage. A Participant's Elective Deferral percentage is equal to the Participant's Elective Deferrals divided by his/her Compensation.

Elective Deferral Percentage                                           Matching Rate

%                                                                         %

%                                                                         %

%                                                                         %

(3)Time period. For purposes of this Election 30(d), "Compensation" and "Elective Deferrals" mean Compensation and Elective Deferrals for:                                             . [Note: The Employer must complete the blank line with the applicable time period for computing the Enhanced Match, such as "each payroll period," "each calendar month," "each Plan Year quarter" or "the Plan Year."]

[Note: The matching rate may not increase as the Elective Deferral percentage increases and the Enhanced Matching formula otherwise must satisfy the requirements of Code §§401(k)(12)(B)(ii) and (iii). If the Employer elects to satisfy the ACP safe harbor under Election 37(a)(2)a., the Employer also must limit Elective Deferrals taken into account for the Enhanced Matching Contribution to a maximum of 6% of Plan Year Compensation.]

(e)Participants who will receive Safe Harbor Contributions. The allocation of Safe Harbor Contributions (Choose one of (1), (2), or (3)):

(1)[   ]    Applies to all Participants. Applies to all Participants except as may be limited under Election 30(f).

(2)[   ]    NHCEs only. Is limited to NHCE Participants only and may be limited further under Election 30(f). No HCE will receive a Safe Harbor Contribution allocation.

(3)[   ]    NHCEs and designated HCEs. Is limited to NHCE Participants and to the following HCE Participants and may be limited further under Election 30(f):                                                                                                                                                                 0;           .

[Note: Any HCE allocation group the Employer describes under Election 30(e)(3) must be definitely determinable. (e.g., Division "A" HCEs OR HCEs who own more than 5% of the Employer without regard to attribution rules).]

(f)[   ]    Early Elective Deferrals/delay of Safe Harbor Contribution. The Employer may elect this Election 30(f) only if the Employer in Election 14 elects eligibility requirements for Elective Deferrals of less than age 21 and one Year of Service but elects age 21 and one Year of Service for Safe Harbor Matching or for Safe Harbor Nonelective Contributions. The Employer under this Election 30(f) limits the allocation of any Safe Harbor Contribution under Election 30 for a Plan Year to those Participants: (i) who have attained age 21; (ii) who have completed one Year of Service; and (iii) who the Plan Administrator in applying the OEE rule described in Section 4.06(C), treats as benefiting in the disaggregated plan covering the Includible Employees. Those Participants in the Plan Year whom the Plan Administrator treats as Otherwise Excludable Employees will not receive any Safe Harbor Contribution allocation and the Plan Administrator will apply the ADP (and, as applicable the ACP) test(s) to the disaggregated plan benefiting the Otherwise Excludable Employees. If the Employer in Election 10(a)(2) has elected "Participating Compensation" for allocating Elective Deferrals, Nonelective Contributions or Matching Contributions (as relevant to the allocation under this Election 30 based on the Contribution Type), the Plan Administrator, in allocating the Safe Harbor Contribution for the Plan Year in which the Participant crosses over to the Includible Employees group, will count Compensation and Elective Deferrals only on and following the Cross-Over Date. See Section 3.05(D).

(g)[   ]    Another plan. The Employer will make the Safe Harbor Contribution to the following plan:                                                       .

(h)Additional Matching Contributions. See Sections 1.34(G) and 3.05(F). (Choose one of (1) or (2)):

(1)[   ]    No Additional Matching Contributions. The Employer will not make any Additional Matching Contributions to its safe harbor Plan.

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(2)[   ]    Additional Matching Contributions. The Employer will or may make the following Additional Matching Contributions to its safe harbor Plan. (Choose a. and b. as applicable):

a.[   ]    Fixed Additional Matching Contribution. The following Fixed Additional Matching Contribution (Choose (i) and (ii) as applicable and complete (iii) for any election):

(i)[   ]    Uniform percentage. A Matching Contribution equal to            % of each Participant's Elective Deferrals but not as to Elective Deferrals exceeding            % of the Participant's Compensation.

(ii)[   ]    Tiered formula. A Matching Contribution equal to the specified matching rate for the corresponding level of each Participant's Elective Deferral percentage. A Participant's Elective Deferral percentage is equal to the Participant's Elective Deferrals divided by his/her Compensation.

Elective Deferral Percentage                                           Matching Rate

%                                                                         %

%                                                                         %

%                                                                         %

(iii)Time period. For purposes of this Election 30(h)(2)a., "Compensation" and "Elective Deferrals" mean Compensation and Elective Deferrals for:                                                     . [Note: The Employer must complete the blank line with the applicable time period for computing the Additional Match, e.g., "each payroll period," "each calendar month," "each Plan Year quarter" OR "the Plan Year." If the Employer elects a match under both (i) and (ii) and will apply a different time period to each match, the Employer may indicate as such in the blank line.]

b.[   ]    Discretionary Additional Matching Contribution. The Employer may make a Discretionary Additional Matching Contribution. If the Employer makes a Discretionary Matching Contribution, the Discretionary Matching Contribution will not apply as to Elective Deferrals exceeding            % of the Participant's Compensation (complete the blank if applicable or leave blank).

[Note: If the Employer elects to satisfy the ACP safe harbor under Election 37(a)(2)a. or 37(a)(2)c.(i), then as to any and all Matching Contributions, including Fixed Additional Matching Contributions and Discretionary Additional Matching Contributions: (i) the matching rate may not increase as the Elective Deferral percentage increases; (ii) no HCE may be entitled to a greater rate of match than any NHCE; (iii) the Employer must limit Elective Deferrals taken into account for the Additional Matching Contributions to a maximum of 6% of Plan Year Compensation; (iv) the Plan must apply all Matching Contributions to Catch-Up Deferrals; and (v) in the case of a Discretionary Additional Matching Contribution, the contribution amount may not exceed 4% of the Participant's Plan Year Compensation.]

(i)[   ]    Multiple Safe Harbor Contributions in disaggregated Plan. The Employer elects to make different Safe Harbor Contributions and/or Additional Matching Contributions to disaggregated parts of its Plan under Treas. Reg. §1.401(k)-1(b)(4) as follows:                  (Specify contributions for disaggregated plans, e.g., as to Collectively Bargained Employees a 3% Nonelective Safe Harbor Contribution applies and as to non-Collectively Bargained Employees, the Basic Matching Contribution applies).

31.     ALLOCATION CONDITIONS (3.06(B)/(C)). The Plan does not apply any allocation conditions to: (i) Elective Deferrals; (ii) Safe Harbor Contributions; (iii) commencing as of the Final 401(k) Regulations Effective Date, Additional Matching Contributions which will satisfy the ACP test safe harbor; (iv) Employee Contributions; (v) Rollover Contributions; (vi) Designated IRA Contributions; (vii) SIMPLE Contributions; or (viii) Prevailing Wage Contributions, except as may be required by the Prevailing Wage Contract. To receive an allocation of Matching Contributions, Nonelective Contributions or Participant forfeitures, a Participant must satisfy the following allocation condition(s) (Choose one of (a) or (b). Choose (c) if applicable):

(a)[   ]    No conditions. No allocation conditions apply to Matching Contributions, to Nonelective Contributions or to forfeitures.

(b)[X]    Conditions. The following allocation conditions apply to the designated Contribution Type and/or forfeitures (Choose one or more of (1) through (7) as applicable):

[Note: For this Election 31, except as the Employer describes otherwise in Election 31(b)(7) or as provided in Sections 3.03(C)(2) and 3.04(C)(2) regarding Operational QMACs and Operational QNECs, Matching includes all Matching Contributions and Nonelective includes all Nonelective Contributions to which allocation conditions may apply. The Employer under Election 31(b)(7) may not impose an Hour of Service condition exceeding 1,000 Hours of Service in a Plan Year.]

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                                                                                                                   (1)                                   (2)
60;                    (3)                      (4)

                                                                                                            Matching,

                                                                                                           Nonelective

                                                                                                       and Forfeitures                  Matching         Nonelective     Forfeitures

(1)     [X]    None.                                                                            N/A                                 [X]                    [   ]        &# 160;            [   ]

(See Election

       31(a))

(2)     [X]    501 HOS/terminees (91 consecutive days if             [   ]                OR            [   ]                    [X]                     [   ]

Elapsed Time). See Section 3.06(B)(1)(b).

(3)     [   ]    Last day of the Plan Year.                                         [   ]                OR            [   ]                    [   ]                     [   ]

(4)     [   ]    Last day of the Election 31(c) time period.              [   ]                OR            [   ]                    [   ]                     [   ]

(5)     [   ]    1,000 HOS in the Plan Year (182 consecutive         [   ]                OR            [   ]                    [   ]                     [   ]

days in Plan Year if Elapsed Time).

(6)     [   ]                (specify) HOS within the Election               [   ]                OR            [   ]                    [   ]                     [   ]

31(c) time period, (but not exceeding 1,000 HOS

in a Plan Year).

(7)[   ]    Describe conditions:                                                                                          & #160;                                                                    (e.g., Last day of the Plan Year as to Nonelective Contributions for Participating Employer "A" Participants. No allocation conditions for Participating Employer "B" Participants).

(c)[   ]  Time period. Under Section 3.06(C), apply Elections 31(b)(4), (b)(6) or (b)(7) to the specified contributions/forfeitures based on each (Choose one of (1) through (5)):

(1)     [   ]    Plan Year                                                                     [   ]                OR            [   ]                    [   ]                     [   ]

(2)     [   ]    Plan Year quarter                                                       [   ]                OR            [   ]                    [   ]                     [   ]

(3)     [   ]    Calendar month                                                         [   ]                OR            [   ]                    [   ]                     [   ]

(4)     [   ]    Payroll period                                                             [   ]                OR            [   ]                    [   ]                     [   ]

(5)[   ]    Describe time period:                                                                                                                                                            

[Note: If the Employer elects 31(b)(4) or (b)(6), the Employer must choose (c). If the Employer elects 31(b)(7), choose (c) if applicable.]

32.     ALLOCATION CONDITIONS – APPLICATION/WAIVER/SUSPENSION (3.06(D)/(F)). Under Section 3.06(D), in the event of Severance from Employment as described below, apply or do not apply Election 31(b) allocation conditions to the specified contributions/forfeitures as follows (If the Employer elects 31(b), the Employer must complete Election 32. Choose one of (a) or (b). Complete (c)):

[Note: For this Election 32, except as the Employer describes otherwise in Election 31(b)(7) or as provided in Sections 3.03(C)(2) and 3.04(C)(2) regarding Operational QMACs and Operational QNECs, Matching includes all Matching Contributions and Nonelective includes all Nonelective Contributions to which allocation conditions may apply.]

(a)[X]    Total waiver or application. If a Participant incurs a Severance from Employment on account of or following death, Disability, attainment of Normal Retirement Age, or attainment of Early Retirement Age as specified (Choose one of (1) or (2)):

(1)[   ]    Do not apply. Do not apply elected allocation conditions to Matching Contributions, to Nonelective Contributions or to forfeitures.

(2)     [X]    Apply. Apply elected allocation conditions to Matching Contributions, to Nonelective Contributions and to forfeitures.

19

                                                                                                                   (1)                                   (2)
60;                    (3)                      (4)

                                                                                                            Matching,

                                                                                                           Nonelective

                                                                                                       and Forfeitures                  Matching         Nonelective     Forfeitures

(b)     [   ]    Application/waiver as to Contribution

Types events. If a Participant incurs a

Severance from Employment, apply allocation

conditions except such conditions are waived if

Severance is on account of or following death,

Disability, attainment of Normal Retirement Age,

or attainment of Early Retirement Age as specified,

and as applied to the specified Contribution

Types/forfeitures (Choose (1), (2), (3) and (4) as

applicable):

(1)     [   ]    Death                                                                           [   ]                OR            [   ]                    [   ]                     [   ]

(2)     [   ]    Disability                                                                     [   ]                OR            [   ]                    [   ]                     [   ]

(3)     [   ]    Normal Retirement Age                                            [   ]                OR            [   ]                    [   ]                     [   ]

(4)     [   ]    Early Retirement Age                                                [   ]                OR            [   ]                    [   ]                     [   ]

(c)Suspension. The suspension of allocation conditions of Section 3.06(F) (Choose one of (1) or (2)):

(1)     [   ]    Applies. Applies as follows (Choose one of a., b., or c.):

a.       [   ]    Both. Applies both to Nonelective Contributions and to Matching Contributions.

b.      [   ]    Nonelective. Applies only to Nonelective Contributions.

c.       [   ]    Match. Applies only to Matching Contributions.

(2)     [X]    Does not apply.

33.     FORFEITURE ALLOCATION METHOD (3.07). The Plan Administrator will allocate a Participant forfeiture attributable to all Contribution Types or attributable to all Nonelective Contributions or to all Matching Contributions as follows (Choose one or more of (a) through (g) as applicable. Choose (e) only in conjunction with at least one other election):

[Note: Even if the Employer elects immediate vesting, the Employer should                         (1)                                     (2)                      (3)

complete Election 33. See Section 7.07.]                                                                                All                              Nonelective       Matching

                                                                                                                                        Forfeitures                        Forfeitures      Forfeitures

(a)     [   ]    Additional Nonelective. Allocate as additional Discretionary                        [   ]                OR               [   ]                     [   ]

Nonelective Contribution.

(b)     [   ]    Additional Match. Allocate as additional Discretionary Matching                 [   ]                OR               [   ]                     [   ]

Contribution.

(c)     [X]    Reduce Nonelective. Apply to Nonelective Contribution.                             [X]                OR               [   ]                     [   ]

(d)     [X]    Reduce Match. Apply to Matching Contribution.                                          [X]                OR               [   ]                     [   ]

(e)     [X]    Plan expenses. Pay reasonable Plan expenses first (See Section                     [X]                OR               [   ]                     [   ]

7.04(C)), then allocate in the manner described above.

(f)[   ]    Safe harbor/top-heavy exempt. Apply all forfeitures to Safe Harbor Contributions and Plan expenses in accordance with Section 3.07(A)(4).

(g)[   ]    Describe:                                                                                       & #160;                                                                                                   (e.g., Forfeitures attributable to transferred balances from Plan X are allocated only to former Plan X participants.)

34.     FORFEITURE ALLOCATION TIMING (3.07(B)). See Sections 3.07, 5.07 and 7.07 as to when a forfeiture occurs. Once a forfeiture occurs, this Election 34 determines the timing of the forfeiture allocation. The Plan Administrator will allocate a Participant's forfeiture (Choose one or both of (a) and (b) as applicable):

                                                                                                                                               (1)        ;                              (2)                      (3)

                                                                                                                                               All    &# 160;                         Nonelective       Matching

                                                                                                                                        Forfeitures                        Forfeitures      Forfeitures

(a)     [X]    Same Plan Year. In the same Plan Year in which the designated                    [X]                OR               [   ]                     [   ]

forfeiture occurs.

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(b)     [   ]    Next Plan Year. In the Plan Year following the Plan Year in which                [   ]                OR               [   ]                     [   ]

the designated forfeiture occurs.

[Note: The elected forfeiture allocation timing applies irrespective of when the Employer makes its contribution(s), if any, for a Plan Year. Even if the Employer elects immediate vesting, the Employer should complete Election 34. See Sections 3.07 and 7.07.]

35.     EMPLOYEE (AFTER-TAX) CONTRIBUTIONS (3.09). The following additional elections apply to Employee Contributions under Election 6(f). (Complete (a) and (b)):

(a)Limitations. The Plan permits Employee Contributions subject to the following limitations, if any, in addition to those already imposed under the Plan (Choose one of (1) or (2)):

(1)[   ]    None. No additional limitations.

(2)[   ]    Additional limitations. The following additional limitations:                                                                                     0;            .

[Note: Any designated limitation(s) must be the same for all Participants and must be definitely determinable.]

(b)Matching Contributions. (Choose one of (1) or (2)):

(1)[   ]    None. The Employer will not make any Matching Contributions based on Employee Contributions.

(2)[   ]    Applies. For each Plan Year, the Employer's Matching Contribution made as to Employee Contributions is:

                                                                                                                                                          ;                                          .

36.     DESIGNATED IRA CONTRIBUTIONS (3.12). Under Election 6(h), a Participant may make Designated IRA Contributions effective for Plan Years beginning after                          (date specified must be no earlier than December 31, 2002). (Complete (a) and (b)):

(a)Type of IRA contribution. A Participant's Designated IRA Contributions will be (Choose one of (1), (2), or (3)):

(1)     [   ]    Traditional.

(2)     [   ]    Roth.

(3)     [   ]    Traditional/Roth. As the Participant elects at the time of contribution.

(b)Type of Account. A Participant's Designated IRA Contributions will be held in the following form of Account(s) (Choose one of (1), (2), or (3)):

(1)     [   ]    IRA.

(2)     [   ]    Individual Retirement Annuity.

(3)     [   ]    IRA/Individual Retirement Annuity. As the Participant elects at the time of contribution.

ARTICLE IV

LIMITATIONS AND TESTING

[Note: The Employer, in the "Effective as of execution" column under Election 37, must elect those testing elections which are: (i) in effect as of date of the Employer's execution of this Adoption Agreement; and (ii) if the Adoption Agreement restates the Plan, also are retroactive to the later of the Plan's original Effective Date or EGTRRA restated Effective Date, except as indicated in Appendix A. If the Employer wishes to change any testing election after it executes this Adoption Agreement, the Employer must elect the changes in the "Changes post-execution" column under Election 37, and the Employer must specify the Plan Year Effective Date(s) of any changed election. The Employer may complete the Effective Date blanks specifying the changed election applies to a single Plan Year (e.g., "2011 only"), or a range of Plan Years (e.g., "2011-2015") or may specify the change as becoming effective in a specified Plan Year (e.g., "commencing 2010"). If the Employer specifies a single Plan Year only or specifies a range of Plan Years, the Plan becomes subject to the election in the "Effective as of execution" column in the Plan Years commencing after the specified Year(s), unless the Employer subsequently changes the election. If the Employer specifies the change as commencing in a Plan Year, the election applies in the specified Plan Year and in all following Plan Years unless the Employer subsequently changes the election.]

37.     ANNUAL TESTING ELECTIONS (4.06(B)). The Employer makes the following Plan specific annual testing elections under Section 4.06(B). (Complete (a) and (b)):

                                                                                                                                              (1)       & #160;                                        (2)

                                                                                                                           Effective as of execution           Changes post-execution

                                                                                                                                  (and retroactively                       (specify Plan Year

                                                                                                                                    if restatement)                          Effective Date(s))

(a)     Nondiscrimination testing. (Choose one or more of (1), (2), or (3)):

(1)     [X]    Traditional 401(k) Plan/ADP/ACP test.

The following testing method(s) apply

(Choose a. and b. as applicable):

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[Note: The Plan may "split test" for Plan Years commencing in 2005.]

a.       [   ]    Current Year Testing. See Section 4.11(E).

Current Year Testing applies to the ADP/ACP tests

as elected below (Choose one or both of (i) and (ii)):

(i)      [   ]    ADP test.                                                                             [   ]                               [   ]  Effective Date(s):

(ii)     [   ]    ACP test.                                                                             [   ]                               [   ]  Effective Date(s):

[Note: The Employer may leave (ii) blank if the Plan does not permit Matching Contributions or Employee Contributions and the Plan Administrator will not recharacterize Elective Deferrals as Employee Contributions for testing.]

b.      [X]    Prior Year Testing. See Section 4.11(I).

Prior Year Testing applies to the ADP/ACP tests as

elected below. See Sections 4.10(B)(4)(f)(iv) and

4.10(C)(5)(e)(iv) as to the first Plan Year. (Choose

one or both of (i) and (ii)):

(i)      [X]    ADP test.                                                                             [X]                               [   ]  Effective Date(s):

(ii)     [X]    ACP test.                                                                             [X]                               [   ]  Effective Date(s):

[Note: The Employer may leave (ii) blank if the Plan does not permit Matching Contributions or Employee Contributions and the Plan Administrator will not recharacterize Elective Deferrals as Employee Contributions for testing.]

(2)     [   ]    Safe Harbor Plan/No testing or ACP test only.

(Choose one of a., b., or c.):

a.       [   ]    No testing.                                                                                    [   ]                               [   ]  Effective Date(s):

ADP test safe harbor applies and if applicable,                                                                                                          

ACP test safe harbor applies.

b.      [   ]    ACP test only.

ADP test safe harbor applies, but Plan will perform

ACP test as follows (Choose one of (i) or (ii)):

(i)      [   ]    Current Year Testing.                                                      [   ]                               [   ]  Effective Date(s):

(ii)     [   ]    Prior Year Testing.                                                            [   ]                               [   ]  Effective Date(s):

[Note: The Employer may elect Prior Year Testing under Election 37(a)(2)b.(ii) only for Plan Years after the Final 401(k) Regulations Effective Date.]

c.       [   ]    Possible delayed election.                                                          [   ]                               [   ]  Effective Date(s):

(maybe notice/supplemental notice)                                                                                                                            

The Employer under Section 3.05(I)(1) may treat the Plan as a Traditional 401(k) Plan or may make a delayed election to treat the Plan as a Safe Harbor 401(k) Plan. If the Employer gives the maybe and supplemental notices and amends the Plan to provide for the Safe Harbor Nonelective Contribution, the Plan is an ADP test safe harbor plan for the Plan Year to which the maybe and supplemental notices and the amendment apply. If the Employer does not give the supplemental notice, the Plan is a Traditional 401(k) Plan, subject to ADP Current Year Testing and, if applicable, to ACP Current Year Testing. If the Employer gives the supplemental notice and amends the Plan to provide for the Safe Harbor Nonelective Contribution, and the Employer has elected Additional Matching Contributions under Election 30(h) (Choose one of (i) or (ii)):

(i)[   ]    No testing. ADP and ACP test safe harbors apply. The Employer's elections under 30(h) as to Additional Matching Contributions satisfy the ACP safe harbor requirements and the Employer elects to apply the Election 30(h) stated ACP test safe harbor conditions (see the Note following Election 30(h)) as to all Additional Matching Contributions.

(ii)[   ]    ACP test only. ADP safe harbor applies, but the Plan will perform the ACP test as to all Additional Matching Contributions using Current Year Testing.

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[Note: Even if the Employer does not elect 37(a)(2)c., the Employer still may make a delayed election into safe harbor status under Section 3.05(I)(1) using the maybe and supplemental notices and by amending the plan to provide for the Safe Harbor Nonelective Contribution. However, in this case, the Employer also must amend the Plan to make its testing elections under this Election 37 consistent with its delayed election into safe harbor status. The Employer then may elect any election under 37(a)(2), including 37(a)(2)c. An Employer's election of 37(a)(2)c. permits the Plan to remain in perpetual possible delayed safe harbor election status, while minimizing the number of Plan amendments required to do so.]

(3)     [   ]    SIMPLE 401(k) Plan/No testing.                                                         [   ]                               [   ]  Effective Date(s):

(b)     HCE determination. (Complete both (1) and (2)):

(1)     Top-paid group election. (Choose one of a. or b.):

a.       [   ]    Does not apply.                                                                            [   ]                               [   ]  Effective Date(s):

b.      [X]    Applies.                                                                                         [X]                               [   ]  Effective Date(s):

(2)     Calendar year data election (fiscal year Plan only).

(Choose one of a. or b.):

a.       [   ]    Does not apply.                                                                            [   ]                               [   ]  Effective Date(s):

b.      [   ]    Applies.                                                                                         [   ]                               [   ]  Effective Date(s):

ARTICLE V

VESTING REQUIREMENTS

38.     NORMAL RETIREMENT AGE (5.01). A Participant attains Normal Retirement Age under the Plan on the following date (Choose one of (a) or (b)):

(a)[X]    Specific age. The date the Participant attains age   65  . [Note: The age may not exceed age 65.]

(b)[   ]    Age/participation. The later of the date the Participant attains age             or the             anniversary of the first day of the Plan Year in which the Participant commenced participation in the Plan. [Note: The age may not exceed age 65 and the anniversary may not exceed the 5th.]

39.     EARLY RETIREMENT AGE (5.01). (Choose one of (a) or (b)):

(a)[X]    Not applicable. The Plan does not provide for an Early Retirement Age.

(b)[   ]    Early Retirement Age. Early Retirement Age is the later of: (i) the date a Participant attains age            ; (ii) the date a Participant reaches his/her             anniversary of the first day of the Plan Year in which the Participant commenced participation in the Plan; or (iii) the date a Participant completes             Years of Service.

[Note: The Employer should leave blank any of clauses (i), (ii), and (iii) which are not applicable.]

"Years of Service" under this Election 39 means (Choose one of (1) or (2) as applicable):

(1)     [   ]    Eligibility. Years of Service for eligibility in Election 16.

(2)     [   ]    Vesting. Years of Service for vesting in Elections 42 and 43.

[Note: Election of an Early Retirement Age does not affect the time at which a Participant may receive a Plan distribution. However, a Participant becomes 100% vested at Early Retirement Age.]

40.     ACCELERATION ON DEATH OR DISABILITY (5.02). Under Section 5.02, if a Participant incurs a Severance from Employment as a result of death or Disability (Choose one of (a), (b), or (c)):

(a)[X]    Applies. Apply 100% vesting.

(b)[   ]    Not applicable. Do not apply 100% vesting. The Participant's vesting is in accordance with the applicable Plan vesting schedule.

(c)[   ]    Limited application. Apply 100% vesting, but only if a Participant incurs a Severance from Employment as a result of (Choose one of (1) or (2)):

(1)[   ]    Death.

(2)[   ]    Disability.

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41.     VESTING SCHEDULE (5.03). A Participant has a 100% Vested interest at all times in his/her Accounts attributable to: (i) Elective Deferrals; (ii) Employee Contributions; (iii) QNECs; (iv) QMACs; (v) Safe Harbor Contributions; (vi) SIMPLE Contributions; (vii) Rollover Contributions; (viii) Prevailing Wage Contributions unless the Prevailing Wage Contract provides otherwise; (ix) DECs; and (x) Designated IRA Contributions. The following vesting schedule applies to Regular Matching Contributions, to Additional Matching Contributions (irrespective of ACP testing status) and to Nonelective Contributions (other than Prevailing Wage Contributions) (Choose (a) or choose one or both of (b) and (d) as applicable. Choose (c) if elect a non-top-heavy schedule under (b) or (d)):

(a)[   ]    Immediate vesting. 100% Vested at all times in all Accounts.

[Note: Unless all Contribution Types are 100% Vested, the Employer should not elect 41(a). If the Employer elects immediate vesting under 41(a), the Employer should not complete the balance of Election 41 or Elections 42 and 43 (except as noted therein). The Employer must elect 41(a) if the eligibility Service condition under Election 14 as to all Contribution Types (except Elective Deferrals and Safe Harbor Contributions) exceeds one Year of Service or more than 12 months. The Employer must elect 41(b)(1) as to any Contribution Type where the eligibility service condition exceeds one Year of Service or more than 12 months. The Employer should elect 41(b) if any Contribution Type is subject to a vesting schedule.]

(b)[X]    Vesting schedules: Apply the following vesting schedules (Choose one or more of (1) through (7) as applicable):

                                                                                            (1)                                             (2)             & #160;           (3)                              (4)

                                                                                                                                                                                                       Additional

                                                                                            All                                                       &# 160;             Regular                Matching (See

                                                                                  Contributions                         Nonelective            Matching              Section 3.05(F))

(1)     [   ]    Immediate vesting                               N/A                                          [   ]                        [   ]                             [   ]

                                                                        (See Election 41(a))

(2)     [X]    Top-heavy: 6-year graded                   [X]                     OR                 [   ]                        [   ]                             [   ]

(3)     [   ]    Top-heavy: 3-year cliff                        [   ]                     OR                 [   ]                        [   ]                             [   ]

(4)     [   ]    Modified top-heavy:                            [   ]                     OR                 [   ]                        [   ]                             [   ]

Years of Service      Vested %

Less than 1              a.             

1                              b.             

2                              c.             

3                              d.             

4                              e.             

5                              f.              

6 or more                      100%

(5)     [   ]    Non-top-heavy:7-year graded            N/A                                          [   ]                        N/A                           ;  N/A

(6)     [   ]    Non-top-heavy:5-year cliff                N/A                                          [   ]                        N/A                             N/A

(7)     [   ]    Modified non-top-heavy:                    N/A                                          [   ]                        N/A                            N/A

Years of Service      Vested %

Less than 1              a.             

1                              b.             

2                              c.             

3                              d.             

4                              e.             

5                              f.              

6                              g.             

7 or more                      100%

[Note: If the Employer does not elect 41(a), the Employer under 41(b) must elect immediate vesting or must elect a top-heavy or modified top-heavy vesting schedule. The modified top-heavy schedule of Election 41(b)(4) must satisfy Code §416. A top-heavy schedule must apply to Regular Matching Contributions and to Additional Matching Contributions. See Section 5.03(A)(1). The Employer as to Nonelective Contributions only may elect one of Elections 41(b)(5), (6), or (7) in addition to electing a top-heavy schedule. The Employer must complete Election 41(c) if it elects any non-top-heavy schedule. If the Employer does not elect a non-top-heavy schedule, the elected top-heavy schedule(s) applies to all Plan Years. If the Employer elects 41(b)(7), the modified non-top-heavy schedule must satisfy Code §411(a)(2). If the Employer elects Additional Matching under Election 30(h), the Employer should elect vesting under the Additional Matching column in this Election 41(b). That election applies to the Additional Matching even if the Employer has given the maybe notice but does not give the supplemental notice for any Plan Year and as to such Plan Years, the Plan is not a safe harbor plan and the Matching Contributions are not Additional Matching Contributions. If the Plan's Effective Date is after December 31, 2006, do not complete Elections 41(b)(5), (b)(6), or (b)(7).]

24

(c)[   ]    Nonelective Contributions: application of top-heavy schedule (Choose one of (1) or (2)):

(1)[   ]    Apply in all Plan Years once top-heavy. Apply the top-heavy vesting schedule under Election 41(b) for the first Plan Year in which the Plan is top-heavy and then in all subsequent Plan Years.

(2)[   ]    Apply only in top-heavy Plan Years. Apply the non-top-heavy schedule under Election 41(b) in all Plan Years in which the Plan is not a top-heavy plan.

(d)[   ]    Special vesting provisions:                                                                                                                                                              .

[Note: The Employer under Election 41(d) may describe special vesting provisions from the elections available under Election 41 and/or a combination thereof as to a: (i) Participant group (e.g., Full vesting applies to Division A Employees OR to Employees hired on/before "x" date. 6-year graded vesting applies to Division B Employees OR to Employees hired after "x" date.); and/or (ii) Contribution Type (e.g., Full vesting applies as to Discretionary Nonelective Contributions. 6-year graded vesting applies to Fixed Nonelective Contributions). Any special vesting provision must satisfy Code §411(a) and must be nondiscriminatory.]

42.YEAR OF SERVICE - VESTING (5.05). (Complete both (a) and (b)):

[Note: If the Employer elects the Elapsed Time Method for vesting the Employer should not complete this Election 42. If the Employer elects immediate vesting, the Employer should not complete Election 42 or Election 43 unless it elects to apply a Year of Service for vesting under any other Adoption Agreement election.]

(a)Year of Service. An Employee must complete at least      1,000      Hours of Service during a Vesting Computation Period to receive credit for a Year of Service under Article V. [Note: The number may not exceed 1,000. If left blank, the requirement is 1,000.]

(b)Vesting Computation Period. The Plan measures a Year of Service based on the following 12-consecutive month period (Choose one of (1) or (2)):

(1)[X]    Plan Year.

(2)[   ]    Anniversary Year.

43.     EXCLUDED YEARS OF SERVICE - VESTING (5.05(C)). The Plan excludes the following Years of Service for purposes of vesting (Choose (a) or choose one or more of (b) through (e) as applicable):

(a)[X]    None. None other than as specified in Section 5.05(C)(1).

(b)[   ]    Age 18. Any Year of Service before the Vesting Computation Period during which the Participant attained the age of 18.

(c)[   ]    Prior to Plan establishment. Any Year of Service during the period the Employer did not maintain this Plan or a predecessor plan.

(d)[   ]    Rule of Parity. Any Year of Service excluded under the rule of parity. See Plan Section 5.06(C).

(e)[   ]    Additional exclusions. The following Years of Service:                                                                                                                 .

[Note: The Employer under Election 43(e) may describe vesting service exclusions provisions available under Election 43 and/or a combination thereof as to a: (i) Participant group (e.g., No exclusions apply to Division A Employees OR to Employees hired on/before "x" date. The age 18 exclusion applies to Division B Employees OR to Employees hired after "x" date.); or (ii) Contribution Type (e.g., No exclusions apply as to Discretionary Nonelective Contributions. The age 18 exclusion applies to Fixed Nonelective Contributions). Any exclusion specified under Election 43(e) must comply with Code §411(a)(4). Any exclusion must be nondiscriminatory.]

ARTICLE VI

DISTRIBUTION OF ACCOUNT BALANCE

44.     MANDATORY DISTRIBUTION (6.01(A)(1)/6.08(D)). The Plan provides or does not provide for Mandatory Distribution of a Participant's Vested Account Balance following Severance from Employment, as follows (Choose one of (a) or (b)):

(a)[   ]    No Mandatory Distribution. The Plan will not make a Mandatory Distribution following Severance from Employment.

(b)[X]    Mandatory Distribution. The Plan will make a Mandatory Distribution following Severance from Employment. (Complete (1) and (2). Choose (3) unless the Employer elects to limit Mandatory Distributions to $1,000 including Rollover Contributions under Elections 44(b)(1)b. and 44(b)(2)b.):

(1)Amount limit. As to a Participant who incurs a Severance from Employment and who will receive distribution before attaining the later of age 62 or Normal Retirement Age, the Mandatory Distribution maximum amount is equal to (Choose one of a., b., or c.):

a.       [X]    $5,000.

b.      [   ]    $1,000.

c.       [   ]    Specify amount: $            (may not exceed $5,000).

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(2)Application of Rollovers to amount limit. In determining whether a Participant's Vested Account Balance exceeds the Mandatory Distribution dollar limit in Election 44(b)(1), the Plan (Choose one of a. or b.):

a.       [X]    Disregards Rollover Contribution Account.

b.      [   ]    Includes Rollover Contribution Account.

(3)[X]    Amount of Mandatory Distribution subject to Automatic Rollover. A Mandatory Distribution to a Participant before attaining the later of age 62 or Normal Retirement Age is subject to Automatic Rollover under Section 6.08(D) (Choose one of a. or b.):

a.[X]    Only if exceeds $1,000. Only if the amount of the Mandatory Distribution exceeds $1,000, which for this purpose must include any Rollover Contributions Account.

b.[   ]    Specify lesser amount. Only if the amount of the Mandatory Distribution is at least: $            (specify $1,000 or less).

45.     SEVERANCE DISTRIBUTION TIMING (6.01). Subject to the timing limitations of Section 6.01(A)(1) in the case of a Mandatory Distribution, or in the case of any Distribution Requiring Consent under Section 6.01(A)(2), for which consent is received, the Plan Administrator will instruct the Trustee to distribute a Participant's Vested Account Balance as soon as is administratively practical following the time specified below (Choose one or more of (a) through (k) as applicable):

[Note: If a Participant dies after Severance from Employment but before receiving distribution of all of his/her Account, the elections under this Election 45 no longer apply. See Section 6.01(B) and Election 49.]

                                                                                                                                                   0;                 (1)                                    (2)

                                                                                                                                                             Mandatory                     Distribution

                                                                                                                                                            Distribution              Requiring Consent

(a)     [X]    Immediate. Immediately following Severance from Employment.                                       [X]                                   [X]

(b)     [   ]    Next Valuation Date. After the next Valuation Date following Severance                          [   ]                                   [   ]

from Employment.

(c)     [   ]    Plan Year. In the             Plan Year following Severance from                                             [   ]                                   [   ]

Employment (e.g., next or fifth).

(d)     [   ]    Plan Year quarter. In the             Plan Year quarter following                                            [   ]                                   [   ]

Severance from Employment (e.g., next or fifth).

(e)     [   ]    Contribution Type Accounts.                                    as to the                                            [   ]                                   [   ]

Participant's                                    Account(s) and                                    as to

the Participant's                                    Account(s) (e.g., As soon as is practical

following Severance from Employment as to the Participant's Elective

Deferral Account and as soon as is practical in the next Plan Year

following Severance from Employment as to the Participant's Nonelective

and Matching Accounts).

(f)      [   ]    Vesting controlled timing. If the Participant's total                                                           [   ]                                   [   ]

Vested Account Balance exceeds $           ,

distribute                          (specify timing) and if

the Participant's total Vested Account Balance does not

exceed $           , distribute                          (specify timing).

(g)     [   ]    Distribute at Normal Retirement Age. As to a Mandatory                                             [   ]                                   [   ]

Distribution, distribute not later than 60 days after the

beginning of the Plan Year following the Plan Year in

which the previously severed Participant attains the

earlier of Normal Retirement Age or age 65. [Note: An

election under column (2) only will have effect if the

Plan's NRA is less than age 62.]

(h)     [   ]    Acceleration. Notwithstanding any later specified distribution date in                               [   ]                                   [   ]

Election 45, a Participant may elect an earlier distribution

following Severance from Employment (Choose (1) and (2) as applicable):

(1)[   ]    Disability. If Severance from Employment is on account of Disability or if

the Participant incurs a Disability following Severance from Employment.

(2)[   ]    Hardship. If the Participant incurs a hardship under Section 6.07

following Severance from Employment.

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(i)      [   ]    Required distribution at Normal Retirement Age. A severed Participant                      N/A                                  [   ]

may not elect to delay distribution beyond the later of age 62 or Normal

Retirement Age.

(j)      [   ]    No buy-back/vesting controlled timing.                                                                            [   ]                                   [   ]

Distribute as soon as is practical following Severance

from Employment if the Participant is fully Vested.

Distribute as soon as is practical following a Forfeiture

Break in Service if the Participant is not fully Vested.

(k)[   ]    Describe Severance from Employment distribution timing:                                                                                                    

[Note: The Employer under Election 45(k) may describe Severance from Employmentdistribution timing provisions from the elections available under Election 45 and/or a combination thereof as to any: (i) Participant group (e.g., Immediate distribution after Severance of Employment applies to Division A Employees OR to Employees hired on/before "x" date. Distribution after the next Valuation Date following Severance from Employment applies to Division B Employees OR to Employees hired after "x" date.); (ii) Contribution Type (e.g., As to Division A Employees, immediate distribution after Severance of Employment applies as to Elective Deferral Accounts and distribution after the next Valuation Date following Severance from Employment applies to Nonelective Contribution Accounts); and/or (iii) merged plan account now held in the Plan (e.g., The accounts from the X plan merged into this Plan continue to be distributable in accordance with the X plan terms [supply terms] and not in accordance with the terms of this Plan). An Employer's election under Election 45(k) must: (i) be objectively determinable; (ii) not be subject to Employer discretion; (iii) comply with Code §401(a)(14) timing requirements; (iv) be nondiscriminatory and (v) preserve Protected Benefits as required.]

46.     IN-SERVICE DISTRIBUTIONS/EVENTS (6.01(C)). A Participant may elect an In-Service Distribution of the designated Contribution Type Accounts based on any of the following events in accordance with Section 6.01(C) (Choose one of (a) or (b)):

[Note: If the Employer elects any In-Service Distribution option, a Participant may elect to receive as many In-Service Distributions per Plan Year (with a minimum of one per Plan Year) as the Plan Administrator's In-Service Distribution form or policy may permit. If the form or policy is silent, the number of In-Service Distributions is not limited. Prevailing Wage Contributions are treated as Nonelective Contributions unless the Prevailing Wage Contract provides otherwise. See Section 6.01(C)(4)(d) if the Employer elects to use Prevailing Wage Contributions to offset other contributions.]

(a)[   ]    None. The Plan does not permit any In-Service Distributions except as to any of the following (if applicable): (i) RMDs under Section 6.02; (ii) Protected Benefits; and (iii) under Section 6.01(C)(4) as to Employee Contributions, Rollover Contributions, DECs, Transfers, and Designated IRA Contributions.

(b)[X]    Permitted. In-Service Distributions are permitted as follows from the designated Contribution Type Accounts (Choose one or more of (1) through (9)):

[Note: Unless the Employer elects otherwise in Election 46(b)(9), Elective Deferrals under Election 46(b) includes Pre-Tax and Roth Deferrals and Matching Contributions includes Additional Matching Contributions, irrespective of the Plan's ACP testing status.]

                                                                      (1)                         (2)                       (3)                  (4)             (5)  & #160;            (6)                 (7)

                                                                      All                     Elective          Safe Harbor                                         Matching   Nonelec tive/

                                                            Contributions          Deferrals       Contributions    QNECs    QMACs     Contrib.       SIMPLE

(1)     [   ]    None. Except for             N/A                       [   ]                      [   ]                 [   ]            [   ]              [   ]                [   ]

Election 46(a)           (See Election

exceptions.                     46(a))

(2)     [X]    Age   59 1/2   (must         [X]           OR        [   ]                      [   ]                 [   ]            [   ]              [   ]                [   ]

be at least 59 1/2).

(3)     [   ]    Age             (may             N/A                       N/A                     N/A                N/A           N/A             [   ]                [   ]

be less than 59 1/2).

(4)     [X]    Hardship (safe                N/A                       [X]                      N/A                N/A           N/A             [X]                [X]

harbor). See

Section 6.07(A).

(5)     [   ]    Hardship (non-               N/A                       N/A                     N/A                N/A           N/A             [   ]                [   ]

safe harbor). See

Section 6.07(B).

(6)     [   ]    Disability.                       [   ]          OR        [   ]                      [   ]                 [   ]            [   ]              [   ]                [   ]

(7)     [   ]                year                     N/A                       N/A                     N/A                N/A           N/A             [   ]                [   ]

contributions.

(specify minimum of

two years) See

Section 6.01(C)(4)(a)(i).

27

(8)     [   ]                months                N/A                       N/A                     N/A                N/A           N/A             [   ]                [   ]

of participation.

(specify minimum of

60 months) See

Section 6.01(C)(4)(a)(ii).

(9)[   ]    Describe:                                                                                                                                                                                 

[Note: The Employer under Election 46(b)(9) may describe In-Service Distribution provisions from the elections available under Election 46 and/or a combination thereof as to any: (i) Participant group (e.g., Division A Employee Accounts are distributable at age 59 1/2 OR Accounts of Employees hired on/before "x" date are distributable at age 59 1/2). No In-Service Distributions apply to Division B Employees OR to Employees hired after "x" date.); (ii) Contribution Type (e.g., Discretionary Nonelective Contribution Accounts are distributable on Disability. Fixed Nonelective Contribution Accounts are distributable on Disability or Hardship (non-safe harbor)); and/or (iii) merged plan account now held in the Plan (e.g., The accounts from the X plan merged into this Plan continue to be distributable in accordance with the X plan terms [supply terms] and not in accordance with the terms of this Plan). An Employer's election under Election 46(b)(9) must: (i) be objectively determinable; (ii) not be subject to Employer discretion; (iii) preserve Protected Benefits as required; (iv) be nondiscriminatory; and (v) not permit an "early" distribution of any Restricted 401(k) Accounts or Restricted Pension Accounts. See Section 6.01(C)(4).]

In-Service Distribution of other Accounts. See Section 6.01(C)(4) as to In-Service Distribution of Employee Contributions, Rollover Contributions, DECs, Transfers, and Designated IRA Contributions.

47.     IN-SERVICE DISTRIBUTIONS/ADDITIONAL CONDITIONS (6.01(C)). The following additional conditions apply to In-Service Distributions under Election 46(b) (Choose one of (a) or (b)):

[Note: The Employer should complete Election 47 if the Employer elects any In-Service Distributions under Election 46(b).]

(a)[   ]    Additional conditions. (Complete (1). Choose (2) and (3) as applicable):

(1)Vesting. A Participant may receive an In-Service Distribution under Election 46(b) based on vesting in the distributing Account as follows (Choose one of a., b., or c.):

a.[   ]    100% vesting required. A Participant may not receive any In-Service Distribution unless the Participant is 100% Vested in the distributing Account.

b.[   ]    100% vesting required except hardship. A Participant may not receive any In-Service Distribution unless the Participant is 100% Vested in the distributing Account, unless the distribution is based on hardship.

c.[   ]    Not required. A Participant may receive an In-Service Distribution even from a partially-Vested Account, but the amount distributed may not exceed the Vested amount in the distributing partially-Vested Account.

(2)[   ]    Minimum amount. A Participant may not receive an In-Service Distribution in an amount which is less than: $            (specify amount not exceeding $1,000).

(3)[   ]    Describe other conditions:                                                                                         & #160;                                                         

[Note: An Employer's election under Election 47(a)(3) must: (i) be objectively determinable; (ii) not be subject to Employer discretion; (iii) preserve Protected Benefits as required; (iv) be nondiscriminatory; and (v) not permit an "early" distribution of any Restricted 401(k) Accounts or Restricted Pension Accounts. See Section 6.01(C)(4).]

(b)[X]    No other conditions. A Participant may elect to receive an In-Service Distribution upon any Election 46(b) event without further condition, provided that the amount distributed may not exceed the Vested amount in the distributing Account.

48.     POST-SEVERANCE AND LIFETIME RMD DISTRIBUTION METHODS (6.03). A Participant whose Vested Account Balance exceeds $5,000 (or any lesser amount elected in Appendix B, Election 54(g)(7)): (i) who has incurred a Severance from Employment and will receive a distribution; or (ii) who remains employed but who must receive lifetime RMDs, may elect distribution under one of the following method(s) of distribution described in Section 6.03 and subject to any Section 6.03 limitations. (Choose one or more of (a) through (f) as applicable):

[Note: If a Participant dies after Severance from Employment but before receiving distribution of all of his/her Account, the elections under this Election 48 no longer apply. See Section 6.01(B) and Election 49.]

(a)[X]    Lump-Sum. See Section 6.03(A)(3).

(b)[   ]    Installments only if Participant subject to lifetime RMDs. A Participant who is required to receive lifetime RMDs may receive installments payable in monthly, quarterly or annual installments equal to or exceeding the annual RMD amount. See Sections 6.02(A) and 6.03(A)(4)(a).

(c)[X]    Installments. See Section 6.03(A)(4).

(d)[   ]    Alternative Annuity:                                                                                        . See Section 6.03(A)(5).

28

[Note: Under a Plan which is subject to the joint and survivor annuity distribution requirements of Section 6.04 (Election 50(b)), the Employer may elect under 48(d) to offer one or more additional annuities (Alternative Annuity) to the Plan's QJSA or QPSA. If the Employer elects under Election 50(a) to exempt Exempt Participants from the joint and survivor annuity requirements, the Employer should not elect to provide an Alternative Annuity under 48(d).]

(e)[X]    Ad-Hoc distributions. See Section 6.03(A)(6).

[Note: If an Employer elects to permit Ad-Hoc distributions: (i) the option must be available to all Participants; and (ii) the option is a Protected Benefit.]

(f)[   ]    Describe distribution method(s):                                                                                       &# 160;                                                         

[Note: The Employer under Election 48(f) may describe Severance from Employment distribution methods from the elections available under Election 48 and/or a combination thereof as to any: (i) Participant group (e.g., Division A Employee Accounts are distributable in a Lump-Sum OR Accounts of Employees hired after "x" date are distributable in a Lump-Sum. Division B Employee Accounts are distributable in a Lump-Sum or in Installments OR Accounts of Employees hired on/before "x" date are distributable in a Lump-Sum or in Installments.); (ii) Contribution Type (e.g., Discretionary Nonelective Contribution Accounts are distributable in a Lump-Sum. Fixed Nonelective Contribution Accounts are distributable in a Lump-Sum or in Installments); and/or (iii) merged plan account now held in the Plan (e.g., The accounts from the X plan merged into this Plan continue to be distributable in accordance with the X plan terms [supply terms] and not in accordance with the terms of this Plan). An Employer's election under Election 48(f) must: (i) be objectively determinable; (ii) not be subject to Employer, Plan Administrator or Trustee discretion; (iii) be nondiscriminatory; and (iv) preserve Protected Benefits as required.]

49.     BENEFICIARY DISTRIBUTION ELECTIONS (6.01(B)/6.02(B)/6.03). Subject to the Participant's elections under Section 6.01(B)(1) as to the timing and method of distribution of the Participant's Account to the Participant's Beneficiary (which Participant elections must be consistent with the Plan and this Election 49), in the case of a Participant's death, the Beneficiary will receive distribution of the Participant's Account (or of the Beneficiary's share thereof) as follows (Complete (a), (b), and (c)):

[Note: For purposes of this Election 49, unless otherwise noted, a "Beneficiary" includes, but is not limited to a "Designated Beneficiary" under Section 6.02(E)(1).]

                                                                                                                                                      (1 )                                           (2)

                                                                                                                                       Spouse Beneficiary               Other Beneficiary

(a)     Timing. The Plan will distribute to the Beneficiary as soon

as is practical at (or not later than) the following time or date

(Choose one of (1) through (4). Choose (5) if applicable):

(1)     [   ]    Immediate. Immediately following the                                                         [   ]                                          [   ]

Participant's death.

(2)     [   ]    Next Calendar Year. In the calendar year which                                        [   ]                                          [   ]

next follows the calendar year of the Participant's

death, but not later than December 31 of such

following calendar year.

(3)     [X]    As Beneficiary elects. At such time as the Beneficiary                              [X]                                           [X]

may elect, provided that distribution pursuant to such

election (or in the absence of any Beneficiary election)

must commence no later than the Section 6.02 required date.

(4)    [   ] Describe: [   ] [   ]

[Note: The Employer under Election 49(a)(4) may describe an alternative distribution timing or afford the Beneficiary an election which is narrower than that permitted under election 49(a)(3). However, any election under Election 49(a)(4) must require distribution to commence no later than the Section 6.02 required date.]

(5)     [X]    Death before DCD; spousal election to delay. If the                                [X]                                          N/A

Participant dies before his/her Distribution Commencement

Date and the Participant's sole Designated Beneficiary is

his/her spouse, the spouse may elect to delay distribution

until the end of the calendar year in which the Participant

would have attained age 70 1/2, if that date is later than the

date upon which distribution would be required to commence

to a non-spouse Beneficiary.

(b)     Method. The Plan will distribute to the Beneficiary under the

following distribution method(s). If more than one method is

elected, the Beneficiary may choose the method of distribution.

(Choose one or more of (1) through (4) but do not elect (4) only):

(1)     [X]    Lump-Sum. See Section 6.03(A)(3).                                                              [X]                                           [X]

29

(2)     [X]    Installments sufficient to satisfy RMD.                                                     [X]                                           [X]

See Section 6.03(A)(4)(a). An Installment in each Distribution

Calendar Year must at least equal the RMD amount.

(3)     [X]    Ad-Hoc sufficient to satisfy RMD. See Section 6.03(A)(6).                        [X]                                           [X]

The Beneficiary must elect an Ad-Hoc distribution for each

Distribution Calendar Year at least equal to the RMD amount.

[Note: If an Employer elects to permit Ad-Hoc distributions: (i) the option must be available to all Beneficiaries; and (ii) the option is a Protected Benefit.]

(4)     [   ]    QPSA. See Section 6.04(B).                                                                           [   ]                                          N/A

[Note: If the Employer elects 50(b), the Employer should elect 49(b)(4). If the Employer elects 50(a), the Employer should not elect 49(b)(4). A surviving spouse may elect to waive the QPSA in favor of another method.]

(c)     Death before the DCD. If a Participant dies before the Distribution

Commencement Date, the distribution to the Beneficiary will be made

in accordance with the following rule(s) (Choose one of (1), (2), or (3)):

(1)     [X]    Beneficiary election. See Section 6.02(B)(1)(e). This election                    [X]                                           [X]

applies only if the Beneficiary is a Designated Beneficiary

under Treas. Reg. §1.401(a)(9)-4. If not, the 5-year rule applies.

In the absence of the Designated Beneficiary's election, the

Life Expectancy rule applies. The Employer in Appendix B

may elect to change the default (no Designated Beneficiary

election) to the 5-year rule.

(2)     [   ]    Life Expectancy rule. See Section 6.02(B)(1)(d). This election                    [   ]                                          [   ]

applies only if the Beneficiary is a Designated Beneficiary

under Treas. Reg. §1.401(a)(9)-4. If not, the 5-year rule applies.

(3)     [   ]    5-year rule. See Section 6.02(B)(1)(c). This election applies                        [   ]                                          [   ]

regardless of whether the Beneficiary is a Designated Beneficiary

under Treas. Reg. §1.401(a)(9)-4.

50.     JOINT AND SURVIVOR ANNUITY REQUIREMENTS (6.04). The joint and survivor annuity distribution requirements of Section 6.04 (Choose one of (a) or (b)):

(a)[X]    Profit sharing exception. Do not apply to an Exempt Participant, as described in Section 6.04(G)(1), but apply to any other Participants (or to a portion of their Account as described in Section 6.04(G)) (Complete (1)):

(1)One-year marriage rule. Under Section 7.05(A)(3) relating to an Exempt Participant's Beneficiary designation under the profit sharing exception (Choose one of a. or b.):

a.[   ]    Applies. The one-year marriage rule applies.

b.[X]    Does not apply. The one-year marriage rule does not apply.

(b)[   ]    Joint and survivor annuity applicable. Section 6.04 applies to all Participants (Complete (1)):

(1)One-year marriage rule. Under Section 6.04(B) relating to the QPSA (Choose one of a. or b.):

a.[   ]    Applies. The one-year marriage rule applies.

b.      [   ]    Does not apply. The one-year marriage rule does not apply.

30

ARTICLE VII

ADMINISTRATIVE PROVISIONS

51.     ALLOCATION OF EARNINGS (7.04(B)). For each Contribution Type provided under the Plan, the Plan allocates Earnings using the following method (Choose one or more of (a) through (f) as applicable):

[Note: Elective Deferrals/Employee Contributions also includes Rollover Contributions, Transfers, DECs and Designated IRA Contributions, Matching Contributions includes all Matching Contributions and Nonelective Contributions includes all Nonelective Contributions unless described otherwise in Election 51(f).]

                                                                                          (1)                                             (2)               & #160;             (3)                             (4)

                                                                                                                              Elective Deferrals/

                                                                                          All                                       Employee                 Matching&# 160;              Nonelective

                                                                                Contributions                         Contributions          Contributions         Contributions

(a)     [X]    Daily. See Section 7.04(B)(4)(a).                 [X]                 OR                      [   ]                            [   ]                            [   ]

(b)     [   ]    Balance forward.                                         [   ]                 OR                      [   ]                            [   ]                           0; [   ]

See Section 7.04(B)(4)(b).

(c)     [   ]    Balance forward with adjustment.           [   ]                 OR                      [   ]                            [   ]                            [   ]

See Section 7.04(B)(4)(c). Allocate

pursuant to the balance forward method,

except treat as part of the relevant

Account at the beginning of the Valuation

Period            % of the contributions

made during the following Valuation

Period:                                         .

(d)     [   ]    Weighted average. See Section                   [   ]                 OR                      [   ]                            [   ]                            [   ]

7.04(B)(4)(d). If not a monthly

weighting period, the weighting

period is:                                      .

(e)     [   ]    Participant-Directed Account.                  [   ]                 OR                      [   ]                            [   ]                            [   ]

See Section 7.04(B)(4)(e).

(f)[   ]    Describe Earnings allocation method:                                                                                       0;                                                 

[Note: The Employer under Election 51(f) may describe Earnings allocation methods from the elections available under Election 51 and/or a combination thereof as to any: (i) Participant group (e.g., Daily applies to Division A Employees OR to Employees hired after "x" date. Balance forward applies to Division B Employees OR to Employees hired on/before "x" date.); (ii) Contribution Type (e.g., Daily applies as to Discretionary Nonelective Contribution Accounts. Participant-Directed Account applies to Fixed Nonelective Contribution Accounts); (iii) investment type, investment vendor or Account type (e.g., Balance forward applies to investments placed with vendor A and Participant-Directed Account applies to investments placed with vendor B OR Daily applies to Participant-Directed Accounts and balance forward applies to pooled Accounts); and/or (iv) merged plan account now held in the Plan (e.g., The accounts from the X plan merged into this Plan continue to be subject to Earnings allocation in accordance with the X plan terms [supply terms] and not in accordance with the terms of this Plan). An Employer's election under Election 51(f) must: (i) be objectively determinable; (ii) not be subject to Employer discretion; and (iii) be nondiscriminatory.]

ARTICLE VIII

TRUSTEE AND CUSTODIAN, POWERS AND DUTIES

52.     VALUATION OF TRUST (8.02(C)(4)). In addition to the last day of the Plan Year, the Trustee (or Named Fiduciary as applicable)must value the Trust Fund on the following Valuation Date(s) (Choose one or more of (a) through (d) as applicable):

[Note: Elective Deferrals/Employee Contributions also include Rollover Contributions, Transfers, DECs and Designated IRA Contributions, Matching Contributions includes all Matching Contributions and Nonelective Contributions includes all Nonelective Contributions unless described otherwise in Election 52(d).]

                                                                                          (1)                                             (2)               & #160;             (3)                             (4)

                                                                                                                              Elective Deferrals/

                                                                                          All                                       Employee                 Matching&# 160;              Nonelective

                                                                                Contributions                         Contributions          Contributions         Contributions

(a)     [   ]    No additional Valuation Dates.                [   ]                 OR                      [   ]                            [   ]                            [   ]

31

(b)     [X]    Daily Valuation Dates. Each business       [X]                 OR                      [   ]                            [   ]                            [   ]

day of the Plan Year on which Plan

assets for which there is an

established market are valued and

the Trustee is conducting business.

(c)     [   ]    Last day of a specified period. The            [   ]                 OR                      [   ]                            [   ]                            [   ]

last day of each             of the Plan Year.

(d)[   ]    Specified Valuation Dates:                                                                                         & #160;                                                                  .

[Note: The Employer under Election 52(d) may describe Valuation Dates from the elections available under Election 52 and/or a combination thereof as to any: (i) Participant group (e.g., No additional Valuation Dates apply to Division A Employees OR to Employees hired after "x" date. Daily Valuation Dates apply to Division B Employees OR to Employees hired on/before "x" date.); (ii) Contribution Type (e.g., No additional Valuation Dates apply as to Discretionary Nonelective Contribution Accounts. The last day of each Plan Year quarter applies to Fixed Nonelective Contribution Accounts); (iii) investment type, investment vendor or Account type (e.g., No additional Valuation Dates apply to investments placed with vendor A and Daily Valuation Dates apply to investments placed with vendor B OR Daily Valuation Dates apply to Participant-Directed Accounts and no additional Valuation Dates apply to pooled Accounts); and/or (iv) merged plan account now held in the Plan (e.g., The accounts from the X plan merged into this Plan continue to be subject to Trust valuation in accordance with the X plan terms [supply terms] and not in accordance with the terms of this Plan). An Employer's election under Election 52(d) must: (i) be objectively determinable; (ii) not be subject to Employer discretion; and (iii) be nondiscriminatory.]

32

EXECUTION PAGE

The Employer, by executing this Adoption Agreement, hereby agrees to the provisions of this Plan and Trust.

Employer:		California Coastal Communities, Inc.
Date:	4/19/10
Signed:	/s/ S.G. Sciutto
Sandra G. Sciutto, SVP
[print name/title]

The Trustee, by executing this Adoption Agreement, hereby accepts its position and agrees to all of the obligations, responsibilities and duties imposed upon the Trustee under the Prototype Plan and Trust. If the Employer under Election 5(c), 5(d), or 5(e) will use a separate Trust, the Trustee need not execute this Adoption Agreement.

Nondiscretionary Trustee(s):			Prudential Trust Company
Date:	4/30/2010
Signed:	/s/ Michael G. Williamson
Michael G. Williamson V.P., Pru Trust
[print name/title]
Nondiscretionary Trustee(s):
Date:
Signed:
[print name/title]
Prototype Plan Sponsor:		The Prudential Insurance Company of America (PICA)
Date:	4/30/2010
Signed:	/s/ Christine C. Marcks
Christine C. Marcks Senior V.P. (PICA)
[print name/title]

Use of Adoption Agreement. Failure to complete properly the elections in this Adoption Agreement may result in disqualification of the Employer’s Plan. The Employer only may use this Adoption Agreement only in conjunction with the basic plan document referenced by its document number on Adoption Agreement page one.

Execution for Page Substitution Amendment Only. If this paragraph is completed, this Execution Page documents an amendment to Adoption Agreement Election(s)       effective                       , by substitute Adoption Agreement page number(s)             . The Employer should retain all Adoption Agreement Execution Pages and amended pages. [Note: The Effective Date may be retroactive or may be prospective as permitted under Applicable Law.]

Prototype Plan Sponsor. The Prototype Plan Sponsor identified on the first page of the basic plan document will notify all adopting Employers of any amendment to this Prototype Plan or of any abandonment or discontinuance by the Prototype Plan Sponsor of its maintenance of this Prototype Plan. For inquiries regarding the adoption of the Prototype Plan, the Prototype Plan Sponsor’s intended meaning of any Plan provisions or the effect of the Opinion Letter issued to the Prototype Plan Sponsor, please contact the Prototype Plan Sponsor at the following address and telephone number:   751 Broad Street, Newark, NJ 07102-3777   1-800-848-4015.

Reliance on Sponsor Opinion Letter.The Prototype Plan Sponsor has obtained from the IRS an Opinion Letter specifying the form of this Adoption Agreement and the basic plan document satisfy, as of the date of the Opinion Letter, Code §401. An adopting Employer may rely on the Prototype Sponsor’s IRS Opinion Letter only to the extent provided in Rev. Proc. 2005-16. The Employer may not rely on the Opinion Letter in certain other circumstances or with respect to certain qualification requirements, which are specified in the Opinion Letter and in Rev. Proc. 2005-16, Sections 19.02 and 19.03. In order to have reliance in such circumstances or with respect to such qualification requirements, the Employer must apply for a determination letter to Employee Plans Determinations of the IRS.

33

APPENDIX A

EGTRRA RESTATED PLANS - SPECIAL EFFECTIVE DATES

[Covering period from restated Effective Date in Election 4(b) until Employer executes EGTRRA restatement]

53.     SPECIAL EFFECTIVE DATES (1.19). The Employer elects or does not elect Appendix A special Effective Date(s) as follows. (Choose (a) or one or more of (b) through (r) as applicable):

[Note: If the Employer elects 53(a), do not complete the balance of this Election 53.]

(a)[   ]    Not applicable. The Employer does not elect any Appendix A special Effective Dates.

[Note: The Employer should use this Appendix A where it is restating its Plan for EGTRRA with a retroactive Effective Date, but where one or more Adoption Agreement elections under the restated Plan became effective after the Plan's general restatement Effective Date under Election 4(b). For periods prior to the below-specified special Effective Date(s), the Plan terms in effect prior to its restatement under this Adoption Agreement control for purposes of the designated provisions. Any special Effective Date the Employer elects must comply with Applicable Law.]

(b)[   ]    Contribution Types (1.12). The Contribution Types under Election(s) 6             are effective:                         .

[Note: The Plan may not permit Roth Deferrals before January 1, 2006.]

(c)[X]    Excluded Employees (1.21(D)). The Excluded Employee provisions under Election(s) 8   (b)(4)   are effective:   September 1, 2003  .

(d)[   ]    Compensation (1.11). The Compensation definition under Election(s)             (specify 9-11 as applicable) are effective:                         .

(e)[X]    Eligibility (2.01-2.03). The eligibility provisions under Election(s)   14(b)(2)(1)   (specify 14-19 as applicable) are effective:   June 1, 2010  .

(f)[X]    Elective Deferrals (3.02(A)-(C)). The Elective Deferral provisions under Election(s)   20(a)   (specify 20-22 as applicable) are effective:   April 1, 2004  .

(g)[   ]    Catch-Up Deferrals (3.02(D)). The Catch-Up Deferral provisions under Election 23             are effective:                         .

(h)[   ]    Matching Contributions (3.03). The Matching Contribution provisions under Election(s)              (specify 24-26 as applicable) are effective:                         .

(i)[   ]    Nonelective Contributions (3.04). The Nonelective Contribution provisions under Election(s)             (specify 27-29 as applicable) are effective:                         .

(j)[   ]    401(k) safe harbor (3.05). The 401(k) safe harbor provisions under Election(s) 30             are effective:                         .

(k)[   ]    Allocation conditions (3.06). The allocation conditions under Election(s)             (specify 31-32 as applicable) are effective:                         .

(l)[   ]    Forfeitures (3.07). The forfeiture allocation provisions under Election(s)             (specify 33-34 as applicable) are effective:                         .

(m)[   ]    Employee Contributions (3.09). The Employee Contribution provisions under Election(s) 35             are effective:                         .

(n)[   ]    Testing elections (4.06(B)). The testing elections under Election(s) 37             under the "Effective as of execution (and retroactively if restatement)" column are effective:                         .

(o)[   ]    Vesting (5.03). The vesting provisions under Election(s)             (specify 38-43 as applicable) are effective:                         .

(p)[   ]    Distributions (6.01 and 6.03). The distribution elections under Election(s)             (specify 44-50 as applicable) are effective:                         .

(q)[   ]    Earnings/Trust valuation (7.04(B)/8.02(C)(4)). The Earnings allocation and Trust valuation provisions under Election(s)             (specify 51-52 as applicable) are effective:                         .

(r)[X]    Special Effective Date(s) for other elections (specify elections and dates):  If this Plan is retroactively effective on the Effective Date, the provisions of this Plan generally control, however, if the provisions of this Plan are different from the provisions of the Employer's prior plan, and after the retroactive Effective Date of this Plan, the Employer operated in compliance with the provisions of the prior plan, the provisions of such prior plan are incorporated into this Plan for purposes of determining whether the Employer operated the Plan in compliance with its terms, provided operation in compliance with the terms of the prior plan do not violate any qualification requirements under the Code, regulations or other IRS guidance.      

1

APPENDIX B

BASIC PLAN DOCUMENT OVERRIDE ELECTIONS

54.     BASIC PLAN OVERRIDES. The Employer elects or does not elect to override various basic plan provisions as follows (Choose (a) or choose one or more of (b) through (i) as applicable):

[Note: If the Employer elects 54(a), do not complete the balance of this Election 54.]

(a)[   ]    Not applicable. The Employer does not elect to override any basic plan provisions.

[Note: The Employer at the time of restating its Plan with this Adoption Agreement may make an election on Appendix A (Election 53(r)) to specify a special Effective Date for any override provision the Employer elects in this Election 54. If the Employer, after it has executed this Adoption Agreement, later amends its Plan to change any election on this Appendix B, the Employer should document the Effective Date of the Appendix B amendment on the Execution Page or otherwise in the amendment.]

(b)[X]    Definition (Article I) overrides. (Choose one or more of (1) through (9) as applicable):

(1)[   ]    W-2 Compensation exclusion of paid/reimbursed moving expenses (1.11(B)(1)). W-2 Compensation excludes amounts paid or reimbursed by the Employer for moving expenses incurred by an Employee, but only to the extent that, at the time of payment, it is reasonable to believe that the Employee may deduct these amounts under Code §217.

(2)[   ]    Alternative (general) 415 Compensation (1.11(B)(4)). The Employer elects to apply the alternative (general) 415 definition of Compensation in lieu of simplified 415 Compensation. As to amounts received from an unfunded nonqualified deferred compensation plan which is includible in gross income in the taxable year of receipt (Choose one of a. or b.):

a.[   ]    Include. Include the nonqualified deferred compensation.

b.[   ]    Do not include. Do not include the nonqualified deferred compensation.

(3)[X]    Inclusion of Deemed 125 Compensation (1.11(C)). Compensation under Section 1.11 includes Deemed 125 Compensation.

(4)[   ]    Inclusion of Post-Severance Compensation (1.11(I) and 4.05(C)(1)). The Plan includes Post-Severance Compensation within the meaning of Prop. Treas. Reg. §1.415(c)-2(e) as described in Sections 1.11(I) and 4.05(C)(1) as follows (Choose one or both of a. and b.):

a.[   ]    Include for 415 testing. Include for 415 testing and for other testing which uses 415 Compensation. This provision applies effective as of                          (specify a date which is no earlier than January 1, 2005).

b.[   ]    Include for allocations. Include for allocations as follows (specify affected Contribution Type(s) and any adjustments to Post-Severance Compensation used for allocation):                                                                                                      . This provision applies effective as of                          (specify a date which is no earlier than January 1, 2002).

(5)[   ]    Inclusion of Deemed Disability Compensation (1.11(K)). Include Deemed Disability Compensation. (Choose one of a. or b.):

a.[   ]    NHCEs only. Apply only to disabled NHCEs.

b.[   ]    All Participants. Apply to all disabled Participants. The Employer will make Employer Contributions for such disabled Participants for:                                                                                                 (specify a fixed or determinable period).

(6)[   ]    Early application of final 401(k) regulations (1.28). The Employer (consistent with the Plan Administrator's operation of the Plan) elects to apply the final 401(k) regulations before the beginning of the 2006 Plan Year. The Employer elects to apply the regulations effective as of:             (specify Plan Year ending after December 29, 2004, e.g., Plan Year ending December 31, 2004 OR Plan Year beginning January 1, 2005).

(7)[X]    Leased Employees (1.21(B)). The Employer for purposes of the following Contribution Types, does not exclude Leased Employees:  All Contributions.                                                                      (specify Contribution Types).

(8)[   ]    Offset if contributions to leasing organization plan (1.21(B)(2)). The Employer will reduce allocations to this Plan for any Leased Employee to the extent that the leasing organization contributes to or provides benefits under a leasing organization plan to or for the Leased Employee and which are attributable to the Leased Employee's services for the Employer. The amount of the offset is as follows:           .

[Note: The election of an offset under this Election 54(b)(8) requires that the Employer aggregate its plan with the leasing organization's plan for coverage and nondiscrimination testing.]

(9)[   ]    Reclassified Employees (1.21(D)(3)). The Employer for purposes of the following Contribution Types, does not exclude Reclassified Employees (or the following categories of Reclassified Employees):        (specify Contribution Types and/or categories of Reclassified Employees).

1

(c)[   ]    Rule of parity – participation (Article II) override (2.03(D)). For purposes of Plan participation, the Plan applies the "rule of parity" under Code §410(a)(5)(D).

(d)[   ]    Contribution/allocation (Article III) overrides. (Choose one or more of (1) through (7) as applicable):

(1)[   ]    Treatment of Automatic Deferrals as Roth Deferrals (3.02(B)(7)). The Employer elects to treat Automatic Deferrals as Roth Deferrals in lieu of treating Automatic Deferrals as Pre-Tax Deferrals.

(2)[   ]    Application of Safe Harbor Contributions to other allocations (3.05(E)(11)). Any Safe Harbor Nonelective Contributions allocated to a Participant's account will not be applied toward (offset) any allocation to the Participant of a non-Safe Harbor Nonelective Contribution.

(3)[   ]    Short Plan Year or allocation period (3.06(B)(1)(c)). The Plan Administrator (Choose one of a. or b.):

a.[   ]    No pro-ration. Will not pro-rate Hours of Service in any short allocation period.

b.[   ]    Pro-ration based on months. Will pro-rate any Hour of Service requirement based on the number of months in the short allocation period.

(4)[   ]    Limited waiver of allocation conditions for re-hired Participants (3.06(G)). The allocation conditions the Employer has elected in the Adoption Agreement do not apply to re-hired Participants in the Plan Year they resume participation, as described in Section 3.06(G).

(5)[   ]    Associated Match forfeiture timing (3.07(A)(1)(c)). Forfeiture of associated matching contributions occurs in the Testing Year.

(6)[   ]    Safe Harbor top-heavy exempt fail-safe (3.07(A)(4)). In lieu of ordering forfeitures as (a), (b), (c), and (d) under Section 3.07(A)(4), the Employer establishes the following forfeiture ordering rules (Specify the ordering rules, for example, (d), (a), (b), and (c)):                         .

(7)[   ]    Suspension (3.06(F)(3)). The Plan Administrator in applying Section 3.06(F) will (Choose one or more of a., b., and c. as applicable):

a.[   ]    Re-order tiers. Apply the suspension tiers in Section 3.06(F)(2) in the following order:                                            (specify order).

b.[   ]    Hours of Service tie-breaker. Apply the greatest Hours of Service as the tie-breaker within a suspension tier in lieu of applying the lowest Compensation.

c.[   ]    Additional/other tiers. Apply the following additional or other tiers:                                           (specify suspension tiers and ordering).

(e)[   ]    Testing (Article IV) overrides. (Choose one or both of (1) and (2) as applicable):

(1)[   ]    Early application of Gap Period income to Excess Deferrals (4.11(C)(1)). The Plan Administrator will distribute Gap Period income allocated on Excess Deferrals as to Excess Deferrals occurring in the                          Taxable Year and in later Taxable Years (Specify a Taxable Year before 2008).

(2)[   ]    Early application of Gap Period income to Excess Contributions/Aggregates (4.11(C)(2)). The Plan Administrator will distribute Gap Period income allocated on Excess Contributions and Excess Aggregate Contributions occurring in the                          Plan Year and in later Plan Years (Specify a Plan Year before the Final 401(k) Regulations Effective Date).

(f)[   ]    Vesting (Article V) overrides. (Choose one or more of (1) through (6) as applicable):

(1)[   ]    Application of top-heavy vesting to Matching (5.03(A)(1)). The Employer makes the following elections regarding the application of top-heavy vesting to its Regular Matching and Additional Matching Contributions (Choose one or both of a. and b.):

a.[   ]    Post-EGTRRA Matching only. Apply top-heavy vesting only to such post-2001 Plan Year Matching Contributions.

b.[   ]    Waiver of Hour of Service requirement. Apply top-heavy vesting as under the basic plan or as modified by Election 54(f)(1)a. to all Participants even if they did not have an Hour of Service in any post-2001 Plan Year.

(2)[   ]    Alternative "grossed-up" vesting formula (5.03(C)(2)). The Employer elects the alternative vesting formula described in Section 5.03(C)(2).

(3)[   ]    a.       Source of Cash-Out forfeiture restoration (5.04(B)(5)). To restore a Participant's Account Balance as described in Section 5.04(B)(5), the Plan Administrator, to the extent necessary, will allocate from the following source(s) and in the following order (Specify, in order, one or more of the following: Forfeitures, Earnings, and/or Employer Contribution):              .

2

[   ]    b.       Forfeiture Restoration and Conditions for Restoration (5.04(B). The Plan Administrator will restore a re-employed Participant's Account Balance under this Section 5.04(B) without requiring repayment by the Participant of the entire amount of the Cash-Out Distribution to the Trust.

(4)[   ]    Deemed Cash-Out of 0% Vested Participant (5.04(C)). The deemed cash-out rule of Section 5.04(C) does not apply to the Plan.

(5)[   ]    Accounting for Cash-Out repayment; Contribution Type (5.04(D)(2)). In lieu of the accounting described in Section 5.04(D)(2), the Plan Administrator will account for a Participant's Account Balance attributable to a Cash-Out repayment: (Choose one of a. or b.):

a.[   ]    Nonelective rule. Under the nonelective rule.

b.[   ]    Rollover rule. Under the rollover rule.

(6)[   ]    One-year hold-out rule – vesting (5.06(D)). The one-year hold-out Break in Service rule under Code §411(a)(6)(B) applies.

(g)[X]    Distribution (Article VI) overrides. (Choose one or more of (1) through (7) as applicable):

(1)[   ]    Election of 5-year rule (6.02(B)(1)(e)). Under Section 6.02(B)(1)(e) relating to death before the RBD, if a Designated Beneficiary does not make a timely election, the 5-year rule applies in lieu of the Life Expectancy rule.

(2)[X]    2002 only special Effective Date for Section 6.02 (6.02(D)(4)). For the 2002 DCY only, the Plan Administrator will apply the RMD rules in effect under (Choose one of a. or b.):

a.[   ]    1987 proposed regulations. The 1987 proposed Treasury regulations under Code §401(a)(9).

b.[X]    2001 proposed regulations. The 2001 proposed Treasury regulations under Code §401(a)(9).

(3)[   ]    RBD definition (6.02(E)(7)(c)). In lieu of the RBD definition in Section 6.02(E)(7)(a) and (b), the Plan Administrator (Choose one of a. or b.):

a.[   ]    SBJPA definition indefinitely. Indefinitely will apply the pre-SBJPA RBD definition.

b.[   ]    SBJPA definition to specified date. Will apply the pre-SBJPA definition until                          (the stated date may not be earlier than January 1, 1997), and thereafter will apply the RBD definition in Section 6.02(E)(7)(a) and (b).

(4)[   ]    Modification of QJSA (6.04(A)(3)). The Survivor Annuity percentage will be            %. (Specify a percentage between 50% and 100%.)

(5)[   ]    Modification of QPSA (6.04(B)(2)). The QPSA percentage will be            %. (Specify a percentage between 50% and 100%.)

(6)[   ]    Restriction on hardship source; grandfathering (6.07(E)). The hardship distribution limit includes grandfathered amounts.

(7)[   ]    Replacement of $5,000 amount (6.09). All Plan references (except in Sections 3.02(D), 3.10 and 3.12(C)(2)) to "$5,000" will be $           . (Specify an amount less than $5,000.)

(h)[   ]    Administrative, Trust and insurance overrides (Articles VII, VIII and IX). (Choose one or more of (1) through (9) as applicable):

(1)[   ]    Contributions prior to accrual or precise determination (7.04(B)(5)(b)). The Plan Administrator will allocate Earnings described in Section 7.04(B)(5)(b) as follows (Choose one of a., b., or c.):

a.[   ]    Treat as contribution. Treat the Earnings as an Employer Matching or Nonelective Contribution and allocate accordingly.

b.[   ]    Balance forward. Allocate the Earnings using the balance forward method described in Section 7.04(B)(4)(b).

c.[   ]    Weighted average. Allocate the Earnings on Matching Contributions using the weighted average method in a manner similar to the method described in Section 7.04(B)(4)(d).

(2)[   ]    Automatic revocation of spousal designation (7.05(A)(1)). The automatic revocation of a spousal Beneficiary designation in the case of divorce or legal separation does not apply.

(3)[   ]    Limitation on frequency of Beneficiary designation changes (7.05(A)(4)). Except in the case of a Participant incurring a major life event, a period of at least                          must elapse between Beneficiary designation changes. (Specify a period of time, e.g., 90 days OR 12 months.)

(4)[   ]    Definition of "spouse" (7.05(A)(5)). The following definition of "spouse" applies:                                                           . (Specify a definition consistent with Applicable Law.)

3

(5)[   ]    Administration of default provision; default Beneficiaries (7.05(C)). The following list of default Beneficiaries will apply:        . (Specify, in order, one or more Beneficiaries who will receive the interest of a deceased Participant.)

(6)[   ]    Subsequent restoration of forfeiture-sources and ordering (7.07(A)(3)). Restoration of forfeitures will come from the following sources, in the following order   . (Specify, in order, one or more of the following: Forfeitures, Employer Contribution, Trust Fund Earnings.)

(7)[   ]    State law (7.10(H)). The law of the following state will apply:                                                               . (Specify one of the 50 states or the District of Columbia, or other appropriate legal jurisdiction, such as a territory of the United States or an Indian tribal government.)

(8)[   ]    Employer securities/real property in Profit Sharing Plans/401(k) Plans (8.02(A)(13)(a)). The Plan limit on investment in qualifying Employer securities/real property is            %. (Specify a percentage which is less than 100%.)

(9)[   ]    Provisions relating to insurance and insurance company (9.08). The following provisions apply:                                              (Specify such language as necessary to accommodate life insurance Contracts the Plan holds.)

[Note: The provisions in this Election 54(h)(9) may override provisions in Article IX of the Plan, but must be consistent with all other provisions of the Plan and Applicable Law.]

(i)[X]    Code Sections 415/416 (Article XI) override (11.02(A)(1)). Because of the required aggregation of multiple plans, to satisfy Code §§415 and/or 416, the following overriding provisions apply:  Top-Heavy Minimum Benefit will be made to this Plan but the minimum required contribution is increased from 3% to 5% of Total Compensation for the Plan Year.                                         . (Specify such language as necessary to satisfy §§415 and 416.)

4

APPENDIX C

LIST OF GROUP TRUST FUNDS/PERMISSIBLE TRUST AMENDMENTS

55.     [   ]    INVESTMENT IN GROUP TRUST FUND (8.09). The nondiscretionary Trustee, as directed or the discretionary Trustee acting without direction (and in addition to the discretionary Trustee's authority to invest in its own funds under Section 8.02(A)(3)), may invest in any of the following group trust funds:   . (Specify the names of one or more group trust funds in which the Plan can invest).

[Note: A discretionary or nondiscretionary Trustee also may invest in any group trust fund authorized by an independent Named Fiduciary.]

56.     [   ]    PERMISSIBLE TRUST AMENDMENTS (8.11). The Employer makes the following amendments to the Trust as permitted under Rev. Proc. 2005-16, Section 5.09 (Choose one or more of (a) through (c) as applicable):

[Note: Any amendment under this Election 56 must not: (i) conflict with any Plan provision unrelated to the Trust or Trustee; or (ii) cause the Plan to violate Code §401(a). The amendment may override, add to, delete or otherwise modify the Trust provisions. Do not use this Election 56 to substitute another pre-approved trust for the Trust. See Election 5(c), 5(d), and 5(e) as to a substitute trust.]

(a)[   ]    Investments. The Employer amends the Trust provisions relating to Trust investments as follows:

                                                                                                                                                        &# 160;                                 .

(b)[   ]    Duties. The Employer amends the Trust provisions relating to Trustee (or Custodian) duties as follows:

                                                                                                                                                        &# 160;                                 .

(c)[   ]    Other administrative provisions. The Employer amends the other administrative provisions of the Trust as follows:

                                                                                                                                                        &# 160;                                 .

1

APPENDIX D

TABLE I: ACTUARIAL FACTORS

UP-1984

Without Setback

Number of years

from attained age

at the end of Plan Year until

Normal Retirement Age7.50%                                                    0;             8.00%8.50%

                                                                                                                                                          & #160; 08.458                     0;                                                8.1967.949

                                                                                                                                                          & #160; 17.868                     0;                                                7.5897.326

                                                                                                                                                          & #160; 27.319                     0;                                                7.0276.752

                                                                                                                                                          & #160; 36.808                     0;                                                6.5066.223

                                                                                                                                                          & #160; 46.333                     0;                                                6.0245.736

                                                                                                                                                          & #160; 55.891                     0;                                                5.5785.286

                                                                                                                                                          & #160; 65.480                     0;                                                5.1654.872

                                                                                                                                                          & #160; 75.098                     0;                                                4.7824.491

                                                                                                                                                          & #160; 84.742                     0;                                                4.4284.139

                                                                                                                                                          & #160; 94.412                     0;                                                4.1003.815

104.104                          
60;                                          3.7963.516

113.817                          
60;                                          3.5153.240

123.551                          
60;                                          3.2552.986

133.303                          
60;                                          3.0142.752

143.073                          
60;                                          2.7902.537

152.859                          
60;                                          2.5842.338

162.659                          
60;                                          2.3922.155

172.474                          
60;                                          2.2151.986

182.301                          
60;                                          2.0511.831

192.140                          
60;                                          1.8991.687

201.991                          
60;                                          1.7581.555

211.852                          
60;                                          1.6281.433

221.723                          
60;                                          1.5081.321

231.603                          
60;                                          1.3961.217

241.491                          
60;                                          1.2931.122

251.387                          
60;                                          1.1971.034

261.290                          
60;                                          1.1080.953

271.200                          
60;                                          1.0260.878

281.116                          
60;                                          0.9500.810

291.039                          
60;                                          0.8800.746

300.966                          
60;                                          0.8140.688

310.899                          
60;                                          0.7540.634

320.836                          
60;                                          0.6980.584

330.778                          
60;                                          0.6470.538

340.723                          
60;                                          0.5990.496

350.673                          
60;                                          0.5540.457

360.626                          
60;                                          0.5130.422

370.582                          
60;                                          0.4750.389

380.542                          
60;                                          0.4400.358

390.504                          
60;                                          0.4070.330

400.469                          
60;                                          0.3770.304

410.436                          
60;                                          0.3490.280

420.406                          
60;                                          0.3230.258

430.377                          
60;                                          0.2990.238

440.351                          
60;                                          0.2770.219

450.327                          
60;                                          0.2570.202

Note: A Participant's Actuarial Factor under Table I is the factor corresponding to the number of years until the Participant reaches his/her Normal Retirement Age under the Plan. A Participant's age as of the end of the current Plan Year is his/her age on his/her last birthday. For any Plan Year beginning on or after the Participant's attainment of Normal Retirement Age, the factor for "zero" years applies.

1

APPENDIX D

TABLE II: ADJUSTMENT TO ACTUARIAL FACTORS FOR NORMAL RETIREMENT AGE

OTHER THAN 65

UP-1984

Without Setback

Normal Retirement

Age7.50%8.00%         
60;                                           8.50%

551.2242              &# 160;                                    1.21471.2058

561.2043              &# 160;                                    1.19591.1879

571.1838              &# 160;                                    1.17641.1694

581.1627              &# 160;                                    1.15631.1503

591.1411              &# 160;                                    1.13571.1305

601.1188              &# 160;                                    1.11441.1101

611.0960              &# 160;                                    1.09251.0891

621.0726              &# 160;                                    1.07001.0676

631.0488              &# 160;                                    1.04711.0455

641.0246              &# 160;                                    1.02371.0229

651.0000              &# 160;                                    1.00001.0000

660.9752              &# 160;                                    0.97600.9767

670.9502              &# 160;                                    0.95180.9533

680.9251              &# 160;                                    0.92740.9296

690.8998              &# 160;                                    0.90270.9055

700.8740              &# 160;                                    0.87760.8810

710.8478              &# 160;                                    0.85200.8561

720.8214              &# 160;                                    0.82610.8307

730.7946              &# 160;                                    0.79990.8049

740.7678              &# 160;                                    0.77350.7790

750.7409              &# 160;                                    0.74700.7529

760.7140              &# 160;                                    0.72050.7268

770.6874              &# 160;                                    0.69420.7008

780.6611              &# 160;                                    0.66820.6751

790.6349              &# 160;                                    0.64230.6494

800.6090              &# 160;                                    0.61650.6238

Note: Use Table II only if the Normal Retirement Age for any Participant is not 65. If a Participant's Normal Retirement Age is not 65, adjust Table I by multiplying all factors applicable to that Participant in Table I by the appropriate Table II factor.

2

AMENDMENT FOR THE FINAL 415 REGULATIONS

ARTICLE I

PREAMBLE

1.1Effective date of Amendment. This Amendment is effective for limitation years and plan years beginning on or after July 1, 2007, except as otherwise provided herein.

1.2Superseding of inconsistent provisions. This Amendment supersedes the provisions of the Plan to the extent those provisions are inconsistent with the provisions of this Amendment.

1.3Employer's election. The Employer adopts all Articles of this Amendment, except those Articles that the Employer specifically elects not to adopt.

1.4Construction. Except as otherwise provided in this Amendment, any reference to "Section" in this Amendment refers only to sections within this Amendment, and is not a reference to the Plan. The Article and Section numbering in this Amendment is solely for purposes of this Amendment, and does not relate to any Plan article, section or other numbering designations.

1.5Effect of restatement of Plan. If the Employer restates the Plan, then this Amendment shall remain in effect after such restatement unless the provisions in this Amendment are restated or otherwise become obsolete (e.g., if the Plan is restated onto a plan document which incorporates the final Code §415 Regulation provisions).

1.6Adoption by prototype sponsor. Except as otherwise provided herein, pursuant to the provisions of the Plan and Section 5.01 of Revenue Procedure 2005-16, the sponsor hereby adopts this Amendment on behalf of all adopting employers.

ARTICLE II

EMPLOYER ELECTIONS

The Employer only needs to complete the questions in Section 2.2 in order to override the default provisions set forth below. If the Plan will use all of the default provisions, then these questions should be skipped and the Employer does not need to execute this amendment.

2.1Default Provisions. Unless the Employer elects otherwise in Section 2.2, the following defaults will apply:

a.The provisions of the Plan setting forth the definition of compensation for purposes of Code §415 (hereinafter referred to as "415 Compensation"), as well as compensation for purposes of determining highly compensated employees pursuant to Code §414(q) and for top-heavy purposes under Code §416 (including the determination of key employees), shall be modified by (1) including payments for unused sick, vacation or other leave and payments from nonqualified unfunded deferred compensation plans (Amendment Section 3.2(b)), (2) excluding salary continuation payments for participants on military service (Amendment Section 3.2(c)), and (3) excluding salary continuation payments for disabled participants (Amendment Section 3.2(d)).

b.The "first few weeks rule" does not apply for purposes of 415 Compensation (Amendment Section 3.3).

c.The provision of the Plan setting forth the definition of compensation for allocation purposes (hereinafter referred to as "Plan Compensation") shall be modified to provide for the same adjustments to Plan Compensation (for all contribution types) that are made to 415 Compensation pursuant to this Amendment.

2.2In lieu of default provisions. In lieu of the default provisions above, the following apply: (select all that apply; if no selections are made, then the defaults apply)

415 Compensation. (select all that apply):

a.[   ]Exclude leave cashouts and deferred compensation (Section 3.2(b))

b.[   ]Include military continuation payments (Section 3.2(c))

c.[   ]Include disability continuation payments (Section 3.2(d)):

1.[   ]For Nonhighly Compensated Employees only

2.[   ]For all participants and the salary continuation will continue for the following fixed or determinable period:                                             

d.[   ]Apply the administrative delay ("first few weeks") rule (Section 3.3)

1

Plan Compensation. (select all that apply):

NOTE: Elective Deferrals includes Pre-Tax Deferrals, Roth Deferrals and Employee Contributions, Matching includes all Matching Contributions and Nonelective includes all Nonelective Contributions. For all Plans other than 401(k) plans, only use column 1. or column 4. in the table below.

NOTE: Under the GUST PPD document, the plan excludes all post-severance compensation unless the Employer had elected otherwise in its adoption agreement.

                                                                                                                                                & #160;                                                                                                                                                                          0;                                                                                                                                                              Elective

                                                                                                                                                   
60;                                                                                                                                                                                                                                                         AllDeferralsMatchingNonelective

e.[   ]Default provisions apply                                                      &# 160;                                                                                                                                            1.N/A     OR2.[   ]3.[   ]4.[   ]

f.[   ]No change from existing Plan provisions1.[   ]      OR2.[   ]3.[   ]4.[   ]

g.[   ]Exclude all post-severance compensation1.[   ]      OR2.[   ]3.[   ]4.[   ]

h.[   ]Exclude post-severance regular pay                                                      
60;                                                                                        1.[   ]      OR2.[   ]3.[   ]4.[   ]

i.[   ]Exclude leave cashouts and deferred compensation1.[   ]      OR2.[   ]3.[   ]4.[   ]

j.[   ]Include post-severance military continuation payments1.[   ]      OR2.[   ]3.[   ]4.[   ]

k.[   ]Include post-severance disability continuation payments:1.[   ]      OR2.[   ]3.[   ]4.[   ]

a.[   ]For Nonhighly Compensated Employees only

b.[   ]For all participants and the salary continuation

will continue for the following fixed or determinable

period:                                                                                                                                     
60;                                              

l.[   ]Other                                                         ;                                                                                                                                                                          &# 160;                                                         (describe)

Plan Compensation Special Effective Date. The definition of Plan Compensation is modified as set forth herein effective as of the same date as the 415 Compensation change is effective unless otherwise specified:

m.                                                                                                                                           0;                                                                                                                                                                          & #160;                                      (enter the effective date)

ARTICLE III

FINAL SECTION 415 REGULATIONS

3.1Effective date. The provisions of this Article III shall apply to limitation years beginning on and after July 1, 2007.

3.2415 Compensation paid after severance from employment. 415 Compensation shall be adjusted, as set forth herein and as otherwise elected in Article II, for the following types of compensation paid after a Participant's severance from employment with the Employer maintaining the Plan (or any other entity that is treated as the Employer pursuant to Code §414(b), (c), (m) or (o)). However, amounts described in subsections (a) and (b) below may only be included in 415 Compensation to the extent such amounts are paid by the later of 2 1/2 months after severance from employment or by the end of the limitation year that includes the date of such severance from employment. Any other payment of compensation paid after severance of employment that is not described in the following types of compensation is not considered 415 Compensation within the meaning of Code §415(c)(3), even if payment is made within the time period specified above.

(a)Regular pay. 415 Compensation shall include regular pay after severance of employment if:

(1)The payment is regular compensation for services during the participant's regular working hours, or compensation for services outside the participant's regular working hours (such as overtime or shift differential), commissions, bonuses, or other similar payments; and

(2)The payment would have been paid to the participant prior to a severance from employment if the participant had continued in employment with the Employer.

2

(b)Leave cashouts and deferred compensation. Leave cashouts shall be included in 415 Compensation, unless otherwise elected in Section 2.2 of this Amendment, if those amounts would have been included in the definition of 415 Compensation if they were paid prior to the participant's severance from employment, and the amounts are payment for unused accrued bona fide sick, vacation, or other leave, but only if the participant would have been able to use the leave if employment had continued. In addition, deferred compensation shall be included in 415 Compensation, unless otherwise elected in Section 2.2 of this Amendment, if the compensation would have been included in the definition of 415 Compensation if it had been paid prior to the participant's severance from employment, and the compensation is received pursuant to a nonqualified unfunded deferred compensation plan, but only if the payment would have been paid at the same time if the participant had continued in employment with the Employer and only to the extent that the payment is includible in the participant's gross income.

(c)Salary continuation payments for military service participants. 415 Compensation does not include, unless otherwise elected in Section 2.2 of this Amendment, payments to an individual who does not currently perform services for the Employer by reason of qualified military service (as that term is used in Code §414(u)(1)) to the extent those payments do not exceed the amounts the individual would have received if the individual had continued to perform services for the Employer rather than entering qualified military service.

(d)Salary continuation payments for disabled Participants. Unless otherwise elected in Section 2.2 of this Amendment, 415 Compensation does not include compensation paid to a participant who is permanently and totally disabled (as defined in Code §22(e)(3)). If elected, this provision shall apply to either just non-highly compensated participants or to all participants for the period specified in Section 2.2 of this Amendment.

3.3Administrative delay ("the first few weeks") rule. 415 Compensation for a limitation year shall not include, unless otherwise elected in Section 2.2 of this Amendment, amounts earned but not paid during the limitation year solely because of the timing of pay periods and pay dates. However, if elected in Section 2.2 of this Amendment, 415 Compensation for a limitation year shall include amounts earned but not paid during the limitation year solely because of the timing of pay periods and pay dates, provided the amounts are paid during the first few weeks of the next limitation year, the amounts are included on a uniform and consistent basis with respect to all similarly situated participants, and no compensation is included in more than one limitation year.

3.4Inclusion of certain nonqualified deferred compensation amounts. If the Plan's definition of Compensation for purposes of Code §415 is the definition in Regulation Section 1.415(c)-2(b) (Regulation Section 1.415-2(d)(2) under the Regulations in effect for limitation years beginning prior to July 1, 2007) and the simplified compensation definition of Regulation 1.415(c)-2(d)(2) (Regulation Section 1.415-2(d)(10) under the Regulations in effect for limitation years prior to July 1, 2007) is not used, then 415 Compensation shall include amounts that are includible in the gross income of a Participant under the rules of Code §409A or Code §457(f)(1)(A) or because the amounts are constructively received by the Participant. [Note if the Plan's definition of Compensation is W-2 wages or wages for withholding purposes, then these amounts are already included in Compensation.]

3.5Definition of annual additions. The Plan's definition of "annual additions" is modified as follows:

(a)Restorative payments. Annual additions for purposes of Code §415 shall not include restorative payments. A restorative payment is a payment made to restore losses to a Plan resulting from actions by a fiduciary for which there is reasonable risk of liability for breach of a fiduciary duty under ERISA or under other applicable federal or state law, where participants who are similarly situated are treated similarly with respect to the payments. Generally, payments are restorative payments only if the payments are made in order to restore some or all of the plan's losses due to an action (or a failure to act) that creates a reasonable risk of liability for such a breach of fiduciary duty (other than a breach of fiduciary duty arising from failure to remit contributions to the Plan). This includes payments to a plan made pursuant to a Department of Labor order, the Department of Labor's Voluntary Fiduciary Correction Program, or a court-approved settlement, to restore losses to a qualified defined contribution plan on account of the breach of fiduciary duty (other than a breach of fiduciary duty arising from failure to remit contributions to the Plan). Payments made to the Plan to make up for losses due merely to market fluctuations and other payments that are not made on account of a reasonable risk of liability for breach of a fiduciary duty under ERISA are not restorative payments and generally constitute contributions that are considered annual additions.

(b)Other Amounts. Annual additions for purposes of Code §415 shall not include: (1) The direct transfer of a benefit or employee contributions from a qualified plan to this Plan; (2) Rollover contributions (as described in Code §§401(a)(31), 402(c)(1), 403(a)(4), 403(b)(8), 408(d)(3), and 457(e)(16)); (3) Repayments of loans made to a participant from the Plan; and (4) Repayments of amounts described in Code §411(a)(7)(B) (in accordance with Code §411(a)(7)(C)) and Code §411(a)(3)(D) or repayment of contributions to a governmental plan (as defined in Code §414(d)) as described in Code §415(k)(3), as well as Employer restorations of benefits that are required pursuant to such repayments.

(c)Date of tax-exempt Employer contributions. Notwithstanding anything in the Plan to the contrary, in the case of an Employer that is exempt from Federal income tax (including a governmental employer), Employer contributions are treated as credited to a participant's account for a particular limitation year only if the contributions are actually made to the plan no later than the 15th day of the tenth calendar month following the end of the calendar year or fiscal year (as applicable, depending on the basis on which the employer keeps its books) with or within which the particular limitation year ends.

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3.6Change of limitation year. The limitation year may only be changed by a Plan amendment. Furthermore, if the Plan is terminated effective as of a date other than the last day of the Plan's limitation year, then the Plan is treated as if the Plan had been amended to change its limitation year.

3.7Excess Annual Additions. Notwithstanding any provision of the Plan to the contrary, if the annual additions (within the meaning of Code §415) are exceeded for any participant, then the Plan may only correct such excess in accordance with the Employee Plans Compliance Resolution System (EPCRS) as set forth in Revenue Procedure 2006-27 or any superseding guidance, including, but not limited to, the preamble of the final §415 regulations.

3.8Aggregation and Disaggregation of Plans.

(a)For purposes of applying the limitations of Code §415, all defined contribution plans (without regard to whether a plan has been terminated) ever maintained by the Employer (or a "predecessor employer") under which the participant receives annual additions are treated as one defined contribution plan. The "Employer" means the Employer that adopts this Plan and all members of a controlled group or an affiliated service group that includes the Employer (within the meaning of Code §§414(b), (c), (m) or (o)), except that for purposes of this Section, the determination shall be made by applying Code §415(h), and shall take into account tax-exempt organizations under Regulation Section 1.414(c)-5, as modified by Regulation Section 1.415(a)-1(f)(1). For purposes of this Section:

(1)A former Employer is a "predecessor employer" with respect to a participant in a plan maintained by an Employer if the Employer maintains a plan under which the participant had accrued a benefit while performing services for the former Employer, but only if that benefit is provided under the plan maintained by the Employer. For this purpose, the formerly affiliated plan rules in Regulation Section 1.415(f)-1(b)(2) apply as if the Employer and predecessor Employer constituted a single employer under the rules described in Regulation Section 1.415(a)-1(f)(1) and (2) immediately prior to the cessation of affiliation (and as if they constituted two, unrelated employers under the rules described in Regulation Section 1.415(a)-1(f)(1) and (2) immediately after the cessation of affiliation) and cessation of affiliation was the event that gives rise to the predecessor employer relationship, such as a transfer of benefits or plan sponsorship.

(2)With respect to an Employer of a participant, a former entity that antedates the Employer is a "predecessor employer" with respect to the participant if, under the facts and circumstances, the Employer constitutes a continuation of all or a portion of the trade or business of the former entity.

(b)Break-up of an affiliate employer or an affiliated service group. For purposes of aggregating plans for Code §415, a "formerly affiliated plan" of an employer is taken into account for purposes of applying the Code §415 limitations to the employer, but the formerly affiliated plan is treated as if it had terminated immediately prior to the "cessation of affiliation." For purposes of this paragraph, a "formerly affiliated plan" of an employer is a plan that, immediately prior to the cessation of affiliation, was actually maintained by one or more of the entities that constitute the employer (as determined under the employer affiliation rules described in Regulation Section 1.415(a)-1(f)(1) and (2)), and immediately after the cessation of affiliation, is not actually maintained by any of the entities that constitute the employer (as determined under the employer affiliation rules described in Regulation Section 1.415(a)-1(f)(1) and (2)). For purposes of this paragraph, a "cessation of affiliation" means the event that causes an entity to no longer be aggregated with one or more other entities as a single employer under the employer affiliation rules described in Regulation Section 1.415(a)-1(f)(1) and (2) (such as the sale of a subsidiary outside a controlled group), or that causes a plan to not actually be maintained by any of the entities that constitute the employer under the employer affiliation rules of Regulation Section 1.415(a)-1(f)(1) and (2) (such as a transfer of plan sponsorship outside of a controlled group).

(c)Midyear Aggregation. Two or more defined contribution plans that are not required to be aggregated pursuant to Code §415(f) and the Regulations thereunder as of the first day of a limitation year do not fail to satisfy the requirements of Code §415 with respect to a participant for the limitation year merely because they are aggregated later in that limitation year, provided that no annual additions are credited to the participant's account after the date on which the plans are required to be aggregated.

ARTICLE IV

PLAN COMPENSATION

4.1Compensation limit. Notwithstanding Amendment Section 4.2 or any election in Amendment Section 2.2, if the Plan is a 401(k) plan, then participants may not make elective deferrals with respect to amounts that are not 415 Compensation. However, for this purpose, 415 Compensation is not limited to the annual compensation limit of Code §401(a)(17).

4.2Compensation paid after severance from employment. Compensation for purposes of allocations (hereinafter referred to as Plan Compensation) shall be adjusted, unless otherwise elected in Amendment Section 2.2, in the same manner as 415 Compensation pursuant to Article III of this Amendment if those amounts would have been included in Compensation if they were paid prior to the Participant's severance from employment, except in applying Article III, the term "limitation year" shall be replaced with the term "plan year" and the term "415 Compensation" shall be replaced with the term "Plan Compensation."

4

4.3Option to apply Plan Compensation provisions early. The provisions of this Article shall apply for Plan Years beginning on and after July 1, 2007, unless another effective date is specified in Section 2.2 of this Amendment.

Except with respect to any election made by the employer in Section 2.2, this amendment is hereby adopted by the prototype sponsor on behalf of all adopting employers on:

__________________________________________________________ (signature and date)

Sponsor Name: The Prudential Insurance Company of America (PICA)

NOTE: The Employer only needs to execute this Amendment if an election has been made in Section 2.2 of this Amendment.

This amendment has been executed this _________________ day of ______________________________, ________.

Name of Plan:  California Coastal Communities 401(k) Plan

Name of Employer:  California Coastal Communities, Inc.

By:                                                                                                                                        0;                                                                                                                                                                          & #160;                                                         

EMPLOYER

5

PRUDENTIAL ADOPTION AGREEMENT

ADMINISTRATIVE CHECKLIST

June 1, 2010

This Administrative Checklist ("AC") is not part of the Adoption Agreement or Plan but is for the use of the Plan Administrator in administering the Plan.

The AC reflects the Plan policies and operation as of the date set forth above and may also reflect Plan policies and operation pre-dating the specified date.

AC1.PARTICIPANT DISTRIBUTION NOTIFICATION PERIOD (PPA Amendment). For any distribution notice issued in Plan Years beginning after December 31, 2006, any reference to the 180-day maximum notice period prior to distribution in applying the notice requirements of Code §§402(f) (the rollover notice), 411(a)(11) (Participant's consent to distribution), and 417 (notice under the joint and survivor annuity rules) will continue to be enforced administratively as a 90 day maximum notice period unless a different maximum notice period is specified below. (Choose (a) if a different maximum notice period will be applied administratively.):

(a)[X]The Plan will administratively enforce a maximum notice period of   80   days (maximum notice period cannot exceed 180 days.)

AC2.PLAN LOANS (7.06). The Plan permits or does not permit Participant Loans as follows (Choose one of (a) or (b)):

(a)[   ]Does not permit.

(b)[X]Permitted pursuant to the Loan Policy. See SFC Election 72 to complete Loan Policy.

AC3.HARDSHIP DISTRIBUTION SUSPENSION PERIOD (6.07(A)(2)). A Participant who receives a safe harbor hardship distribution may not make Elective Deferrals or Employee Contributions to the Plan during the 6-month period following the date of the hardship distribution, unless the Plan Administrator elects in (b) below to require a longer period. (Choose one of (a) or (b)):

(a)[X]The Plan will apply the 6-month suspension period as described in Section 6.07(A)(2) of the Plan.

(b)[   ]The Plan will modify the suspension period as described in Section 6.07(A)(2) of the Plan. A Participant who receives a safe harbor hardship distribution may not make Elective Deferrals or Employee Contributions to the Plan during the                       -month (enter a number of months, not to exceed 12) period following the date of the Hardship Distribution.

AC4.SPOUSAL CONSENT FOR DISTRIBUTIONS (7.02(C)(2)). The following serves as the Plan's administrative policy with regard to the requirement of spousal consent for distributions that are not otherwise subject to the Qualified Joint and Survivor Annuity requirements. (Choose one of (a) through (c) as applicable):

(a)[   ]Not Applicable. Plan is subject to the Qualified Joint and Survivor Annuity requirements outlined in the Plan thus all distributions exceeding the threshold identified in the Plan are subject to spousal consent.

(b)[X]Participants will not be required to obtain spousal consent for all distributions made from the Plan (unless the Participant chooses an annuity form of payment, which will require a distribution, and any subsequent distributions, exceeding the threshold identified in the Plan to be subject to spousal consent).

(c)[   ]Participants will be required to obtain spousal consent for all distributions made from the Plan exceeding the threshold identified in the Plan.

AC5.PARTICIPANT DIRECTION OF INVESTMENT (7.03(B)). The Plan permits Participant direction of investment or does not permit Participant direction of investment as to some or all Accounts as follows (Choose one of (a) or (b)):

(a)[   ]Does not permit. The Plan does not permit Participant direction of investment of any Account.

(b)[X]Permitted as follows. The Plan permits Participant direction of investment. (Complete (1) through (4)):

(1)Accounts affected. (Choose a. or choose one or more of b. through f.):

a.[X]All Accounts.

b.[   ]Elective Deferral Accounts (Pre-tax and Roth) and Employee Contributions.

c.[   ]All Nonelective Contribution Accounts.

d.[   ]All Matching Contribution Accounts.

e.[   ]All Rollover Contribution and Transfer Accounts.

f.[   ]Specify Accounts:                                                                                                                                                                                                                                                                                                                        
60;                                                                                                     

(2)Restrictions on Participant direction (Choose one of a. or b.):

a.[X]None. Provided the investment does not result in a prohibited transaction, give rise to UBTI, create administrative problems or violate the Plan terms or Applicable Law.

b.[   ]Restrictions:                                             
60;                                                                                                                                                                                                                                                                                                                                                     
60;                                                     

(3)ERISA §404(c). (Choose one of a. or b.):

a.[X]Applies.

b.[   ]Does not apply.

(4)QDIA (Qualified Default Investment Alternative). (Choose one of a. or b.):

a.[X]Applies. See SFC Election 110 for details.

b.[   ]Does not apply.

1

AC6.SALARY REDUCTION AGREEMENT ELECTIONS (1.54(C)). The Plan permits Salary Reduction Elections in the following form(s) (Choose (a) through (e) as applicable).

(a)[   ]No restriction on method of a Participant's salary reduction election

(b)[X]In whole percentage increments

(c)[X]In whole dollar increments

(d)[   ] In percentage increments except that catch-up salary reductions may be made in whole percentage increments or whole dollar increments

(e)[   ]Other:                                                                      &# 160;                                                                                                                                                                           ;                                                                                                                                                                          &# 160;                                                                                                                                     

With respect to timing of Salary Reduction Election changes the Plan permits salary reduction election changes as indicated below (Choose (a) through (e) as applicable).

(a)[X]Permitted at any time and will be effective as soon as administratively feasible

(b)[   ]Permitted only on the first day of each calendar month

(c)[   ]Permitted only on the first day of each calendar quarter

(d)[   ]Permitted only once every                          (choose one of 30/60/90) days

(e)[   ]Other:                                                                      &# 160;                                                                                                                                                                           ;                                                                                                                                                                          &# 160;                                                                                                                                     

With respect to a Participant's Salary Reduction Election for bonus payments, the following applies (Choose (a) or (b) as applicable).

(a)[   ]A separate participant election is not permitted for bonuses. The same Salary Reduction Agreement election will apply to all Elective Deferral Compensation.

(b)[X]A separate participant election will be   permitted   (permitted/required) for bonuses. Participants may make a separate election on the Salary Reduction Agreement form provided by the Employer which will apply only to bonus payments. If permitted is elected, the participant's regular election will apply unless a separate election is made. If you select required, there will be no deferral from bonuses unless the participant makes a separate election for bonuses.

AC7.ROLLOVER CONTRIBUTIONS (3.08). The Plan permits or does not permit Rollover Contributions as follows (Choose one of (a) or (b)):

(a)[   ]Does not permit.

(b)[X]Permits. Subject to approval by the Plan Administrator and as further described below (Complete (1) and (2)):

(1)Who may roll over. (Choose one of a. or b.):

a.[   ]Participants only.

b.[X]Eligible Employees or Participants.

(2)Sources/Types. The Plan will accept a Rollover Contribution (Choose one of a. or b.):

a.[   ]All. From any Eligible Retirement Plan and as to all Contribution Types eligible to be rolled into this Plan.

b.[X]Limited. Only from the following types of Eligible Retirement Plans and/or as to the following Contribution Types:  All qualified plans excluding after-tax contributions and IRAs.                                                                                                                                                            & #160;                                                                                 .

AC8.PLAN EXPENSES (7.04(C)). The Employer will pay or the Plan will be charged with non-settlor Plan expenses as follows (Choose one of (a) or (b)):

(a)[   ]Employer pays all expenses except those intrinsic to Trust assets which the Plan will pay (e.g., brokerage commissions).

(b)[X]Plan pays some or all non-settlor expenses. See SFC Election 126 for details.

AC9.RELATED AND PARTICIPATING EMPLOYERS (1.23(C)/(D)). There are or are not Related Employers and Participating Employers as follows (Complete (a) through (c)):

(a)Related Employers. (Choose one of (1) or (2)):

(1)[   ]None.

(2)[X]Name(s) of Related Employers:  Hearthside Homes, Inc.                                       & #160;                                                                             

(b)Participating (Related) Employers. (Choose one of (1) or (2)):

(1)[   ]None.

(2)[X]Name(s) of Participating Employers:  Hearthside Homes Inc.                                        ;                                                       See SFC Election 73 for details.

(c)Former Participating Employers. (Choose one of (1) or (2)):

(1)[X]None.

(2)[   ]Applies.

Name(s)                                                                                                                                  ;        Date of cessation

                                                                                                                                                    
60;      

                                                                                                                                                    
60;      

AC10.TOP-HEAVY MINIMUM-MULTIPLE PLANS (10.03). If the Employer maintains another plan, this Plan provides that the Plan Administrator operationally will determine in which plan the Employer will satisfy the Top-Heavy Minimum Contribution (or benefit) requirement as to Non-Key Employees who participate in such plans and who are entitled to a Top-Heavy Minimum Contribution (or benefit). This Election documents the Plan Administrator's operational election. (Choose (a) or choose one of (b) or (c)):

(a)[   ]Does not apply.

(b)[   ]If only another Defined Contribution Plan. Make the Top-Heavy Minimum Allocation (Choose one of (1) or (2)):

2

(1)[   ]To this Plan.

(2)[   ]To another Defined Contribution Plan:                                           0;                                                                                                                                                                          & #160;                                            (plan name)

(c)[X]If one or more Defined Benefit Plans. Make the Top-Heavy Minimum Allocation or provide the top-heavy minimum benefit (Choose one of (1), (2), or (3)):

(1)[X]To this Plan. Increase the Top-Heavy Minimum Allocation to 5%.

(2)[   ]To another Defined Contribution Plan. Increase the Top-Heavy Minimum Allocation to 5% and provide under the:    (name of other Defined Contribution Plan).

(3)[   ]To a Defined Benefit Plan. Provide the 2% top-heavy minimum benefit under the:                              (name of Defined Benefit Plan) and applying the following interest rate and mortality assumptions:                             .

AC11.SELF-EMPLOYED PARTICIPANTS (1.21(A)). One or more self-employed Participants with Earned Income benefits in the Plan as follows (Choose one of (a) or (b)):

(a)[X]None.

(b)[   ]Applies.

AC12.PROTECTED BENEFITS (11.02(C)). The following Protected Benefits no longer apply to all Participants or do not apply to designated amounts/Participants as indicated, having been eliminated by a Plan amendment (Choose (a), or one or both of (b) – (c) as applicable):

(a)[X]Does not apply. No Protected Benefits have been eliminated.

(b)[   ]Applies. Protected Benefits have been eliminated as follows (Choose one or more of rows (1) through (4) as applicable. Choose one of columns (1), (2), or (3), and complete column (4)):

	(1) All Participants/ Accounts	(2) Post-E.D. Contribution Accounts only	(3) Post-E.D. Participants only	(4) Effective Date (E.D.)
(1)[   ]QJSA/QPSA distributions	[   ]	[   ]	[   ]	______________
(2)[   ]Installment distributions	[   ]	[   ]	[   ]	______________
(3)[   ]In-kind distributions	[   ]	[   ]	[   ]	______________

(4)[   ]Specify:                                               & #160;                                                                                                                                                                          0;                                                                                                                                                                          & #160;                                                                                                                 

(c)[   ]Applies. List any Protected Benefits that are provided under this Plan but that are not specifically provided for under the Adoption Agreement (complete (1), (2) and (3), select one of (4) or (5), and complete (a) through (j) as applicable):

(1)[   ]Effective Date:                                                                                                                                                         
60;                    

(2)[   ]Name of Predecessor Plan:                                                                                                                                                          &# 160;                                                                                                                                                                           ;                                                                                              

(3)[   ]Name of Merged Plan:                                                                                                                                                           & #160;                                                                                                                                                                          0;                                                                                                                  

This addendum is with respect to (choose one of (4) or (5)):

(4)[   ]Participants as of the Effective Date indicated above

(5)[   ]Participant accounts accrued as of the Effective Date above

AC13.LIFE INSURANCE (9.01). The Trust invests or does not invest in life insurance Contracts as follows (Choose one of (a) or (b)):

(a)[X]Does not apply.

(b)[   ]Applies. Subject to the limitations and other provisions in Article IX and/or Appendix B.

AC14.DISTRIBUTION OF CASH OR PROPERTY (8.04). The Plan provides for distribution in the form of (Choose one of (a) or (b)):

(a)[X]Cash only. Except where property distribution is required or permitted under Section 8.04.

(b)[   ]Cash or property. At the distributee's election and consistent with any Plan Administrator policy under Section 8.04.

AC15.EMPLOYER SECURITIES/EMPLOYER REAL PROPERTY (8.02(A)(13)). The Trust invests or does not invest in qualifying Employer securities and/or qualifying Employer real property as follows (Choose one of (a) or (b)):

(a)[X]Does not apply.

(b)[   ]Applies. Such investments are subject to the limitations of Section 8.02(A)(13) and/or Appendix B.

CLIENT ACKNOWLEDGEMENT

By adopting this administrative checklist, serving as an administrative policy, we direct Prudential to make any adjustments that may be necessary to its record-keeping system. The Plan Sponsor understands their responsibility to notify participants of this administrative policy and the administrative procedures herein.

3

I confirm that I am authorized by the Employer to adopt the rules of procedure and policies enclosed herein. As the Plan Administrator, I consider these rules of procedure and policies reasonable or necessary for the proper and efficient administration of the Plan. Therefore, upon my signature below, I hereby adopt this Administrative Checklist as an administrative policy to the Plan.

Plan Administrator:   //S. G. Sciutto//Date:  4/19/10                                                                                                                                                             & #160;        

Plan Name:   California Coastal Communities 401(k) Plan                                                                                                                                                         &# 160;                                                                                                                                             

Plan Number:   001  

4

EX-31.1

Exhibit 31.1

SECTION 302 CERTIFICATION

I, Raymond J. Pacini, certify that:

1.I have reviewed this quarterly report on Form 10-Q of California Coastal Communities, Inc.;

2.Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

(b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 13, 2010

/s/ Raymond J. Pacini

Raymond J. Pacini

Chief Executive Officer

EX-31.2

Exhibit 31.2

SECTION 302 CERTIFICATION

I, Sandra G. Sciutto, certify that:

1.I have reviewed this quarterly report on Form 10-Q of California Coastal Communities, Inc.;

2.Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

(b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 13, 2010

/s/ Sandra G. Sciutto

Sandra G. Sciutto

Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of California Coastal Communities, Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2010, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned, in their respective capacity as an officer, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of their respective knowledge, that:

·the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

·the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: May 13, 2010

/s/ Raymond J. Pacini

Raymond J. Pacini

Chief Executive Officer

/s/ Sandra G. Sciutto

Sandra G. Sciutto

Senior Vice President and Chief Financial Officer