10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended November 30, 2003

Commission file number 1-11749

LENNAR CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	95-4337490
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

700 Northwest 107th Avenue, Miami, Florida 33172

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code (305) 559-4000

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Class A Common Stock, par value 10¢	New York Stock Exchange
Class B Common Stock, par value 10¢	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

NONE

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  þ  NO  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).  YES  þ  NO  ¨

The aggregate market value of the registrant’s Class A and Class B common stock held by non-affiliates of the registrant (108,781,312 Class A shares and 10,904,060 Class B shares) as of May 31, 2003 (adjusted for the registrant’s two-for-one stock split in January 2004), based on the closing sale price per share as reported by the New York Stock Exchange on such date, was $4,002,093,239.

As of January 31, 2004, the registrant had outstanding 122,988,592 shares of Class A common stock and 32,524,462 shares of Class B common stock.

DOCUMENTS INCORPORATED BY REFERENCE:

Related Section	Documents
III	Definitive Proxy Statement to be filed pursuant to Regulation 14A on or before March 29, 2004.

PART I

Item 1.    Business.

General Development of Business

We are one of the nation’s largest homebuilders and a provider of financial services. Our homebuilding operations include the sale and construction of single-family attached and detached homes, as well as the purchase, development and sale of residential land directly and through our unconsolidated partnerships. Our financial services subsidiaries provide mortgage financing, title insurance, closing services and insurance agency services for both buyers of our homes and others, and sell the loans they originate in the secondary mortgage market. These subsidiaries also provide high-speed Internet access, cable television and alarm installation and monitoring services to residents of communities we develop and others.

The following is a summary of our growth history:

1954	—	Founded as a Miami homebuilder.
1969	—	Began developing, owning and managing commercial and multi-family residential real estate.
1971	—	Completed initial public offering.
1972	—	Entered the Arizona homebuilding market.
1986	—	Acquired Development Corporation of America in Florida.
1991	—	Entered the Texas homebuilding market.
1992	—	Materially expanded our commercial operations by acquiring, through a joint venture, an AmeriFirst portfolio of loans, mortgages and properties from the Resolution Trust Corporation.
1995	—	Entered the California homebuilding market through the acquisition of Bramalea California, Inc.
1996	—	Expanded in California through our acquisition of Renaissance Homes, Inc., significantly expanded our operations in Texas with the acquisitions of the assets and operations of both Houston-based Village Builders and Friendswood Development Company and acquired Regency Title in Texas.
1997	—	Completed the spin-off of our commercial real estate investment business to LNR Property Corporation. We continued our expansion in California through homesite acquisitions and unconsolidated partnership investments. We also acquired Pacific Greystone Corporation which further expanded our operations in California and Arizona and brought us into the Nevada homebuilding market.
1998	—	Acquired the properties of two California homebuilders, ColRich Communities and Polygon Communities, acquired a Northern California homebuilder, Winncrest Homes, and acquired North American Title with operations in Arizona, California and Colorado.
1999	—	Acquired Eagle Home Mortgage with operations in Nevada, Oregon and Washington and Southwest Land Title in Texas.
2000	—	Acquired U.S. Home Corporation which expanded our operations into New Jersey, Maryland, Virginia, Minnesota, Ohio and Colorado and strengthened our position in other states, and expanded our title operations in Texas through the acquisition of Texas Professional Title.
2002	—	Acquired Patriot Homes, Sunstar Communities, Don Galloway Homes, Genesee Company, Barry Andrews Homes, Cambridge Homes, Pacific Century Homes, Concord Homes and Summit Homes which expanded our operations into the Carolinas and the Chicago, Baltimore and Central Valley, California homebuilding markets and strengthened our position in several of our existing markets. We also acquired Sentinel Title with operations in Maryland and Washington D.C.
2003	—	Acquired Seppala Homes and Coleman Homes, which expanded our operations in South Carolina and California. We also acquired Mid America Title in Illinois.
2004	—	Acquired The Newhall Land and Farming Company through an entity of which we and LNR Property Corporation each owns 50%.

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Financial Information about Operating Segments

We have two operating segments—homebuilding and financial services. The financial information related to these operating segments is contained in Item 8.

Narrative Description of Business

HOMEBUILDING

Under the Lennar Family of Builders banner, we operate using the following brand names: Lennar Homes, U.S. Home, Greystone Homes, Village Builders, Renaissance Homes, Orrin Thompson Homes, Lundgren Bros., Winncrest Homes, Patriot Homes, NuHome, Barry Andrews Homes, Concord Homes, Summit Homes, Cambridge Homes, Coleman Homes and Rutenberg Homes. Our active adult communities are primarily marketed under the Heritage and Greenbriar brand names.

Through our own efforts and unconsolidated partnerships in which we have interests, we are involved in all phases of planning and building in our residential communities, including land acquisition, site planning, preparation and improvement of land, and design, construction and marketing of homes. We subcontract virtually all aspects of development and construction.

We primarily sell single-family attached and detached homes. The homes are targeted primarily to first-time, move-up and active adult homebuyers. The average sales price of a Lennar home was $256,000 in fiscal 2003.

Current Homebuilding Activities

	Homes Delivered in the Years Ended November 30,
Region	2003	2002	2001
East Region	10,348	9,296	8,175
Central Region	9,993	7,766	7,056
West Region	11,839	10,331	8,668
Total	32,180	27,393	23,899

Of the deliveries listed above, 768, 568 and 795 deliveries relate to unconsolidated partnerships for the years ended November 30, 2003, 2002 and 2001, respectively.

At November 30, 2003, our market regions consisted of homebuilding divisions in the following states: East: Florida, Maryland, Virginia, New Jersey, North Carolina and South Carolina. Central: Texas, Illinois and Minnesota. West: California, Colorado, Arizona and Nevada.

Management and Operating Structure

We balance a local operating structure with centralized corporate level management. Our local managers, who have significant experience both in the homebuilding industry generally and in their particular markets, are responsible for operating decisions regarding land identification, community development, home design, construction and marketing. Decisions related to our overall strategy, acquisitions of land and businesses, risk management, financing, cash management and information systems are centralized at the corporate level.

We view unconsolidated partnerships and similar entities as a means to both expand our market opportunities and manage our risk. For additional information about our unconsolidated partnerships, see Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7.

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Property Acquisition

In our homebuilding operations, we generally acquire land for development and the construction of homes which we sell to homebuyers. We also sell land to third parties. Land acquisitions are subject to strict underwriting criteria and may be made directly or through partnerships with other entities. Through unconsolidated partnerships, we reduce our risk as well as the amounts invested in owned land and increase our access to other land. Partnerships also, in some instances, help us acquire land to which we could not obtain access, or could not obtain access on as favorable terms, without the participation of a strategic partner.

In some instances, we acquire land through option contracts, which enables us to defer acquiring portions of properties owned by third parties and unconsolidated partnerships until we are ready to build homes on them. This reduces our financial risk associated with land holdings. Most of our land is not subject to mortgages; however, the majority of land acquired by partnerships is subject to purchase money mortgages. We generally do not acquire land for speculation. At November 30, 2003, we owned approximately 74,000 homesites and had access to an additional 135,000 homesites through option contracts or our unconsolidated partnerships.

Construction and Development

We supervise and control the development of the land and the building of our residential communities. We hire subcontractors for site improvements and virtually all of the work involved in the construction of homes. In almost all instances, the arrangements with our subcontractors commit the subcontractors to complete specified work in accordance with written price schedules. These price schedules normally change to meet changes in labor and material costs. We generally do not own heavy construction equipment and only have a relatively small labor force used to supervise development and construction and perform routine maintenance and minor amounts of other work. We generally finance construction and land development activities with cash generated from operations as well as from borrowings under our working capital lines and issuances of public debt.

Marketing

We offer a diversified line of homes for first-time, move-up and active adult homebuyers. With homes priced from under $100,000 to above one million dollars and available in a variety of environments ranging from urban infill communities to golf course communities, we are focused on providing homes for a wide spectrum of buyers. Our unique dual marketing strategies of Everything’s Included^® and Design Studio^SM provide customers with flexibility to choose how they would like to purchase their new home. In our Everything’s Included^® homes, we make the homebuying experience simple by including desirable, top-of-the-line features as standard items. In our Design Studio^SM homes, we provide an individualized homebuying experience and personalized design consultation in our design studios, offering a diverse selection of upgrades and options for a new home. We sell our homes primarily from models that we have designed and constructed.

We employ sales associates who are paid salaries, commissions or both to make on-site sales of homes. We also sell through independent brokers. We advertise our communities in newspapers and other local and regional publications, on billboards and through our web site, www.lennar.com. The website allows homebuyers to search for homes with specific design criteria in their price range and desired location. In addition, we advertise our active adult communities in areas where prospective active adult homebuyers live.

Our business is somewhat seasonal, with signings of new home sales contracts being strongest in the late winter and spring, resulting in the strongest home deliveries (and therefore, strongest home sales revenues) in the late summer and fall (our third and fourth fiscal quarters).

For a small percentage of our homebuyers (generally less than 5% of our deliveries), we have participated in charitable down-payment assistance programs. Through these programs, we make a donation to a non-profit organization that provides financial assistance to a homebuyer, who would not otherwise have sufficient funds for a down payment.

Quality Service

We strive to continually improve customer satisfaction by employing a process which is intended to provide a positive experience for each homeowner throughout the pre-sale, sale, building, closing and post-closing

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periods. The participation of sales associates, on-site construction supervisors and post-closing customer care associates, working in a team effort, is intended to foster our reputation for quality service and ultimately lead to enhanced customer retention and referrals.

The quality of our homes is affected substantially more by the efforts of on-site management and others engaged in the construction process than it is by the materials we use in particular homes or similar factors. Currently, most management team members’ bonus plans are in part contingent upon achieving customer satisfaction.

We have a “Heightened Awareness” program which is a focused initiative designed to objectively evaluate and measure the quality of construction in our communities. The purpose of this program is to ensure that the homes delivered to our customers meet our high standards. Our communities are inspected and reviewed on a periodic basis by one of our trained associates. This program is an example of our commitment to provide the finest homes to our customers. In addition to our “Heightened Awareness” program, we have a quality assurance program in certain markets where we employ third-party consultants to inspect our homes during the construction process. These inspectors provide us with documentation of all inspection reports and follow-up verification. We also obtain independent surveys of selected customers through a third-party consultant and use the survey results to further improve our standard of quality and customer satisfaction.

Competition

The housing industry is highly competitive. In our activities, we compete with numerous developers and builders of various sizes, both national and local, who are building homes in and near the areas where our communities are located. Competition is on the basis of location, design, quality, amenities, price, service and reputation. Sales of existing homes also provide significant competition. Some of our principal national competitors include Beazer Homes USA, Inc., Centex Corporation, D.R. Horton, Inc., Hovnanian Enterprises, Inc., KB Home, M.D.C. Holdings, Inc., NVR, Inc., Pulte Homes, Inc., Standard Pacific Corp., The Ryland Group, Inc. and Toll Brothers, Inc.

FINANCIAL SERVICES

Mortgage Financing

We provide a full spectrum of conventional, FHA-insured and VA-guaranteed, first and second lien residential mortgage loan products to our homebuyers and others through our financial services subsidiaries, Universal American Mortgage Company, LLC, and Eagle Home Mortgage, Inc., in Arizona, California, Colorado, Florida, Illinois, Maryland, Minnesota, Nevada, New Jersey, New Mexico, North Carolina, Ohio, Oregon, South Carolina, Texas, Virginia and Washington. In 2003, our financial services subsidiaries provided loans to approximately 72% of our homebuyers who obtained mortgage financing from us in areas where we offered services for the entire year. Because of the availability of mortgage loans from our financial services subsidiaries, as well as independent mortgage lenders, we believe access to financing has not been, and is not, a significant obstacle for most purchasers of our homes.

During 2003, we originated approximately 41,000 mortgage loans totaling $7.6 billion. We sell the loans we originate in the secondary mortgage market on a servicing released, non-recourse basis. We have a corporate risk management policy under which we hedge our interest rate risk on rate locked loan commitments and loans held for sale against exposure to interest rate fluctuations. We finance our mortgage loan activities with borrowings under our financial services subsidiaries’ warehouse lines of credit or from our general corporate funds.

Title Insurance, Closing Services and Insurance Agency Services

We provide closing services and title insurance to our homebuyers and others. We provided closing services for approximately 245,000 real estate transactions and issued 175,000 title insurance policies during 2003 through subsidiaries of North American Title Group, Inc. Closing services are provided by agency subsidiaries in Arizona, California, Colorado, District of Columbia, Florida, Illinois, Maryland, Nevada, Texas and Virginia. North American Title Insurance Corporation in Florida and Texas, and North American Title Insurance Company in Arizona, California, Colorado and Nevada provide title insurance underwriting.

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We provide personal lines, property and casualty insurance products through our insurance agency subsidiary, Universal American Insurance Agency, Inc., for our homebuyers and others in Arizona, California, Colorado, Florida, Illinois, Maryland, Minnesota, Nevada, North Carolina, South Carolina, Texas and Virginia. During 2003, we issued approximately 8,500 new homeowner policies and renewed approximately 4,600 homeowner policies.

Strategic Technologies

Our subsidiary, Strategic Technologies, Inc., provides broadband services including high-speed Internet access, as well as alarm installation and monitoring services to residents of our communities and others. At November 30, 2003, we had approximately 6,000 broadband subscribers and approximately 14,000 alarm monitoring customers in Florida and California.

RELATIONSHIP WITH LNR PROPERTY CORPORATION

In connection with the 1997 transfer of our commercial real estate investment and management business to LNR Property Corporation (“LNR”), and the spin-off of LNR to our stockholders, we entered into an agreement which, among other things, prevented us from engaging through December 2002 in any of the businesses in which LNR was engaged, or anticipated becoming engaged, at the time of the spin-off, and prohibited LNR from engaging, at least through December 2002, in any of the businesses in which we were engaged, or anticipated becoming engaged, at the time of the spin-off (except in limited instances in which our then activities or anticipated activities overlap with LNR). In August 2003, this agreement was extended through November 30, 2005. We have no current intention to become involved in the types of activities in which LNR primarily engages (primarily related to commercial or multi-family residential real estate, commercial mortgage loans and investments in commercial mortgage-backed securities). Further, the agreement delineating activities in which we could engage from those in which LNR could engage has helped the two companies work cooperatively in partnerships and other joint endeavors.

We and LNR are separate publicly-traded companies and neither of us has any financial interest in the other, except for partnerships in which we both have investments. Stuart Miller, our President and Chief Executive Officer, is the Chairman of the Board of Directors of LNR and is the sole director and officer of family-owned entities which own stock that gives Mr. Miller voting control, or near voting control, of both companies. An Independent Directors Committee approves all ventures we enter into with LNR and any significant transactions between LNR and us or any of our subsidiaries.

In July 2003, a company of which we and LNR each owns 50% agreed to purchase The Newhall Land and Farming Company for approximately $1 billion. That transaction was completed in January 2004. In connection with the transaction, the company jointly owned by LNR and us, and another company of which we and LNR each owns 50%, entered into a $600 million bank financing arrangement.

For more information about certain of our partnerships with LNR, see Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7.

REGULATION

Homes and residential communities that we build must comply with state and local laws and regulations relating to, among other things, zoning, treatment of waste, construction materials which must be used, density requirements, building design and minimum elevation of properties. These include laws requiring use of construction materials which reduce the need for energy-consuming heating and cooling systems. These laws and regulations are subject to frequent change and often increase construction costs. In some cases, there are laws which require that commitments to provide roads and other offsite infrastructure be in place prior to the commencement of new construction. These laws and regulations are usually administered by individual counties and municipalities and may result in fees and assessments or building moratoriums. In addition, certain new development projects are subject to assessments for schools, parks, streets and highways and other public improvements, the costs of which can be substantial.

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The residential homebuilding industry also is subject to a variety of local, state and federal statutes, ordinances, rules and regulations concerning the protection of health and the environment. Environmental laws and conditions may result in delays, may cause us to incur substantial compliance and other costs, and can prohibit or severely restrict homebuilding activity in environmentally sensitive regions or areas.

In recent years, several cities and counties in which we have developments have submitted to voters “slow growth” initiatives and other ballot measures which could impact the affordability and availability of homes and land within those localities. Although many of these initiatives have been defeated, we believe that if similar initiatives were approved, residential construction by us and others within certain cities or counties could be seriously impacted.

In order to make it possible for purchasers of some of our homes to obtain FHA-insured or VA-guaranteed mortgages, we must construct those homes in compliance with regulations promulgated by those agencies.

We have registered condominium communities with the appropriate authorities in Florida and California. Sales in other states would require compliance with laws in those states regarding sales of condominium homes.

Our personal lines insurance and title subsidiaries must comply with applicable insurance laws and regulations. Our mortgage financing subsidiaries and title agencies must comply with applicable real estate lending laws and regulations.

Our mortgage banking and insurance subsidiaries are licensed in the states in which they do business and must comply with laws and regulations in those states regarding mortgage banking and title insurance companies. These laws and regulations include provisions regarding capitalization, operating procedures, investments, lending and privacy disclosures, forms of policies and premiums.

We can be affected by government regulation that does not directly apply to us, such as any curtailment of activities of the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac). Because these organizations provide significant liquidity to the secondary mortgage market, a serious curtailment of their activities could increase mortgage interest rates and therefore increase the effective cost of purchasing our homes.

A subsidiary of The Newhall Land and Farming Company, of which we indirectly own 50%, provides water to a portion of Los Angeles County. This subsidiary is subject to extensive regulation by the California Public Utilities Commission.

CAUTIONARY STATEMENTS

Some of the statements in this Report are “forward-looking statements” as that term is defined in the Private Securities Litigation Reform Act of 1995. By their nature, forward-looking statements involve risks, uncertainties and other factors that may cause actual results to differ materially from those which the statements anticipate. They include the factors discussed under “Particular Factors Which Could Affect Us.”

PARTICULAR FACTORS WHICH COULD AFFECT US

The following factors in particular could significantly affect our operations and financial results. We publicly disseminate future earnings goals which could be impacted by some of these factors.

We are subject to the cyclical nature of the home sales market.

The residential homebuilding industry is cyclical and is highly sensitive to changes in general economic conditions, such as levels of employment, consumer confidence and income, availability of financing, interest rate levels and demand for housing. The resale market for used homes, including foreclosed homes, also affects the sale of new homes or cancellations of contracts in backlog.

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Although the homebuilding business historically has been cyclical, it has not undergone a down cycle in a number of years. This has led some people to assert that the prices of homes and the stocks of homebuilding companies are overvalued and will decline when or if the market for new homes begins to weaken. A decline in prices of stocks of homebuilding companies could make it more difficult and more expensive for us to raise funds through stock issuances if we needed funds to meet our obligations or otherwise wanted to do so.

We could be affected by prices or shortages of materials or by weather conditions.

The residential homebuilding industry has, from time-to-time, experienced fluctuating lumber prices and supply, as well as shortages of other materials and labor, including insulation, drywall, concrete, carpenters, electricians and plumbers. Delays in construction of homes due to these factors or due to weather conditions, could have an adverse effect upon our operations.

We are dependent on the availability of suitable land.

Our ability to build homes depends upon our being able to acquire at acceptable prices land that is suitable for residential development in the areas in which we want to build homes. Because of this, we maintain, directly or through partnerships or similar arrangements, a significant inventory of land, much of which is undeveloped or only partially developed.

We could be affected by governmental regulations.

All of our businesses are subject to substantial governmental regulations. In particular, the homebuilding business is subject to government regulations relating to land use, water rights, construction materials, building design and minimum elevation of properties, as well as a variety of environmental matters. Changes in government regulations often increase the cost of building homes in areas in which we have communities and could prevent entirely the building of new homes in some areas.

We could be affected by inflation or deflation.

Inflation can increase the cost of building materials, land, labor and other construction related costs. Conversely, deflation can reduce the value of our land inventory and make it more difficult for us to recover the full cost of previously purchased land in home sale prices.

Customers may be unwilling or unable to purchase our homes at times when mortgage financing costs are high.

The majority of our homebuyers finance their acquisitions through our financial services subsidiaries or third-party lenders. In general, housing demand is adversely affected by increases in interest rates and by decreases in the availability of mortgage financing. If mortgage interest rates increase and the ability or willingness of prospective buyers to finance home purchases is adversely affected, our operating results may be negatively affected. Our homebuilding activities also are dependent upon the availability and cost of mortgage financing for buyers of homes currently owned by potential purchasers of our homes who cannot purchase our homes until they sell their current homes.

Competition may affect our profitability.

Our profitability is affected both by the number of homes we sell and by the profit margins we achieve when we sell homes. Competition and similar factors can reduce the number of homes we sell, or can force us to accept reduced profit margins in order to maintain sales volume.

Our operating results vary from quarter to quarter.

We have historically experienced, and expect to continue to experience, variability in operating results on a quarterly basis. Factors which may contribute to this variability include, but are not limited to:

— the timing of home deliveries and land sales;

— the timing of receipt of regulatory approvals for the construction of homes;

— the condition of the real estate market, prices for homes and general economic conditions;

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— the cyclical nature of the homebuilding and financial services industries;

— prevailing interest rates and availability of mortgage financing;

— the increase in the number of homes available for sale in the marketplace;

— pricing policies of our competitors;

— the timing of the opening of new residential communities;

— weather conditions; and

— the cost and availability of materials and labor.

Our historical financial performance is not necessarily a meaningful indicator of future results. We expect our financial results to continue to vary from quarter to quarter.

We could be hurt by loss of key personnel.

Our success depends to a significant degree on the efforts of our senior management. Our operations may be adversely affected if key members of senior management cease to be active in our Company. We have designed our compensation structure and employee benefit programs to encourage long-term employment by senior management.

We have a significant stockholder.

We have two classes of stock: Class A common stock, which is entitled to one vote per share; and Class B common stock, which is entitled to ten votes per share. Stuart Miller, our President and Chief Executive Officer, has voting control, through family-owned entities and personal holdings, of Class A and Class B common stock that entitles Mr. Miller to approximately 48% of the combined votes that can be cast by the holders of our outstanding Class A and Class B common stock combined. That gives significant influence to Mr. Miller in electing all our directors and approving most matters that are presented to our stockholders. Mr. Miller’s voting power might discourage someone from making a significant equity investment in us, even if we needed the investment to meet our obligations and to operate our business.

EMPLOYEES

At November 30, 2003, we employed 10,572 individuals of whom 6,786 were involved in homebuilding operations and 3,786 were involved in financial services operations. We do not have collective bargaining agreements relating to any of our employees. However, some of the subcontractors we use have employees who are represented by labor unions.

ACCESS TO OUR INFORMATION

We electronically file our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all exhibits and amendments to these reports, with the Securities and Exchange Commission (“SEC”). The public may read and copy any of the reports that are filed with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site, www.sec.gov, that contains reports, proxy and information statements and other information regarding issuers that file electronically.

We make available, free of charge, through our website, www.lennar.com, and by responding to requests addressed to our investor relations department, our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all exhibits and amendments to these reports. These reports are available as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC.

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Item 2.    Properties.

For information about properties we own for use in our homebuilding activities, see Item 1.

We lease and maintain our executive offices, financial services subsidiary headquarters, certain mortgage and title branches and a homebuilding division in an office complex in Miami, Florida. The leases for these offices expire through 2009. Our other homebuilding and financial services offices are located in the markets where we conduct business, primarily in leased space.

Item 3.    Legal Proceedings.

We are party to various claims and lawsuits which arise in the ordinary course of business. Although the specific allegations in the lawsuits differ, most of them involve claims that we failed to construct buildings in particular communities in accordance with plans and specifications or applicable construction codes, and seek reimbursement for sums allegedly needed to remedy the alleged deficiencies, or assert contract issues or relate to personal injuries. Lawsuits of these types are common within the homebuilding industry. We do not believe that these claims or lawsuits will have a material effect on our business, financial position or results of operations.

Item 4.    Submission of Matters to a Vote of Security Holders.

Not applicable.

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PART II

Item 5.    Market for the Registrant’s Common Stock and Related Security Holder Matters.

Share, dividend and per share amounts in the tables below have been adjusted for our January 2004 two-for-one stock split.

	Class A Common Stock Prices New York Stock Exchange		Cash Dividends Per Class A Share
	High/Low Prices
Fiscal Quarter	2003	2002	2003		2002
First	$28.77 – 24.15	$28.73 – 18.28	5/8	¢	5/8	¢
Second	$34.09 – 24.10	$30.12 – 25.34	5/8	¢	5/8	¢
Third	$40.81 – 31.15	$31.99 – 21.60	5/8	¢	5/8	¢
Fourth	$49.29 – 32.94	$29.95 – 24.63	12½	¢	5/8	¢
	Class B Common Stock Prices New York Stock Exchange		Cash Dividends Per Class B Share
	High/Low Prices
Fiscal Quarter	2003	2002	2003		2002
First	N/A *	N/A *	9/16	¢	9/16	¢
Second	$33.09 – 26.03	N/A *	5/8	¢	9/16	¢
Third	$37.85 – 29.59	N/A *	5/8	¢	9/16	¢
Fourth	$46.71 – 31.75	N/A *	12½	¢	9/16	¢

* In April 2003, our Class B common stock became listed on the New York Stock Exchange.

As of November 30, 2003, there were approximately 1,200 holders of record of our Class A common stock and approximately 900 holders of record of our Class B common stock.

The following table summarizes our equity compensation plans as of November 30, 2003:

Plan Category	Number of shares to be issued upon exercise of outstanding options, warrants and rights (a)	Weighted-average exercise price of outstanding options, warrants and rights (b)		Number of shares remaining available for future issuance under equity compensation plans (excluding shares reflected in column (a)) (c)
Equity compensation plans approved by stockholders	6,660,968	$	20.01	9,821,000
Equity compensation plans not approved by stockholders	—		—	—
Total	6,660,968	$	20.01	9,821,000

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Item 6.    Selected Financial Data.

	At or for the Years Ended November 30,
	2003		2002	2001	2000	1999
	(Dollars in thousands, except per share amounts)
Results of Operations:
Revenues:
Homebuilding (1)	$	8,348,645	6,751,301	5,554,747	4,362,034	2,822,060
Financial services	$	558,974	484,219	425,354	316,934	269,307
Total revenues	$	8,907,619	7,235,520	5,980,101	4,678,968	3,091,367
Operating earnings:
Homebuilding (1)	$	1,164,089	834,056	666,123	382,195	291,944
Financial services	$	154,453	127,611	89,131	43,595	31,096
Corporate general and administrative expenses	$	111,488	85,958	75,831	50,155	37,563
Earnings before provision for income taxes	$	1,207,054	875,709	679,423	375,635	285,477
Net earnings	$	751,391	545,129	417,845	229,137	172,714
Net earnings per share (diluted) (2)	$	4.65	3.51	2.73	1.65	1.24
Cash dividends per share—Class A common stock (2)	$	.144	.025	.025	.025	.025
Cash dividends per share—Class B common stock (2)	$	.143	.0225	.0225	.0225	.0225
Financial Position:
Total assets	$	6,775,432	5,755,633	4,714,426	3,777,914	2,057,647
Debt:
Homebuilding	$	1,552,217	1,585,309	1,505,255	1,254,650	523,661
Financial services	$	740,469	862,618	707,077	448,860	278,634
Stockholders’ equity	$	3,263,774	2,229,157	1,659,262	1,228,580	881,499
Shares outstanding (000s) (2)		157,836	142,811	140,833	138,008	127,417
Stockholders’ equity per share (2)	$	20.68	15.61	11.78	8.90	6.92
Delivery and Backlog Information (including unconsolidated partnerships):
Number of homes delivered		32,180	27,393	23,899	18,578	12,606
Backlog of home sales contracts		13,905	12,108	8,339	8,363	2,903
Dollar value of backlog	$	3,887,000	3,200,000	1,982,000	2,072,000	662,000

(1) Prior year amounts contain reclassifications to conform to the 2003 presentation. These reclassifications had no impact on reported net earnings. In particular, homebuilding results reflect reclassifications that have been made to interest expense (now included in cost of homes sold and cost of land sold), equity in earnings from unconsolidated partnerships and management fees and other income, net.

(2) Share and per share amounts have been adjusted to reflect the effect of our 10% Class B common stock distribution in April 2003 and our two-for-one stock split in January 2004.

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Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Some of the statements contained in the following Management’s Discussion and Analysis of Financial Condition and Results of Operations are “forward-looking statements” as that term is defined in the Private Securities Litigation Reform Act of 1995. By their nature, forward-looking statements involve risks, uncertainties and other factors that may cause actual results to differ materially from those which the statements anticipate. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They contain words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “may,” “can,” “could,” “might,” “guidance,” “goal,” “visibility,” and other words or phrases of similar meaning in connection with any discussion of future operating or financial performance. Factors which may affect our results include, but are not limited to, changes in general economic conditions, the market for homes and prices for homes generally and in areas where we have developments, the availability and cost of land suitable for residential development, materials prices, labor costs, interest rates, consumer confidence, competition, terrorist acts or other acts of war, environmental factors and government regulations affecting our operations.

RESULTS OF OPERATIONS

Overview

We achieved record revenues, profits and earnings per share in 2003. Our net earnings in 2003 were $751.4 million, or $4.65 per share diluted, compared to $545.1 million, or $3.51 per share diluted, in 2002. The increase in net earnings was attributable to strong homebuilding gross margins and increased operating earnings from our Financial Services Division. In particular, both our deliveries and average sales price on homes delivered increased due to strong demand resulting from supply constraints, strong demographic trends, low interest rates and improving economic trends. With $1.2 billion of cash at year-end, our net homebuilding debt (i.e., homebuilding debt less homebuilding cash) to total net capital (i.e., net homebuilding debt plus stockholders’ equity) ratio was 9.7% at November 30, 2003, compared to 27.7% last year. Additionally, we had zero outstanding under our $1 billion revolving credit facilities at year-end. Our record earnings combined with a strong balance sheet contributed to a return on net capital of approximately 23% in 2003, compared to approximately 22% in 2002.

Earnings per share amounts for all years have been adjusted to reflect the effect of our April 2003 10% Class B common stock distribution and our January 2004 two-for-one stock split.

Homebuilding

Our Homebuilding Division sells and constructs homes primarily for first-time, move-up and active adult homebuyers. We use a dual marketing strategy in which we sell homes under both our Everything’s Included^® and Design Studio^SM programs. Our land operations include the purchase, development and sale of land for our homebuilding activities, as well as the sale of land to third parties. In certain circumstances, we diversify our operations through strategic alliances and minimize our risk by forming partnerships with other entities. The following tables set forth selected financial and operational information for the years indicated. The results of operations of the homebuilders we acquired during these years are included in the information since the respective dates of the acquisitions.

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Selected Homebuilding Division Financial Data

	Years Ended November 30,
	2003			2002		2001
	(Dollars in thousands, except average sales price)
Revenues:
Sales of homes	$	8,040,470		6,581,703		5,467,548
Sales of land		308,175		169,598		87,199
Total revenues		8,348,645		6,751,301		5,554,747
Costs and expenses:
Cost of homes sold		6,180,777		5,119,668		4,275,321
Cost of land sold		234,844		167,640		85,546
Selling, general and administrative		872,735		705,901		573,204
Total costs and expenses		7,288,356		5,993,209		4,934,071
Equity in earnings from unconsolidated partnerships		81,937		42,651		27,051
Management fees and other income, net		21,863		33,313		18,396
Operating earnings	$	1,164,089		834,056		666,123
Gross margin on home sales		23.1	%	22.2	%	21.8	%
SG&A expenses as a % of revenues from home sales		10.9	%	10.7	%	10.5	%
Operating margin as a % of revenues from home sales		12.3	%	11.5	%	11.3	%
Average sales price	$	256,000		245,000		237,000

Prior year amounts contain reclassifications to conform to the 2003 presentation. These reclassifications had no impact on reported net earnings. Homebuilding results reflect reclassifications that have been made to interest expense (now included in cost of homes sold and cost of land sold), equity in earnings from unconsolidated partnerships and management fees and other income, net.

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Summary of Home and Backlog Data By Region

	At or for the Years Ended November 30,
	2003		2002	2001
	(Dollars in thousands)
Deliveries
East		10,348	9,296	8,175
Central		9,993	7,766	7,056
West		11,839	10,331	8,668
Total		32,180	27,393	23,899
Of the deliveries listed above, 768, 568 and 795 deliveries relate to unconsolidated partnerships for the years ended November 30, 2003, 2002 and 2001, respectively.
New Orders
East		11,640	10,192	8,445
Central		9,696	7,591	7,180
West		12,187	10,590	8,250
Total		33,523	28,373	23,875
Of the new orders listed above, 1,553, 733 and 833 new orders relate to unconsolidated partnerships for the years ended November 30, 2003, 2002 and 2001, respectively.
Backlog—Homes
East		6,121	4,780	3,314
Central		2,416	2,713	1,977
West		5,368	4,615	3,048
Total		13,905	12,108	8,339
Of the homes in backlog listed above, 1,226, 441 and 255 homes in backlog relate to unconsolidated partnerships at November 30, 2003, 2002 and 2001, respectively.
Backlog Dollar Value
(including unconsolidated partnerships)	$	3,887,000	3,200,000	1,982,000

At November 30, 2003, our market regions consisted of homebuilding divisions in the following states: East: Florida, Maryland, Virginia, New Jersey, North Carolina and South Carolina. Central: Texas, Illinois and Minnesota. West: California, Colorado, Arizona and Nevada.

During 2003, we expanded our operations in California and South Carolina through homebuilding acquisitions. During 2002, we acquired nine homebuilders, which expanded our operations into the Carolinas and the Chicago, Baltimore and Central Valley, California homebuilding markets and strengthened our positions in several of our existing markets. The results of operations of the homebuilders we acquired are included in our results of operations since their respective acquisition dates.

Revenues from sales of homes increased 22% in 2003 and 20% in 2002, compared to the previous years as a result of a 17% increase and a 16% increase in the number of home deliveries, respectively, in 2003 and 2002, and a 4% increase in the average sales price in both years. In 2003, new home deliveries were higher in most of our markets, primarily in California, Florida, Texas and Illinois. In 2002, new home deliveries were higher primarily due to a strong homebuilding market, combined with our acquisitions during the year. The average sales price of homes delivered increased in 2003 and 2002 primarily due to an increase in the average sales price in most of our existing markets, combined with changes in our product and geographic mix.

Gross margin percentages on home sales were 23.1%, 22.2% and 21.8% in 2003, 2002 and 2001, respectively. The increase in 2003 was due to a greater contribution from a strong California market, combined

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with lower interest costs due to a lower debt leverage ratio while we continued to grow. The increase in 2002 was due to improved operational efficiencies and strength in the homebuilding markets in which we operated, partially offset by softness primarily in the Texas market.

Selling, general and administrative expenses as a percentage of revenues from home sales increased to 10.9% in 2003, compared to 10.7% and 10.5% in 2002 and 2001, respectively. The increase in 2003 was primarily due to higher personnel-related expenses, compared to 2002. The increase in 2002 was primarily due to an increase in insurance costs, compared to 2001.

Gross profits on land sales totaled $73.3 million in the year ended November 30, 2003, compared to $2.0 million in 2002 and $1.7 million in 2001. Profits in 2003 were positively impacted by each of our regions, with strong contributions from our East and West regions. Equity in earnings from unconsolidated partnerships was $81.9 million in the year ended November 30, 2003, compared to $42.7 million in 2002 and $27.1 million in 2001. Management fees and other income, net, totaled $21.9 million in the year ended November 30, 2003, compared to $33.3 million in 2002 and $18.4 million in 2001. Land sales, equity in earnings from unconsolidated partnerships, and management fees and other income, net, may vary significantly from period to period depending on the timing of land sales and other transactions by us and our unconsolidated partnerships.

At November 30, 2003, we owned approximately 74,000 homesites and had access to an additional 135,000 homesites through either option contracts or our unconsolidated partnerships. At November 30, 2003, approximately 15% of the homesites we owned were subject to home purchase contracts. Our backlog of sales contracts was 13,905 homes ($3.9 billion) at November 30, 2003, compared to 12,108 homes ($3.2 billion) at November 30, 2002. The higher backlog was primarily attributable to our homebuilding acquisitions and growth in the number of active communities, which resulted in higher new orders in 2003, compared to 2002. As a result of these acquisitions combined with our organic growth, inventories increased 13% during 2003, while revenues from sales of homes increased 22% for the year ended November 30, 2003, compared to prior year.

Financial Services

Our Financial Services Division provides mortgage financing, title insurance, closing services and insurance agency services for both buyers of our homes and others. The Division sells the loans it originates in the secondary mortgage market. The Division also provides high-speed Internet access, cable television and alarm installation and monitoring services to residents of our communities and others. The following table sets forth selected financial and operational information relating to our Financial Services Division. The results of operations of companies we acquired during these years are included in the information since the respective dates of the acquisitions.

	Years Ended November 30,
	2003			2002		2001
	(Dollars in thousands)
Revenues	$	558,974		484,219		425,354
Costs and expenses		404,521		356,608		336,223
Operating earnings	$	154,453		127,611		89,131
Dollar value of mortgages originated	$	7,603,000		6,132,000		5,226,000
Number of mortgages originated		41,000		34,100		30,600
Mortgage capture rate of Lennar homebuyers		72	%	80	%	79	%
Number of title closing transactions (excluding title policies issued)		245,000		189,000		162,000
Number of title policies issued		175,000		146,000		111,000

Operating earnings from our Financial Services Division increased to $154.5 million in 2003, compared to $127.6 million and $89.1 million in 2002 and 2001, respectively. The increase in 2003 was primarily due to improved results from our mortgage and title operations, which benefited from low interest rates and a strong refinance and housing environment. The increase in 2002 was primarily due to improved results from our

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mortgage and title operations, which benefited from a low interest rate and strong housing environment in 2002. The operating earnings in 2002 included a $5.0 million gain on the sale of a cable system. The Division’s mortgage capture rate (i.e., mortgage capture rate is the percentage of our homebuyers who obtained mortgage financing from us in areas where we offered services for the entire year) decreased in the year ended November 30, 2003 due to the transitioning of the mortgage business related to the homebuilders we have acquired since the beginning of fiscal 2002 as well as increasing competitiveness in the mortgage market.

Corporate General and Administrative

Corporate general and administrative expenses as a percentage of total revenues were 1.3% in 2003 compared to 1.2% in 2002 and 1.3% in 2001.

FINANCIAL CONDITION AND CAPITAL RESOURCES

At November 30, 2003, we had cash of $1.2 billion, compared to $731.2 million at the end of fiscal 2002. The increase in cash was primarily due to an increase in net earnings partially offset by an increase in inventories as we position ourselves for future growth. In connection with the acquisition of The Newhall Land and Farming Company by an entity jointly-owned with LNR Property Corporation (“LNR”), we contributed approximately $200 million to fund a portion of the purchase price. The majority of this commitment was funded subsequent to year-end.

Operating Cash Flow Activity

During 2003 and 2002, cash flows provided by operating activities amounted to $580.8 million and $204.6 million, respectively. During 2003, cash flows provided by operating activities consisted primarily of net earnings and a decrease in loans held for sale offset in part by an increase in operating assets to support a significantly higher backlog and a higher number of active communities. In particular, inventories at November 30, 2003 had increased by $267.2 million since November 30, 2002, due to an increase in backlog and the expansion of operations in our market areas. We finance our land acquisition and development activities, construction activities, financial services activities and general operating needs primarily with cash generated from operations and public debt issuances, as well as cash borrowed under revolving credit facilities.

During 2002, cash flows provided by operating activities consisted primarily of net earnings offset in part by increased levels of operating assets to support a significantly higher backlog and a higher number of active communities as we continued to grow. Cash flows provided by operating activities were lower in 2001 due to an increase in financial services loans held for sale of $211.1 million and $57.1 million in receivables. We sell the loans we originate in the secondary mortgage market, generally within 45 days of the closing of the loans. The cash related to these loans and receivables was primarily received in December 2001 and was used to pay down our warehouse lines of credit. Inventories increased $130.7 million in 2001 as we positioned ourselves for future growth.

Investing Cash Flow Activity

Cash flows used in investing activities totaled $118.2 million in the year ended November 30, 2003 compared to $365.7 million in 2002, and cash provided by investing activities of $1.9 million in 2001. In 2003, we used $159.4 million of cash for acquisitions and $18.8 million for net additions to operating properties and equipment. This usage of cash was offset by $72.1 million of net distributions by unconsolidated partnerships in which we invest. In 2002, we used $424.3 million of cash for acquisitions offset by $57.9 million of net distributions by unconsolidated partnerships. In 2001, $10.8 million was provided by the sale of substantially all of our mortgage servicing rights and $5.6 million related to net distributions by unconsolidated partnerships in which we invest. This generation of cash was offset by $13.1 million of net additions to operating properties and equipment.

During 2003, we expanded our presence in California and South Carolina, with our homebuilding acquisitions and we purchased a title company, which expanded our title and closing business into the Chicago market. In connection with these acquisitions and contingent consideration related to prior period acquisitions, we paid $159.4 million, net of cash acquired. During 2002, we expanded our operations into the Carolinas and the Chicago, Baltimore and Central Valley, California homebuilding markets and strengthened our positions in

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several of our existing markets through our homebuilding acquisitions. In connection with the 2002 acquisitions, total consideration, including debt of acquired companies, totaled approximately $600 million. The results of operations of the acquired companies are included in our results of operations since their respective acquisition dates. We are always looking at the possibility of acquiring homebuilders and other companies. We currently are engaged in discussions regarding possible transactions. However, we have no agreements or understandings regarding any transactions, and it is possible we will not enter into any significant transactions in the near future.

In July 2003, we formed a joint venture with LNR named NWHL Investment, LLC (“NWHL”), and NWHL entered into an agreement to acquire The Newhall Land and Farming Company (“Newhall”). Newhall’s primary business is developing two master-planned communities in Los Angeles County, California. The transaction was completed on January 27, 2004. The total purchase consideration, after payments with regard to employee options, was approximately $1 billion. In connection with the transaction, NWHL and another company jointly owned by us and LNR, obtained $600 million of bank financing, of which $400 million was used in connection with the acquisition of Newhall. The remainder of the bank financing will be available to finance operations of Newhall and other property ownership and development companies that are jointly owned by us and LNR. We and LNR each contributed approximately $200 million to NWHL to fund a portion of the purchase price. Simultaneous with the closing of the transaction, LNR purchased income-producing properties from Newhall for approximately $217 million and we agreed to purchase 687 homesites and obtained options to purchase 623 homesites from the venture.

Financing Cash Flow Activity

The following summarizes our senior notes and other debts payable:

	November 30,
	2003		2002
	(Dollars in thousands)
3 7/8% zero-coupon senior convertible debentures due 2018	$	—	266,917
5.125% zero-coupon convertible senior subordinated notes due 2021		261,012	248,138
5.95% senior notes due 2013		344,260	—
7 5/8% senior notes due 2009		273,593	272,591
9.95% senior notes due 2010		301,995	300,175
Term Loan B due 2008		296,000	391,000
U.S. Home senior notes due through 2009		2,367	9,366
The Fortress Group, Inc. senior notes due 2003		—	12,575
Mortgage notes on land and other debt		72,990	84,547
	$	1,552,217	1,585,309

Our ratio of net homebuilding debt to total net capital was 9.7% at November 30, 2003, compared to 27.7% at November 30, 2002. The decrease in the ratio primarily resulted from cash generated by our operations during 2003. In addition to the use of capital in our homebuilding and financial services activities, we will continue to actively evaluate various other uses of capital which fit into our homebuilding and financial services strategies and appear to meet our profitability and return on capital requirements. This may include acquisitions of or investments in other entities, the payment of dividends or repurchases of our outstanding common stock or debt. These activities may be funded through any combination of our credit facilities, cash generated from operations, sales of assets or the issuance of public debt, common stock or preferred stock.

Our average debt outstanding was $1.6 billion in both 2003 and 2002 and $1.5 billion in 2001. The average rates for interest incurred were 7.7% in 2003, and 7.6% in both 2002 and 2001. The majority of our short-term financing needs are met with cash generated from operations and funds available under our senior secured credit facilities. In May 2003, we amended and restated our senior secured credit facilities (the “Credit Facilities”) to provide us with up to $1.3 billion of financing. The Credit Facilities consist of a $712 million revolving credit facility maturing in May 2008, a $315 million 364-day revolving credit facility maturing in May 2004 and a $300 million term loan B maturing in December 2008. We may elect to convert borrowings under the 364-day revolving credit facility to a term loan, which would mature in May 2008. The Credit Facilities are collateralized by the stock of certain of our subsidiaries and are also guaranteed on a joint and several basis by substantially all of our subsidiaries, other than subsidiaries primarily engaged in mortgage and title reinsurance activities. At

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November 30, 2003, $296.0 million was outstanding under the term loan B and no amounts were outstanding under the revolving credit facilities.

At November 30, 2003, we had letters of credit outstanding in the amount of $627.9 million. The majority of these letters of credit are posted with regulatory bodies to guarantee our performance of certain development and construction activities or are posted in lieu of cash deposits on option contracts. Of our total letters of credit, $341.4 million were collateralized against certain borrowings available under the Credit Facilities.

In February 2003, we issued $350 million of 5.95% senior notes due 2013 at a price of 98.287%. The senior notes are guaranteed on a joint and several basis by substantially all of our subsidiaries, other than subsidiaries primarily engaged in mortgage and title reinsurance activities. Proceeds from the offering, after underwriting discount and expenses, were approximately $342 million. We used $116 million of the proceeds to repay outstanding indebtedness and added the remainder to our general working capital. The senior notes were issued under our shelf registration statement.

At November 30, 2003, our Financial Services Division had warehouse lines of credit totaling $750 million, which included a $145 million temporary increase that expired in December 2003, to fund its mortgage loan activities. Borrowings under the facilities were $714.4 million at November 30, 2003 and were collateralized by mortgage loans and receivables on loans sold not yet funded with outstanding principal balances of $742.2 million. The warehouse lines of credit mature in May 2004 ($250 million) and in October 2005 ($500 million), at which time we expect both facilities to be renewed. Additionally, the line of credit maturing in May 2004 includes an incremental $100 million commitment available at each fiscal quarter-end. At November 30, 2003, we had advances under a conduit funding agreement with a major financial institution amounting to $0.6 million. Borrowings under this agreement are collateralized by mortgage loans. We also had a $20 million revolving line of credit with a bank, collateralized by certain assets of the Division and stock of certain title subsidiaries. Borrowings under the line of credit were $19.4 million at November 30, 2003.

We have various interest rate swap agreements, which effectively convert variable interest rates to fixed interest rates on approximately $300 million of outstanding debt related to our homebuilding operations. The interest rate swaps mature at various dates through 2007 and fix the LIBOR index (to which certain of our debt interest rates are tied) at an average interest rate of 6.8% at November 30, 2003. The net effect on our operating results is that interest on the variable-rate debt being hedged is recorded based on fixed interest rates. Counterparties to these agreements are major financial institutions. At November 30, 2003, the fair value of the interest rate swaps, net of tax, was a $21.0 million liability. Our Financial Services Division, in the normal course of business, uses derivative financial instruments to reduce its exposure to fluctuations in interest rates. The Division enters into forward commitments and, to a lesser extent, option contracts to protect the value of loans held for sale from increases in market interest rates. We do not anticipate that we will suffer credit losses from counterparty non-performance.

Changes in Capital Structure

On April 8, 2003, at our Annual Meeting of Stockholders, our stockholders approved an amendment to our certificate of incorporation that eliminated the restrictions on transfer of our Class B common stock and eliminated a difference between the dividends on the common stock (renamed Class A common stock) and the Class B common stock. The only significant remaining difference between the Class A common stock and the Class B common stock is that the Class A common stock entitles holders to one vote per share and the Class B common stock entitles holders to ten votes per share.

Because stockholders approved the change to the terms of the Class B common stock, we distributed to the holders of record of our stock at the close of business on April 9, 2003, one share of Class B common stock for each ten shares of Class A common stock or Class B common stock held at that time. The distribution occurred on April 21, 2003 and our Class B common stock became listed on the New York Stock Exchange (“NYSE”). Our Class A common stock was already listed on the NYSE. Approximately 13 million shares of Class B common stock (adjusted for the January 2004 two-for-one stock split) were issued as a result of the stock distribution.

Additionally, our stockholders approved an amendment to our certificate of incorporation increasing the number of shares of common stock we are authorized to issue to 300 million shares of Class A common stock and 90 million shares of Class B common stock. However, we have committed to Institutional Shareholder

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Services that we will not issue, without a subsequent stockholder vote, shares that would increase the outstanding Class A common stock to more than 170 million shares or increase the outstanding Class B common stock to more than 45 million shares.

The principal purpose of the April 2003 10% Class B stock distribution and the amendments to our certificate of incorporation was to make a greater number of authorized shares available for us to use in acquisitions, to sell in order to raise capital, to issue under stock option or other incentive programs or otherwise to issue.

In June 2003, we called our 3 ⁷/8% zero-coupon senior convertible debentures due 2018 (the “Debentures”) for redemption. At the option of the holders, the Debentures could have been converted into Class A common stock at any time prior to the redemption date. Each $1,000 principal amount at maturity of Debentures was convertible into 27.4814 shares of Class A common stock (inclusive of the adjustment for the April 2003 10% Class B stock distribution and January 2004 two-for-one stock split), which equated to a redemption price of approximately $20.46 per share of Class A common stock. In 2003, substantially all of the Debentures were converted into approximately 13.6 million shares of Class A common stock (adjusted for the January 2004 two-for-one stock split).

In December 2003, our Board of Directors approved a two-for-one stock split in the form of a 100% stock dividend of Class A and Class B common stock for stockholders of record on January 6, 2004. The additional shares were distributed on January 20, 2004. There was no net effect on total stockholders’ equity. Share and per share data (except authorized shares, treasury shares and par value) for all periods presented have been retroactively adjusted to reflect the stock split.

Our 2003 Stock Option and Restricted Stock Plan (the “2003 Plan”) provides for the granting of Class A and Class B stock options and stock appreciation rights and awards of restricted common stock to key officers, employees and directors. The exercise prices of stock options and stock appreciation rights are not less than the market value of the common stock on the date of the grant. No options granted under the 2003 Plan may be exercisable until at least six months after the date of the grant. Thereafter, exercises are permitted in installments determined when options are granted. Each stock option and stock appreciation right will expire on a date determined at the time of the grant, but not more than 10 years after the date of the grant. At November 30, 2003, the 2003 Plan had no shares of restricted stock outstanding.

In June 2001, our Board of Directors increased our previously authorized stock repurchase program to permit future purchases of up to 20 million shares of our outstanding Class A common stock (adjusted for our January 2004 two-for-one stock split). During 2003, we did not repurchase any of our outstanding common stock in the open market under these authorizations. In prior years under prior approvals, we had repurchased approximately 9.8 million shares (not adjusted for our January 2004 two-for-one stock split) of our outstanding Class A common stock for an aggregate purchase price of approximately $158.9 million, or $16 per share. In December 2003, we granted approximately 2.4 million stock options (adjusted for our January 2004 two-for-one stock split) to our employees under the 2003 Plan and in January 2004, repurchased a similar amount of shares of our outstanding Class A common stock for an aggregate purchase price of approximately $109.6 million, or $45.64 per share (adjusted for our January 2004 two-for-one stock split).

In September 2003, our Board of Directors voted to increase the rate at which dividends are paid with regard to our Class A and Class B common stock to $0.50 per share per year (payable quarterly) from $0.025 per share per year (both adjusted for our January 2004 two-for-one stock split). Additionally, our Board of Directors voted to retire our Class A common stock held in treasury.

In recent years, we have sold convertible and non-convertible debt into public markets, and at year end, we had effective Securities Act registration statements under which we could sell to the public up to $620 million of debt securities, common stock, preferred stock or other securities and could issue up to $400 million of equity or debt securities in connection with acquisitions of companies, businesses or assets.

Based on our current financial condition and credit relationships, we believe that our operations and borrowing resources will provide for our current and long-term capital requirements at our anticipated levels of growth.

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OFF-BALANCE SHEET ARRANGEMENTS, CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

Investments in Unconsolidated Partnerships

We frequently enter into partnerships that acquire and develop land for our homebuilding operations or for sale to third parties. Through partnerships, we reduce and share our risk and also reduce the amount invested in land, while increasing access to potential future homesites. The use of partnerships also, in some instances, enables us to acquire land to which we could not otherwise obtain access, or could not obtain access on as favorable terms, without the participation of a strategic partner. Our partners in these partnerships generally are unrelated homebuilders, land sellers or other real estate entities. While we view the use of unconsolidated partnerships as beneficial to our homebuilding activities, we do not view them as essential to those activities.

Most of the partnerships in which we invest are accounted for by the equity method of accounting. At November 30, 2003, we had ownership interests in these unconsolidated partnerships that did not exceed 50%. In many instances, we are appointed as the day-to-day manager of the partnerships and receive fees for performing this function. During 2003, 2002 and 2001, we received management fees and reimbursement of expenses totaling $39.0 million, $29.2 million and $26.1 million, respectively, from unconsolidated partnerships in which we had interests. We and/or our partners sometimes obtain options or enter into other arrangements under which we can purchase portions of the land held by the unconsolidated partnerships. Option prices are generally negotiated prices that approximate fair value when we receive the options. During 2003, 2002 and 2001, $460.5 million, $419.3 million and $232.6 million, respectively, of the unconsolidated partnerships’ revenues were from land sales to our homebuilding divisions.

At November 30, 2003, the unconsolidated partnerships in which we had interests had total assets of $2.1 billion and total liabilities of $1.2 billion, which included $901.8 million of notes and mortgages payable. In some instances, we and/or our partners have provided varying levels of guarantees on certain partnership debt. At November 30, 2003, we had recourse guarantees of $88.7 million and limited maintenance guarantees of $111.6 million of the unconsolidated partnerships’ debts. When we and/or our partners provide guarantees, the partnership generally receives more favorable terms from its lenders. The limited maintenance guarantees only apply if a partnership defaults on its loan arrangements and the carrying value of the collateral (generally land and improvements) is less than a specified percentage of the loan balance. If we are required to make a payment under a limited maintenance guarantee to bring the carrying value of the collateral above the specified percentage of the loan balance, the payment would constitute a capital contribution or loan to the unconsolidated partnership and increase our share of any funds the unconsolidated partnership distributes.

During 2003, the unconsolidated partnerships in which we were a partner generated $1.3 billion of revenues and incurred $939.0 million of expenses, resulting in net earnings of $375.7 million. Our share of those net earnings was $81.9 million. We do not include in our income our pro rata share of partnership earnings resulting from land sales to our homebuilding divisions. Instead, we account for those earnings as a reduction of our cost of purchasing the land from the partnerships. This in effect defers recognition of our share of the partnership earnings until a home is delivered and title passes to a homebuyer.

In November 2003, we and LNR each contributed our 50% interests in certain of our jointly-owned unconsolidated partnerships that had significant assets to a new limited liability company named LandSource Communities Development LLC (“LandSource”), in exchange for 50% interests in LandSource. In addition, in July 2003, we and LNR formed, and obtained 50% interests in, NWHL, which agreed to purchase, and in January 2004 completed the purchase, of The Newhall Land and Farming Company, for a total of approximately $1 billion. We and LNR each contributed approximately $200 million to NWHL to fund a portion of the purchase price, and LandSource and NWHL jointly obtained $600 million of bank financing, of which $400 million was used in connection with the acquisition of Newhall (the remainder of the acquisition price was paid with proceeds of a sale of income-producing properties from Newhall to LNR for $217 million). We are not obligated with regard to the borrowings by LandSource and NWHL, except that we and LNR have made limited maintenance guarantees and have committed to complete any property development commitments in the event of default. The combined assets and liabilities of LandSource and NWHL at November 30, 2003 were $380.7 million and $122.3 million, respectively. Our combined investment in LandSource and NWHL was $128.8 million at November 30, 2003.

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Contractual Obligations and Commercial Commitments

The following summarizes our contractual obligations at November 30, 2003:

			Payments Due by Period
Contractual Obligations	Total		Less than 1 year	1 to 3 years	4 to 5 years	Over 5 years
	(Dollars in thousands)
Homebuilding—Senior notes and other debts payable	$	1,552,217	21,523	64,158	8,000	1,458,536
Financial Services—Notes and other debts payable (including limited-purpose finance subsidiaries)		740,469	734,532	108	17	5,812
Operating leases		192,710	48,022	69,199	40,608	34,881
Total contractual cash obligations	$	2,485,396	804,077	133,465	48,625	1,499,229

We are subject to the usual obligations associated with entering into contracts (including option contracts) for the purchase, development and sale of real estate in the routine conduct of our business. Option contracts for the purchase of land enable us to defer acquiring portions of properties owned by third parties and unconsolidated partnerships until we are ready to build homes on them. This reduces our financial risk associated with land holdings. At November 30, 2003, we had access to acquire approximately 135,000 homesites through option contracts and unconsolidated partnerships. At November 30, 2003, we had $220.6 million of non-refundable option deposits and advanced costs on real estate related to certain of these homesites.

We are committed, under various letters of credit, to perform certain development and construction activities and provide certain guarantees in the normal course of business. Outstanding letters of credit under these arrangements totaled $627.9 million at November 30, 2003. Additionally, we had outstanding performance and surety bonds related to site improvements at various projects with estimated costs to complete of $1.0 billion. We do not believe that draws upon these bonds, if any, will have a material effect on our financial position, results of operations or cash flows.

Our Financial Services Division’s commitments regarding loans in process totaled approximately $2.6 billion at November 30, 2003. To minimize credit risk, we use the same credit policies in the approval of the commitments as are applied to our lending activities. Since a portion of these commitments is expected to expire without being exercised by the borrowers, the total commitments do not necessarily represent future cash requirements. Loans in process for which interest rates were committed to the borrowers totaled approximately $330.7 million as of November 30, 2003. Substantially all of these commitments were for periods of 60 days or less.

Our Financial Services Division uses mandatory mortgage-backed securities forward commitments (“MBS”) to hedge its interest rate exposure during the period from when it makes an interest rate commitment to a loan applicant until the time at which the loan is sold to an investor. These instruments involve, to varying degrees, elements of credit and interest rate risk. Credit risk is managed by entering into MBS only with investment banks with primary dealer status and with permanent investors meeting our credit standards. Our risk, in the event of default by the purchaser, is the difference between the contract price and current market value. At November 30, 2003, we had open commitments amounting to $512.0 million to sell MBS with varying settlement dates through January 2004.

ECONOMIC CONDITIONS

During 2003, the homebuilding environment remained strong due to a positive supply/demand relationship as well as low interest rates. As a result of this favorable environment, as well as our recent homebuilding acquisitions and growth in the number of our active communities, our new orders increased by 18% in 2003. Although the homebuilding business historically has been cyclical, it has not undergone a down cycle in a number of years. This has led some people to assert that the prices of homes and the stocks of homebuilding companies are overvalued and will decline rapidly when the market for new homes begins to weaken. A decline in prices of stocks of homebuilding companies would make it more expensive, and could make it more difficult, for us to raise funds through stock issuances.

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MARKET AND FINANCING RISK

We finance our land acquisition and development activities, construction activities, financial services activities and general operating needs primarily with cash generated from operations and public debt issuances, as well as cash borrowed under revolving credit facilities. We also buy land under option agreements, which enable us to acquire homesites when we are ready to build homes on them. The financial risks of adverse market conditions associated with land holdings is managed by prudent underwriting of land purchases in areas we view as desirable growth markets, careful management of the land development process, and limitation of risk by using partners to share the costs of purchasing and developing land, as well as obtaining access to land through option arrangements.

BACKLOG

Backlog represents the number of homes subject to pending sales contracts. Homes are sold using sales contracts which are generally accompanied by sales deposits. Before entering into sales contracts, we generally prequalify our customers. In some instances, purchasers are permitted to cancel sales contracts if they are unable to close on the sale of their existing home or fail to qualify for financing and under certain other circumstances. We experienced an average cancellation rate of 20% in 2003, compared to 21% and 22% in 2002 and 2001, respectively. Although cancellations can delay the sales of our homes, they have not had a material impact on sales, operations or liquidity, because we closely monitor our prospective buyers’ ability to obtain financing and use the information to adjust construction start plans to match anticipated deliveries of homes. We do not recognize revenue on homes covered by pending sales contracts until the sales are closed and title passes to the new homeowners.

SEASONALITY

We have historically experienced variability in results of operations from quarter to quarter due to the seasonal nature of the homebuilding business. We typically experience the highest rate of orders for new homes in the first half of the calendar year, although the rate of orders for new homes is highly dependent on the number of active communities and the timing of new community openings. Because new home deliveries trail orders for new homes by several months, we typically have a greater percentage of new home deliveries in the second half of our fiscal year compared to the first half. As a result, our earnings from sales of homes are generally higher in the second half of the fiscal year.

INTEREST RATES AND CHANGING PRICES

Inflation can have a long-term impact on us because increasing costs of land, materials and labor result in a need to increase the sales prices of homes. In addition, inflation is often accompanied by higher interest rates, which can have a negative impact on housing demand and the costs of financing land development activities and housing construction. Rising interest rates, as well as increased materials and labor costs, may reduce gross margins. In recent years, the increases in these costs have followed the general rate of inflation and hence have not had a significant adverse impact on us. In addition, deflation can impact the value of real estate and make it difficult for us to recover our land costs. Therefore, either inflation or deflation could adversely impact our future results of operations.

NEW ACCOUNTING PRONOUNCEMENTS

Our discussion of new accounting pronouncements and their impact on our financial statements is included in Note 1 of Notes to Consolidated Financial Statements.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our accounting policies are more fully described in Note 1 of Notes to Consolidated Financial Statements. As discussed in Note 1, the preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results could differ from those estimates, and such differences may be material to the financial statements. Listed below are those policies and estimates that we believe are critical and require the use of significant judgment in their application.

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Homebuilding Division

Revenue Recognition

Sales of homes are recognized when sales are closed and title passes to the new homeowners. Additionally, sales of other real estate (including sales of land and operating properties) are recognized when a significant down payment is received, the earnings process is complete and collectibility of the receivable is assured. We do not include in our income our pro rata share of partnership earnings resulting from land sales to our homebuilding divisions. Instead, we account for those earnings as a reduction of our cost of purchasing the land from the partnerships. This in effect defers recognition of our share of the partnership earnings until a home is delivered and title passes to a homebuyer. We believe that the accounting policy related to revenue recognition is a “critical accounting policy” because of the significance of revenue recognition.

Inventories

Inventories are stated at cost, unless the inventory within a community is determined to be impaired, in which case the impaired inventory is written down to fair value. Inventory costs include land, land development and home construction costs, real estate taxes and interest related to development and construction. Land, land development, amenities and other costs are accumulated by specific area and allocated to homes within the respective areas.

We evaluate our inventory for impairment whenever indicators of impairment exist. Accounting standards require that if the sum of the undiscounted future cash flows expected to result from an asset is less than the reported value of the asset, an asset impairment must be recognized in the consolidated financial statements. The amount of impairment to recognize is calculated by subtracting the fair value of the asset from the carrying value of the asset.

We believe that the accounting estimate related to inventory valuation and impairment is a “critical accounting estimate” because: (1) it is highly susceptible to change because of the assumptions about future sales and cost of sales and (2) the impact of recognizing impairments on the assets reported in our consolidated balance sheets as well as our net earnings could be material. Our assumptions about future home sales prices and volumes require significant judgment because the residential homebuilding industry is cyclical and is highly sensitive to changes in economic conditions. Although the homebuilding business historically has been cyclical, it has not undergone a down cycle in a number of years.

While no impairment existed as of November 30, 2003, there can be no assurances that future economic or financial developments, including general interest rate increases or a slowdown in the economy, might not lead to impairment of inventory.

Warranty Costs

Although we subcontract virtually all segments of construction to others and our contracts call for the subcontractors to repair or replace any deficient items related to their trade, we are primarily responsible to correct any deficiencies. Additionally, in some instances, we may be held responsible for the actions of or losses incurred by subcontractors. Warranty reserves are established at an amount estimated to be adequate to cover potential costs for materials and labor with regard to warranty-type claims to be incurred subsequent to the delivery of a home. Reserves are determined based upon historical data and trends with respect to similar product types and geographical areas. We believe the accounting estimate related to the reserve for warranty costs is a “critical accounting estimate” because the estimate requires a large degree of judgment.

At November 30, 2003, the reserve for warranty costs was $116.6 million. While we believe that the reserve for warranty costs is adequate, there can be no assurances that historical data and trends will accurately predict our actual warranty costs. Additionally, there can be no assurances that future economic or financial developments might not lead to a significant change in the reserve.

Investments in Unconsolidated Partnerships

We frequently enter into partnerships that acquire and develop land for sale to us in connection with our homebuilding operations or for sale to third parties. Our partners generally are unrelated homebuilders, land sellers or other real estate entities.

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Most of the partnerships through which we acquire and develop land are accounted for by the equity method of accounting, because we are not the primary beneficiary for partnerships created after January 31, 2003, as defined under Financial Accounting Standards Board Interpretation No. 46 (“FIN 46”), Consolidation of Variable Interest Entities, and we have a significant, but less than controlling, interest in the partnerships. We record the investments in these partnerships in our consolidated balance sheets as “Investments in Unconsolidated Partnerships” and our share of the partnerships’ earnings or losses in our consolidated statements of earnings as “Equity in Earnings from Unconsolidated Partnerships,” as described in Note 5 of Notes to Consolidated Financial Statements. Advances to these partnerships are included in the investment amount.

Management uses its judgment when determining the primary beneficiary of, or a controlling interest in, a partnership. Factors considered in determining whether we have significant influence or we have control include risk and reward sharing, experience and financial condition of the other partners, voting rights, involvement in day-to-day capital and operating decisions and continuing involvement. Due to the judgment required in determining whether we are the primary beneficiary or have control or only significant influence, the accounting policy relating to the use of the equity method of accounting is a “critical accounting policy.”

As of November 30, 2003, we believe that the equity method of accounting is appropriate for our investments in unconsolidated partnerships where we are not the primary beneficiary and we do not have a controlling interest but rather share control with our partners. At November 30, 2003, the unconsolidated partnerships in which we had interests had total assets of $2.1 billion and total liabilities of $1.2 billion.

Financial Services Division

Revenue Recognition

Loan origination revenues, net of direct origination costs, are recognized when the related loans are sold. Gains and losses from the sale of loans and loan servicing rights are recognized when the loans are sold and delivered to an investor. Premiums from title insurance policies are recognized as revenue on the effective date of the policy. Escrow fees are recognized at the time the related real estate transactions are completed, usually upon the close of escrow. In all circumstances, we do not recognize revenue until the earnings process is complete and collectibility of the receivable is reasonably assured. We believe that the accounting policy related to revenue recognition is a “critical accounting policy” because of the significance of revenue recognition.

Allowances for Loss Reserves

We provide an allowance for loan losses when and if we determine that loans or portions of them are not likely to be collected. In evaluating the adequacy of the allowance for loan losses, we consider various factors such as past loan loss experience, regulatory examinations, present economic conditions and other factors considered relevant by management. Anticipated changes in economic conditions, which may influence the level of the allowance, are considered in the evaluation by management when the likelihood of the changes can be reasonably determined. This analysis is based on judgments and estimates and may change in response to economic developments or other conditions that may influence borrowers’ financial conditions or prospects. At November 30, 2003, the allowance for loan losses was $3.0 million. While we believe that the 2003 year-end allowance was adequate, particularly in view of the fact that we usually sell the loans on a non-recourse basis within 45 days after we originate them, there can be no assurances that future economic or financial developments, including general interest rate increases or a slowdown in the economy, might not lead to increased provisions to the allowance or a higher incidence of loan charge-offs. At November 30, 2003, we also had an allowance for title and escrow losses of $0.6 million related to certain assets. These allowances require management’s judgments and estimates. For these reasons, we believe that the accounting estimates related to the allowances for loss reserves are “critical accounting estimates.”

Homebuilding and Financial Services Divisions

Goodwill Valuation

Goodwill represents the excess of the purchase price over the fair value of net assets acquired. The process of determining goodwill requires judgment. Evaluating goodwill for impairment involves the determination of the fair value of our reporting units. Inherent in such fair value determinations are certain judgments and

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estimates, including the interpretation of current economic indicators and market valuations, and our strategic plans with regard to our operations. To the extent additional information arises or our strategies change, it is possible that our conclusion regarding goodwill impairment could change, which could have a material effect on our financial position and results of operations. For those reasons, we believe that the accounting estimate related to goodwill impairment is a “critical accounting estimate.”

During fiscal 2002, we adopted the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 142, Goodwill and Other Intangible Assets. In connection with the adoption of SFAS No. 142, we performed a test for impairment of goodwill as of December 1, 2001, which resulted in no impairment being identified. Goodwill is no longer subject to amortization. Instead, we review goodwill for impairment on an annual basis or whenever events or changes in circumstances indicate the carrying amount may not be recoverable. We performed our annual impairment test of goodwill as of September 30, 2003 and determined that goodwill was not impaired.

At November 30, 2003, goodwill was $212.7 million (net of accumulated amortization of $18.0 million). While we believe that no impairment existed as of November 30, 2003, there can be no assurances that future economic or financial developments, including general interest rate increases or a slowdown in the economy, might not lead to impairment of goodwill.

Valuation of Deferred Tax Assets

We record income taxes under the asset and liability method, whereby deferred tax assets and liabilities are recognized based on the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and attributable to operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the years in which the temporary differences are expected to be recovered or paid. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period when the changes are enacted.

We believe that the accounting estimate for the valuation of deferred tax assets is a “critical accounting estimate” because judgment is required in assessing the likely future tax consequences of events that have been recognized in our 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, business plans and other expectations about future outcomes. Changes in existing tax laws or rates could affect actual tax results and future business results may affect the amount of deferred tax liabilities or the valuation of deferred tax assets over time. Our accounting for deferred tax consequences represents our best estimate of future events. Although it is possible there will be changes that are not anticipated in our current estimates, we believe it is unlikely such changes would have a material period-to-period impact on our financial position or results of operations.

At November 30, 2003, our net deferred tax asset was $177.8 million. Based on our assessment, it appears more likely than not that the net deferred tax asset will be realized through future taxable earnings.

Item 7A.    Quantitative and Qualitative Disclosures About Market Risk.

We are exposed to market risks related to fluctuations in interest rates on our debt obligations, mortgage loans and mortgage loans held for sale. We utilize derivative instruments, including interest rate swaps, in conjunction with our overall strategy to manage our exposure to changes in interest rates. We also utilize forward commitments and option contracts to mitigate the risk associated with our mortgage loan portfolio.

The tables on the following pages provide information at November 30, 2003 and 2002 about our significant derivative financial instruments and other financial instruments that are sensitive to changes in interest rates. For mortgage loans held for sale, mortgage loans and investments, senior notes, notes and other debts payable, the tables present principal cash flows and related weighted average effective interest rates by expected maturity dates and estimated fair market values at November 30, 2003 and 2002. Weighted average variable interest rates are based on the variable interest rates at November 30, 2003 and 2002. Our term loan B is presented as fixed rate debt because our interest rate swaps effectively changed the majority of the debt from a variable interest rate to a fixed interest rate. For interest rate swaps, the tables present notional amounts and weighted average interest

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rates by contractual maturity dates and estimated fair market values at November 30, 2003 and 2002. Notional amounts are used to calculate the contractual cash flows to be exchanged under the contracts. Our limited-purpose finance subsidiaries have placed mortgages and other receivables as collateral for various long-term financings. These limited-purpose finance subsidiaries pay the principal of, and interest on, these financings almost entirely from the cash flows generated by the related pledged collateral and are excluded from the following tables. Our trading investments, primarily mutual funds, do not have interest rate sensitivity, and therefore, are also excluded from the following tables.

See Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 and Notes 1 and 14 of Notes to Consolidated Financial Statements in Item 8 for a further discussion of these items and our strategy of mitigating our interest rate risk.

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Information Regarding Interest Rate Sensitivity

Principal (Notional) Amount by

Expected Maturity and Average Interest Rate

November 30, 2003

	Years Ending November 30,														Fair Market Value at November 30, 2003
	2004			2005		2006		2007		2008		Thereafter		Total
	(Dollars in millions)
ASSETS
Financial services:
Mortgage loans held for sale, net:
Fixed rate	$	—		—		—		—		—		383.2		383.2	383.2
Average interest rate		—		—		—		—		—		6.1	%	—	—
Variable rate	$	—		—		—		—		—		159.3		159.3	159.3
Average interest rate		—		—		—		—		—		5.0	%	—	—
Mortgage loans and investments:
Fixed rate	$	30.6		3.8		6.0		0.6		2.0		15.5		58.5	57.4
Average interest rate		1.7	%	4.0	%	10.4	%	23.6	%	10.0	%	9.9	%	—	—
LIABILITIES
Homebuilding:
Senior notes and other debts payable:
Fixed rate	$	21.5		45.7		18.4		4.0		4.0		1,458.6		1,552.2	1,878.8
Average interest rate		4.8	%	7.2	%	11.9	%	2.9	%	2.9	%	6.4	%	—	—
Financial services:
Notes and other debts payable:
Fixed rate	$	—		—		—		—		—		—		—	—
Average interest rate		—		—		—		—		—		—		—	—
Variable rate	$	734.5		0.1		0.1		—		—		—		734.7	734.7
Average interest rate		1.8	%	4.9	%	4.9	%	—		—		—		—	—
OTHER FINANCIAL INSTRUMENTS
Homebuilding:
Interest rate swaps:
Variable to fixed—notional amount	$	—		100.0		—		200.0		—		—		300.0	(33.7	)
Average pay rate		—		6.7	%	—		6.8	%	—		—		—	—
Average receive rate		—		LIBOR		—		LIBOR		—		—		—	—

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Information Regarding Interest Rate Sensitivity

Principal (Notional) Amount by

Expected Maturity and Average Interest Rate

November 30, 2002

	Years Ending November 30,											Thereafter		Total	Fair Market Value at November 30, 2002
	2003			2004		2005		2006		2007
	(Dollars in millions)
ASSETS
Financial services:
Mortgage loans held for sale, net:
Fixed rate	$	—		—		—		—		—		616.6		616.6	616.6
Average interest rate		—		—		—		—		—		6.2	%	—	—
Variable rate	$	—		—		—		—		—		91.7		91.7	91.7
Average interest rate		—		—		—		—		—		5.2	%	—	—
Mortgage loans and investments:
Fixed rate	$	22.1		6.3		0.3		6.0		0.6		17.4		52.7	52.1
Average interest rate		2.9	%	2.6	%	13.7	%	10.4	%	14.7	%	11.1	%	—	—
LIABILITIES
Homebuilding:
Senior notes and other debts payable:
Fixed rate	$	64.1		19.7		14.6		17.5		379.8		1,089.6		1,585.3	1,779.7
Average interest rate		10.1	%	4.3	%	15.2	%	13.0	%	4.0	%	7.1	%	—	—
Financial services:
Notes and other debts payable:
Fixed rate	$	—		—		—		—		—		—		—	—
Average interest rate		—		—		—		—		—		—		—	—
Variable rate	$	688.4		165.0		—		—		—		—		853.4	853.4
Average interest rate		2.3	%	2.3	%	—		—		—		—		—	—
OTHER FINANCIAL INSTRUMENTS
Homebuilding:
Interest rate swaps:
Variable to fixed—notional amount	$	—		—		100.0		—		200.0		—		300.0	(39.3	)
Average pay rate		—		—		6.7	%	—		6.8	%	—		—	—
Average receive rate		—		—		LIBOR		—		LIBOR		—		—	—

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Item 8.    Financial Statements and Supplementary Data.

INDEPENDENT AUDITORS’ REPORT

To the Board of Directors and Stockholders of Lennar Corporation:

We have audited the accompanying consolidated balance sheets of Lennar Corporation and subsidiaries (the “Company”) as of November 30, 2003 and 2002 and the related consolidated statements of earnings, stockholders’ equity and cash flows for each of the three years in the period ended November 30, 2003. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of November 30, 2003 and 2002, and the results of its operations and its cash flows for each of the three years in the period ended November 30, 2003, in conformity with accounting principles generally accepted in the United States of America.

/s/    DELOITTE & TOUCHE LLP

Certified Public Accountants

Miami, Florida

February 27, 2004

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LENNAR CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

November 30, 2003 and 2002

	2003			2002
	(In thousands, except per share amounts)
ASSETS
Homebuilding:
Cash	$	1,201,276		731,163
Receivables, net		60,392		48,432
Inventories:
Finished homes and construction in progress		2,006,548		2,044,694
Land under development		1,592,978		1,185,473
Consolidated inventory not owned		49,329		—
Land held for development		7,246		7,410
Total inventories		3,656,101		3,237,577
Investments in unconsolidated partnerships		390,334		285,594
Other assets		450,619		357,738
		5,758,722		4,660,504
Financial services		1,016,710		1,095,129
Total assets	$	6,775,432		5,755,633
LIABILITIES AND STOCKHOLDERS’ EQUITY
Homebuilding:
Accounts payable and other liabilities	$	1,040,961		969,779
Liabilities related to consolidated inventory not owned		45,214		—
Senior notes and other debts payable, net		1,552,217		1,585,309
		2,638,392		2,555,088
Financial services		873,266		971,388
Total liabilities		3,511,658		3,526,476
Stockholders’ equity:
Preferred stock		—		—
Class A common stock of $0.10 par value per share (1)
Authorized: 2003-300,000 shares; 2002-100,000, Issued: 2003-125,328; 2002-130,122		12,533		13,012
Class B common stock of $0.10 par value per share (1)
Authorized: 2003-90,000 shares; 2002-30,000, Issued: 2003-32,508; 2002-19,400		3,251		1,940
Additional paid-in capital (1)		1,358,304		866,026
Retained earnings		1,914,963		1,538,945
Unearned restricted stock		(4,301	)	(7,337	)
Deferred compensation plan (1)—2003-534 Class A common shares and 53 Class B common shares; 2002-120 Class A common shares and 12 Class B common shares		(4,919	)	(1,103	)
Deferred compensation liability		4,919		1,103
Treasury stock, at cost; 2002-9,848 Class A common shares		—		(158,992	)
Accumulated other comprehensive loss		(20,976	)	(24,437	)
Total stockholders’ equity		3,263,774		2,229,157
Total liabilities and stockholders’ equity	$	6,775,432		5,755,633

(1) Class A common stock, Class B common stock, additional paid-in capital, and all share information (except authorized shares, treasury shares and par value) have been retroactively adjusted to reflect the effect of the Company’s January 2004 two-for-one stock split. See Note 12.

See accompanying notes to consolidated financial statements.

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LENNAR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

Years Ended November 30, 2003, 2002 and 2001

	2003		2002 (1)	2001 (1)
	(In thousands, except per share amounts)
Revenues:
Homebuilding	$	8,348,645	6,751,301	5,554,747
Financial services		558,974	484,219	425,354
Total revenues		8,907,619	7,235,520	5,980,101
Costs and expenses:
Homebuilding		7,288,356	5,993,209	4,934,071
Financial services		404,521	356,608	336,223
Corporate general and administrative		111,488	85,958	75,831
Total costs and expenses		7,804,365	6,435,775	5,346,125
Equity in earnings from unconsolidated partnerships		81,937	42,651	27,051
Management fees and other income, net		21,863	33,313	18,396
Earnings before provision for income taxes		1,207,054	875,709	679,423
Provision for income taxes		455,663	330,580	261,578
Net earnings	$	751,391	545,129	417,845
Earnings per share (2):
Basic	$	5.10	3.88	3.03
Diluted	$	4.65	3.51	2.73

(1) Certain prior year amounts have been reclassified to conform to the 2003 presentation (see Note 1).

(2) Earnings per share amounts have been retroactively adjusted to reflect the effect of the Company’s April 2003 10% Class B stock distribution and January 2004 two-for-one stock split. See Notes 10 and 12.

See accompanying notes to consolidated financial statements.

31

LENNAR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Years Ended November 30, 2003, 2002 and 2001

	2003			2002		2001
	(Dollars in thousands)
Class A common stock (1):
Beginning balance	$	13,012		12,824		12,546
Conversion of 3 7/8% zero-coupon senior convertible debentures to Class A common shares		1,356		—		—
Par value of retired treasury stock		(1,972	)	—		—
Employee stock plans		137		180		256
Conversion of Class B common stock		—		8		22
Balance at November 30,		12,533		13,012		12,824
Class B common stock (1):
Beginning balance		1,940		1,948		1,970
Employee stock plans		11		—		—
10% Class B common stock distribution		1,300		—		—
Conversion to Class A common stock		—		(8	)	(22	)
Balance at November 30,		3,251		1,940		1,948
Additional paid-in capital (1):
Beginning balance		866,026		836,538		805,243
10% Class B common stock distribution		351,368		—		—
Conversion of 3 7/8% zero-coupon senior convertible debentures to Class A common shares		269,968		10		—
Conversion of other debt		6		—		—
Employee stock plans		18,049		18,750		19,145
Tax benefit from employee stock plans and vesting of restricted stock		10,951		10,728		12,150
Retirement of treasury stock		(158,064	)	—		—
Balance at November 30,		1,358,304		866,026		836,538
Retained earnings:
Beginning balance		1,538,945		996,998		582,299
Net earnings		751,391		545,129		417,845
10% Class B common stock distribution including cash paid for fractional shares of $298		(352,966	)	—		—
Cash dividends—Class A common stock		(19,167	)	(2,746	)	(2,705	)
Cash dividends—Class B common stock		(3,240	)	(436	)	(441	)
Balance at November 30,		1,914,963		1,538,945		996,998
Unearned restricted stock:
Beginning balance		(7,337	)	(10,833	)	(14,535	)
Restricted stock cancellations		—		387		415
Amortization of unearned restricted stock		3,036		3,109		3,287
Balance at November 30,		(4,301	)	(7,337	)	(10,833	)
Deferred compensation plan:
Beginning balance		(1,103	)	—		—
Deferred compensation activity		(3,816	)	(1,103	)	—
Balance at November 30,		(4,919	)	(1,103	)	—
Deferred compensation liability:
Beginning balance		1,103		—		—
Deferred compensation activity		3,816		1,103		—
Balance at November 30,		4,919		1,103		—

32

LENNAR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY—(Continued)

Years Ended November 30, 2003, 2002 and 2001

	2003			2002		2001
	(Dollars in thousands)
Treasury stock, at cost:
Beginning balance		(158,992	)	(158,927	)	(158,943	)
Employee stock plans and vesting of restricted stock, net		(1,044	)	(65	)	—
Shares issued		—		—		16
Retirement of treasury stock		160,036		—		—
Balance at November 30,		—		(158,992	)	(158,927	)
Accumulated other comprehensive loss:
Beginning balance		(24,437	)	(19,286	)	—
SFAS No. 133 transition adjustment, net of tax		—		—		(3,510	)
Change in fair value of interest rate swaps, net of tax		3,461		(5,151	)	(15,776	)
Balance at November 30,		(20,976	)	(24,437	)	(19,286	)
Net earnings		751,391		545,129		417,845
Comprehensive income		754,852		539,978		398,559
Total stockholders’ equity	$	3,263,774		2,229,157		1,659,262

(1) Class A common stock, Class B common stock and additional paid-in capital have been retroactively adjusted to reflect the effect of the Company’s January 2004 two-for-one stock split. See Note 12.

See accompanying notes to consolidated financial statements.

33

LENNAR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended November 30, 2003, 2002 and 2001

	2003			2002		2001
	(Dollars in thousands)
Cash flows from operating activities:
Net earnings	$	751,391		545,129		417,845
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		54,503		47,031		48,383
Amortization of discount on debt, net		21,408		25,358		20,287
Equity in earnings from unconsolidated partnerships		(81,937	)	(42,651	)	(27,051	)
Tax benefit from employee stock plans and vesting of restricted stock		10,951		10,728		12,150
Deferred income tax provision (benefit)		(51,143	)	(5,672	)	9,769
Changes in assets and liabilities, net of effect from acquisitions:
Increase in receivables		(50,659	)	(101,817	)	(57,100	)
Increase in inventories		(267,234	)	(242,330	)	(130,725	)
(Increase) decrease in other assets		(33,964	)	(11,122	)	48
(Increase) decrease in financial services loans held for sale		165,773		(119,379	)	(211,143	)
Increase (decrease) in accounts payable and other liabilities		61,710		99,293		(23,267	)
Net cash provided by operating activities		580,799		204,568		59,196
Cash flows from investing activities:
Net additions to operating properties and equipment		(18,848	)	(4,085	)	(13,110	)
Decrease in investments in unconsolidated partnerships, net		72,073		57,902		5,601
(Increase) decrease in financial services mortgage loans		(93	)	13,886		(997	)
Purchases of investment securities		(29,614	)	(31,545	)	(18,143	)
Proceeds from investment securities		17,674		22,442		17,700
Decrease in financial services mortgage servicing rights		—		—		10,812
Acquisitions, net of cash acquired		(159,389	)	(424,277	)	—
Net cash provided by (used in) investing activities		(118,197	)	(365,677	)	1,863
Cash flows from financing activities:
Net borrowings (repayments) under financial services short-term debt		(118,989	)	156,120		265,607
Net proceeds from issuance of 5.95% senior notes		341,730		—		—
Net proceeds from issuance of 5.125% zero-coupon convertible senior subordinated notes		—		—		224,250
Proceeds from other borrowings		—		20,103		110
Principal payments on other borrowings		(186,078	)	(131,299	)	(24,272	)
Common stock:
Issuance		18,197		19,317		19,789
Repurchases		(1,044	)	(65	)	—
Dividends and other		(22,705	)	(3,182	)	(3,146	)
Net cash provided by financing activities		31,111		60,994		482,338

34

LENNAR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS—(CONTINUED)

Years Ended November 30, 2003, 2002 and 2001

	2003			2002		2001
	(Dollars in thousands)
Net increase (decrease) in cash		493,713		(100,115	)	543,397
Cash at beginning of year		777,159		877,274		333,877
Cash at end of year	$	1,270,872		777,159		877,274
Summary of cash:
Homebuilding	$	1,201,276		731,163		824,013
Financial services		69,596		45,996		53,261
	$	1,270,872		777,159		877,274
Supplemental disclosures of cash flow information:
Cash paid for interest, net of amounts capitalized	$	6,559		18,589		17,546
Cash paid for income taxes	$	503,410		307,073		234,549
Supplemental disclosures of non-cash investing and financing activities:
Conversion of debt to equity	$	271,330		10		—
Consolidated inventory not owned	$	45,214		—		—
Purchases of inventory financed by sellers	$	15,395		21,087		28,993
Acquisitions:
Fair value of assets acquired, inclusive of cash of $9,004 in 2003 and $37,986 in 2002	$	159,453		664,424		—
Goodwill recorded		30,326		83,560		—
Fair value of liabilities assumed		(21,386	)	(285,721	)	—
Cash paid	$	168,393		462,263		—

See accompanying notes to consolidated financial statements.

35

LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    Summary of Significant Accounting Policies

Basis of Consolidation

The accompanying consolidated financial statements include the accounts of Lennar Corporation and all subsidiaries, partnerships and other entities (the “Company”) in which the Company has a controlling interest and variable interest entities (“VIEs”) created after January 31, 2003 in which the Company is deemed the primary beneficiary (see Note 15). The Company’s investments in unconsolidated partnerships in which a significant, but less than controlling, interest is held and VIEs created after January 31, 2003 in which the Company is not deemed to be the primary beneficiary, are accounted for by the equity method. All significant intercompany transactions and balances have been eliminated in consolidation.

Stock Split

In December 2003, the Company’s Board of Directors approved a two-for-one stock split in the form of a 100% stock dividend of Class A and Class B common stock for stockholders of record on January 6, 2004. The additional shares were distributed on January 20, 2004. All share and per share amounts (except authorized shares, treasury shares and par value) have been retroactively adjusted to reflect the stock split. There was no net effect on total stockholders’ equity as a result of the stock split.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Revenue Recognition

Revenues from sales of homes are recognized when the sales are closed and title passes to the new homeowners. Revenues from sales of other real estate (including the sales of land and operating properties) are recognized when a significant down payment is received, the earnings process is complete and the collection of any remaining receivables is reasonably assured.

Cash

The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. Due to the short maturity period of the cash equivalents, the carrying amount of these instruments approximates their fair values. Cash as of November 30, 2003 and 2002 included $68.7 million and $56.2 million, respectively, of cash primarily held in escrow for approximately three days and $45.2 million and $20.9 million, respectively, of restricted deposits.

Inventories

Inventories are stated at cost unless the inventory within a community is determined to be impaired, in which case the impaired inventory is written down to fair value. Inventory costs include land, land development and home construction costs, real estate taxes and interest related to development and construction. The Company evaluates long-lived assets for impairment based on the undiscounted future cash flows of the assets. Write-downs of inventories deemed to be impaired are recorded as adjustments to the cost basis of the respective inventories. No impairment was recorded during the years ended November 30, 2003, 2002 or 2001.

Construction overhead and selling expenses are expensed as incurred. Homes held for sale are classified as inventories until delivered. Land, land development, amenities and other costs are accumulated by specific area and allocated to homes within the respective areas.

36

LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Interest and Real Estate Taxes

Interest and real estate taxes attributable to land and homes are capitalized as inventories while they are being actively developed. Interest related to homebuilding and land, including interest costs relieved from inventories, is included in cost of homes sold and cost of land sold. Interest expense related to the financial services operations is included in its costs and expenses.

During 2003, 2002 and 2001, interest incurred by the Company’s homebuilding operations was $131.8 million, $130.6 million and $127.9 million, respectively, and interest expense primarily included in cost of homes sold and cost of land sold was $141.3 million, $145.6 million and $119.5 million, respectively.

Operating Properties and Equipment

Operating properties and equipment are recorded at cost and are included in other assets in the consolidated balance sheets. The assets are depreciated over their estimated useful lives using the straight-line method. At the time operating properties and equipment are disposed of, the asset and related accumulated depreciation are removed from the accounts and any resulting gain or loss is credited or charged to earnings. The estimated useful life for operating properties is 30 years, for leasehold improvements is 5 years and for equipment is 2 to 10 years.

Investment Securities

Investment securities are classified as available-for-sale unless they are classified as trading or held-to-maturity. Securities classified as trading are carried at fair value and unrealized holding gains and losses are recorded in earnings. Securities classified as held-to-maturity are carried at amortized cost because they are purchased with the intent and ability to hold to maturity. Available-for-sale securities are recorded at fair value. Any unrealized holding gains or losses on available-for-sale securities would be reported in a separate component of stockholders’ equity, net of tax effects, until realized.

At November 30, 2003 and 2002, investment securities classified as held-to-maturity totaled $28.0 million and $22.4 million, respectively, and were included in the assets of the Financial Services Division. At November 30, 2003, investment securities classified as trading totaled $6.9 million and were included in other assets of the Homebuilding Division. The trading securities are comprised mainly of marketable equity mutual funds designated to approximate the Company’s liabilities under its deferred compensation plan. There were no available-for-sale investment securities at November 30, 2003 or 2002.

Derivative Financial Instruments

Effective December 1, 2000, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended. SFAS No. 133 establishes accounting and reporting standards for derivative instruments and for hedging activities by requiring that all derivatives be recognized in the balance sheet and measured at fair value. Gains or losses resulting from changes in the fair value of derivatives are recognized in earnings or recorded in other comprehensive income and recognized in the statement of earnings when the hedged item affects earnings, depending on the purpose of the derivatives and whether they qualify for hedge accounting treatment.

The Company’s policy is to designate at a derivative’s inception the specific assets, liabilities, or future commitments being hedged and monitor the derivative to determine if it remains an effective hedge. The effectiveness of a derivative as a hedge is based on high correlation between changes in its value and changes in the value of the underlying hedged item. The Company recognizes gains or losses for amounts received or paid when the underlying transaction settles. The Company does not enter into or hold derivatives for trading or speculative purposes.

The Company has various interest rate swap agreements which effectively convert variable interest rates to fixed interest rates on approximately $300 million of outstanding debt related to its homebuilding operations. The swap agreements have been designated as cash flow hedges and, accordingly, are reflected at their fair value in

37

LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

the consolidated balance sheets at November 30, 2003 and 2002. The related loss is deferred, net of tax, in stockholders’ equity as accumulated other comprehensive loss (see Note 11). The Company accounts for its interest rate swaps using the shortcut method, as described in SFAS No. 133. Amounts to be received or paid as a result of the swap agreements are recognized as adjustments to interest incurred on the related debt instruments. The Company believes that there will be no ineffectiveness related to the interest rate swaps and therefore no portion of the accumulated other comprehensive loss will be reclassified into future earnings. The net effect on the Company’s operating results is that interest on the variable rate debt being hedged is recorded based on fixed interest rates.

The Financial Services Division, in the normal course of business, uses derivative financial instruments to reduce its exposure to fluctuations in interest rates. The Division enters into forward commitments and, to a lesser extent, option contracts to protect the value of fixed rate locked loan commitments and loans held for sale from fluctuations in market interest rates. These derivative financial instruments are designated as fair value hedges, and, accordingly, for all qualifying and highly effective fair value hedges, the changes in the fair value of the derivative and the loss or gain on the hedged asset relating to the risk being hedged are recorded currently in earnings. The effect of the implementation of SFAS No. 133 on the Financial Services Division’s operating earnings was not significant.

Goodwill

Goodwill represents the excess of the purchase price over the fair value of net assets acquired and was amortized by the Company through fiscal 2001 on a straight-line basis over periods ranging from 15 to 20 years. At November 30, 2003 and 2002, goodwill was $212.7 million and $189.4 million, respectively (net of accumulated amortization of $18.0 million at November 30, 2003 and 2002). During fiscal 2003, the Company’s goodwill increased $30.3 million due to current year acquisitions and payment of contingent consideration related to prior year acquisitions, partially offset by the reduction of the Company’s net deferred tax asset valuation allowance. Because the asset was established in connection with an acquisition, the reduction of the valuation allowance resulted in a decrease to goodwill. Goodwill is included in other assets of the Homebuilding Division ($169.2 million and $155.4 million at November 30, 2003 and 2002, respectively) and the assets of the Financial Services Division ($43.5 million and $34.0 million at November 30, 2003 and 2002, respectively) in the consolidated balance sheets. Historically through fiscal 2001, in the event that facts and circumstances had indicated that the carrying value of goodwill might be impaired, an evaluation of recoverability would have been performed. If an evaluation had been required, the estimated future undiscounted cash flows associated with the goodwill would have been compared to the carrying amount to determine if a write-down to fair value based on discounted cash flows was required. No impairment was recorded during the years ended November 30, 2003, 2002 or 2001.

The Company adopted SFAS No. 142, Goodwill and Other Intangible Assets on December 1, 2001. SFAS No. 142 no longer requires or permits the amortization of goodwill and indefinite-lived intangible assets. Instead, these assets must be reviewed annually (or more frequently under certain conditions) for impairment in accordance with this statement. This impairment test uses a fair value approach rather than the undiscounted cash flows approach previously required by SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. No impairment charges were recognized from the adoption of SFAS No. 142. The Company performed its annual impairment test of goodwill as of September 30, 2003 and determined that goodwill was not impaired. As of November 30, 2003 and 2002, there were no material identifiable intangible assets, other than goodwill. Net earnings and earnings per share for fiscal 2001 (adjusted for the Company’s April 2003 10% Class B stock distribution and January 2004 two-for-one stock split) adjusted to exclude goodwill amortization, net of taxes, is as follows:

38

LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

	(In thousands, except per share amounts)
Net earnings:
Reported net earnings	$	417,845
Goodwill amortization, net of tax		6,148
Adjusted net earnings	$	423,993
Basic earnings per share:
Reported basic earnings per share	$	3.03
Goodwill amortization, net of tax		0.04
Adjusted basic earnings per share	$	3.07
Diluted earnings per share:
Reported diluted earnings per share	$	2.73
Goodwill amortization, net of tax		0.04
Adjusted diluted earnings per share	$	2.77

Income Taxes

Income taxes are accounted for in accordance with SFAS No. 109, Accounting for Income Taxes. Under SFAS No. 109, deferred tax assets and liabilities are determined based on differences between financial reporting carrying values and tax bases of assets and liabilities, and are measured by using enacted tax rates expected to apply to taxable income in the years in which those differences are expected to reverse.

Warranty Costs

Warranty and similar reserves for homes are established at an amount estimated to be adequate to cover potential costs for materials and labor with regard to warranty-type claims to be incurred subsequent to the delivery of a home. Reserves are determined based on historical data and trends with respect to similar product types and geographical areas. Warranty reserves are included in accounts payable and other liabilities in the consolidated balance sheets. The following table sets forth the activity in the Company’s warranty reserve for the year ended November 30, 2003:

	(In thousands)
Warranty reserve, November 30, 2002	$	93,606
Provision		120,167
Payments		(97,202	)
Warranty reserve, November 30, 2003	$	116,571

Self-Insurance

Certain insurable risks such as general liability, medical and workers’ compensation are self-insured by the Company up to certain limits. Undiscounted accruals for claims under the Company’s self-insurance program are based on claims filed and estimates for claims incurred but not reported.

Advertising Costs

The Company expenses advertising costs as incurred. Advertising costs were $54.9 million, $43.9 million and $43.6 million for the years ended November 30, 2003, 2002 and 2001, respectively.

Stock-Based Compensation

The Company grants stock options to certain employees for fixed numbers of shares with, in each instance, an exercise price not less than the fair value of the shares at the date of the grant. The Company accounts for the

39

LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

stock option grants in accordance with Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees. No compensation expense is recognized because all stock options granted have exercise prices not less than the market value of the Company’s stock on the date of the grant. The Company also grants restricted stock, which is valued based on the market price of the common stock on the date of grant. Unearned compensation arising from the restricted stock grants is amortized to expense using the straight-line method over the period of the restrictions. Unearned restricted stock is shown as a reduction of stockholders’ equity in the consolidated balance sheets.

The following table illustrates the effect on net earnings and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation as amended by SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure, which was effective for the Company in fiscal 2003, to stock-based employee compensation:

	Years Ended November 30,
	2003			2002		2001
	(In thousands, except per share amounts)
Net earnings, as reported	$	751,391		545,129		417,845
Add: Total stock-based employee compensation expense included in reported net earnings, net of related tax affects		1,890		1,935		2,022
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(8,938	)	(6,556	)	(5,818	)
Pro forma net earnings	$	744,343		540,508		414,049
Earnings per share:
Basic—as reported	$	5.10		3.88		3.03
Basic—pro forma	$	5.05		3.85		3.00
Diluted—as reported	$	4.65		3.51		2.73
Diluted—pro forma	$	4.61		3.48		2.70

The fair value of these options was determined at the date of the grant using the Black-Scholes option-pricing model. The significant weighted average assumptions for the years ended November 30, 2003, 2002 and 2001 were as follows:

	2003	2002	2001
Dividend yield	1.8%	0.1%	0.1%
Volatility rate	39%-46%	42%-47%	40%-42%
Risk-free interest rate	2.2%-3.6%	3.2%-5.1%	4.5%-5.8%
Expected option life (years)	2.0-5.0	2.0-5.0	6.4

Earnings per Share

Earnings per share is accounted for in accordance with SFAS No. 128, Earnings per Share, which requires a dual presentation of basic and diluted earnings per share on the face of the consolidated statement of earnings. Basic earnings per share is computed by dividing earnings attributable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company.

Financial Services

Loan origination revenues, net of direct origination costs, are recognized when the related loans are sold. Gains and losses from the sale of loans and loan servicing rights are recognized when the loans are sold and

40

LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

delivered to an investor. Premiums from title insurance policies are recognized as revenue on the effective date of the policy. Escrow fees are recognized at the time the related real estate transactions are completed, usually upon the close of escrow.

Mortgage loans held for sale by the Financial Services Division that are designated as hedged assets are carried at market value, as the effect of changes in fair value are reflected in the carrying amount of the loans and in earnings. Premiums and discounts recorded on these loans are presented as an adjustment to the carrying amount of the loans and are not amortized.

When the Division sells loans in the secondary market, a gain or loss is recognized to the extent that the sales proceeds exceed, or are less than, the book value of the loans. Loan origination fees, net of direct origination costs, are deferred and recognized as a component of the gain or loss when loans are sold.

Mortgage loans for which the Financial Services Division has the positive intent and ability to hold to maturity consist of mortgage loans carried at cost, net of unamortized discounts. Discounts are amortized over the estimated lives of the loans using the interest method.

The Division also provides allowances for loan losses when and if management determines that loans or portions thereof are uncollectible. The provision recorded and the adequacy of the related allowance is determined by management’s continuing evaluation of the loan portfolio in light of past loan loss experience, regulatory examinations, present economic conditions and other factors considered relevant by management. Anticipated changes in economic factors which may influence the level of the allowance are considered in the evaluation by management when the likelihood of the changes can be reasonably determined. While management uses the best information available to make such evaluations, future adjustments to the allowance may be necessary as a result of future economic and other conditions that may be beyond management’s control.

The Division provides an allowance for estimated title and escrow losses based upon management’s evaluation of claims presented and estimates for any incurred but not reported claims. The allowance is established at a level that management estimates to be sufficient to satisfy those claims where a loss is determined to be probable and the amount of such loss can be reasonably estimated. The allowance for title and escrow losses for both known and incurred but not reported claims is considered by management to be adequate for such purposes.

New Accounting Pronouncements

In October 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 provides accounting guidance for financial accounting and reporting for impairment or disposal of long-lived assets. SFAS No. 144 supersedes SFAS No. 121. The implementation of SFAS No. 144 did not have a material impact on the Company’s financial condition, results of operations or cash flows.

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. This statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under SFAS No. 133. This statement was effective for contracts entered into or modified after June 30, 2003. The implementation of SFAS No. 149 did not have a material impact on the Company’s financial condition, results of operations or cash flows.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. This statement establishes standards for the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. Certain provisions of this statement were effective for financial instruments entered into or modified after May 31, 2003 and otherwise was effective at the beginning of the first interim period beginning after June 15, 2003. In October 2003, the FASB deferred indefinitely certain provisions of this statement pertaining to non-controlling interests

41

LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

in limited life entities. The Company does not believe that the implementation of SFAS No. 150 had, or will have, a material impact on the Company’s financial position, results of operations or cash flows.

In November 2002, the FASB issued Interpretation No. 45 (“FIN 45”), Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. In accordance with the provisions of FIN 45, the Company adopted the initial recognition and measurement provisions on a prospective basis with regard to guarantees issued after December 31, 2002. The implementation of FIN 45 did not have a material impact on the Company’s financial condition, results of operations or cash flows.

In January 2003, the FASB issued Interpretation No. 46 (“FIN 46”), Consolidation of Variable Interest Entities, as further clarified and amended by the FASB’s issuance of a revision to FIN 46 in December 2003. FIN 46 requires the consolidation of entities in which an enterprise absorbs a majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual or other financial interests in the entity. Prior to the issuance of FIN 46, entities were generally consolidated by an enterprise when it had a controlling financial interest through ownership of a majority voting interest in the entity. FIN 46 applied immediately to variable interests created after January 31, 2003, and with respect to variable interests created before February 1, 2003, FIN 46 will apply in the Company’s second quarter ending May 31, 2004, as deferred by the FASB in December 2003. Although the Company does not believe the full adoption of FIN 46 will have a material impact on net earnings, the Company cannot make any definitive determination until it completes its evaluation (see Note 15).

In December 2003, the Securities and Exchange Commission (“SEC”) expressed their view on accounting for loan commitments that relate to the origination of mortgage loans that will be held for resale. It is the SEC’s view that loan commitments are written options that should be recorded at their fair value, which in all cases should be a liability until either expiration or exercise. The Company estimates the value of these loan commitments as the difference between the current value of similar loans and the price at which the Company has committed to originate the loans. Under the Company’s current method of accounting for these loan commitments, the Company recognizes both derivative assets and liabilities. The SEC’s view, which is to be applied prospectively, is effective for commitments entered into in the first reporting period beginning after March 15, 2004. Management is currently evaluating the adoption of the SEC’s view and has not made a definitive determination as to its impact.

Reclassifications

Certain prior year amounts in the consolidated financial statements have been reclassified to conform with the 2003 presentation. These reclassifications had no impact on reported net earnings. In particular, homebuilding results reflect reclassifications that have been made to interest expense (now included in cost of homes sold and cost of land sold), equity in earnings from unconsolidated partnerships and management fees and other income, net.

2.    Acquisitions

During 2003, the Company expanded its presence in California and South Carolina through its homebuilding acquisitions, and purchased a title company, which expanded the Company’s title and closing business into the Chicago market. In connection with these acquisitions and contingent consideration related to prior period acquisitions, the Company paid $159.4 million, net of cash acquired. The results of operations of the companies acquired by the Company are included in the Company’s results of operations since their respective acquisition dates. The pro forma effect of these acquisitions on the results of operations is not presented as the effect is not considered material. Total goodwill associated with these acquisitions and contingent consideration relating to prior year acquisitions was $30.3 million.

During 2002, the Company expanded its operations into the Carolinas and the Chicago, Baltimore and Central Valley, California homebuilding markets and strengthened its positions in several of its existing markets

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LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

with the Company’s homebuilding acquisitions. In connection with these acquisitions, total consideration, including debt of acquired companies, totaled approximately $600 million. The results of operations of the homebuilders acquired by the Company are included in the Company’s results of operations since their respective acquisition dates. The pro forma effect of these acquisitions on the results of operations is not presented as the effect is not considered material. Total goodwill associated with these acquisitions was $74.7 million.

3.    Operating and Reporting Segments

The Company has two operating and reporting segments: Homebuilding and Financial Services. The Company’s reportable segments are strategic business units that offer different products and services. The accounting policies of the segments are described in the summary of significant accounting policies in Note 1. Segment amounts include all elimination adjustments made in consolidation.

Homebuilding

Homebuilding operations primarily include the sale and construction of single-family attached and detached homes, as well as the purchase, development and sale of residential land directly and through the Company’s unconsolidated partnerships.

Financial Services

The Financial Services Division provides mortgage financing, title insurance, closing services and insurance agency services for both buyers of the Company’s homes and others. It sells the loans it originates in the secondary mortgage market. The Financial Services Division also provides high-speed Internet access, cable television and alarm installation and monitoring services to residents of the Company’s communities and others.

Financial information relating to the Company’s reportable segments is as follows:

	Years Ended November 30,
	2003		2002	2001
	(In thousands)
Homebuilding Revenues:
Sales of homes	$	8,040,470	6,581,703	5,467,548
Sales of land		308,175	169,598	87,199
Total homebuilding revenues		8,348,645	6,751,301	5,554,747
Homebuilding Costs and Expenses:
Cost of homes sold		6,180,777	5,119,668	4,275,321
Cost of land sold		234,844	167,640	85,546
Selling, general and administrative		872,735	705,901	573,204
Total homebuilding costs and expenses		7,288,356	5,993,209	4,934,071
Equity in earnings from unconsolidated partnerships		81,937	42,651	27,051
Management fees and other income, net		21,863	33,313	18,396
Homebuilding operating earnings	$	1,164,089	834,056	666,123
Financial services revenues	$	558,974	484,219	425,354
Financial services costs and expenses		404,521	356,608	336,223
Financial services operating earnings	$	154,453	127,611	89,131
Corporate general and administrative expenses		111,488	85,958	75,831
Earnings before provision for income taxes	$	1,207,054	875,709	679,423

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LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table sets forth additional financial information relating to the homebuilding operations:

	Years Ended November 30,
	2003		2002	2001
	(In thousands)
Depreciation and amortization	$	46,545	39,779	38,733
Net additions to operating properties and equipment	$	4,633	3,214	7,169

The following table sets forth additional financial information relating to the financial services operations:

	Years Ended November 30,
	2003		2002	2001
	(In thousands)
Depreciation and amortization	$	7,958	7,252	9,650
Interest income, net	$	32,218	28,000	21,279
Net additions to operating properties and equipment	$	14,215	871	5,941

4.    Receivables

	November 30,
	2003			2002
	(In thousands)
Accounts receivable	$	55,997		43,931
Mortgages and notes receivable		5,686		6,912
		61,683		50,843
Allowance for doubtful accounts		(1,291	)	(2,411	)
	$	60,392		48,432

5.    Investments in Unconsolidated Partnerships

Summarized condensed financial information on a combined 100% basis related to unconsolidated partnerships and other similar entities (collectively the “Partnerships”) in which the Company invests that are accounted for by the equity method was as follows:

	November 30,
	2003		2002
	(In thousands)
Assets:
Cash	$	219,919	47,502
Inventories		1,701,318	1,170,782
Other assets		166,837	136,579
	$	2,088,074	1,354,863
Liabilities and equity:
Accounts payable and other liabilities	$	300,530	177,673
Notes and mortgages payable		901,822	563,563
Equity of:
The Company		390,334	285,594
Others		495,388	328,033
	$	2,088,074	1,354,863

44

LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

	Years Ended November 30,
	2003		2002	2001
	(In thousands)
Revenues	$	1,314,674	939,847	903,293
Costs and expenses		938,981	780,093	761,704
Net earnings of unconsolidated partnerships	$	375,693	159,754	141,589
Company’s share of net earnings	$	81,937	42,651	27,051

At November 30, 2003, the Company’s equity interest in these Partnerships did not exceed 50%. The Company’s partners generally are unrelated homebuilders, land sellers or other real estate entities. The Partnerships follow accounting principles generally accepted in the United States of America. The Company shares in the profits and losses of these Partnerships generally in accordance with its ownership interests. In many instances, the Company is appointed as the day-to-day manager of the Partnerships and receives fees for performing this function. During 2003, 2002 and 2001, the Company received management fees and reimbursement of expenses from the Partnerships totaling $39.0 million, $29.2 million and $26.1 million, respectively. In determining its share of the Partnerships’ net earnings, the Company does not include in its income its pro rata share of partnership earnings resulting from land sales to its homebuilding divisions. Instead, the Company accounts for those earnings as a reduction of the cost of purchasing the land from the partnerships. This in effect defers recognition of the Company’s share of the partnership earnings relating to these sales until a home is delivered and title passes to a homebuyer.

The Company and/or its partners sometimes obtain options or enter into other arrangements under which the Company can purchase portions of the land held by the Partnerships. Option prices are generally negotiated prices that approximate fair value when the options are purchased. During 2003, 2002 and 2001, $460.5 million, $419.3 million and $232.6 million, respectively, of the Partnerships’ revenues were from land sales to the Company.

In some instances, the Company and/or its partners have provided varying levels of guarantees of debt of unconsolidated partnerships. At November 30, 2003, the Company had recourse guarantees of $88.7 million and limited maintenance guarantees of $111.6 million of debt of unconsolidated partnerships. When the Company and/or its partners provide a guarantee, the partnership generally receives more favorable terms from its lenders than would otherwise be available to it. The limited maintenance guarantees only apply if a partnership defaults on its loan arrangements and the carrying value of the collateral (generally land and improvements) is less than a specified percentage of the loan balance. If the Company is required to make a payment under a limited maintenance guarantee to bring the carrying value of the collateral above the specified percentage of the loan balance, the payment would constitute a capital contribution or loan to the unconsolidated partnership and increase the Company’s share of any funds the unconsolidated partnership distributes. There were no assets held as collateral that, upon the occurrence of any triggering event or condition under a guarantee, the Company could obtain and liquidate to recover all or a portion of the amounts paid under a guarantee.

In November 2003, the Company and LNR each contributed its 50% interests in certain of its jointly-owned unconsolidated partnerships that had significant assets to a new limited liability company named LandSource Communities Development LLC (“LandSource”), in exchange for 50% interests in LandSource. In addition, in July 2003, the Company and LNR formed, and obtained 50% interests in, NWHL Investment, LLC (“NWHL”), which agreed to purchase, and in January 2004 completed the purchase, of The Newhall Land and Farming Company (“Newhall”) for a total of approximately $1 billion. Newhall’s primary business is developing two master-planned communities in Los Angeles County, California. The Company and LNR each contributed approximately $200 million to NWHL, and LandSource and NWHL jointly obtained $600 million of bank financing, of which $400 million was used in connection with the acquisition of Newhall (the remainder of the acquisition price was paid with proceeds of a sale of income-producing properties from Newhall to LNR for $217 million at the closing of the transaction). The Company agreed to purchase 687 homesites and obtained options to purchase 623 homesites from the venture. The Company is not obligated with regard to the borrowings by LandSource and NWHL, except that the Company and LNR have made limited maintenance guarantees and

45

LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

have committed to complete any property development commitments in the event of default. The combined assets and liabilities of LandSource and NWHL at November 30, 2003 were $380.7 million and $122.3 million, respectively. The Company’s combined investment in LandSource and NWHL was $128.8 million at November 30, 2003.

6.    Operating Properties and Equipment

	November 30,
	2003			2002
	(In thousands)
Furniture, fixtures and equipment	$	38,354		43,492
Community recreational facilities		6,083		8,077
Leasehold improvements		13,032		7,510
		57,469		59,079
Accumulated depreciation and amortization		(36,631	)	(41,919	)
	$	20,838		17,160

Operating properties and equipment are included in other assets in the consolidated balance sheets.

7.    Senior Notes and Other Debts Payable

	November 30,
	2003		2002
	(Dollars in thousands)
3 7/8% zero-coupon senior convertible debentures due 2018	$	—	266,917
5.125% zero-coupon convertible senior subordinated notes due 2021		261,012	248,138
5.95% senior notes due 2013		344,260	—
7 5/8% senior notes due 2009		273,593	272,591
9.95% senior notes due 2010		301,995	300,175
Term Loan B due 2008		296,000	391,000
U.S. Home senior notes due through 2009		2,367	9,366
The Fortress Group, Inc. senior notes due 2003		—	12,575
Mortgage notes on land and other debt		72,990	84,547
	$	1,552,217	1,585,309

In May 2003, the Company amended and restated its senior secured credit facilities (the “Credit Facilities”) to provide the Company with up to $1.3 billion of financing. The Credit Facilities consist of a $712 million revolving credit facility maturing in May 2008, a $315 million 364-day revolving credit facility maturing in May 2004 and a $300 million term loan B maturing in December 2008. The Company may elect to convert borrowings under the 364-day revolving credit facility to a term loan, which would mature in May 2008. The Credit Facilities are collateralized by the stock of certain of the Company’s subsidiaries and are also guaranteed on a joint and several basis by substantially all of the Company’s subsidiaries, other than subsidiaries primarily engaged in mortgage and title reinsurance activities. At November 30, 2003, $296.0 million was outstanding under the term loan B and no amounts were outstanding under the revolving credit facilities. Interest rates are LIBOR-based and the margins are set by a pricing grid with thresholds that adjust based on changes in the Company’s leverage ratio and the Credit Facilities’ credit rating.

At November 30, 2003, the Company had letters of credit outstanding in the amount of $627.9 million. The majority of these letters of credit are posted with regulatory bodies to guarantee the Company’s performance of certain development and construction activities or are posted in lieu of cash deposits on option contracts. Of the Company’s total letters of credit, $341.4 million were collateralized against certain borrowings available under the Credit Facilities.

46

LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In February 2003, the Company issued $350 million of 5.95% senior notes due 2013 at a price of 98.287%. Proceeds from the offering, after underwriting discount and expenses, were approximately $342 million. The Company used $116 million of the proceeds to repay outstanding indebtedness and added the remainder to its general working capital. The senior notes are guaranteed on a joint and several basis by substantially all of the Company’s subsidiaries, other than subsidiaries primarily engaged in mortgage and title reinsurance activities. At November 30, 2003, the carrying value of the senior notes was $344.3 million.

In June 2003, the Company called its 3 ⁷/8% zero-coupon senior convertible debentures due 2018 (the “Debentures”) for redemption. At the option of the holders, the Debentures could have been converted into Class A common stock at any time prior to the redemption date. Each $1,000 principal amount at maturity of Debentures was convertible into 27.4814 shares of Class A common stock (inclusive of the adjustment for the April 2003 10% Class B stock distribution and January 2004 two-for-one stock split), which equated to a redemption price of approximately $20.46 per share of Class A common stock. In 2003, substantially all of the Debentures were converted into approximately 13.6 million shares of Class A common stock (adjusted for the January 2004 two-for-one stock split).

As a result of the acquisition of The Fortress Group, Inc. (“Fortress”) in 2002, the Company assumed Fortress’s publicly held notes totaling $33.8 million. During fiscal 2003, the Company repaid the balance of the outstanding senior notes.

In the second quarter of 2001, the Company issued, for gross proceeds of approximately $230 million, zero-coupon convertible senior subordinated notes due 2021 (“Notes”) with a face amount at maturity of approximately $633 million. The Notes were issued at a price of $363.46 per $1,000 face amount at maturity, which equates to a yield to maturity over the life of the Notes of 5.125%. Proceeds from the issuance, after underwriting discount, were approximately $224 million. The Notes are guaranteed on a joint and several basis by substantially all of the Company’s subsidiaries, other than subsidiaries engaged in mortgage and title reinsurance activities. The Company used the proceeds to repay amounts outstanding under its revolving credit facilities and added the balance of the net proceeds to working capital. The indenture relating to the Notes provides that the Notes are convertible into the Company’s Class A common stock during limited periods after the market price of the Company’s Class A common stock exceeds 110% of the accreted conversion price at the rate of approximately 14.2 Class A common shares per $1,000 face amount of Notes at maturity, which would total approximately 9.0 million shares (adjusted for the April 2003 10% Class B stock distribution and January 2004 two-for-one stock split). For this purpose, the “market price” is the average closing price of the Company’s Class A common stock over the last twenty trading days of a fiscal quarter.

Other events that would cause the Notes to be convertible are: a) a call of the Notes for redemption; b) the initial credit ratings assigned to the Notes by any two of Moody’s Investors Service, Inc., Standard & Poor’s Ratings Services and Fitch Ratings are reduced by two rating levels; c) a distribution to all holders of the Company’s Class A common stock of options expiring within 60 days entitling the holders to purchase common stock for less than its quoted price; or d) a distribution to all holders of the Company’s Class A common stock of common stock, assets, debt, securities or rights to purchase securities with a per share value exceeding 15% of the closing price of the Class A common stock on the day preceding the declaration date for the distribution. The conversion ratio equates to an initial conversion price of $25.64 per share when the Company’s stock price was $19.42 per share (adjusted for the April 2003 10% Class B stock distribution and January 2004 two-for-one stock split).

At November 30, 2003, the Notes were convertible because the average closing price of the Company’s Class A common stock over the last twenty trading days of the fourth quarter of 2003 (adjusted for the April 2003 10% Class B stock distribution and January 2004 two-for-one stock split) exceeded 110% ($32.28 per share at November 30, 2003) of the accreted conversion price. These shares were not included in the calculation of diluted earnings per share for the years ended November 30, 2002 and 2001 because the contingencies discussed above were not met.

Holders have the option to require the Company to repurchase the Notes on any of the fifth, tenth, or fifteenth anniversaries of the issue date for the initial issue price plus accrued yield to the purchase date. The

47

LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Company has the option to satisfy the repurchases with any combination of cash and/or shares of the Company’s common stock. The Company will have the option to redeem the Notes, in cash, at any time after the fifth anniversary for the initial issue price plus accrued yield to redemption. The Company will pay contingent interest on the Notes during specified six-month periods beginning on April 4, 2006 if the market price of the Notes exceeds specified levels. At November 30, 2003, the carrying value of outstanding Notes, net of unamortized original issue discount, was $261.0 million.

At November 30, 2003, the Company had mortgage notes on land and other debt bearing interest at fixed interest rates ranging from 2.9% to 25.0% with an average rate of 8.8%. The notes are due through 2009 and are collateralized by land. At November 30, 2003, the carrying value of the mortgage notes on land and other debt was $73.0 million.

The minimum aggregate principal maturities of senior notes and other debts payable during the five years subsequent to November 30, 2003 are as follows: 2004—$21.5 million; 2005—$45.7 million; 2006—$18.4 million; 2007—$4.0 million and 2008—$4.0 million. The remaining principal obligations are due subsequent to November 30, 2008. The Company’s debt arrangements contain certain financial covenants with which the Company was in compliance at November 30, 2003.

8.    Financial Services

The assets and liabilities related to the Company’s financial services operations were as follows:

	November 30,
	2003		2002
	(In thousands)
Assets:
Cash and receivables, net	$	301,530	239,893
Mortgage loans held for sale, net		542,507	708,304
Mortgage loans, net		30,451	30,341
Title plants		18,215	15,586
Investment securities		28,022	22,379
Goodwill, net		43,503	34,002
Other		46,670	35,422
Limited-purpose finance subsidiaries		5,812	9,202
	$	1,016,710	1,095,129
Liabilities:
Notes and other debts payable	$	734,657	853,416
Other		132,797	108,770
Limited-purpose finance subsidiaries		5,812	9,202
	$	873,266	971,388

At November 30, 2003, the Financial Services Division had warehouse lines of credit totaling $750 million, which included a $145 million temporary increase that expired in December 2003, to fund its mortgage loan activities. Borrowings under the facilities were $714.4 million and $489.7 million at November 30, 2003 and 2002, respectively, and were collateralized by mortgage loans and receivables on loans sold not yet funded with outstanding principal balances of $742.2 million and $523.8 million, respectively. There are several interest rate pricing options which fluctuate with market rates. The effective interest rate on the facilities at November 30, 2003 and 2002 was 1.7% and 2.3%, respectively. The warehouse lines of credit mature in May 2004 ($250 million) and in October 2005 ($500 million), at which time the Division expects both facilities to be renewed. Additionally, the line of credit maturing in May 2004 includes an incremental $100 million commitment available at each fiscal quarter-end. At November 30, 2003 and 2002, the Division had advances under a conduit funding agreement with a major financial institution amounting to $0.6 million and $343.7 million, respectively. Borrowings under this agreement are collateralized by mortgage loans and had an

48

LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

effective interest rate of 1.9% and 2.3% at November 30, 2003 and 2002, respectively. The Division also had a $20 million revolving line of credit with a bank, collateralized by certain assets of the Division and stock of certain title subsidiaries. Borrowings under the line of credit were $19.4 million and $20.0 million at November 30, 2003 and 2002, respectively, and had an effective interest rate of 2.1% and 2.4% at November 30, 2003 and 2002, respectively.

The limited-purpose finance subsidiaries of the Financial Services Division have placed mortgages and other receivables as collateral for various long-term financings. These limited-purpose finance subsidiaries pay the principal of, and interest on, these financings almost entirely from the cash flows generated by the related pledged collateral, which includes a combination of mortgage notes, mortgage-backed securities and funds held by a trustee. At November 30, 2003 and 2002, the balances outstanding for the bonds and notes payable were $5.8 million and $9.2 million, respectively. The borrowings mature in 2015 through 2018 and carry interest rates ranging from 8.8% to 11.7%. The annual principal repayments are dependent upon collections on the underlying mortgages, including prepayments, and therefore cannot be reasonably determined.

The minimum aggregate principal maturities of the Financial Services Division’s notes and other debts payable (including limited-purpose finance subsidiaries) during the five years subsequent to November 30, 2003 are as follows: 2004—$734.5 million; 2005—$0.1 million and 2006—$0.1 million. The remaining principal obligations are due subsequent to November 30, 2008.

9.    Income Taxes

The provision (benefit) for income taxes consisted of the following:

	Years Ended November 30,
	2003			2002		2001
	(In thousands)
Current:
Federal	$	448,444		295,052		220,124
State		58,362		41,200		31,685
		506,806		336,252		251,809
Deferred:
Federal		(45,395	)	(5,036	)	9,281
State		(5,748	)	(636	)	488
		(51,143	)	(5,672	)	9,769
	$	455,663		330,580		261,578

49

LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of the assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The tax effects of significant temporary differences that give rise to the net deferred tax asset are as follows:

	November 30,
	2003		2002
	(In thousands)
Deferred tax assets:
Acquisition adjustments	$	18,290	28,061
Reserves and accruals		168,444	105,283
Capitalized expenses		43,141	48,760
Net operating loss and capital loss carryforwards, tax affected		4,379	4,379
Investments in unconsolidated partnerships		1,788	17,555
Other		36,293	26,410
Deferred tax assets		272,335	230,448
Less: valuation allowance		—	(6,978	)
Total deferred tax assets, net		272,335	223,470
Deferred tax liabilities:
Acquisition adjustments		6,868	5,186
Reserves and accruals		2,584	1,269
Capitalized expenses		38,163	51,829
Installment sales		1,413	698
Section 461 deductions and other		45,529	42,314
Total deferred tax liabilities		94,557	101,296
Net deferred tax asset	$	177,778	122,174

The Homebuilding Division’s net deferred tax asset amounting to $166.7 million and $114.4 million at November 30, 2003 and 2002, respectively, is included in other assets in the consolidated balance sheets.

At November 30, 2003 and 2002, the Financial Services Division had a net deferred tax asset of $11.1 million and $7.8 million, respectively, which is included in the assets of the Financial Services Division.

SFAS No. 109 requires the reduction of deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is more likely than not that a portion or all of the deferred tax asset will not be realized. Based on management’s assessment, it is more likely than not that the net deferred tax asset will be realized through future taxable earnings. During fiscal 2003, restrictions associated with the utilization of the capital loss carryforwards and acquisition adjustments lapsed, resulting in the reduction of the valuation allowance. Because the asset was established in connection with an acquisition, the reduction of the valuation allowance resulted in a decrease to goodwill.

A reconciliation of the statutory rate and the effective tax rate follows:

	Percentage of Pre-tax Income
	2003		2002	2001
Statutory rate	35.00	%	35.00	35.00
State income taxes, net of federal income tax benefit	2.75		2.75	3.10
Other	—		—	0.40
Effective rate	37.75	%	37.75	38.50

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LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

10.    Earnings Per Share

Basic and diluted earnings per share for the years ended November 30, 2003, 2002 and 2001 were calculated as follows:

	2003		2002	2001
	(In thousands, except per share amounts)
Numerator:
Numerator for basic earnings per share—net earnings	$	751,391	545,129	417,845
Interest on zero-coupon senior convertible debentures due 2018, net of tax		4,116	6,418	6,094
Interest on zero-coupon convertible senior subordinated notes due 2021, net of tax		4,105	—	—
Numerator for diluted earnings per share	$	759,612	551,547	423,939
Denominator:
Denominator for basic earnings per share—weighted average shares		147,334	140,329	138,021
Effect of dilutive securities:
Employee stock options and restricted stock		3,152	3,377	3,821
Zero-coupon senior convertible debentures due 2018		8,380	13,556	13,556
Zero-coupon convertible senior subordinated notes due 2021		4,486	—	—
Denominator for diluted earnings per share—adjusted weighted average shares and assumed conversions		163,352	157,262	155,398
Basic earnings per share	$	5.10	3.88	3.03
Diluted earnings per share	$	4.65	3.51	2.73

Basic and diluted earnings per share amounts and weighted average shares outstanding have been adjusted to reflect the effect of the April 2003 10% Class B stock distribution and the January 2004 two-for-one stock split.

In 2001, the Company issued zero-coupon convertible senior subordinated notes due 2021. The indenture relating to the notes provides that the notes are convertible into the Company’s Class A common stock during limited periods after the market price of the Company’s Class A common stock exceeds 110% of the accreted conversion price at the rate of approximately 14.2 Class A common shares per $1,000 face amount of notes at maturity, which would total approximately 9.0 million shares (adjusted for the April 2003 10% Class B stock distribution and January 2004 two-for-one stock split). For this purpose, the “market price” is the average closing price of the Company’s Class A common stock over the last twenty trading days of a fiscal quarter.

Other events that would cause the notes to be convertible are: a) a call of the notes for redemption; b) the initial credit ratings assigned to the notes by any two of Moody’s Investors Service, Inc., Standard & Poor’s Ratings Services and Fitch Ratings are reduced by two rating levels; c) a distribution to all holders of the Company’s Class A common stock of options expiring within 60 days entitling the holders to purchase common stock for less than its quoted price; or d) a distribution to all holders of the Company’s Class A common stock of common stock, assets, debt, securities or rights to purchase securities with a per share value exceeding 15% of the closing price of the Class A common stock on the day preceding the declaration date for the distribution.

The calculation of diluted earnings per share included 4.5 million shares (adjusted for the April 2003 10% Class B stock distribution and January 2004 two-for-one stock split) for the year ended November 30, 2003 because the average closing price of the Company’s Class A common stock over the last twenty trading days of both the third and fourth quarters of 2003 exceeded 110% of the accreted conversion price. These shares were not included in the calculation of diluted earnings per share for the years ended November 30, 2002 and 2001 because the contingencies discussed above were not met.

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LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

11.    Comprehensive Income

Comprehensive income represents changes in stockholders’ equity from non-owner sources. For the years ended November 30, 2003, 2002 and 2001, the change in the fair value of interest rate swaps was the only adjustment to the Company’s net earnings in deriving comprehensive income. In accordance with the transition provisions of SFAS No. 133, on December 1, 2000, the Company recorded a cumulative-effect type adjustment of $3.5 million (net of tax benefit of $2.2 million) in accounts payable and other liabilities and accumulated other comprehensive loss to recognize the fair value of interest rate swaps. Subsequent to the Company’s adoption of SFAS No. 133 through November 30, 2001, the liability and accumulated other comprehensive loss increased $15.8 million (net of tax benefit of $9.9 million) to $19.3 million. For the years ended November 30, 2003 and 2002, the liability and accumulated other comprehensive loss decreased $3.5 million (net of tax of $2.1 million) and increased $5.2 million (net of tax benefit of $2.7 million), respectively. Comprehensive income was $754.9 million, $540.0 million and $398.6 million for the years ended November 30, 2003, 2002 and 2001, respectively.

12.    Capital Stock

Preferred Stock

The Company is authorized to issue 500,000 shares of preferred stock with a par value of $10 per share and 100 million shares of participating preferred stock with a par value of $0.10 per share. No shares of preferred stock or participating preferred stock have been issued as of November 30, 2003.

Common Stock

On April 8, 2003, at the Company’s Annual Meeting of Stockholders, the Company’s stockholders approved an amendment to the Company’s certificate of incorporation that eliminated the restrictions on transfer of the Company’s Class B common stock and eliminated a difference between the dividends on the common stock (renamed Class A common stock) and the Class B common stock. The only significant remaining difference between the Class A common stock and the Class B common stock is that the Class A common stock entitles holders to one vote per share and the Class B common stock entitles holders to ten votes per share.

Because stockholders approved the change to the terms of the Class B common stock, the Company distributed to the holders of record of its stock at the close of business on April 9, 2003, one share of Class B common stock for each ten shares of Class A common stock or Class B common stock held at that time. The distribution occurred on April 21, 2003 and the Company’s Class B common stock became listed on the New York Stock Exchange (“NYSE”). The Company’s Class A common stock was already listed on the NYSE. Approximately 13 million shares of Class B common stock (adjusted for the January 2004 two-for-one stock split) were issued as a result of the stock distribution.

Additionally, the Company’s stockholders approved an amendment to the certificate of incorporation increasing the number of shares of common stock the Company is authorized to issue to 300 million shares of Class A common stock and 90 million shares of Class B common stock. However, the Company has committed to Institutional Shareholder Services that it will not issue, without a subsequent stockholder vote, shares that would increase the outstanding Class A common stock to more than 170 million shares or increase the outstanding Class B common stock to more than 45 million shares.

In September 2003, the Company’s Board of Directors voted to increase the rate at which dividends are paid with regard to the Company’s Class A and Class B common stock to $0.50 per share per year (payable quarterly) from $0.025 per share per year (adjusted for the January 2004 two-for-one stock split). During 2003, Class A and Class B common stockholders received annual dividends of $0.14 per share. During 2002 and 2001, Class A common stockholders received quarterly dividends of $0.00625 per share and the Class B common stockholders received quarterly dividends of $0.005625 per share.

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LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

As of November 30, 2003, Mr. Stuart Miller, the Company’s President and Chief Executive Officer, directly owned or controlled as the director and officer of family-owned entities, approximately 22 million shares (adjusted for the January 2004 two-for-one stock split) of Class A and Class B common stock, which represented approximately 48% voting power of the Company’s stock.

In December 2003, the Company’s Board of Directors approved a two-for-one stock split in the form of a 100% stock dividend of Class A and Class B common stock for stockholders of record on January 6, 2004. The additional shares were distributed on January 20, 2004. All share and per share amounts (except authorized shares, treasury shares and par value) have been retroactively adjusted to reflect the split. There was no net effect on total stockholders’ equity as a result of the stock split.

In June 2001, the Company’s Board of Directors increased the previously authorized stock repurchase program to permit future purchases of up to 20 million shares (adjusted for the January 2004 two-for-one stock split) of the Company’s outstanding Class A common stock. During 2003, 2002 and 2001, the Company did not repurchase any of its outstanding Class A or Class B common stock in the open market under these authorizations. In prior years under prior approvals, the Company had repurchased approximately 9.8 million shares (not adjusted for the Company’s January 2004 two-for-one stock split) of its outstanding Class A common stock for an aggregate purchase price of approximately $158.9 million, or $16 per share. In September 2003, the Board of Directors voted to retire the Company’s Class A common stock held in treasury. As a result, approximately 9.9 million Class A common shares (not adjusted for the Company’s January 2004 two-for-one stock split) were retired. The retirement had no net effect on total stockholders’ equity. In December 2003, the Company granted approximately 2.4 million stock options (adjusted for the Company’s January 2004 two-for-one stock split) to employees under the 2003 Plan and in January 2004, repurchased a similar amount of shares of its outstanding Class A common stock for an aggregate purchase price of approximately $109.6 million, or $45.64 per share (adjusted for the Company’s January 2004 two-for-one stock split).

At November 30, 2003, the Company had shelf registration statements under the Securities Act of 1933, as amended, relating to up to $620 million of equity or debt securities which it may sell for cash and up to $400 million of equity or debt securities which it could issue in connection with acquisitions of companies, businesses or assets.

Restrictions on Payment of Dividends

Other than as required to maintain the financial ratios and net worth required by the Credit Facilities, there are no restrictions on the payment of dividends on common stock by the Company. There are no agreements which restrict the payment of dividends by subsidiaries of the Company other than as required to maintain the financial ratios and net worth requirements under the Financial Services Division’s warehouse lines of credit.

Stock Option Plans

The Lennar Corporation 2003 Stock Option and Restricted Stock Plan (the “2003 Plan”) provides for the granting of Class A and Class B stock options and stock appreciation rights and awards of restricted common stock to key officers, employees and directors. The exercise prices of stock options and stock appreciation rights are not less than the market value of the common stock on the date of the grant. No options granted under the 2003 Plan may be exercisable until at least six months after the date of the grant. Thereafter, exercises are permitted in installments determined when options are granted. Each stock option and stock appreciation right will expire on a date determined at the time of the grant, but not more than 10 years after the date of the grant. At November 30, 2003, there were no shares of restricted stock outstanding under the 2003 Plan.

The Lennar Corporation 2000 Stock Option and Restricted Stock Plan (the “2000 Plan”) provided for the granting of Class A stock options and stock appreciation rights and awards of restricted common stock to key officers, employees and directors. No options granted under the 2000 Plan may be exercisable until at least six months after the date of the grant. Thereafter, exercises are permitted in installments determined when options

53

LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

are granted. Each stock option and stock appreciation right will expire on a date determined at the time of the grant, but not more than 10 years after the date of the grant. At November 30, 2003, a combined total of 1,036,200 shares of Class A and Class B restricted stock (adjusted for the January 2004 two-for-one stock split) were outstanding under the Plan. The stock was valued based on its market price on the date of the grant. The grants vest over 5 years from the date of issuance. Unearned compensation arising from the restricted stock grants is amortized to expense over the period of the restrictions and is shown as a reduction of stockholders’ equity in the consolidated balance sheets.

The Lennar Corporation 1997 Stock Option Plan (the “1997 Plan”) provided for the granting of Class A stock options and stock appreciation rights to key employees of the Company to purchase shares at prices not less than market value of the common stock on the date of the grant. No options granted under the 1997 Plan may be exercisable until at least six months after the date of the grant. Thereafter, exercises are permitted in installments determined when options are granted. Each stock option and stock appreciation right granted will expire on a date determined at the time of the grant, but not more than 10 years after the date of the grant.

The Lennar Corporation 1991 Stock Option Plan (the “1991 Plan”) provided for the granting of options to certain key employees of the Company to purchase Class A shares at prices not less than market value of the common stock on the date of the grant. No options granted under the 1991 Plan may be exercisable until at least six months after the date of the grant. Thereafter, exercises are permitted in installments determined when options are granted. Each stock option granted will expire on a date determined at the time of the grant, but not more than 10 years after the date of the grant.

A summary of the Company’s stock option activity for the years ended November 30, 2003, 2002 and 2001 (adjusted for the January 2004 two-for-one stock split) is as follows:

	2003				2002				2001
	Stock Options		Weighted Average Exercise Price		Stock Options		Weighted Average Exercise Price		Stock Options		Weighted Average Exercise Price
Outstanding, beginning of year	4,827,348		$	15.98	5,731,512		$	11.57	6,957,366		$	8.34
Grants	2,636,000		$	28.36	1,100,000		$	26.37	1,583,200		$	18.74
Other *	694,824		$	—	—		$	—	—		$	—
Terminations	(19,250	)	$	22.74	(124,024	)	$	16.01	(202,778	)	$	14.67
Exercises	(1,477,954	)	$	12.27	(1,880,140	)	$	8.60	(2,606,276	)	$	7.07
Outstanding, end of year	6,660,968		$	20.01	4,827,348		$	15.98	5,731,512		$	11.57
Exercisable, end of year	745,336		$	12.96	936,074		$	12.79	1,497,624		$	7.80
Available for grant, end of year	9,821,000				3,394,600				4,433,000
Weighted average fair value per share of options granted during the year under SFAS No. 123			$	8.65			$	11.72			$	9.21

* Represents options for Class B common stock which were issued as a result of anti-dilution provisions with regard to unexercised Class A stock options as of the date of the April 2003 10% Class B stock distribution.

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LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table summarizes information about stock options outstanding at November 30, 2003 (adjusted for the January 2004 two-for-one stock split):

	Options Outstanding				Options Exercisable
Range of Per Share Exercise Prices	Number Outstanding at November 30, 2003	Weighted Average Remaining Contractual Life	Weighted Average Per Share Exercise Price		Number Outstanding at November 30, 2003	Weighted Average Per Share Exercise Price
$  4.02—$  5.19	66,176	2.7 years	$	4.80	31,126	$	4.88
$  7.02—$  8.38	1,022,714	4.3 years	$	7.58	290,114	$	7.67
$  9.25—$12.88	379,944	4.0 years	$	9.88	64,244	$	9.92
$14.93—$18.88	1,179,736	7.2 years	$	16.70	275,448	$	16.75
$21.10—$26.32	3,843,448	5.4 years	$	24.91	84,404	$	24.06
$27.84—$43.16	168,950	4.6 years	$	35.73	—	$	—

Employee Stock Ownership/401(k) Plan

Prior to 1998, the Employee Stock Ownership/401(k) Plan (the “Plan”) provided shares of stock to employees who had completed one year of continuous service with the Company. During 1998, the Plan was amended to exclude any new shares from being provided to employees. All prior year contributions to employees actively employed on or after October 1, 1998 vested at a rate of 20% per year over a five year period. All active participants in the Plan whose employment terminated prior to October 1, 1998 vested based upon the Plan that was active prior to their termination of employment. Under the 401(k) portion of the Plan, contributions made by employees can be invested in a variety of mutual funds or proprietary funds provided by the Plan trustee. The Company may also make contributions for the benefit of employees. The Company records as compensation expense an amount which approximates the vesting of the contributions to the Employee Stock Ownership portion of the Plan, as well as the Company’s contribution to the 401(k) portion of the Plan. This amount was $9.1 million in 2003, $7.0 million in 2002 and $6.5 million in 2001.

13.    Deferred Compensation Plan

In June 2002, the Company adopted the Lennar Corporation Nonqualified Deferred Compensation Plan (the “Deferred Compensation Plan”) that allows a selected group of members of management to defer a portion of their salaries and bonuses and up to 100% of their restricted stock. All participant contributions to the Deferred Compensation Plan are vested. Salaries and bonuses that are deferred under the Deferred Compensation Plan are credited with earnings or losses based on investment decisions made by the participants. The cash contributions to the Deferred Compensation Plan are invested by the Company in various investment securities that are classified as trading.

Restricted stock is deferred under the Deferred Compensation Plan by surrendering the restricted stock in exchange for the right to receive in the future a number of shares equal to the number of restricted shares that are surrendered. The surrender is reflected as a reduction in stockholders’ equity equal to the value of the restricted stock when it was issued, with an offsetting increase in stockholders’ equity to reflect a deferral of the compensation expense related to the surrendered restricted stock. Changes in the value of the shares that will be issued in the future are not reflected in the financial statements.

As of November 30, 2003, approximately 534,000 Class A shares and 53,400 Class B shares of restricted stock (adjusted for the April 2003 10% Class B stock distribution and January 2004 two-for-one stock split) had been surrendered in exchange for rights under the Deferred Compensation Plan, resulting in a reduction in stockholders’ equity of $4.9 million fully offset by an increase in stockholders’ equity to reflect the deferral of compensation in that amount. Shares that the Company is obligated to issue in the future under the Deferred Compensation Plan are treated as outstanding shares in both the Company’s basic and diluted earnings per share calculations for the years ended November 30, 2003 and 2002.

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LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

14.    Financial Instruments

The following table presents the carrying amounts and estimated fair values of financial instruments held by the Company at November 30, 2003 and 2002, using available market information and what the Company believes to be appropriate valuation methodologies. Considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies might have a material effect on the estimated fair value amounts. The table excludes cash, receivables and accounts payable, which had fair values approximating their carrying values.

	November 30,
	2003					2002
	Carrying Amount			Fair Value		Carrying Amount		Fair Value
	(In thousands)
ASSETS
Homebuilding:
Investments—trading	$	6,859		6,859		—		—
Financial services:
Mortgage loans held for sale, net	$	542,507		542,507		708,304		708,304
Mortgage loans, net		30,451		29,355		30,341		29,666
Investments held-to-maturity		28,022		28,021		22,379		22,412
Limited-purpose finance subsidiaries—collateral for bonds and notes payable		5,812		6,129		9,202		9,703
LIABILITIES
Homebuilding:
Senior notes and other debts payable	$	1,552,217		1,878,830		1,585,309		1,779,705
Financial services:
Notes and other debts payable	$	734,657		734,657		853,416		853,416
Limited-purpose finance subsidiaries—bonds and notes payable		5,812		6,129		9,202		9,703
OTHER FINANCIAL INSTRUMENTS
Homebuilding:
Interest rate swaps	$	(33,696	)	(33,696	)	(39,256	)	(39,256	)
Financial services assets (liabilities):
Commitments to originate loans	$	(229	)	(229	)	(717	)	(717	)
Forward commitments to sell loans and option contracts		(1,120	)	(1,120	)	1,430		1,430

The following methods and assumptions are used by the Company in estimating fair values:

Homebuilding—Investments classified as trading (included in other assets): The fair value is based on quoted market prices. Senior notes and other debts payable: The fair value of fixed rate borrowings is based on quoted market prices. Variable rate borrowings are tied to market indices and therefore approximate fair value. Interest rate swaps: The fair value is based on dealer quotations and generally represents an estimate of the amount the Company would pay or receive to terminate the agreement at the reporting date.

Financial services—The fair values are based on quoted market prices, if available. The fair values for instruments which do not have quoted market prices are estimated by the Company on the basis of discounted cash flows or other financial information.

The Company utilizes interest rate swap agreements to manage interest costs and hedge against risks associated with changing interest rates. Counterparties to these agreements are major financial institutions. Credit loss from counterparty non-performance is not anticipated. A majority of the Company’s available variable rate borrowings are based on the London Interbank Offered Rate (“LIBOR”) index. At November 30, 2003, the

56

LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Company had four interest rate swap agreements outstanding with a total notional amount of $300 million, which will mature at various dates through 2007. These agreements fixed the LIBOR index at an average interest rate of 6.8% at November 30, 2003. The effect of the interest rate swap agreements on interest incurred and on the average interest rate was an increase of $16.7 million and 1.03% for the year ended November 30, 2003, an increase of $17.0 million and 1.08% for the year ended November 30, 2002 and an increase of $7.2 million and 0.48% for the year ended November 30, 2001.

As of November 30, 2003, the Financial Services Division’s commitments regarding loans in process totaled approximately $2.6 billion. To minimize credit risk, the Division uses the same credit policies in the approval of the commitments as are applied to all lending activities. Since a portion of these commitments is expected to expire without being exercised by the borrowers, the total commitments do not necessarily represent future cash requirements. Loans in process for which interest rates were committed to the borrowers totaled approximately $330.7 million as of November 30, 2003. Substantially all of these commitments were for periods of 60 days or less.

Mandatory mortgage-backed securities forward commitments (“MBS”) are used by the Company to hedge its interest rate exposure during the period from when it makes an interest rate commitment to a loan applicant until the time at which the loan is sold to an investor. These instruments involve, to varying degrees, elements of credit and interest rate risk. Credit risk is managed by entering into MBS only with investment banks with primary dealer status and with permanent investors meeting the credit standards of the Company. At any time, the risk to the Company, in the event of default by the purchaser, is the difference between the contract price and current market value. At November 30, 2003, the Company had open commitments amounting to $512.0 million to sell MBS with varying settlement dates through January 2004.

15.    Consolidation of Variable Interest Entities

In January 2003, the FASB issued FIN 46, as further clarified and amended by the FASB’s issuance of a revision to FIN 46 in December 2003, which requires the consolidation of entities in which an enterprise absorbs a majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual or other financial interests in the entity. Prior to the issuance of FIN 46, entities were generally consolidated by an enterprise when it had a controlling financial interest through ownership of a majority voting interest in the entity. FIN 46 applied immediately to variable interests created after January 31, 2003, and with respect to variable interests created before February 1, 2003, FIN 46 will apply in the Company’s second quarter ending May 31, 2004, as deferred by the FASB in December 2003. Although the Company does not believe the full adoption of FIN 46 will have a material impact on net earnings, the Company cannot make any definitive determination until it completes its evaluation.

Partnerships

At November 30, 2003, the Company had investments in and advances to partnerships established to acquire and develop land for sale to the Company in connection with its homebuilding operations or for sale to third parties. The Company evaluated its partnership agreements entered into subsequent to January 31, 2003 under FIN 46. The Company determined that it is the primary beneficiary of one partnership that was created after January 31, 2003, and, accordingly, included the accounts of that partnership in the accompanying consolidated financial statements. No other partnerships created after January 31, 2003 were consolidated as the Company determined it was not the primary beneficiary, as defined under FIN 46. The Company is in the process of evaluating the remainder of its unconsolidated partnerships that may be deemed variable interest entities under the provisions of FIN 46. At November 30, 2003, the Company’s estimated maximum exposure to loss with regard to unconsolidated partnerships was its recorded investment in these partnerships totaling $390.3 million in addition to the exposure under the guarantees discussed in Note 5.

57

LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Option contracts

The Company evaluated its option contracts for land entered into subsequent to January 31, 2003 and determined it is the primary beneficiary of certain of these option contracts. Although the Company does not have legal title to the optioned land, under FIN 46, the Company, as the primary beneficiary, is required to consolidate the land under option at fair value (the exercise price). The effect of the consolidation was an increase of $45.2 million to consolidated inventory not owned with a corresponding increase to liabilities related to consolidated inventory not owned in the accompanying consolidated balance sheet as of November 30, 2003. To reflect the fair value of the inventory consolidated under FIN 46, the Company reclassified $4.1 million of related option deposits from land under development to consolidated inventory not owned. The liabilities related to consolidated inventory not owned represent the difference between the exercise price of the optioned land and the Company’s deposits. The Company is in the process of evaluating the remainder of its option contracts that may be deemed issued by variable interest entities under the provisions of FIN 46. At November 30, 2003, the Company’s exposure to loss represents its non-refundable option deposits and/or letters of credit related to options with estimated aggregate exercise prices totaling approximately $3 billion.

16.    Commitments and Contingent Liabilities

The Company and its subsidiaries are party to various claims, legal actions and complaints arising in the ordinary course of business. In the opinion of management, the disposition of these matters will not have a material adverse effect on the financial condition, results of operations or cash flows of the Company.

The Company is subject to the usual obligations associated with entering into contracts (including option contracts) for the purchase, development and sale of real estate, which it does in the routine conduct of its business. Option contracts for the purchase of land permit the Company to defer acquiring portions of properties owned by third parties and certain unconsolidated partnerships until the Company is ready to build homes on them. The use of option contracts allows the Company to reduce the financial risk of adverse market conditions associated with long-term land holdings. At November 30, 2003, the Company had access to acquire approximately 135,000 homesites through option contracts and unconsolidated partnerships. At November 30, 2003, the Company had $220.6 million of non-refundable option deposits and advanced costs on real estate related to certain of these homesites.

The Company has entered into agreements to lease certain office facilities and equipment under operating leases. Future minimum payments under the noncancelable leases are as follows: 2004—$48.0 million; 2005—$38.2 million; 2006—$31.0 million; 2007—$24.3 million; 2008—$16.3 million and thereafter—$34.9 million. Rental expense for the years ended November 30, 2003, 2002 and 2001 was $63.2 million, $55.0 million and $42.3 million, respectively.

The Company is committed, under various letters of credit, to perform certain development and construction activities and provide certain guarantees in the normal course of business. Outstanding letters of credit under these arrangements totaled $627.9 million at November 30, 2003. The Company also had outstanding performance and surety bonds with estimated costs to complete of $1.0 billion related principally to its obligations for site improvements at various projects at November 30, 2003. The Company does not believe that draws upon these bonds, if any, will have a material effect on the Company’s financial position, results of operations or cash flows.

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LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

17.    Supplemental Financial Information

As discussed in Note 7, the Company’s obligations to pay principal, premium, if any, and interest under certain debt instruments are guaranteed on a joint and several basis by substantially all of the Company’s subsidiaries, other than subsidiaries primarily engaged in mortgage and title reinsurance activities. The guarantees are full and unconditional and the guarantor subsidiaries are 100% directly or indirectly owned by Lennar Corporation. The Company has determined that separate, full financial statements of the guarantors would not be material to investors and, accordingly, supplemental financial information for the guarantors is presented.

Consolidating Balance Sheet

November 30, 2003

	Lennar Corporation			Guarantor Subsidiaries	Non-Guarantor Subsidiaries		Eliminations		Total
	(In thousands)
ASSETS
Homebuilding:
Cash and receivables, net	$	895,715		365,953	—		—		1,261,668
Inventories		—		3,649,493	6,608		—		3,656,101
Investments in unconsolidated partnerships		16,346		373,988	—		—		390,334
Other assets		99,614		351,005	—		—		450,619
Investments in subsidiaries		3,541,747		390,722	—		(3,932,469	)	—
		4,553,422		5,131,161	6,608		(3,932,469	)	5,758,722
Financial services		—		16,285	1,000,425		—		1,016,710
Total assets	$	4,553,422		5,147,446	1,007,033		(3,932,469	)	6,775,432
LIABILITIES AND STOCKHOLDERS’ EQUITY
Homebuilding:
Accounts payable and other liabilities	$	325,695		715,041	225		—		1,040,961
Liabilities related to consolidated inventory not owned		—		45,214	—		—		45,214
Senior notes and other debts payable, net		1,476,860		75,357	—		—		1,552,217
Intercompany		(512,907	)	762,867	(249,960	)	—		—
		1,289,648		1,598,479	(249,735	)	—		2,638,392
Financial services		—		7,220	866,046		—		873,266
Total liabilities		1,289,648		1,605,699	616,311		—		3,511,658
Stockholders’ equity		3,263,774		3,541,747	390,722		(3,932,469	)	3,263,774
Total liabilities and stockholders’ equity	$	4,553,422		5,147,446	1,007,033		(3,932,469	)	6,775,432

59

LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Consolidating Balance Sheet

November 30, 2002

	Lennar Corporation			Guarantor Subsidiaries	Non-Guarantor Subsidiaries		Eliminations		Total
	(In thousands)
ASSETS
Homebuilding:
Cash and receivables, net	$	622,019		157,566	10		—		779,595
Inventories		—		3,231,015	6,562		—		3,237,577
Investments in unconsolidated partnerships		—		285,594	—		—		285,594
Other assets		84,122		273,616	—		—		357,738
Investments in subsidiaries		2,584,512		302,655	—		(2,887,167	)	—
		3,290,653		4,250,446	6,572		(2,887,167	)	4,660,504
Financial services		—		35,933	1,074,241		(15,045	)	1,095,129
Total assets	$	3,290,653		4,286,379	1,080,813		(2,902,212	)	5,755,633
LIABILITIES AND STOCKHOLDERS’ EQUITY
Homebuilding:
Accounts payable and other liabilities	$	333,746		635,842	222		(31	)	969,779
Senior notes and other debts payable, net		1,478,821		121,502	—		(15,014	)	1,585,309
Intercompany		(751,071	)	931,951	(180,880	)	—		—
		1,061,496		1,689,295	(180,658	)	(15,045	)	2,555,088
Financial services		—		12,572	958,816		—		971,388
Total liabilities		1,061,496		1,701,867	778,158		(15,045	)	3,526,476
Stockholders’ equity		2,229,157		2,584,512	302,655		(2,887,167	)	2,229,157
Total liabilities and stockholders’ equity	$	3,290,653		4,286,379	1,080,813		(2,902,212	)	5,755,633

60

LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Consolidating Statement of Earnings

Year Ended November 30, 2003

	Lennar Corporation			Guarantor Subsidiaries	Non-Guarantor Subsidiaries	Eliminations		Total
	(In thousands)
Revenues:
Homebuilding	$	—		8,348,645	—	—		8,348,645
Financial services		—		12,726	558,282	(12,034	)	558,974
Total revenues		—		8,361,371	558,282	(12,034	)	8,907,619
Costs and expenses:
Homebuilding		—		7,291,417	561	(3,622	)	7,288,356
Financial services		—		11,549	401,384	(8,412	)	404,521
Corporate general and administrative		111,488		—	—	—		111,488
Total costs and expenses		111,488		7,302,966	401,945	(12,034	)	7,804,365
Equity in earnings from unconsolidated partnerships		—		81,937	—	—		81,937
Management fees and other income, net		—		21,863	—	—		21,863
Earnings (loss) before income taxes		(111,488	)	1,162,205	156,337	—		1,207,054
Provision (benefit) for income taxes		(42,084	)	438,732	59,015	—		455,663
Equity in earnings (losses) from subsidiaries		820,795		97,322	—	(918,117	)	—
Net earnings (loss)	$	751,391		820,795	97,322	(918,117	)	751,391

Consolidating Statement of Earnings

Year Ended November 30, 2002

	Lennar Corporation			Guarantor Subsidiaries	Non-Guarantor Subsidiaries	Eliminations		Total
	(In thousands)
Revenues:
Homebuilding	$	—		6,751,295	6	—		6,751,301
Financial services		—		66,577	420,604	(2,962	)	484,219
Total revenues		—		6,817,872	420,610	(2,962	)	7,235,520
Costs and expenses:
Homebuilding		—		5,995,607	564	(2,962	)	5,993,209
Financial services		—		54,434	302,174	—		356,608
Corporate general and administrative		85,958		—	—	—		85,958
Total costs and expenses		85,958		6,050,041	302,738	(2,962	)	6,435,775
Equity in earnings from unconsolidated partnerships		—		42,651	—	—		42,651
Management fees and other income, net		—		33,313	—	—		33,313
Earnings (loss) before income taxes		(85,958	)	843,795	117,872	—		875,709
Provision (benefit) for income taxes		(32,391	)	318,533	44,438	—		330,580
Equity in earnings (losses) from subsidiaries		598,696		73,434	—	(672,130	)	—
Net earnings (loss)	$	545,129		598,696	73,434	(672,130	)	545,129

61

LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Consolidating Statement of Earnings

Year Ended November 30, 2001

	Lennar Corporation			Guarantor Subsidiaries	Non-Guarantor Subsidiaries	Eliminations		Total
	(In thousands)
Revenues:
Homebuilding	$	—		5,554,743	4	—		5,554,747
Financial services		—		55,146	370,208	—		425,354
Total revenues		—		5,609,889	370,212	—		5,980,101
Costs and expenses:
Homebuilding		—		4,933,528	543	—		4,934,071
Financial services		—		62,358	273,865	—		336,223
Corporate general and administrative		75,831		—	—	—		75,831
Total costs and expenses		75,831		4,995,886	274,408	—		5,346,125
Equity in earnings from unconsolidated partnerships		—		27,051	—	—		27,051
Management fees and other income, net		—		18,396	—	—		18,396
Earnings (loss) before income taxes		(75,831	)	659,450	95,804	—		679,423
Provision (benefit) for income taxes		(27,829	)	253,888	35,519	—		261,578
Equity in earnings (losses) from subsidiaries		465,847		60,285	—	(526,132	)	—
Net earnings (loss)	$	417,845		465,847	60,285	(526,132	)	417,845

62

LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Consolidating Statement of Cash Flows

Year Ended November 30, 2003

	Lennar Corporation			Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations		Total
	(In thousands)
Cash flows from operating activities:
Net earnings (loss)	$	751,391		820,795		97,322		(918,117	)	751,391
Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities		(789,215	)	(457,339	)	172,859		903,103		(170,592	)
Net cash provided by (used in) operating activities		(37,824	)	363,456		270,181		(15,014	)	580,799
Cash flows from investing activities:
(Increase) decrease in investments in unconsolidated partnerships, net		(16,346	)	88,419		—		—		72,073
Acquisitions, net of cash acquired		—		(149,212	)	(10,177	)	—		(159,389	)
Other		(9,177	)	(6,662	)	(15,042	)	—		(30,881	)
Net cash used in investing activities		(25,523	)	(67,455	)	(25,219	)	—		(118,197	)
Cash flows from financing activities:
Net borrowings (repayments) under revolving credit facilities and other borrowings		(95,237	)	(106,083	)	228		15,014		(186,078	)
Net proceeds from issuance of 5.95% senior notes		341,730		—		—		—		341,730
Net repayments under financial services short-term debt		—		—		(118,989	)	—		(118,989	)
Common stock:
Issuance		18,197		—		—		—		18,197
Repurchases		(1,044	)	—		—		—		(1,044	)
Dividends and other		(22,705	)	—		—		—		(22,705	)
Intercompany		94,746		7,882		(102,628	)	—		—
Net cash provided by (used in) financing activities		335,687		(98,201	)	(221,389	)	15,014		31,111
Net increase in cash		272,340		197,800		23,573		—		493,713
Cash at beginning of year		621,163		109,995		46,001		—		777,159
Cash at end of year	$	893,503		307,795		69,574		—		1,270,872

63

LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Consolidating Statement of Cash Flows

Year Ended November 30, 2002

	Lennar Corporation			Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations		Total
	(In thousands)
Cash flows from operating activities:
Net earnings (loss)	$	545,129		598,696		73,434		(672,130	)	545,129
Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities		(500,149	)	(299,043	)	(198,513	)	657,144		(340,561	)
Net cash provided by (used in) operating activities		44,980		299,653		(125,079	)	(14,986	)	204,568
Cash flows from investing activities:
Decrease in investments in unconsolidated partnerships, net		—		57,891		11		—		57,902
Acquisitions, net of cash acquired		—		(415,607	)	(8,670	)	—		(424,277	)
Other		(1,759	)	3,382		(925	)	—		698
Net cash used in investing activities		(1,759	)	(354,334	)	(9,584	)	—		(365,677	)
Cash flows from financing activities:
Net borrowings (repayments) under revolving credit facilities and other borrowings		(6,806	)	(119,635	)	259		14,986		(111,196	)
Net borrowings under financial services short-term debt		—		—		156,120		—		156,120
Common stock:
Issuance		19,317		—		—		—		19,317
Repurchases		(65	)	—		—		—		(65	)
Dividends		(3,182	)	—		—		—		(3,182	)
Intercompany		(141,647	)	170,593		(28,946	)	—		—
Net cash provided by (used in) financing activities		(132,383	)	50,958		127,433		14,986		60,994
Net decrease in cash		(89,162	)	(3,723	)	(7,230	)	—		(100,115	)
Cash at beginning of year		710,325		113,718		53,231		—		877,274
Cash at end of year	$	621,163		109,995		46,001		—		777,159

64

LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Consolidating Statement of Cash Flows

Year Ended November 30, 2001

	Lennar Corporation			Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations		Total
	(In thousands)
Cash flows from operating activities:
Net earnings (loss)	$	417,845		465,847		60,285		(526,132	)	417,845
Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities		(393,618	)	(217,936	)	(273,227	)	526,132		(358,649	)
Net cash provided by (used in) operating activities		24,227		247,911		(212,942	)	—		59,196
Cash flows from investing activities:
Decrease in investments in unconsolidated partnerships, net		—		5,582		19		—		5,601
Other		17		(7,913	)	4,158		—		(3,738	)
Net cash provided by (used in) investing activities		17		(2,331	)	4,177		—		1,863
Cash flows from financing activities:
Net borrowings (repayments) under revolving credit facilities and other borrowings		219,974		(21,385	)	1,499		—		200,088
Net borrowings under financial services short-term debt		—		—		265,607		—		265,607
Common stock:
Issuance		19,789		—		—		—		19,789
Dividends		(3,146	)	—		—		—		(3,146	)
Intercompany		243,681		(198,242	)	(45,439	)	—		—
Net cash provided by (used in) financing activities		480,298		(219,627	)	221,667		—		482,338
Net increase in cash		504,542		25,953		12,902		—		543,397
Cash at beginning of year		205,783		87,765		40,329		—		333,877
Cash at end of year	$	710,325		113,718		53,231		—		877,274

65

LENNAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

18.    Quarterly Data (unaudited)

	First		Second	Third	Fourth
	(In thousands, except per share amounts)
2003
Revenues	$	1,600,470	2,103,108	2,267,842	2,936,199
Earnings before provision for income taxes	$	170,792	257,534	323,819	454,909
Net earnings	$	106,318	160,315	201,577	283,181
Earnings per share:
Basic	$	0.75	1.13	1.35	1.81
Diluted	$	0.68	1.02	1.21	1.69
2002
Revenues	$	1,236,901	1,549,484	1,847,952	2,601,183
Earnings before provision for income taxes	$	115,487	170,293	228,464	361,465
Net earnings	$	71,891	106,007	142,219	225,012
Earnings per share:
Basic	$	0.52	0.76	1.01	1.60
Diluted	$	0.47	0.68	0.91	1.44

Quarterly and year-to-date computations of per share amounts are made independently. Therefore, the sum of per share amounts for the quarters may not agree with per share amounts for the year. All earnings per share amounts were adjusted for the Company’s April 2003 10% Class B stock distribution and the January 2004 two-for-one stock split.

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Item 9.    Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

Not applicable.

Item 9a.    Controls and Procedures.

Our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) participated in an evaluation by our management of the effectiveness of our disclosure controls and procedures as of the end of our fiscal quarter that ended on November 30, 2003. Based on their participation in that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of November 30, 2003 to ensure that required information is disclosed on a timely basis in our reports filed under the Securities Exchange Act.

Our CEO and CFO also participated in an evaluation by our management of any changes in our internal control over financial reporting that occurred during the quarter ended November 30, 2003. That evaluation did not identify any changes that have materially affected, or are likely to materially affect, our internal control over financial reporting.

PART III

Item 10.    Directors and Executive Officers of the Registrant.

Information about our directors and their compliance with the reporting requirements of Section 16(a) of the Securities Exchange Act of 1934 is incorporated by reference to our definitive proxy statement, which will be filed with the Securities and Exchange Commission not later than March 29, 2004 (120 days after the end of our fiscal year). The following people were our executive officers on February 4, 2004:

Name/Position	Age	Year of Election
Stuart A. Miller, President and Chief Executive Officer	46	1997
Robert J. Strudler, Vice Chairman and Chief Operating Officer	61	2000
Bruce E. Gross, Vice President and Chief Financial Officer	45	1997
Marshall H. Ames, Vice President	60	1982
Diane J. Bessette, Vice President and Controller	43	1997
Benjamin P. Butterfield, General Counsel and Secretary	44	2003
Jonathan M. Jaffe, Vice President	44	1994
Craig M. Johnson, Vice President, Community Development	50	2000
Waynewright E. Malcolm, Vice President and Treasurer	40	1997
David B. McCain, Vice President	43	1998
Allan J. Pekor, Vice President	67	1997

The year of election represents the year that the executive officer was elected to his or her current position.

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Mr. Stuart Miller has been our President and Chief Executive Officer since April 1997 and is one of our Directors. Prior to that, Mr. Miller held various executive positions with us and had been a Vice President since 1985. Mr. Miller is also the Chairman of the Board of LNR Property Corporation.

Mr. Strudler has been Vice Chairman of the Board of Directors and Chief Operating Officer since May 2000. Prior to that, Mr. Strudler was the Chairman and Co-Chief Executive Officer of U.S. Home Corporation.

Mr. Gross has been a Vice President and our Chief Financial Officer since 1997. Prior to that, Mr. Gross was employed as Senior Vice President, Controller and Treasurer of Pacific Greystone Corporation.

Mr. Ames has been a Vice President since 1982 and has been responsible for Investor Relations since 2000.

Ms. Bessette has been employed by us since 1995, has been our Controller since 1997 and became a Vice President in 2000.

Mr. Butterfield joined us in 2003 as General Counsel and Secretary. Prior to joining us, Mr. Butterfield had served, since 1996, as General Counsel and Secretary of Hughes Supply, Inc.

Mr. Jaffe has been a Vice President since 1994 and serves as a Regional President in our Homebuilding Division. Mr. Jaffe is one of our Directors.

Mr. Johnson has been a Vice President since May 2000. Mr. Johnson served as President of Strategic Technologies, Inc. from 2001 through 2003. Prior to that, Mr. Johnson was a Senior Vice President of U.S. Home Corporation.

Mr. Malcolm joined us as Treasurer in 1997 and became a Vice President in 2000.

Mr. McCain joined us in 1998 as a Vice President, General Counsel and Secretary. In 2003, Mr. McCain was appointed President and Chief Executive Officer of Lennar Financial Services, LLC.

Mr. Pekor has held various executive positions with us since 1979. Mr. Pekor served as President of Lennar Financial Services, LLC from 1997 through 2003. In 2003, Mr. Pekor was elected Chairman of the Board of Directors of Lennar Financial Services, LLC.

Audit Committee Expert

Our Board has a separately-designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended. The members of the Audit Committee are R. Kirk Landon (Chairman), Steven L. Gerard and Irving Bolotin. The Board has determined that Steven L. Gerard is an audit committee financial expert, as that term is defined in Item 401(h) of SEC Regulation S-K, and that he is independent, as that term is defined in Item 7(d)(3)(iv) of SEC Schedule 14A.

Code of Ethics

We have a Code of Business Conduct and Ethics that applies to our directors, officers and employees, including our principal executive officer, principal financial officer and principal accounting officer. This Code is available on our website at www.lennar.com. Stockholders may obtain a free copy of the Code by addressing a request to:

Lennar Corporation

Attention: Investor Relations

700 Northwest 107^th Avenue

Miami, Florida 33172

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Corporate Governance Guidelines and Charters

Our Corporate Governance Guidelines, and the charters of the Audit Committee, the Compensation Committee and the Nominating/Corporate Governance Committee of our Board of Directors, are all available on our website at www.lennar.com. Stockholders may obtain a free copy of the Corporate Governance Guidelines or any of the charters by addressing a request to:

Lennar Corporation

Attention: Investor Relations

700 Northwest 107^th Avenue

Miami, Florida 33172

NYSE Annual Certification

Stuart A. Miller, our Chief Executive Officer, has certified to the New York Stock Exchange that, as of February 27, 2004 (the date of the certification), he was not aware of any violation by us of the NYSE’s corporate governance listing standards.

Item 11.    Executive Compensation.

The information called for by this item is incorporated by reference to our definitive proxy statement, which will be filed with the Securities and Exchange Commission not later than March 29, 2004 (120 days after the end of our fiscal year).

Item 12.    Security Ownership of Certain Beneficial Owners and Management.

The information called for by this item is incorporated by reference to our definitive proxy statement, which will be filed with the Securities and Exchange Commission not later than March 29, 2004 (120 days after the end of our fiscal year).

Item 13.    Certain Relationships and Related Transactions.

The information called for by this item is incorporated by reference to our definitive proxy statement, which will be filed with the Securities and Exchange Commission not later than March 29, 2004 (120 days after the end of our fiscal year).

Item 14.    Principal Accountant Fees and Services.

The information called for by this item is incorporated by reference to our definitive proxy statement, which will be filed with the Securities and Exchange Commission not later than March 29, 2004 (120 days after the end of our fiscal year).

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PART IV

Item 15.    Exhibits, Financial Statement Schedules and Reports on Form 8-K.

(a) Documents filed as part of this Report.

1. The following financial statements are contained in Item 8:

Financial Statements	Page in this Report
Independent Auditors’ Report	29
Consolidated Balance Sheets as of November 30, 2003 and 2002	30
Consolidated Statements of Earnings for the Years Ended November 30, 2003, 2002 and 2001	31
Consolidated Statements of Stockholders’ Equity for the Years Ended November 30, 2003, 2002 and 2001	32
Consolidated Statements of Cash Flows for the Years Ended November 30, 2003, 2002 and 2001	34
Notes to Consolidated Financial Statements	36

2. The following financial statement schedule is included in this Report:

Financial Statement Schedule	Page in this Report
Independent Auditors’ Report	74
Schedule II—Valuation and Qualifying Accounts	75

Information required by other schedules has either been incorporated in the consolidated financial statements and accompanying notes or is not applicable to us.

3. The following exhibits are filed with this Report or incorporated by reference:

3(a).	Amended and Restated Certificate of Incorporation, dated April 28, 1998—Incorporated by reference to Exhibit 3(a) to the Annual Report on Form 10-K for the fiscal year ended November 30, 1998.
3(b).	Certificate of Amendment to Certificate of Incorporation, dated April 9, 1999—Incorporated by reference to Exhibit 3(a) to the Annual Report on Form 10-K for the fiscal year ended November 30, 1999.
3(c).	Certificate of Amendment to Certificate of Incorporation, dated April 8, 2003— Incorporated by reference to Annex IV to the Schedule 14A dated March 10, 2003.
3(d).	Bylaws—Incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K dated November 17, 1997, file number 1-06643.
3(e).	Amended and Restated Bylaws, dated February 16, 2004.
4(a).	Indenture, dated as of December 31, 1997, between Lennar Corporation and Bank One Trust Company, N.A., as successor in interest to The First National Bank of Chicago, as trustee—Incorporated by Reference to Registration Statement No. 333-45527.
4(b).	Second Supplemental Indenture, dated as of February 19, 1999, between Lennar Corporation and Bank One Trust Company, N.A., as successor in interest to The First National Bank of Chicago, as trustee (relating to Lennar’s 7 5/8% Senior Notes due 2009)—Incorporated by reference to the Current Report on Form 8-K dated February 19, 1999, file number 1-11749.
4(c).	Third Supplemental Indenture, dated May 3, 2000, by and among Lennar Corporation and Bank One Trust Company, N.A., as successor trustee to The First National Bank of Chicago (relating to Lennar’s 7 5/8% Senior Notes due 2009)—Incorporated by reference to the Annual Report on Form 10-K for the fiscal year ended November 30, 2000.

70

4(d).	Fifth Supplemental Indenture, dated April 4, 2001, by and among Lennar Corporation and Bank One Trust Company, N.A., as trustee (relating to Lennar’s Zero Coupon Convertible Senior Subordinated Notes due 2021)—Incorporated by reference to the Current Report on Form 8-K dated April 4, 2001, file number 1-11749.
4(e).	Indenture, dated May 3, 2000, by and among Lennar Corporation and Bank One Trust Company, N.A., as trustee, relating to 9.95% Senior Notes due 2010—Incorporated by reference to Registration Statement No. 333-41316.
10(a).	Lennar Corporation 2000 Stock Option and Restricted Stock Plan—Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended February 28, 2001.
10(b).	Amended and Restated Lennar Corporation 1997 Stock Option Plan—Incorporated by reference to the Annual Report on Form 10-K for the fiscal year ended November 30, 1997.
10(c).	Lennar Corporation 1991 Stock Option Plan—Incorporated by reference to Registration Statement No. 33-45442.
10(d).	Lennar Corporation Employee Stock Ownership Plan and Trust—Incorporated by reference to Registration Statement No. 2-89104.
10(e).	Amendment dated December 13, 1989 to Lennar Corporation Employee Stock Ownership Plan—Incorporated by reference to the Annual Report on Form 10-K for the fiscal year ended November 30, 1990.
10(f).	Lennar Corporation Employee Stock Ownership/401(k) Trust Agreement dated December 13, 1989—Incorporated by reference to the Annual Report on Form 10-K for the fiscal year ended November 30, 1990.
10(g).	Amendment dated April 18, 1990 to Lennar Corporation Employee Stock Ownership/401(k) Plan—Incorporated by reference to the Annual Report on Form 10-K for the fiscal year ended November 30, 1990.
10(h).	Separation and Distribution Agreement, dated June 10, 1997, between Lennar Corporation and LNR Property Corporation—Incorporated by reference to Registration Statement No. 333-35671.
10(i).	Credit Agreement, dated October 31, 1997, by and among Lennar Land Partners and the Lenders named therein—Incorporated by reference to the Annual Report on Form 10-K for the fiscal year ended November 30, 1997.
10(j).	Credit Agreement, dated May 3, 2000, among Lennar Corporation and various lenders—Incorporated by reference to the Annual Report on Form 10-K for the fiscal year ended November 30, 2000.
10(k).	First Amended and Restated Warehousing Credit and Security Agreement dated October 23, 2003, between Universal American Mortgage Company, LLC, Eagle Home Mortgage, Inc., Ameristar Financial Services, Inc., Universal American Mortgage Company of California, UAMC Asset Corp. II and Residential Funding Corporation.
10(l).	Lennar Corporation Nonqualified Deferred Compensation Plan—Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended August 31, 2002.
10(m).	Second Amended and Restated Credit Agreement, dated May 30, 2003 among Lennar Corporation and various lenders.
10(n).	Lennar Corporation 2003 Stock Option and Restricted Stock Plan—Incorporated by reference to Annex VI to the Schedule 14A dated March 10, 2003.
10(o).	Agreement and Plan of Merger dated July 21, 2003, by and among The Newhall Land and Farming Company, Lennar Corporation, LNR Property Corporation, NWHL Investment LLC and NWHL Acquisition, L.P.—Incorporated by reference to the Current Report on Form 8-K dated January 27, 2004.
10(p).	Parent Company Guarantee dated January 27, 2004 by Lennar Corporation and LNR Property Corporation in favor of Bank One, NA, for the benefit of the lenders under the Credit Agreement referred to therein.

71

10(q).	Loan Agreement dated May 23, 2003 between UAMC Capital, LLC and lenders named therein.
10(r).	Extension Agreement dated August 26, 2003 between Lennar Corporation and LNR Property Corporation, related to exhibit 10(h) above.
21.	List of subsidiaries.
23.	Independent Auditors’ Consent.
31.1	Certification by Stuart A. Miller, President and Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification by Bruce E. Gross, Vice President and Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.	Certification by Stuart A. Miller, President and Chief Executive Officer, and Bruce E. Gross, Vice President and Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.	Financial statements of Lennar Corporation’s affiliates whose securities collateralize Lennar’s 5.125% zero-coupon convertible senior subordinated notes due 2021, Lennar’s 7 5/8% Senior Notes due 2009 and Lennar’s Credit Facilities.

(b) Current Reports on Form 8-K filed during the quarter ended November 30, 2003.

(1) Report dated November 26, 2003, relating to the transfer to a newly formed entity, of which Lennar and LNR will each own 50%, our respective 50% interests in six jointly-owned entities at their book value.

(2) Report dated September 24, 2003, furnishing certain reclassifications for our homebuilding results, which had no impact on reported net earnings.

(3) Report dated September 16, 2003, furnishing information relating to a press release containing information about our results of operations for the third fiscal quarter, which ended on August 31, 2003.

(4) Report dated September 8, 2003, furnishing information relating to a press release stating that The Newhall Land and Farming Company (“Newhall Land”) had filed with the Securities and Exchange Commission a preliminary proxy statement relating to a meeting of Newhall Land’s unitholders for the purpose of voting upon the previously announced acquisition of Newhall Land by a Lennar/LNR Property Corporation joint venture.

(c) The exhibits to this Report are listed in Item 15(a)3.

(d) The financial statement schedules required by Regulation S-X which are excluded from the Annual Report to Stockholders as permitted by Rule 14a-3(b)(1) are listed in Item 15(a)2.

72

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, we have duly caused this Report to be signed on our behalf by the undersigned, thereunto duly authorized.

LENNAR CORPORATION
By:	/s/    STUART A. MILLER
	Stuart A. Miller President, Chief Executive Officer and Director

Date: February 27, 2004

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on our behalf and in the capacities and on the dates indicated:

Principal Executive Officer:
/s/    STUART A. MILLER         Stuart A. Miller	President, Chief Executive Officer and Director	February 27, 2004
Principal Financial Officer:
/s/    BRUCE E. GROSS         Bruce E. Gross	Vice President and Chief Financial Officer	February 27, 2004
Principal Accounting Officer:
/s/    DIANE J. BESSETTE         Diane J. Bessette	Vice President and Controller	February 27, 2004
Directors:
/s/    IRVING BOLOTIN         Irving Bolotin		February 27, 2004
/s/    STEVEN L. GERARD         Steven L. Gerard		February 27, 2004
/s/    JONATHAN M. JAFFE         Jonathan M. Jaffe		February 27, 2004
/s/    R. KIRK LANDON         R. Kirk Landon		February 27, 2004
/s/    SIDNEY LAPIDUS         Sidney Lapidus		February 27, 2004
/s/    HERVÉ RIPAULT         Hervé Ripault		February 27, 2004
/s/    STEVEN J. SAIONTZ         Steven J. Saiontz		February 27, 2004
/s/    DONNA SHALALA         Donna Shalala		February 27, 2004
/s/    ROBERT J. STRUDLER         Robert J. Strudler		February 27, 2004

73

INDEPENDENT AUDITORS’ REPORT

To the Board of Directors and Stockholders of

Lennar Corporation:

We have audited the consolidated financial statements of Lennar Corporation and subsidiaries (the “Company”) as of November 30, 2003 and 2002 and for each of the three years in the period ended November 30, 2003, and have issued our report thereon dated February 27, 2004; such financial statements and report are included elsewhere in this Form 10-K. Our audits also included the financial statement schedule of the Company, listed in Item 15(a)2. The financial statement schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

/s/    DELOITTE & TOUCHE LLP

Certified Public Accountants

Miami, Florida

February 27, 2004

74

LENNAR CORPORATION AND SUBSIDIARIES

Schedule II—Valuation and Qualifying Accounts

Years Ended November 30, 2003, 2002 and 2001

			Additions
Description	Beginning balance		Charged to costs and expenses	Charged to other accounts	Deductions		Ending balance
Year ended November 30, 2003
Allowances deducted from assets to which they apply:
Allowances for doubtful accounts and notes receivable	$	3,166,000	1,858,000	13,000	(2,949,000	)	2,088,000
Deferred income and unamortized discounts	$	8,613,000	—	5,353,000	(10,491,000	)	3,475,000
Loan loss reserve	$	3,001,000	—	—	(28,000	)	2,973,000
Valuation allowance	$	76,000	—	41,000	—		117,000
Deferred tax asset valuation allowance	$	6,978,000	—	—	(6,978,000	)	—
Year ended November 30, 2002
Allowances deducted from assets to which they apply:
Allowances for doubtful accounts and notes receivable	$	4,755,000	1,602,000	260,000	(3,451,000	)	3,166,000
Deferred income and unamortized discounts	$	4,641,000	6,156,000	20,000	(2,204,000	)	8,613,000
Loan loss reserve	$	4,065,000	190,000	—	(1,254,000	)	3,001,000
Valuation allowance	$	1,259,000	71,000	—	(1,254,000	)	76,000
Deferred tax asset valuation allowance	$	7,117,000	—	—	(139,000	)	6,978,000
Year ended November 30, 2001
Allowances deducted from assets to which they apply:
Allowances for doubtful accounts and notes receivable	$	5,188,000	2,368,000	—	(2,801,000	)	4,755,000
Deferred income and unamortized discounts	$	8,345,000	7,000	254,000	(3,965,000	)	4,641,000
Loan loss reserve	$	3,645,000	655,000	9,000	(244,000	)	4,065,000
Valuation allowance	$	1,377,000	—	—	(118,000	)	1,259,000
Deferred tax asset valuation allowance	$	7,117,000	—	—	—		7,117,000

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EX-3.5

EXHIBIT 3(e)

LENNAR CORPORATION

AMENDED AND RESTATED

BYLAWS

(February 16, 2004)

ARTICLE I

Offices

Section 1. Principal Office. The principal office of the Corporation shall be located in the City of Wilmington, County of New Castle, State of Delaware, and the name of the resident agent in charge thereof shall be The Corporation Trust Company.

Section 2. Other Offices. The Corporation may also have offices at such other places, within or outside of the State of Delaware, as the Board of Directors may from time to time appoint or the business of the Corporation may require.

ARTICLE II

Seal

The corporate seal shall be circular in form and shall contain the name of the Corporation, the year of its organization and the words “Corporate Seal, Delaware”.

ARTICLE III

Meeting of Stockholders

Section 1. Place of Meeting. All meetings of stockholders for the election of Directors shall be held at Miami, Florida, provided that at least ten (10) days’ notice must be given to the stockholders entitled to vote thereat of the place so fixed. All other meetings of the stockholders shall be held at such place or places, within or without the State of Delaware, as may from time to time be fixed by the Board of Directors, or as shall be specified in the respective notices or waivers of notice thereof.

Section 2. Annual Meetings. The Annual Meeting of Stockholders shall be held on the first Tuesday after the first Monday in the month of April of each year after 1997 if not a legal holiday, and if a legal holiday then on the next day following, at 11:00 A.M., at which meeting the holders of shares of Common Stock shall elect Directors and transact such other business as may properly be brought before the meeting. Stockholders shall not be entitled to vote cumulatively in the election of Directors.

The Board of Directors shall have the authority to postpone the Annual Meeting of Stockholders, subject, however, to the requirements of Section 3 of Article VIII of these Bylaws.

Section 3. Special Meetings. Special meetings of stockholders for any purpose or purposes may be called by the President or by the Directors (either by written instrument signed by majority or by resolution adopted by a vote of the majority), and special meetings shall be called by the President or the Secretary whenever stockholders owning a majority of any class of capital stock issued, outstanding and entitled to vote at such meeting so request in writing. Such request shall state the purpose or purposes of the proposed meeting.

Section 4. Notice. Written or printed notice of every meeting of stockholders, annual or special, stating the time and place thereof, and, if a special meeting, the purpose or purposes in general terms for which the meeting is called, shall not less than ten (10) days before such meeting be served upon or mailed to each stockholder entitled to vote thereat, at his address as it appears upon the books of the Corporation or, if such stockholder shall have filed with the Secretary of the Corporation a written request that notices intended for him be mailed to some other address, then to the address designated in such request.

Notice of the time, place and/or purpose of any meeting of stockholders may be dispensed with if every stockholder entitled to vote thereat shall attend either in person or by proxy, or if every absent stockholder entitled to such notice shall in writing, filed with the records of the meeting, either before or after the holder thereof, waive such notice.

Section 5. Quorum. Except as otherwise provided by law or by the Certificate of Incorporation or by these Bylaws, the presence in person or by proxy at any meeting of stockholders of the holders of a majority in voting power, but not less than one-third in number, of the shares of the capital stock of the Corporation issued and outstanding and entitled to vote thereat, shall be requisite and shall constitute a quorum. In the event that any business to be transacted at such meeting requires the affirmative vote of any class of stock of the Corporation, the presence in person or by proxy at such meeting of the holders of a majority in voting power of the issued and outstanding shares of stock of such class shall be requisite and shall constitute a quorum of the shares of that class, except where otherwise provided by law or the Certificate of Incorporation. If, however, such majority in voting power or one-third in number of the shares of the capital stock of the Corporation or such majority in voting power of the shares of a class, as the case may be, shall not be represented at any meeting of the stockholders regularly called, the holders of a majority in voting power of the shares, or a majority in voting power of the shares of the class, as the case may be, present or represented and entitled to vote thereat shall have the power to adjourn the meeting to another time, or to another time and place, without notice other than announcement of adjournment at the meeting, and there may be successive adjournments for like cause and in like manner until the requisite amount of shares entitled to vote at such meeting shall be represented. At such adjourned meeting at which the requisite amount of shares entitled to vote thereat shall be represented, any business may be transacted which might have been transacted at the meeting as originally notified.

Section 6. Votes, Proxies. Except as otherwise provided Certificate of Incorporation, at each meeting of stockholder every holder of record of shares of Common Stock at the closing of the transfer books, if closed, or on the date set by the Board of Directors for the determination of stockholders entitled to vote at such meeting, shall have one vote for each share of Common Stock registered in his name on the books of the Corporation. At each such meeting every stockholder entitled to vote may vote in person, or by proxy appointed by an Instrument in writing subscribed by such stockholder and bearing a date not more than three years prior to the meeting in question, unless said instrument provides for a longer period during which it is to remain in force.

All elections of Directors shall be held by ballot. If the Chairman of the meeting shall so determine a vote may be taken upon any other matter by ballot and shall be so taken upon the request of any stockholder entitled to vote on such matter.

At elections of Directors the Chairman shall appoint two inspectors of election, who shall first take and subscribe an oath or affirmation faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of their ability and who shall take charge of the polls and after the balloting shall make a certificate of the result of the vote taken; but no Director or candidate for the office of Director shall be appointed as such inspector.

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Section 7. Organization. The Chairman of the Board or, in his absence or at his request, the President or, in the absence or at the request of both the Chairman of the Board and the President, a Vice President shall call meetings of the stockholders to order and shall act as chairman thereof. The Secretary of the Corporation, if present, shall act as secretary of all meetings of stockholders and, in his absence, the presiding officer may appoint a secretary.

ARTICLE IV

Directors

Section 1. Number. The business and property shall be conducted and managed by a Board consisting of not less than three, and not more than fifteen, Directors, none of whom need to be a stockholder. The Board of Directors of the Corporation shall initially be composed of nine Directors, but the Board may at any time by resolution increase or decrease the number of Directors, although the number may never be decreased to less than three, nor increased to more than fifteen, and the vacancies resulting from any such increase shall be filled as provided in Section 3 of this Article IV.

Section 2. Term of Office. The Board of Directors will be divided into three classes, each of which will have the highest whole number of directors obtained by dividing the number of directors, constituting the whole Board by three, with any additional Directors allocated, one to a class, to the classes designated by the Board of Directors. The Directors of each class will serve for a term of three years, and until their successors are elected and qualified, or, with regard to any Director until that Director’s earlier death or resignation, except that as to Directors elected at the first annual meeting of stockholders at which Directors are elected in classes, the term of Directors of one class will expire at the annual meeting of stockholders following the first annual meeting at which Directors are elected in classes and the term of Directors of a second class will expire at the second annual meeting of stockholders following the first annual meeting at which Directors are elected in classes. If at any time the number of Directors constituting the entire Board is increased and that increased number of directors is not evenly divisible by three, the Board of Directors may at the time of the increase determine to which class or classes to allocate the newly created directorships in excess of the number which makes the number of directors constituting the entire board evenly divisible by three.

Section 3. Vacancies. If any vacancy shall occur among the Directors, other than a vacancy resulting from removal of a Director, or if the number of Directors shall at any time be increased, the Directors in office, although less than a quorum, by a majority vote may fill the vacancy or newly created Directorships, or any such vacancy or newly created Directorships may be filled by the stockholders at any meeting. If a vacancy shall occur among the Directors because of the removal of a Director, that vacancy may only be filled by the stockholders at an annual meeting of stockholders. A person elected to fill a vacancy or newly created Directorship in any class or Directors will serve until the next election of the Directors of that class and until the person’s successor is elected and qualified.

Section 4. Removal by Stockholders. The holders of record of the common Stock of the Corporation may in their discretion at any meeting duly called for the purpose, by a majority vote, remove for cause any Director or Directors originally elected by them or remove for cause any Director or Directors who filled a vacancy or vacancies created by the death or registration of any Director or Directors originally elected by them.

Section 5. Meetings. Meetings of the Board of Directors shall be held at such place within or without the State of Delaware, as may from time to time be fixed by resolution of the Board or by the Chairman of the Board or the President and as may be specified in the notice or waiver of notice of any meeting. Meetings may be held at any time upon the call of the Chairman of the Board or of the

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President or of the Secretary or any two (2) of the Directors in office by oral, telegraphic, or written notice, duly served or sent or mailed to each Director not less than two days before such meeting. Meetings may be held at any time and place without notice if all the Directors are present or if those not present shall, in writing or by telegram, waive notice thereof. A regular meeting of the Board may be held without notice immediately following the annual meeting of stockholders at the place where such annual meeting is held. Regular meetings of the Board may also be held without notice at such time and place as shall from time to time be determined by resolution of the Board.

Section 6. Quorum. A majority of the Directors shall constitute a quorum for the transaction of business. If at any meeting of the Board there shall be less than a quorum present, a majority of those present may adjourn the meeting from time to time without notice other than announcement of the adjournment at the meeting, and at such adjourned meeting at which a quorum is present any business may be transacted which might have been transacted at the meeting as originally notified.

Section 7. Compensation. In the discretion of the Board of Directors, the Directors may be paid compensation for their services as Directors on an annual or other periodic basis or may be paid a fixed sum for attendance at meetings. The Board of Directors also may allow expenses of attendance, if any, at any regular or special meeting thereof. Nothing in this Section shall be construed to preclude a Director from serving the Corporation in any other capacity and receiving compensation therefor.

ARTICLE V

Executive Committee

Section 1. Executive Committee. The Board of Directors may appoint an Executive Committee of three or more members, to serve during the pleasure of the Board, to consist of such Directors as the Board may from time to time designate. The Chairman of the Executive Committee shall be designated by the Board of Directors.

Section 2. Procedure. The Executive Committee, by a vote of a majority of its members, shall fix its own times and places of meeting, shall determine the number of its members constituting a quorum for the transaction of business, and shall prescribe its own rules of procedure; no change in which shall be made save by a majority vote of its members.

Section 3. Powers. Except as otherwise provided by the Certificate of Incorporation or by law, during the intervals between the meetings of the Board of Directors, the Executive Committee shall possess and may exercise all the powers of the Board in the management and direction of the business and affairs of the Corporation, except that it shall not have the power (1) to declare dividends or other distributions to stockholders, (2) to elect officers of the Corporation, (3) to amend the Bylaws, (4) to increase or decrease the number of Directors, (5) to fill vacancies in the Board of Directors or newly created Directorships, (6) to authorize the sale or issuance of any stock of the Corporation, or (7) to negate any action of the Board of Directors.

Section 4. Reports. The Executive Committee shall keep regular minutes of its proceedings and all action by the Executive Committee shall be reported to the Board of Directors at its next meeting. Such action shall be subject to review, by the Board, provided that no rights of third parties shall be affected by such review.

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ARTICLE VI

Independent Directors Committee

*Pursuant to Article XIV, this Article was repealed in its entirety on November 30, 2002

Section 1. Independent Directors Committee. The Board of Directors shall appoint an Independent Directors Committee consisting of three or more Directors, none of whom in an officer or employee of the Corporation or of a subsidiary of the Corporation, and none of whom is a director, officer or employee of LPC, Inc., or a subsidiary of LPC, Inc. (each, an “Independent Directors”). The Chairman of the Independent Directors Committee shall be selected by the Committee.

Section 2. Procedure. All actions of the Independent Directors Committee will require the vote of a majority of the members present at a meeting at which a quorum is present. A quorum of the Independent Directors Committee will be a majority of its members. The Independent Directors Committee, by a vote of a majority of its members, shall fix its own times and places of meeting, and shall prescribe its own rules of procedure, no change in which shall be made save by majority vote of its members.

Section 3. Powers. The Corporation may not take any of the following actions, and the Board of Directors may not appear or authorize any of the following actions (if its approval or authorization is required), unless the action has been approved by the Independent Directors Committee:

(i) Instruct or permit the representatives of its subsidiary on the Executive Committee of Lennar Land Partners to vote or consent with regard to any item which requires the unanimous vote of that Executive Committee as provided in the Partnership Agreement of Lennar Land Partners without approval of the Independent Directors Committee.

(ii) Contribute, or permit any of its subsidiaries to contribute, any assets to Lennar Land Partners without the approval of the Independent Directors Committee (however, a recommendation by the Corporation or a subsidiary that Lennar Land Partners acquire a property from an unrelated person will not be deemed a contribution of that property by the Corporation or by the subsidiary and will not require the approval of the Independent Directors Committee) as provided in this section.

(iii) Exercise any option to purchase property from Lennar Land Partners unless the form of the option was approved by the Independent Directors Committee or re-set the exercise price of any such option unless the re-set exercise price was approved by the Independent Directors Committee.

(iv) Purchase any property or other assets from Lennar Land Partners (whether an exercise of an option or otherwise) in a transaction or series of related transactions as to which the purchase price to be paid by the Corporation or its subsidiary exceeds $10 million.

(v) Incur, or permit any of its subsidiaries to incur, guarantee or otherwise become obligated with regard to any indebtedness which will cause the Corporation and its subsidiaries to have a consolidated ratio of debt to tangible net worth which is more than 25:1 (computed as provided in the agreements governing the Corporation’s principal borrowing facility) or a ratio of earnings to fixed charges for the most recent

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twelve month period (computed as provided in Item 503 of Securities and Exchange Commission Regulation S-K, or any successor to that Item) which is less than 2:1.

(vi) Enter into, or permit any of its subsidiaries to enter into, any transactions with LPC, Inc. or any of its subsidiaries.

(vii) Agree to any amendment of, or give any waiver or consent under, a Separation and Distribution Agreement dated June 10, 1997, between the Corporation and LPC, Inc.

In order to enable the Independent Directors Committee to evaluate transactions which are subject to clause (iv), the President of the Corporation will report to the Independent Directors Committee with regard to exercises by the Corporation of options to purchase properties or other assets from Lennar Land Partners not less frequently than once each fiscal quarter, and in any event whenever the aggregate paid or to be paid by the Corporation or its subsidiaries with regard to exercises which were not previously reported exceeds $25 million.

Section 4. Minutes. The Independent Directors Committee shall keep regular minutes of its proceedings, which will be filed with the minutes of the meetings of the Board of Directors.

ARTICLE VII

Officers

Section 1. Officers. The Board of Directors shall elect, as executive officers, a President, a Vice President, a Secretary and a Treasurer, and in their discretion a Chairman of the Board, additional Vice Presidents and one or more Assistant Secretaries and Assistant Treasurers. Such officers shall be elected annually by the Board of Directors at its first meeting following the annual meeting of stockholders, and each shall hold office until the corresponding meeting of the Board in the next year and until his successor shall have been duly elected and qualified or until he shall have died or resigned or shall have been removed, in the manner provided herein. The powers and duties of Secretary and Treasurer may be exercised and performed by the same person, and a Vice President may at the same time hold any other single office except that of President.

Section 2. Vacancies. Any vacancy in any office may be filled for the unexpired portion of the term by the Board of Directors, at any regular or special meeting.

Section 3. Chairman of the Board. The Chairman of the Board, if elected, shall be a member of the Board of Directors and shall preside at its meetings. He shall keep in close touch with the administration of the affairs of the Corporation, shall advise and counsel with the President, and, in his absence, with other executives of the Corporation, and shall perform such other duties as may from time to time be assigned to him by the Board of Directors.

Section 4. President. The President shall be a member of the Board of Directors and the chief executive officer of the Corporation. Subject to the directions of the Board of Directors, he shall have and exercise direct charge of and general supervision over the business and affairs of the Corporation and shall perform all duties incident to the office of a president of a corporation, and such other duties as from time to time may be assigned to him by the Board of Directors.

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Section 5. Vice Presidents. Each Vice President shall have and exercise such powers and shall perform such duties as from time to time may be conferred upon or assigned to him by the Board of Directors, or as may be delegated to him by the Chairman of the Board or by the President.

Section 6. Secretary. The Secretary shall keep the minutes of all meetings of the stockholders and of the Board of Directors in books provided for the purpose; he shall see that all notices are duly given in accordance with the provisions of law and these Bylaws; he shall be custodian of the records and of the corporate seal or seals of the Corporation; he shall see that the corporate seal is affixed to all documents, the execution of which, on behalf of the Corporation, under its seal, is duly authorized and when the seal is so affixed he may attest the same; he may sign, with the President or a Vice President, certificates of stock of the Corporation; and in general, he shall perform all duties incident to the office of a secretary of a corporation, and such other duties as from time to time may be assigned to him by the Board of Directors.

Section 7. Assistant Secretaries. The Assistant Secretaries in order of their seniority shall, in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary and shall perform such other duties as the Board of Directors shall prescribe.

Section 8. Treasurer. The Treasurer shall have charge of and be responsible for all funds, securities, receipts and disbursements of the Corporation, and shall deposit, or cause to be deposited, in the name of the Corporation, all moneys or other valuable effects in such banks, trust companies or other depositories as shall, from time to time, be selected by the Board of Directors; he may endorse for collection on behalf of the Corporation checks, notes and other obligations; he may sign receipts and vouchers for payments made to the Corporation; singly or jointly with another person as the Board of Directors may authorize, he may sign checks of the Corporation and pay out and dispose of the proceeds under the direction of the Board; he shall render to the President and to the Board of Directors, whenever requested, an account of the financial condition of the Corporation; he may sign, with the President or a Vice President, certificates of stock of the Corporation; and in general, shall perform all the duties incident to the office of a treasurer of a corporation, and such other duties as from time to time may be assigned to him by the Board of Directors.

Section 9. Assistant Treasurers. The Assistant Treasurers in order of their seniority shall, in the absence or disability of the Treasurer, perform the duties and exercise the powers of the Treasurer and shall perform such other duties as the Board of Directors shall prescribe.

Section 10. Subordinate Officers. The Board of Directors may appoint such subordinate officers as it may deem desirable. Each such officer shall hold office for such period, have such authority and perform such duties as the Board of Directors may prescribe. The Board of Directors may, from time to time, authorize any officer to appoint and remove subordinate officers and to prescribe the powers and duties thereof.

Section 11. Compensation. The Board of Directors shall have the power to fix the compensation of all officers of the Corporation. It may authorize any officer, upon whom the power of appointing subordinate officers may have been conferred, to fix the compensation of such subordinate officers.

Section 12. Removal. Any officer of the Corporation may be removed, with or without cause, by a majority vote of the Board of Directors at a meeting called for that purpose.

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Section 13. Bonds. The Board of Directors may require any officer of the Corporation to give a bond to the Corporation, conditional upon the faithful performance of his duties, with one or more sureties and in such amount as may be satisfactory to the Board of Directors.

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ARTICLE VIII

Certificates of Stock

Section 1. Form and Execution of Certificates. The Interest of each stockholder of the Corporation shall be evidenced by a certificate or certificates for shares of stock in such form as the Board of Directors may from time to time prescribe. The certificates of stock of each class shall be consecutively numbered and signed by the President or a Vice President and by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer of the Corporation, and may be countersigned and registered in such manner as the Board of Directors may by resolution prescribe, and shall bear the corporate seal or a printed or engraved facsimile thereof. Where any such certificate is signed by a transfer agent or transfer clerk acting on behalf of the Corporation and by a registrar, the signatures of any such President, Vice President, Treasurer, Assistant Treasurer, Secretary or Assistant Secretary may be facsimiles, engraved or printed. In case any officer or officers who shall have signed, or whose facsimile signature or signatures shall have been used on any such certificate or certificates shall cease to be such officer or officers, whether because of death, resignation or otherwise, before such certificate or certificates shall have been delivered by the Corporation, such certificate or certificates may nevertheless be issued and delivered by the Corporation as though the person or persons who signed such certificate or certificates or whose facsimile signature or signatures shall have been used thereon had not ceased to be such officer or officers.

Section 2. Transfer of Shares. The shares of the stock of the Corporation shall be transferred on the books of the Corporation by the holder thereof in person or by his attorney lawfully constituted, upon surrender for cancellation of certificates for the same number of shares, with an assignment and power of transfer endorsed thereon or attached thereto, duly executed, with such proof or guaranty of the authenticity of the signature as the Corporation or its agents may reasonably require. The Corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof and accordingly shall not be bound to recognize any equitable or other claim or interest in such share or shares on the part of any other person whether or not it shall have express or other notice thereof, save as expressly provided by law.

Section 3. Dates of Record. If deemed expedient, the Board of Directors may fix in advance a date for such length of time (not exceeding fifty (50) days) as the Board may determine, preceding the date of any meeting of stockholders, or the date for the payment of any dividend, or the date for the allotment of rights or the date when any issuance, change, conversion or exchange of capital stock shall go into effect, as a record date for the determination of the stockholders entitled to notice of, and to vote at, any such meeting or entitled to receive payment of any such dividend or to any such allotment of rights, or to exercise the rights in respect of any such issuance, change, conversion or exchange of capital stock, as the case may be, and in such case only such stockholders as shall be stockholders of record on the date so fixed shall be entitled to such notice of, and to vote at, such meeting, or to receive payment of such dividend, or to receive such allotment of rights, or to exercise such rights, as the case may be, notwithstanding any transfer of any stock on the books of the Corporation after any record date fixed as aforesaid.

Section 4. Lost or Destroyed Certificates. In case of the loss or destruction of any certificate of stock a new certificate may be issued upon the following conditions:

The owner of said certificate shall file with the Secretary of the Corporation an affidavit giving the facts in relation to the ownership, and in relation to the loss or destruction of said certificate, stating

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its number and the number of shares represented thereby; such affidavit to be in such form and contain such statements as shall satisfy the President and Secretary that said certificate has been accidentally destroyed or lost, and that a new certificate ought to be issued in lieu thereof. Upon being so satisfied, the President and Secretary, shall, unless otherwise approved by the Board of Directors, require such owner to file with the Secretary a bond in such penal sum and in such form as they may deem advisable, and with a surety or sureties approved by them, to indemnify and save harmless the Corporation and any transfer agent or registrar of the Corporation’s stock from any claim, loss, damage or liability which may be occasioned by the issuance of a new certificate in lieu thereof. Upon such bond being so filed, if required, a new certificate for the same number of shares shall be issued to the owner of the certificate so lost or destroyed; and the transfer agent and registrar of stock shall countersign and register such new certificate upon receipt of a written order signed by the said President and Secretary, and thereupon the Corporation will save harmless said transfer agent and registrar in the premises. A Vice President may act hereunder in the stead of the President, and an Assistant Secretary in the stead of the Secretary. In case of the surrender of the original certificate, in lieu of which a new certificate has been issued, or the surrender of such new certificate, or cancellation, the bond of indemnity given as a condition of the issue of such new certificate may be surrendered.

ARTICLE IX

Checks, Notes, etc.

Section 1. Execution of Checks, Notes, etc. All checks and drafts on the Corporation’s bank accounts and all bills of exchange and promissory notes, and all acceptances, obligations and other instruments for the payment of money, shall be signed by such officer or officers, agent or agents, as shall be thereunto authorized from time to time by the Board of Directors.

Section 2. Execution of Contracts, Assignments, etc. All contracts, agreements, endorsements, assignments, transfers, stock powers, or other instruments shall be signed by the President or any Vice President and by the Secretary or any Assistant Secretary or the Treasurer or any Assistant Treasurer, or by such other officer or officers, agent or agents, as shall be thereunto authorized from time to time by the Board of Directors.

Section 3. Voting of Shares Owned by Corporation. The President of the Corporation, or in his absence or disability a Vice President of the Corporation, may authorize from time to time the signature and issuance of proxies to vote upon shares of stock of other companies standing in the name of the Corporation, which proxies may run to the person who executes the same. All such proxies shall be signed in the name of the Corporation by the President or a Vice President and by the Secretary or an Assistant Secretary. The President or a Vice President and the Secretary or an Assistant Secretary are authorized to sign all ballots, consents and/or waivers of notice for shares of stock or other companies standing in the name of the Corporation.

ARTICLE X

Waivers and Consents

Wherever any notice is required to be given by law, or under the provisions of the Certificate of Incorporation or of these Bylaws, such notice may be waived, in writing, signed by the person or persons entitled to such notice, or by his attorney or attorneys thereunto authorized, whether before or after the event or action to which such notice relates.

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Whenever the vote of stockholders at a meeting thereof is required or permitted to be taken in connection with any corporate action by any provision of law or of the Certificate of Incorporation or of these Bylaws, the meeting and vote of stockholders may be dispensed with if all the stockholders who would have been entitled to vote upon the action if such meeting were held shall consent in writing to such action being taken.

Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if prior to such action a written consent thereto is signed by all members of the Board or of such committee as the case may be, and such written consent is filled with the minutes of proceedings of the Board or committee.

ARTICLE XI

Dividends

Except as otherwise provided by law or by the Certificate of Incorporation, the Board of Directors may declare dividends out of the surplus of the Corporation at such times and in such amounts as it may from time to time designate.

Before crediting net profits to the surplus in any year, there may be set aside out of the net profits of the Corporation for that year such sum or sums as the Directors from time to time in their absolute discretion may deem proper as a reserve fund or funds to meet contingencies or for equalizing dividends or for repairing or maintaining any property of the Corporation or for such other purpose as the Directors shall seem conducive to the interests of the Corporation.

ARTICLE XII

Inspection of Books

The Directors shall determine from time to time whether, and if allowed when and under what conditions and regulations, the accounts and books of the Corporation (except such as may be statute by specifically open to inspection) or any of them, shall be open to the inspection of the stockholders and the stockholders’ rights in this respect are and shall be restricted and limited accordingly.

ARTICLE XIII

Fiscal Year

The fiscal year of the Corporation shall end on November 30 or on such other date as shall be fixed by resolution of the Board of Directors. After such date is fixed it may be changed for future fiscal years at any time or from time to time by further resolution of the Board of Directors.

ARTICLE XIV

Amendments

These Bylaws may be altered, amended or repealed and new Bylaws adopted by the holders of the Common Stock and Class B Common Stock of the Corporation voting as provided in the Corporation’s Certificate of Incorporation, or by the Board of Directors by a majority vote at any meeting called for that purpose, except as (a) Section 1, 2, 3 or 4 of the Article VII, or this Article XIV, of these Bylaws may only be altered, amended or repealed with the affirmative vote of a majority of the outstanding stock entitled to vote on the election of directors, and (b) Article VI of these Bylaws may only be altered, amended or repealed with the approval of the Independent Directors Committee or with the affirmative vote of the holders of a majority of the shares of Common Stock (voting separate and apart from the Class B Common Stock) which are voting with respect to the alteration, amendment or repeal.

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ARTICLE XV

Independent Directors Committee

Section 1. Independent Directors Committee. The Board of Directors shall appoint an Independent Directors Committee consisting of three or more Directors, none of whom is an officer or employee of the Corporation or of a subsidiary of the Corporation, and none of whom is a securityholder, director, officer or employee of LNR Property Corporation (“LNR”) or a subsidiary of LNR. (each, an “Independent Director”). The Chairman of the Independent Directors Committee shall be selected by the Committee.

Section 2. Procedure. All actions of the Independent Directors Committee will require the vote of a majority of the members present at a meeting at which a quorum is present. A quorum of the Independent Directors Committee will be a majority of its members. The Independent Directors Committee, by a vote of a majority of its members, shall fix its own rules of procedure; no change in which shall be made save by a majority vote of its members. Meetings of the Independent Directors Committee will be held at the times and places determined by the Chairman of the Independent Directors Committee or by the vote or written consent of a majority of its members.

Section 3. Transactions Requiring Committee Approval. The Corporation may not take any of the following actions, and the Board of Directors may not approve or authorize any of the following actions (if its approval or authorization is required), unless the action has been approved by the Independent Directors Committee:

(i) Instruct or permit the representatives of the Corporation or a subsidiary on the executive committee of Lennar Land Partners, Lennar Land Partners II, NWHL Investment LLC or LandSource Communities Development LLC, or on the board of directors, the executive committee or the similar governing body of any other entity of which the Corporation and LNR each owns, directly or through subsidiaries, at least 25% of the equity (a “Jointly Owned Entity”) to vote or consent with regard to any item which (a) under the governing instrument of the Jointly Owned Entity, requires approval by the unanimous or supermajority vote of the members of that board of directors, executive committee or similar governing body of the Jointly Owned and (b) involves a transaction between the Jointly Owned Entity or any of its subsidiaries and LNR or any or its subsidiaries, including a business plan of a Jointly Owned Entity that contemplates a transaction with LNR or any of its subsidiaries and that will have the effect of exempting that transaction from any requirement that it be approved by the unanimous or supermajority vote of the members of the board of directors, executive committee or the similar body of the Jointly Owned Entity.

(ii) Contribute, or permit any of its subsidiaries to contribute, any assets to a Jointly Owned Entity (however, a recommendation by the Corporation or a subsidiary that a Jointly Owned Entity acquire a property from an unrelated person will not be deemed a contribution of that property by the Corporation or by a subsidiary and will not require the approval of the Independent Directors Committee).

(iii) Exercise any option to purchase property from a Jointly Owned Entity, unless the terms of the option were approved by the Independent Directors Committee, or revise the exercise price of any such option.

12

(iv) Purchase any property or other assets from, or sell any property or other assets to, a Jointly Owned Entity (whether on exercise of an option or otherwise), directly or through a subsidiary, in a transaction or series of related transactions as to which the purchase price to be paid by or to the Corporation and its subsidiaries exceeds $10 million, except that approval of the Independent Directors Committee will not be required for a purchase or sale in accordance with an agreement that has been approved by the Independent Directors Committee.

(v) Enter into, or permit any of its subsidiaries to enter into, any transaction with LNR or any of its subsidiaries, except that approval of the Independent Directors Committee will not be required for the Corporation or a subsidiary to carry out a transaction in accordance with an agreement that has been approved by the Independent Directors Committee.

(vi) Enter into, or permit any of its subsidiaries to enter into, an agreement that requires the Corporation or a subsidiary to engage in any transaction of the type described in any of clauses (ii) through (v).

(vii) Agree to any amendment of, or give any waiver or consent under, a material provision of an agreement relating to a transaction of the type described in any of clauses (ii) through (v).

In order to enable the Independent Directors Committee to evaluate transactions which are subject to clauses (ii) through (v), the President of the Corporation will report to the Independent Directors Committee with regard to the exercise by the Corporation of options to purchase properties or other assets from Jointly Owned Entities not less frequently than once each fiscal quarter, and in any event whenever the aggregate amount paid or to be paid by the Corporation and its subsidiaries with regard to exercises which were not previously reported exceeds $25 million.

Section 4. Additional Powers. The Independent Directors Committee may, at the request of the Board of Directors or of the Chief Executive Officer or Chief Financial Officer of the Corporation, review or investigate any transaction or matter involving the Corporation or a subsidiary, whether or not the transaction or matter involves LNR or a jointly owned company.

Section 5. Minutes. The Independent Directors Committee shall keep regular minutes of its proceedings, which will be filed with the minutes of the meetings of the Board of Directors.

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EX-10.11

EXHIBIT 10(k)

[GRAPHIC]

FIRST AMENDED AND RESTATED WAREHOUSING

CREDIT AND SECURITY AGREEMENT

BETWEEN

UNIVERSAL AMERICAN MORTGAGE COMPANY, LLC,

a Florida limited liability company

EAGLE HOME MORTGAGE, INC., a Washington corporation,

AMERISTAR FINANCIAL SERVICES, INC., a California corporation,

UNIVERSAL AMERICAN MORTGAGE COMPANY OF CALIFORNIA,

a California corporation,

UAMC ASSET CORP. II, a Nevada corporation

The Lenders Party Hereto

AND

RESIDENTIAL FUNDING CORPORATION,

a Delaware corporation

Dated as of October 23, 2003

TABLE OF CONTENTS

1.	THE CREDIT		1-1
	1.1.	The Warehousing Commitment	1-1
	1.2.	Expiration of Warehousing Commitment	1-2
	1.3.	The RFC Direct Commitment	1-2
	1.4.	Expiration of RFC Direct Commitment	1-2
	1.5.	Swingline Facility	1-2
	1.6.	Notes 1-3
	1.7.	Non-Receipt of funds by Credit Agent	1-3
	1.8.	Replacement Notes	1-4
	1.9.	Joint and Several Liability	1-4
	1.10.	Limitation on Warehousing Advances	1-4
2.	PROCEDURES FOR OBTAINING ADVANCES		2-1
	2.1.	Warehousing Advances, Swingline Advances and RFC Direct Advances	2-1
3.	INTEREST, PRINCIPAL AND FEES		3-1
	3.1.	Interest	3-1
	3.2.	Interest Limitation	3-2
	3.3.	Principal Payments	3-2
	3.4.	Buydowns	3-5
	3.5.	Warehousing Commitment Fees	3-5
	3.6.	Agent’s Fee	3-5
	3.7.	Loan Package Fees, Wire Fees, Warehousing Fees	3-6
	3.8.	Miscellaneous Fees and Charges	3-6
	3.9.	[Intentionally Omitted.]	3-6
	3.10.	Method of Making Payments	3-6
	3.11.	Illegality	3-7
	3.12.	Increased Costs; Capital Requirements	3-7
	3.13.	Withholding Taxes	3-8
4.	COLLATERAL		4-1
	4.1.	Grant of Security Interest	4-1
	4.2.	Maintenance of Collateral Records	4-2
	4.3.	Release of Security Interest in Pledged Assets	4-3
	4.4.	Collection and Servicing Rights	4-4
	4.5.	Return of Collateral at End of Commitments	4-4
	4.6.	Delivery of Collateral Documents	4-5
	4.7.	Borrowers Remains Liable	4-5
	4.8.	Further Assurance	4-5
5.	CONDITIONS PRECEDENT		5-1
	5.1.	Initial Advance	5-1
	5.2.	Each Advance	5-4
	5.3.	Force Majeure	5-5
6.	GENERAL REPRESENTATIONS AND WARRANTIES		6-1
	6.1.	Place of Business	6-1
	6.2.	Organization; Good Standing; Subsidiaries	6-1
	6.3.	Authorization and Enforceability	6-2
	6.4.	Authorization and Enforceability of Lennar Undertaking	6-2
	6.5.	Approvals	6-2

	6.6.	Financial Condition	6-2
	6.7.	Litigation	6-3
	6.8.	Compliance with Laws	6-3
	6.9.	Regulation U	6-3
	6.10.	Investment Company Act	6-3
	6.11.	Payment of Taxes	6-3
	6.12.	Agreements	6-4
	6.13.	Title to Properties	6-4
	6.14.	ERISA	6-4
	6.15.	No Retiree Benefits	6-4
	6.16.	Assumed Names	6-4
	6.17.	Servicing	6-5
7.	AFFIRMATIVE COVENANTS		7-1
	7.1.	Payment of Obligations	7-1
	7.2.	Financial Statements	7-1
	7.3.	Other Borrower Reports	7-1
	7.4.	Maintenance of Existence; Conduct of Business	7-2
	7.5.	Compliance with Applicable Laws	7-2
	7.6.	Inspection of Properties and Books; Operational Reviews	7-2
	7.7.	Notice	7-3
	7.8.	Payment of Debt, Taxes and Other Obligations	7-3
	7.9.	Insurance	7-4
	7.10.	Closing Instructions	7-4
	7.11.	Subordination of Certain Indebtedness	7-4
	7.12.	Other Loan Obligations	7-4
	7.13.	ERISA	7-4
	7.14.	Use of Proceeds of Advances	7-5
8.	NEGATIVE COVENANTS		8-1
	8.1.	Contingent Liabilities	8-1
	8.2.	Restrictions on Fundamental Changes	8-1
	8.3.	Deferral of Subordinated Debt	8-1
	8.4.	Loss of Eligibility	8-1
	8.5.	Accounting Changes	8-2
	8.6.	Tangible Leverage Ratio	8-2
	8.7.	Minimum Tangible Net Worth	8-2
	8.8.	Distributions to Members	8-2
	8.9.	Transactions with Affiliates	8-2
	8.10.	Recourse Servicing Contracts	8-2
	8.11.	Limitation on Liens	8-2
	8.12.	Limitation on Debt	8-3
9.	SPECIAL REPRESENTATIONS, WARRANTIES AND COVENANTS CONCERNING COLLATERAL		9-1
	9.1.	Special Representations and Warranties Concerning Eligibility as Seller/Servicer of Mortgage Loans	9-1
	9.2.	Special Representations and Warranties Concerning Eligibility as Seller/Servicer of Mortgage Loans	9-1
	9.3.	Special Representations and Warranties Concerning Warehousing Collateral	9-2
	9.4.	Special Affirmative Covenants Concerning Warehousing Collateral	9-4
	9.5.	Special Negative Covenants Concerning Warehousing Collateral	9-5
	9.6.	Special Affirmative Covenants Concerning Construction/Perm Mortgage Loans and Third-Party Builder Construction Mortgage Loans	9-6

	9.7.	Special Representations Concerning Construction/Perm Mortgage Loans and Third Party Builder Construction Mortgage Loans	9-6
	9.8.	Special Representations and Warranties Concerning Receivables	9-7
	9.9.	Special Representations Concerning Pledged Shares	9-7
	9.10.	Special Representations and Warranties Concerning Foreclosure Claim Receivables and Foreclosure Mortgage Loans	9-8
	9.11.	Voting Rights; Dividends; Etc.	9-8
10.	DEFAULTS; REMEDIES		10-1
	10.1.	Events of Default	10-1
	10.2.	Remedies	10-2
	10.3.	Application of Proceeds	10-5
	10.4.	Credit Agent Appointed Attorney-in-Fact	10-7
	10.5.	Right of Set-Off	10-7
	10.6.	Sharing of Payments	10-7
11.	AGENT11-1
	11.1.	Appointment	11-1
	11.2.	Duties of Agent	11-1
	11.3.	Standard of Care	11-1
	11.4.	Delegation of Duties	11-2
	11.5.	Exculpatory Provisions	11-2
	11.6.	Reliance by Agent	11-2
	11.7.	Non-Reliance on Agent or Other Lenders	11-3
	11.8.	Agent in Individual Capacity	11-3
	11.9.	Successor Agent	11-3
	11.10.	Inspection	11-4
12.	MISCELLANEOUS		12-1
	12.1.	Notices	12-1
	12.2.	Reimbursement Of Expenses; Indemnity	12-1
	12.3.	Indemnification by Lenders	12-2
	12.4.	Financial Information	12-2
	12.5.	Terms Binding Upon Successors; Survival of Representations	12-3
	12.6.	Lenders in Individual Capacity	12-3
	12.7.	Assignment and Participation	12-3
	12.8.	Commitment Increases	12-4
	12.9.	Amendments	12-4
	12.10.	Governing Law	12-5
	12.11.	Relationship of the Parties	12-5
	12.12.	Severability	12-6
	12.13.	Consent to Credit References	12-6
	12.14.	Counterparts	12-6
	12.15.	Headings/Captions	12-6
	12.16.	Entire Agreement	12-6
	12.17.	Consent to Jurisdiction	12-6
	12.18.	Waiver of Jury Trial	12-7
	12.19.	Waiver of Punitive, Consequential, Special or Indirect Damages	12-7
	12.20.	Confidentiality	12-7
13.	DEFINITIONS		13-1
	13.1.	Defined Terms	13-1
	13.2.	Other Definitional Provisions; Terms of Construction	13-13

EXHIBITS

Exhibit A-SF	Request for Advance
Exhibit A-Construction	Request for Advance (Construction/Rehab)
Exhibit A-Other Investments	Request for Advance Against Other Investments
Exhibit A-SF/UNI	Request for Advance – Unimproved Land Loans
Exhibit B-SF	Procedures and Documentation for Warehousing Single Family Mortgage Loans
Exhibit B-Construction	Procedures and Documentation for Warehousing Construction/Perm Mortgage Loans and Third-Party Builder Construction Mortgage Loans
Exhibit B-Foreclosure Claim Receivable	Procedures and Documentation for Warehousing Foreclosure Claim Receivable
Exhibit B-Investment Mortgage Loans	Procedures and Documentation for Warehousing Investment Mortgage Loans
Exhibit C	Schedule of Servicing Portfolio
Exhibit D	Subsidiaries
Exhibit E	Compliance Certificate
Exhibit F	Schedule of Lines of Credit
Exhibit G	Assumed Names
Exhibit H	Eligible Loans and Other Assets
Exhibit I	Collateral Operations Fee Schedule
Exhibit J	Commitments and Maturity Dates
Exhibit K	Advance Certificate
Exhibit L	Existing Liens
Exhibit M	Existing Debt
Exhibit N	Terms of Guaranteed Obligations
Exhibit O	Commitment Summary/Takeout Report

FIRST AMENDED AND RESTATED WAREHOUSING CREDIT

AND SECURITY AGREEMENT

FIRST AMENDED AND RESTATED WAREHOUSING CREDIT AND SECURITY AGREEMENT, dated as of October 23, 2003 between UNIVERSAL AMERICAN MORTGAGE COMPANY, LLC, a Florida limited liability company (“UAMCLLC”), EAGLE HOME MORTGAGE, INC., a Washington corporation (“EHMI”), AMERISTAR FINANCIAL SERVICES, INC., a California corporation (“AFSI”), UNIVERSAL AMERICAN MORTGAGE CO. OF CALIFORNIA, a California corporation (“UAMCC”), and UAMC ASSET CORP. II, a Nevada corporation (“UAMC Asset”) (UAMCLLC, EHMI, AFSI, UAMCC and UAMC Asset, collectively, “Borrowers”) RESIDENTIAL FUNDING CORPORATION, a Delaware corporation (“RFC”), BANK ONE, NA, a national banking association (“Bank One”), U.S. BANK NATIONAL ASSOCIATION, a national banking association (“U.S. Bank”), SUNTRUST BANK, a state bank organized under the laws of Georgia (“Suntrust”), NATIONAL CITY BANK OF KENTUCKY, a national banking association (“NCBK”), COMERICA BANK (“Comerica”), and CREDIT LYONNAIS NEW YORK BRANCH (“Credit Lyonnais”) (RFC, Bank One, U.S. Bank, Suntrust, NCBK, Comerica and Credit Lyonnais, any additional lender (“Additional Lender”) as may from time to time become a party hereto and their respective successors and permitted assigns being referred to individually as a “Lender” and collectively as the “Lenders”), and RFC as credit agent for the Lenders (in such capacity, the “Credit Agent”).

A. Borrowers have requested certain financing from Lenders.

B. Borrowers have asked Lenders and Credit Agent to amend and restate the Existing Agreement (as defined below) and to set forth the terms and conditions upon which Lenders will provide certain financing to Borrowers.

C. Credit Agent and Lenders have agreed to amend and restate the Existing Agreement to provide that financing to Borrowers subject to the terms and conditions of this Agreement.

D. Subject to Borrowers’ satisfaction of the conditions set forth in Article 5, the “Closing Date” for the transactions contemplated by this Agreement is the date set forth as the Closing Date on the signature page of Credit Agent to this Agreement.

NOW, THEREFORE, the parties to this Agreement agree that the Existing Agreement is amended and restated as follows:

1. THE CREDIT

1.1. The Warehousing Commitment

On the terms and subject to the conditions and limitations of this Agreement, including Exhibit H, Lenders agree, severally and not jointly, to make Warehousing Advances against Eligible Assets other than Third-Party Builder Construction Mortgage Loans and Unimproved Land Loans, to Borrowers from the Closing Date to the Business Day immediately preceding the Warehousing Maturity Date, pro rata in accordance with their respective Percentage Shares, during which period Borrowers may borrow, repay and reborrow in accordance with the provisions of this Agreement. The total aggregate principal amount of all Warehousing Advances and Swingline Advances outstanding at any one time may not exceed the Warehousing Credit Limit. While a Default or Event of Default exists, Lenders may refuse to make any additional Warehousing Advances to Borrowers. Effective as of the Closing Date, all outstanding “Warehousing

Page 1-1

Advances” and “Swingline Advances” made under the Existing Agreement are deemed to be Warehousing Advances and Swingline Advances, as applicable, made under this Agreement and the Interest Rates and fees set forth in the Existing Agreement, or any separate letter agreement entered into under the Existing Agreement, will no longer apply. All Warehousing Advances under this Agreement constitute a single indebtedness, and all of the Collateral is security for the Warehousing Note and Swingline Note and for the performance of all of the Obligations.

1.2. Expiration of Warehousing Commitment

The Warehousing Commitment expires on the earlier of (“Warehousing Maturity Date”): (a) with respect to each Lender’s Warehousing Commitment, as set forth on Exhibit J, as such date(s) may be extended in writing by the applicable Lenders and Credit Agent, in their sole discretion, on which dates each Lender’s Warehousing Commitment will expire of its own term and the related Warehousing Advances will become due and payable, in each case without the necessity of Notice or action by Lenders, and (b) the date the Warehousing Commitment is terminated and the Warehousing Advances become due and payable under Section 10.2.

1.3. The RFC Direct Commitment

On the terms and subject to the conditions of this Agreement, including Exhibit H, RFC agrees to make RFC Direct Advances to Borrowers against Third-Party Builder Construction Mortgage Loans and Unimproved Land Loans from the Closing Date to the Business Day immediately preceding the Warehousing Maturity Date, during which period Borrowers may borrow, repay and reborrow RFC Direct Advances in accordance with the provisions of this Agreement. The total aggregate principal amount of all RFC Direct Advances outstanding at any one time may not exceed the RFC Direct Commitment Amount. While a Default or Event of Default exists, RFC may refuse to make any additional RFC Direct Advances to Borrowers. Effective as of the Closing Date, all outstanding RFC Direct Advances under the Existing Agreement are deemed to be RFC Direct Advances under this Agreement and the Interest Rates and fees set forth in the Existing Agreement, or any separate letter agreement entered into under the Existing Agreement, will no longer apply. All RFC Direct Advances under this Agreement constitute a single indebtedness, and all of the Collateral is security for the Notes and for the performance of all of the Obligations.

1.4. Expiration of RFC Direct Commitment

The RFC Direct Commitment expires on RFC’s Warehousing Maturity Date.

1.5. Swingline Facility

On the terms and subject to the conditions set forth herein, RFC may, from time to time to, but not including the Business Day immediately preceding the Warehousing Maturity Date, make Advances (“Swingline Advances”) requested by Borrowers against Eligible Assets other than Third Party Builder Construction Mortgage Loans and Unimproved Land Loans, in an aggregate amount not to exceed the Swingline Facility Amount, without requesting Warehousing Advances from the other Lenders. At such time as Borrowers have borrowed the maximum amount available under the Swingline Facility Amount, RFC agrees to provide Borrowers 1 day’s Notice. The total aggregate principal amount of all Swingline Advances and Warehousing Advances outstanding at any one time may not exceed the Warehousing Credit Limit. Lenders hereby agree to purchase from RFC an undivided participation interest in all outstanding Swingline Advances at any time in an amount equal to each Lender’s Percentage Share of such Swingline Advances. RFC may at any time in its sole and absolute discretion (and shall no less frequently than weekly and upon the acceleration of the Obligations following an Event of Default) request the Lenders to make Warehousing Advances in principal amounts equal to their Percentage Shares of outstanding Swingline Advances, and each Lender absolutely and unconditionally

Page 1-2

agrees to fund such Warehousing Advances, regardless of any Default or Event of Default or other condition which would otherwise excuse such Lender from funding Warehousing Advances, provided that no Lender is required to make Warehousing Advances to repay Swingline Advances or purchase participations in Swingline Advances that would cause such Lender’s aggregate Warehousing Advances (including participations in Swingline Advances) then outstanding to exceed the amount of such Lender’s Warehousing Commitment Amount. Each Lender’s Warehousing Advances made pursuant to the preceding sentence shall be delivered directly to RFC in immediately available funds at the office of Credit Agent by 4:00 p.m. on the day of the request therefor by RFC if such request is made on or before 11:00 a.m., or by 9:00 a.m. on the 1st Business Day following such request if such request is made after 11:00 a.m., and shall be promptly applied against the outstanding Swingline Advances. At the time of any request for Warehousing Advances from Lenders pursuant to this Section 1.5, Credit Agent will deliver to each Lender a certificate in the form of Exhibit K attached hereto (the “Advance Certificate”), certified by Credit Agent. For purposes of the limitations set forth in Exhibit H hereto, Swingline Advances shall be deemed to be Warehousing Advances.

1.6. Notes

Warehousing Advances made by each Lender against Eligible Assets other than Agreements for Deed and Foreclosure Claim Receivables are evidenced by Borrowers’ promissory notes, payable to each Lender, in the form prescribed by Credit Agent (each, a “Warehousing Note”). Warehousing Advances made by each Lender against Agreements for Deed or Foreclosure Claim Receivables are evidenced by Borrowers’ promissory notes, payable to each Lender, in the form prescribed by the Credit Agent (each, a “Sublimit Note”). RFC Direct Advances made by RFC are evidenced by Borrowers’ promissory note, payable to RFC, in the form prescribed by the Credit Agent (the “RFC Direct Note”). Swingline Advances made by RFC are evidenced by Borrowers’ promissory note, payable to RFC, in the form prescribed by Credit Agent (the “Swingline Note”). The terms “Warehousing Notes,” “Sublimit Notes,” “RFC Direct Note” and “Swingline Note,” as used in this Agreement, include all amendments, restatements, renewals or replacements of the original “Warehousing Notes,” “Sublimit Notes,” “RFC Direct Note” and “Swingline Note,” and all substitutions for any of them. All terms and provisions of the “Warehousing Notes,” “Sublimit Note,” “RFC Direct Note” and “Swingline Note” are incorporated into this Agreement.

1.7. Non-Receipt of funds by Credit Agent.

If Credit Agent receives notice from a Lender that such Lender does not intend to make its Percentage Share of any Warehousing Advances, neither Credit Agent nor any other Lender shall have any obligation to fund such Lender’s Percentage Share. Notwithstanding the foregoing, unless a Lender notifies Credit Agent by 3:00 p.m. on the date of a proposed Warehousing Advance that it does not intend to make its Percentage Share of such Warehousing Advance available to Credit Agent at such time and on such date, Credit Agent may assume that such Lender will make such amount available to Credit Agent to be advanced to Borrowers, and in reliance on such assumption, Credit Agent may, at its option, make a corresponding amount available to the Borrowers.

1.7 (a)  If Credit Agent makes such corresponding amount available to the Borrowers and such amount is not made available to Credit Agent by such Lender by close of business on the date of the Warehousing Advance, such Lender shall pay such amount to Credit Agent upon demand plus interest to the date of payment at a rate per annum equal to the Federal Funds Rate.

1.7 (b)  If a Lender fails to pay as provided herein, the Borrowers shall pay such amount to Credit Agent upon demand plus interest (at the rate applicable to the Borrowers for such Warehousing Advance) to the date of repayment.

Page 1-3

1.7 (c) Nothing in this Section 1.7 shall relieve any Lender from its obligation to fund its Percentage Share of any Warehousing Advance, or prejudice any rights the Borrowers may have against any Lender as a result of such Lender’s failure to make its Percentage Share of any Warehousing Advance.

1.8. Replacement Notes.

Upon receipt by Credit Agent of an affidavit of an officer of any Lender as to the loss, theft, destruction or mutilation of any Note, and, in the case of any such mutilation, upon receipt by Credit Agent of such Note, Borrowers will issue, in lieu thereof, a replacement note in the same principal amount thereof and otherwise of like tenor.

1.9. Joint and Several Liability

Advances shall be made to any Borrower (except to the extent otherwise provided herein), as shall be requested in the Advance Request, but each Advance, regardless of which Borrower it is made to, shall be deemed made to or for the benefit of all Borrowers, and all Borrowers jointly and severally shall be obligated to repay all Advances. With respect to the obligations to repay Advances made to the other Borrowers, each Borrower agrees to the terms set forth in Exhibit N.

1.10. Limitation on Warehousing Advances

Lenders will make Warehousing Advances against Eligible Assets other than Third-Party Builder Construction Mortgage Loans and Unimproved Land Loans, and RFC will make RFC Direct Advances against Third-Party Builder Construction Mortgage Loans and Unimproved Land Loans, upon the request of Borrowers, in the manner provided in Article 2, for the purposes set forth in Section 7.14. Lenders’ obligation to make Warehousing Advances against Eligible Assets other than Third-Party Builder Construction Mortgage Loans and Unimproved Land Loans, and RFC’s obligations to make RFC Direct Advances against Third-Party Builder Construction Mortgage Loans and Unimproved Land Loans are subject to the limitations set forth in Exhibit H.

End of Article 1

Page 1-4

2. PROCEDURES FOR OBTAINING ADVANCES

2.1. Warehousing Advances, Swingline Advances and RFC Direct Advances

2.1 (a) To obtain a Warehousing Advance, a Swingline Advance or an RFC Direct Advance under this Agreement, a Borrower must deliver to Credit Agent either a completed and signed request for a Warehousing Advance, a Swingline Advance or an RFC Direct Advance on the then current form approved by Credit Agent, or an Electronic Advance Request, together with a list of the Mortgage Loans for which the request is being made and a signed RFConnects Pledge Agreement sent by facsimile (“Warehousing Advance Request”), not later than (i) in the case of Electronic Advance Requests, 3:30 p.m. on the Business Day, and (ii) in all other cases, 1 Business Day before the Business Day on which a Borrower desires the Warehousing Advance, Swingline Advance or an RFC Direct Advance. Subject to the delivery of a Warehousing Advance Request and the satisfaction of the conditions set forth in Sections 5.1 and 5.2, a Borrower may obtain a Warehousing Advance, a Swingline Advance or an RFC Direct Advance under this Agreement upon compliance with the procedures set forth in this Section and in the applicable Exhibit B, including delivery to Credit Agent of all required Collateral Documents. Credit Agent’s current form of Warehousing Advance Request is set forth in the applicable Exhibit A. Upon not less than 3 Business Days’ prior Notice to Borrowers, Credit Agent may modify its form of Warehousing Advance Request, RFConnects Pledge Agreement and any other Exhibit or document referred to in this Section to conform to either current legal requirements or Credit Agent practices and, as so modified, those Exhibits and documents will become part of this Agreement. Credit Agent will promptly notify Lenders of any changes made to any document under the preceding sentence.

2.1 (b) In making the determination whether a Warehousing Advance or Swingline Advance will be made against an Eligible Asset, Credit Agent will be permitted to rely, without independent investigation of the correctness thereof, on the most recent information supplied by Borrowers to Credit Agent with respect to the Weighted Average Committed Purchase Price.

2.1 (c) Credit Agent has a reasonable time to examine Borrowers’ Advance Request and the Collateral Documents to be delivered by Borrower before funding the requested Advance, and may reject any Eligible Asset that does not meet the requirements of this Agreement or of the related Purchase Commitment.

2.1 (d) Borrowers must hold or cause a custodian to hold, in trust for Credit Agent, those original Collateral Documents of which only copies are required to be delivered to Credit Agent under Exhibit B. Unless a Pledged Loan is being held by an Investor for purchase or has been redeemed from pledge by Borrowers, promptly upon request by Credit Agent or, if the recorded Collateral Documents have not yet been returned from the recording office, immediately upon receipt by Borrowers or a custodian of those recorded Collateral Documents, Borrowers must deliver or cause a custodian to deliver to Credit Agent any or all of the original Collateral Documents.

2.1 (e) To fund Warehousing Advances, RFC Direct Advances and Swingline Advances under this Agreement, Credit Agent will cause the Funding Bank to credit either the Wire Disbursement Account or Check Disbursement Account upon compliance by Borrowers with the terms of the Loan Documents. Credit Agent will determine, in its sole discretion, the method by which Advances and other amounts on deposit in the Wire Disbursement Account or Check Disbursement Account are disbursed by the Funding Bank to or for the account of Borrowers.

End of Article 2

Page 2-1

3. INTEREST, PRINCIPAL AND FEES

3.1. Interest

3.1 (a) Except as otherwise provided in this Section, Borrowers must pay interest on the unpaid amount of each Advance from the date the Advance is made until it is paid in full at the Interest Rate specified in Exhibit H.

3.1 (b) Borrowers and any Lender may enter into an agreement (the “Balance Funded Agreement”) pursuant to which Borrowers agree to maintain Eligible Balances on deposit with such Lender or a Designated Bank in consideration of the funding of all or a portion of such Lender’s Warehousing Advances at a Balance Funded Rate or another reduction in the interest and fees payable to such Lender. Borrowers may give written notice to any Lender with which it has a Balance Funded Agreement, as and when provided in such Balance Funded Agreement, of Borrowers’ election to have a portion (the “Balance Funded Portion”) of the principal amount of such Lender’s Warehousing Advances bear interest at the Balance Funded Rate during any calendar month. In the event Borrowers elect to have all or a portion of any Lender’s Warehousing Advances bear interest at the Balance Funded Rate during any month, such Lender shall notify the Credit Agent no later than 12:00 Noon on the second Business Day of the following month of the estimated amount by which the interest to be paid by Borrowers on such Lender’s Warehousing Advances during such month was reduced as a result of the application of such Balance Funded Agreement. If the Eligible Balances maintained by Borrowers with such Lender or its Designated Bank during such month are less than the Balance Funded Portion, if the estimate provided by a Lender pursuant to the previous sentence is not accurate, or if a Lender agrees to another reduction in the interest and fees payable to such Lender, the Lender may charge and separately bill Borrowers a deficiency fee (a “Balance Deficiency Fee”), or credit Borrowers with any amount by which interest billed exceeded interest actually due, the amount of which shall be set forth in the Balance Funded Agreement between Borrowers and such Lender.

3.1 (c) Credit Agent computes interest on the basis of the actual number of days in each month and a year of 360 days (“Accrual Basis”).

3.1 (d) If, for any reason (1) Borrowers repay an Advance on the same day that it was made by Credit Agent, or (2) Borrowers instruct Credit Agent not to make a previously requested Advance after Credit Agent has reserved funds or made other arrangements necessary to enable Credit Agent to fund that Advance, Borrowers agree to pay to Credit Agent for the benefit of Lenders an administrative fee equal to 1 day of interest on that Advance at the Interest Rate that would otherwise be applicable under Exhibit H for the applicable Eligible Asset type.

3.1 (e) After an Event of Default occurs and upon Notice to Borrowers by Credit Agent, the unpaid amount of each Advance will bear interest at the Default Rate until the Event of Default has been waived or cured, as provided in this Agreement, or the Advances have been paid in full.

3.1 (f) Credit Agent will adjust the rates of interest provided for in this Agreement as of the effective date of each change in the applicable index. Credit Agent’s determination of such rates of interest as of any date of determination are conclusive and binding, absent manifest error.

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3.2. Interest Limitation

Credit Agent and Lenders do not intend, by reason of this Agreement, the Notes or any other Loan Document, to receive interest in excess of the amount permitted by applicable law. If Credit Agent or any Lender receives any interest in excess of the amount permitted by applicable law, whether by reason of acceleration of the maturity of this Agreement, the Notes or otherwise, Credit Agent will apply the excess to the unpaid principal balance of the Warehousing Advances or RFC Direct Advance and not to the payment of interest. If all Warehousing Advances or RFC Direct Advances have been paid in full and the Commitments have expired or have been terminated, Credit Agent will remit any excess to Borrowers. This Section controls every other provision of all agreements between Borrowers, Credit Agent and Lenders and is binding upon and available to any subsequent holder of the Notes.

3.3. Principal Payments

3.3 (a) Borrowers must pay to Credit Agent (i) for the pro rata benefit of Lenders in the case of Warehousing Advances, and (ii) for RFC in the case of Swingline Advances and RFC Direct Advances, the outstanding principal amount of all Advances on the Warehousing Maturity Date.

3.3 (b) Except as otherwise provided in Section 3.1(d), Borrowers may prepay any portion of the Advances without premium or penalty at any time.

3.3 (c) Borrowers must pay to Credit Agent for the pro rata benefit of Lenders, without the necessity of prior demand or Notice from Credit Agent, and Borrowers authorize Credit Agent to cause the Funding Bank to charge Borrowers’ Operating Account for, or reduce the Buydown by the amount of any outstanding Advance against a specific Pledged Asset upon the earliest occurrence of any of the following events:

(1) One (1) Business Day elapses from the date an Advance was made if the Pledged Loan to be funded by that Advance is not closed and funded.

(2) Fifteen (15) Business Days elapse without the return of a Collateral Document delivered by Credit Agent to a Borrower under a Trust Receipt for correction or completion.

(3) On the date on which a Pledged Asset is determined to have been originated based on untrue, incomplete or inaccurate information or otherwise to be subject to fraud, whether or not any Borrower had knowledge of the misrepresentation, incomplete or incorrect information or fraud, or on the date on which any Borrower knows, has reason to know, or receives Notice from Credit Agent, that (A) one or more of the representations and warranties set forth in Article 9 were inaccurate or incomplete in any material respect on any date when made or deemed made, or (B) any Borrower has failed to perform or comply with any covenant, term or condition set forth in Article 9.

(4) Except in the case of Foreclosure Claim Receivables and Foreclosure Mortgage Loans, on the date a Pledged Asset or a Lien prior to a Mortgage securing repayment of a Pledged Asset is defaulted and remains in default for a period of 60 days or more.

(5) Upon the sale, other disposition or prepayment of any Pledged Asset or, with respect to a Pledged Loan included in an Eligible Mortgage Pool, upon the sale or other disposition of the related Agency Security.

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(6) One (1) Business Day immediately preceding the date scheduled for the foreclosure or trustee sale of the premises securing a Pledged Loan, unless such foreclosure or trustee sale will give rise to a Foreclosure Claim Receivable against which the related Advance may remain outstanding hereunder.

(7) If the outstanding Advances against Pledged Loans exceed the aggregate Purchase Commitments for Pledged Loans.

3.3 (d) Upon telephonic or written Notice to Borrowers by Credit Agent, Borrowers must pay to Credit Agent for the benefit of Lenders, and Borrowers authorize Credit Agent to cause the Funding Bank to charge Borrowers’ Operating Account for, or reduce the Buydown by, the amount of any outstanding Advance against a specific Pledged Asset upon the earliest occurrence of any of the following events:

(1) For any Pledged Loan, the Warehouse Period elapses.

(2) Forty-five (45) days elapse from the date a Pledged Loan was delivered to an Investor or Approved Custodian for examination and purchase or for inclusion in a Mortgage Pool, without the purchase being made or an Eligible Mortgage Pool being initially certified, or upon rejection of a Pledged Loan as unsatisfactory by an Investor or Approved Custodian.

(3) Seven (7) Business Days elapse from the date a Wet Settlement Advance was made against a Pledged Loan without receipt by Credit Agent of all Collateral Documents relating to the Pledged Loan.

(4) Three (3) Business Days after the mandatory delivery date of the related Purchase Commitment if the specific Pledged Loan or the Pledged Security backed by that Pledged Loan has not been delivered under the Purchase Commitment prior to such mandatory delivery date, or on the date the related Purchase Commitment expires or is terminated, unless, in each case, the Pledged Loan or Pledged Security is eligible for delivery to another Investor under a comparable Purchase Commitment.

(5) With respect to any Pledged Loan, any of the Collateral Documents, upon examination by Credit Agent (and at the reasonable discretion of the Credit Agent), are found not to be in compliance with the requirements of this Agreement or the related Purchase Commitment, unless such non-compliance is, in Credit Agent’s reasonable judgment, readily curable.

3.3 (e) In addition to the payments required by Sections 3.3(a), 3.3(c) and 3.3(d), if the principal amount of any Pledged Asset is prepaid in whole or in part while an Advance is outstanding against the Pledged Asset, Borrowers must pay to Credit Agent, without the necessity of prior demand or Notice from Credit Agent, and Borrowers authorize Credit Agent to cause the Funding Bank to charge Borrowers’ Operating Account for the amount of the prepayment to be applied against the Advance.

3.3 (f) The proceeds of the sale or other disposition of Pledged Assets must be paid directly by the Investor or other obligor to the Cash Collateral Account. Borrowers must give Notice to Credit Agent in writing, by telephone or by RFConnects Delivery to Credit Agent (and if by telephone, followed promptly by written Notice) of the Pledged Assets for which proceeds have been received. Upon receipt of Borrowers’ Notice, Credit Agent will apply any proceeds deposited into the Cash Collateral Account to the payment of the Advances related to the Pledged Assets identified by Borrowers in their Notice, and those Pledged Assets will be considered to have been redeemed from pledge. Credit

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Agent is entitled to rely upon Borrowers’ affirmation that deposits in the Cash Collateral Account represent payments from Investors or obligors for the purchase of the Pledged Assets specified by Borrowers in their Notice. If the payment from an Investor for the purchase of Pledged Assets is less than the outstanding Advances against the Pledged Assets identified by Borrowers in their Notice, Borrowers must pay to Credit Agent, and Borrowers authorize Credit Agent to cause the Funding Bank to charge Borrowers’ Operating Account in, an amount equal to that deficiency. As long as no Default or Event of Default exists, Credit Agent will return to Borrowers any excess payment from an Investor or obligor for Pledged Assets. For the purposes of this Section 3.3(f), payments made by check into the Cash Collateral Account will be deemed received when the check has cleared in accordance with Credit Agent’s usual procedures.

3.3 (g) Credit Agent reserves the right to revalue any Pledged Loan that is not covered by a Purchase Commitment from Fannie Mae or Freddie Mac. Credit Agent reserves the right to revalue any Pledged Loan that is to be exchanged for an Agency Security if that Agency Security is not covered by a Purchase Commitment. Credit Agent reserves the right to revalue any other Pledged Asset. Borrowers must pay to Credit Agent, without the necessity of prior demand or Notice from Credit Agent, and Borrowers authorize Credit Agent to cause the Funding Bank to charge Borrowers’ Operating Account for, any amount required after any such revaluation to reduce the principal amount of the Advances outstanding against the revalued Eligible Asset to an amount equal to the Advance Rate for the applicable type of Eligible Asset multiplied by the Fair Market Value of the Eligible Asset.

3.3 (h) Upon the occurrence of any event described in Section 10.1(g) with respect to Lennar, Borrowers shall, at the request of Credit Agent or Majority Lenders, repay all Advances outstanding against Agreements for Deed, Construction/Perm Mortgage Loans and Unimproved Land Loans, and no further Advances will thereafter be made against Agreements for Deed, Construction/Perm Mortgage Loans or Unimproved Land Loans.

3.3 (i) Prior to the occurrence of an Event of Default and acceleration of all Advances outstanding hereunder or termination of the Warehousing Commitment or the RFC Direct Commitment, amounts received by Credit Agent as proceeds of the sale or other disposition of Pledged Assets, shall be allocated among Lenders as follows:

(1) With respect to proceeds from the disposition of Pledged Assets other than Third-Party Builder Construction Loans and Unimproved Land Loans, first, to RFC until the aggregate outstanding principal amount of the Swingline Advances have been paid in full; and second, pro rata to Lenders in accordance with their respective Percentage Shares, until the principal amount of the related Warehousing Advances have been paid in full.

(2) With respect to proceeds from the disposition of Third-Party Builder Construction Mortgage Loans and Unimproved Land Loans, to RFC until the principal amount of the related RFC Direct Advances have been paid in full.

(3) Finally, the balance, if any, to Borrower.

Following the occurrence of an Event of Default and acceleration of any Obligations outstanding hereunder or termination of the Warehousing Commitment or the RFC Direct Commitment, all amounts received by Credit Agent on account of the Obligations shall be disbursed by Credit Agent in accordance with the provisions of Section 10.3 hereof.

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3.3 (j) In addition to the payments required pursuant to Sections 3.3(a) – 3.3(i), Borrower shall repay the Warehousing Advances, RFC Direct Advances and Swingline Advances as set forth in Exhibit H.

3.4. Buydowns

Borrowers may prepay a portion of the Warehousing Advances outstanding in an amount equal to at least $1,000,000 pursuant to this Section 3.4 (any such prepayment is hereafter referred to as a “Buydown”). A Buydown is a reduction in the aggregate amount of Warehousing Advances outstanding under this Agreement, but does not represent the prepayment of any particular Warehousing Advance, and does not entitle Borrowers to the release of any Collateral. All or any portion of a Buydown may be reborrowed (“Buyup”) in an amount equal to at least $1,000,000, provided no Default or Event of Default has occurred and is continuing and all other conditions precedent have been satisfied or waived. Credit Agent may apply Buydowns to reduce interest payable by Borrowers on outstanding Warehousing Advances in any order that Credit Agent determines in its sole discretion. Credit Agent will withdraw each Buydown from Borrowers’ Operating Account by 4:00 p.m. on the day thereof, and will distribute to each Lender its Percentage Share of the Buydown by wire transfer by 12:00 noon on the following Business Day. Each request for a Buydown or Buyup will be on the corporate letterhead of UAMC LLC. In the event Credit Agent receives a payment of Warehousing Advances that would, as a result of Buydowns by Borrowers, reduce the outstanding principal balance of the Warehousing Advances to an amount less than zero, a portion of the Buydowns sufficient to eliminate such shortfall, will be readvanced to Borrowers. Credit Agent will notify each Lender not later than 11:00 a.m. on the date of any Buyup or other readvance of a Buydown, and each Lender shall make its Percentage Share thereof available to Credit Agent in immediately available funds at the office of Credit Agent by 4:00 p.m. on the day of the request therefor.

3.5. Warehousing Commitment Fees

Borrowers must pay each Lender, through Credit Agent, an annual non-refundable fee (“Warehousing Commitment Fee”) in the amount set forth in Exhibit I. The Warehousing Commitment Fee is payable in advance on the Closing Date and on each anniversary of the Closing Date. If any Lender increases its Warehousing Commitment Amount, if the Warehousing Credit Limit is increased by an Additional Lender becoming a party to this Agreement, or if RFC increases the RFC Direct Commitment Amount, Borrowers will pay the prorated portion of the applicable Commitment Fee on the amount of such increase or the amount of such Additional Lender’s Warehousing Commitment Amount from the effective date of such increase to the applicable Maturity Date. If, at any time, the Warehousing Maturity Date of any Commitment is extended, Borrowers will pay an additional Warehousing Commitment Fee in the prorated amount determined pursuant to the calculations set forth in Exhibit I from the day after the original Warehousing Maturity Date to the extended Warehousing Maturity Date. Borrowers are not entitled to a reduction in the amount of the Warehousing Comitment Fee if (a) the Warehousing Commitment Amount is reduced or (b) the Warehousing Commitment is terminated at the request of Borrowers or as a result of an Event of Default. Credit Agent’s determination of the Warehousing Comitment Fee for any period is conclusive and binding, absent manifest error.

3.6. Agent’s Fee

Borrowers shall pay to Credit Agent, for its own account, such fees as shall be separately agreed between Borrowers and Credit Agent.

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3.7. Loan Package Fees, Wire Fees, Warehousing Fees

At the time of each Advance against an Eligible Asset, Borrowers will incur a loan package fee (“Loan Package Fee”) and a wire fee (“Wire Fee”). Loan Package Fees and Wire Fees may, at Credit Agent’s discretion, be billed separately or combined into a single warehousing fee (“Warehousing Fee”). Borrowers must pay all Loan Package Fees, Wire Fees or Warehousing Fees in the amount separately agreed between Borrowers and Credit Agent within 9 days after the date of Credit Agent’s invoice or, if applicable, within 2 days after the date of Credit Agent’s account analysis statement.

3.8. Miscellaneous Fees and Charges

Borrowers must reimburse Credit Agent for all Miscellaneous Fees and Charges. Borrowers must pay all Miscellaneous Fees and Charges within 9 days after the date of Credit Agent’s invoice or, if applicable, within 2 days after the date of Credit Agent’s account analysis statement.

3.9. [Intentionally Omitted.]

3.10. Method of Making Payments

3.10 (a) Credit Agent shall, on or before the 5th Business Day of each month, deliver to Borrowers billings for interest due and payable on Advances, Agent’s Fees, Miscellaneous Charges and other fees and charges calculated through the end of the preceding month. On or before the 10^th Business Day of each month, Borrowers will pay to Credit Agent the full amount of interest, fees and changes billed as described above.

3.10 (b) All payments made on account of the Obligations shall be made by Borrowers to Credit Agent for distribution to Lenders, except for Balance Deficiency Fees, which shall be made directly to the applicable Lender, and fees and charges payable to Credit Agent for its own account. All payments made on account of the principal of and interest on the Warehousing Advances or Swingline Advances in which the Lenders have paid for their participations pursuant to Section 1.3 shall be distributed to the Lenders on a pro-rata basis. All payments made on account of the Obligations shall be made without setoff or counterclaim, free and clear of and without deduction for any taxes, fees or other charges of any nature whatsoever imposed by any taxing authority, and must be received by Credit Agent by 4:00 p.m. on the day of payment, it being expressly agreed and understood that if a payment is received after 4:00 p.m. by Credit Agent such payment will be considered to have been made on the next succeeding Business Day and interest thereon shall be payable by Borrowers at the then applicable rate during such extension. No principal payments resulting from the sale of Pledged Mortgages or Pledged Securities shall be deemed to have been received by Credit Agent until Credit Agent has also received the Notice required under Section 4.3(f). All payments shall be made in lawful money of the United States of America in immediately available funds transferred via wire to the Cash Collateral Account. If any payment required to be made by Borrowers hereunder becomes due and payable on a day other than a Business Day, the due date thereof shall be extended to the next succeeding Business Day and interest shall be payable on Advances so extended at the then applicable rate during such extension.

3.10 (c) All amounts received by Credit Agent on account of the Obligations (except amounts received in respect of fees, Miscellaneous Charges or expenses payable hereunder to Credit Agent for its own account or amounts payable to RFC for RFC Direct Advances or

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Swingline Advances) shall be disbursed to Lenders by wire transfer by 12:00 noon on the Business Day after the date of receipt.

3.10 (d) Without limiting any other right that Credit Agent or any Lender may have under applicable law or otherwise, while a Default or Event of Default exists, Borrowers authorize Credit Agent to cause the Funding Bank to charge Borrower’s Operating Account for any Obligations due and owing, without the necessity of prior demand or Notice from Credit Agent.

3.11. Illegality

In the event that any Lender shall have determined (which determination shall be conclusive and binding absent manifest error) at any time that the introduction of, or any change in, any applicable law, rule, regulation, order or decree or in the interpretation or the administration thereof by any Person charged with the interpretation or administration thereof, or compliance by such Lender with any request or directive (whether or not having the force of law) of any such Person, shall make it unlawful or impossible for such Lender to charge interest at the Balance Funded Rate based on Borrowers’ Eligible Balances as contemplated by this Agreement, then such Lender shall forthwith give Notice thereof to Credit Agent and Borrowers describing such illegality in reasonable detail. Upon the giving of such Notice, the obligation of such Lender to charge interest at the Balance Funded Rate based on Borrowers’ Eligible Balances shall be immediately suspended for the duration of such illegality and with respect to Advances bearing interest at the Balance Funded Rate, each such Advance of such Lender shall bear interest at the applicable Interest Rate described in Exhibit H. If and when such illegality ceases to exist, such Lender shall notify Credit Agent and Borrowers thereof and such suspension shall cease.

3.12. Increased Costs; Capital Requirements

In the event any applicable law, order, regulation or directive issued by any governmental or monetary authority, or any change therein or in the governmental or judicial interpretation or application thereof, or compliance by any Lender with any request or directive (whether or not having the force of law) by any governmental or monetary authority:

3.12 (a) Does or shall subject any Lender to any tax of any kind whatsoever with respect to this Agreement or any Advances made hereunder, or change the basis of taxation on payments to such Lender of principal, fees, interest or any other amount payable hereunder (except for change in the rate of tax on the overall gross or net income of such Lender by the jurisdiction in which such Lender principal office is located); or

3.12 (b) Does or shall impose, modify or hold applicable any reserve, capital requirement, special deposit, compulsory loan or similar requirement against assets held by, or deposits or other liabilities in or for the account of, advances or loans by, or other credit extended by, or any other acquisition of funds by, such Lender which are not otherwise included in the determination of the interest rate as calculated hereunder;

and the result of any of the foregoing is to increase the cost to such Lender of making, renewing or maintaining any Advance or to reduce any amount receivable in respect thereof or to reduce the rate of return on the capital of such Lender or any Person controlling such Lender as it relates to credit facilities in the nature of that evidenced by this Agreement, then, in any such case, Borrowers shall promptly pay any additional amounts necessary to compensate such Lender for such additional cost or reduced amounts receivable or reduced rate of return as determined by such Lender with respect to this Agreement or Advances made hereunder. If a Lender becomes entitled to claim any additional amounts pursuant to this Section, it shall notify Borrowers through Credit Agent of the event by reason of which it has become so entitled and Borrowers shall pay such amount within 15 days thereafter. A certificate as to any additional amount payable

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pursuant to the foregoing sentence containing the calculation thereof in reasonable detail submitted by a Lender, through Credit Agent, to Borrowers shall be conclusive in the absence of manifest error.

3.13. Withholding Taxes

3.13 (a) (1) Any and all payments by Borrowers hereunder or under the Notes shall be made free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto imposed on it by any jurisdiction (excluding, in the case of each Lender and Credit Agent, (y) franchise taxes imposed on or measured by its income by the jurisdiction under the laws of which such Lender or Credit Agent, as the case may be, is organized or any political subdivision thereof, and, (z) if such Lender or Credit Agent is entitled at such time to a total or partial exemption from withholding that is required to be evidenced by a United States Internal Revenue Service Form, taxes imposed on it by reason of any failure of such Lender or Credit Agent to deliver to Credit Agent or the Borrowers, from time to time as required by Credit Agent or Borrowers, such Form, completed in a manner reasonably satisfactory to Credit Agent or the Borrowers) (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as “Taxes”). If Borrowers shall be required by law to deduct any taxes from or in respect of any sum payable hereunder or under any Note to any Lender or Credit Agent (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 3.13) such Lender or Credit Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) Borrowers shall make such deductions, and (iii) Borrowers shall pay the full amount deducted to the relevant taxing authority or other authority in accordance with applicable law.

(2) Borrowers will indemnify each Lender and Credit Agent for the full amount of taxes (including, without limitation, any taxes imposed by any jurisdiction on amounts payable under this Section 3.13 paid by such Lender or Credit Agent (as the case may be), and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, whether or not such taxes were correctly or legally asserted. This indemnification shall be made within 30 days from the date such Lender or Credit Agent (as the case may be) makes written demand therefor.

(3) Within 30 days after the date of any payment of taxes, Borrowers will furnish to Credit Agent the original or a certified copy of a receipt evidencing payment thereof.

(4) Prior to the Closing Date, in the case of each Lender which is an original signatory hereto, and on the date of the assignment pursuant to which it becomes a Lender, in the case of each other Lender, and from time to time thereafter if requested by Borrowers or Credit Agent, each Lender organized under the laws of a jurisdiction outside the United States that is entitled to an exemption from United States withholding tax, or that is subject to such tax at a reduced rate under an applicable tax treaty, shall provide Credit Agent and Borrowers with an Internal Revenue Service Form W-8BEN or W-8ECI or other applicable form, certificate or document prescribed by the Internal Revenue Service of the United States certifying as to such Lender’s entitlement to such exemption or reduced rate with respect to all payments to be made to such

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Lender hereunder and under the Notes. Unless Borrowers and Credit Agent have received forms or other documents satisfactory to them indicating that payments hereunder or under any Note are not subject to United States withholding tax or are subject to such tax at a rate reduced by an applicable tax treaty, Borrowers or Credit Agent shall withhold taxes from such payments at the applicable statutory rate in the case of payments to or for any Lender organized under the laws of a jurisdiction outside the United States.

(5) Any Lender claiming any additional amounts payable pursuant to this Section 3.13 shall use its best efforts (consistent with its internal policy and legal and regulatory restrictions) to change the jurisdiction of its applicable lending office to a jurisdiction in which such Lender already has a lending office if the making of such a change would avoid the need for, or reduce the amount of, any such additional amounts which may thereafter accrue and would not, in the reasonable judgment of such Lender, be otherwise disadvantageous to such Lender.

(6) Without prejudice to the survival of any other agreement of the Borrowers hereunder, the agreements and obligations of the Borrowers contained in this Section 3.13 shall survive the payment in full of principal and interest hereunder and under the Notes.

3.13 (b) If Borrowers become obligated to pay additional amounts described in Section 3.13(a) as a result of any condition described in such Section and payment of such amount is demanded by any Lender, then unless a Default or an Event of Default shall have occurred and be continuing or such Lender has theretofore taken steps that will promptly remove or cure the conditions creating the cause for such obligation to pay such additional amounts, or has revoked such election, as the case may be, Borrowers may, on 10 Business Days’ prior written Notice to Credit Agent, who shall promptly send a copy of such notice to each Lender, cause such Lender to (and such Lender shall, upon payment in full of all amounts outstanding in respect of such Lender’s Advances, including accrued interest thereon, and all other amounts due and payable to such Lender hereunder) assign pursuant to Section 12.7 all of its rights and obligations under this Agreement to a Lender or other Person selected by Borrowers and reasonably acceptable to Credit Agent.

End of Article 3

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4. COLLATERAL

4.1. Grant of Security Interest

As security for the payment of the Notes and for the performance of all of Borrowers’ Obligations, Borrowers grant a security interest to Credit Agent, for the benefit of the Lenders, in all of Borrowers’ right, title and interest in and to the following described property, whether now owned or acquired after the date of this Agreement (“Collateral”):

4.1 (a) All amounts advanced by Credit Agent to or for the account of Borrowers under this Agreement to fund a Mortgage Loan until that Mortgage Loan is closed and those funds disbursed.

4.1 (b) All Mortgage Loans, including all Mortgage Notes, Mortgages and Security Agreements evidencing or securing those Mortgage Loans, that are delivered or caused to be delivered to Credit Agent or any Lender (including delivery to a third party on behalf of Credit Agent), or that otherwise come into the possession, custody or control of Credit Agent or any Lender (including the possession, custody or control of a third party on behalf of Credit Agent) for the purpose of pledge or in respect of which Credit Agent has made an Advance under this Agreement (collectively, “Pledged Loans”).

4.1 (c) All Agreements for Deed in respect of which Advances have been made under this Agreement (collectively, “Pledged Agreements for Deed”)

4.1 (d) All Mortgage-backed Securities that are created in whole or in part on the basis of Pledged Loans or that are delivered or caused to be delivered to Credit Agent or any Lender (including delivery to a third party on behalf of Credit Agent), or that otherwise come into the possession, custody or control of Credit Agent or any Lender (including the possession, custody or control of a third party on behalf of Credit Agent) or that are registered by book-entry in the name of Credit Agent or any Lender (including registration in the name of a third party on behalf of Credit Agent), in each case for the purpose of pledge, or in respect of which an Advance has been made by Credit Agent under this Agreement (collectively, “Pledged Securities”).

4.1 (e) All private mortgage insurance and all commitments issued by the VA or FHA to insure or guarantee any Mortgage Loans included in the Pledged Loans; all Purchase Commitments held by Borrowers covering Pledged Loans or Pledged Securities, and all proceeds from the sale of Pledged Loans or Pledged Securities to Investors pursuant to those Purchase Commitments; and all personal property, contract rights, servicing rights or contracts and servicing fees and income or other proceeds, amounts and payments payable to Borrowers as compensation or reimbursement, accounts, payments, intangibles and general intangibles of every kind relating to Pledged Loans, Pledged Securities, Purchase Commitments, VA commitments or guaranties, FHA commitments, private mortgage insurance and commitments, and all other documents or instruments relating to Pledged Loans and Pledged Securities, including any interest of Borrowers in any fire, casualty or hazard insurance policies and any awards made by any public body or decreed by any court of competent jurisdiction for a taking or for degradation of value in any eminent domain proceeding as the same relate to Pledged Loans.

4.1 (f) All accounts and general intangibles owned by Borrowers (“Receivables”) for the payment of money against (1) VA under a VA Guaranty of, FHA or a private mortgage insurer under an FHA or private insurer’s mortgage insurance policy insuring payment of, or any other Person under any other agreement (including a Servicing Contract) relating to, all or part of

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a defaulted Mortgage Loan (A) repurchased by Borrowers from an investor or out of a pool of Mortgage Loans serviced by Borrowers or (B) being serviced by Borrowers, (2) obligors and their accounts, Fannie Mae, Freddie Mac, Ginnie Mae or any other investor under a Servicing Contract covering, or out of the proceeds of any sale of or foreclosure sale in respect of, any Mortgage Loan (A) repurchased by Borrowers out of a pool of Mortgage Loans serviced by Borrowers or (B) being serviced by Borrowers, in either case, for the reimbursement of real estate taxes or assessments, or casualty or liability insurance premiums, paid by Borrowers in connection with Mortgage Loans and (3) obligors and their accounts, or Fannie Mae, Freddie Mac, Ginnie Mae or any other investor under or in respect of any Mortgage Loans serviced by Borrowers for repayment of advances made by Borrowers to cover shortages in principal and interest payments.

4.1 (g) All escrow accounts, documents, instruments, files, surveys, certificates, correspondence, appraisals, computer programs, tapes, discs, cards, accounting records (including all information, records, tapes, data, programs, discs and cards necessary or helpful in the administration or servicing of the Collateral) and other information and data of Borrowers relating to the Collateral.

4.1 (h) All cash delivered to or otherwise in the possession of Credit Agent or any Lender, the Funding Bank or Credit Agent’s agent, bailee or custodian or designated on the books and records of Borrowers as assigned and pledged to Credit Agent, including all cash deposited in the Cash Collateral Account, the Wire Disbursement Account and the UAMC Asset Account.

4.1 (i) All Hedging Arrangements related to the Collateral (“Pledged Hedging Arrangements”) and Borrowers’ accounts in which those Hedging Arrangements are held (“Pledged Hedging Accounts”), including all rights to payment arising under the Pledged Hedging Arrangements and the Pledged Hedging Accounts, except that Credit Agent’s security interest in the Pledged Hedging Arrangements and Pledged Hedging Accounts applies only to benefits, including rights to payment, related to the Collateral.

4.1 (j) All shares of the capital stock of UAMC Asset now owned or hereafter acquired by any Borrower (collectively, the “Pledged Shares”); all certificates representing the Pledged Shares; and all dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Pledged Shares.

4.1 (k) All accounts, contract rights and general intangibles related to the Collateral.

4.1 (l) All cash and non-cash proceeds of the Collateral, including all dividends, distributions and other rights in connection with, and all additions to, modifications of and replacements for, the Collateral, and all products and proceeds of the Collateral, together with whatever is receivable or received when the Collateral or proceeds of Collateral are sold, collected, exchanged or otherwise disposed of, whether such disposition is voluntary or involuntary, including all rights to payment with respect to any cause of action affecting or relating to the Collateral or proceeds of Collateral.

4.2. Maintenance of Collateral Records

As long as the Commitments are outstanding or there remain any Obligations to be paid or performed under this Agreement or under any other Loan Document, each Borrower must preserve and maintain, at its respective chief executive office and principal place of business or in a regional office approved by Credit Agent, or in the office of a computer service bureau engaged by Borrowers and approved by Credit Agent and, upon request, make available to Credit Agent or Lenders, the originals, or copies in any case where the originals have been delivered to Credit

Page 4-2

Agent, Lenders or to an Investor, of its Mortgage Notes, Mortgages and Security Agreements included in Pledged Loans, its Agreements for Deeds, Mortgage-backed Securities delivered to Credit Agent as Pledged Securities, Purchase Commitments, and all related Mortgage Loan documents and instruments, and all files, surveys, certificates, correspondence, appraisals, computer programs, tapes, discs, cards, accounting records and other information and data relating to the Collateral.

4.3. Release of Security Interest in Pledged Assets

4.3 (a) Except as provided in Section 4.3(b), Credit Agent will release its security interest in Pledged Loans and Agreements for Deed only against payment to Credit Agent of the Release Amount in connection with those Pledged Loans and Agreements for Deed. If Pledged Loans are transferred to a pool custodian or an Investor for inclusion in a Mortgage Pool and Credit Agent’s security interest in the Pledged Loans included in the Mortgage Pool is not released before the issuance of the related Mortgage-backed Security, then that Mortgage-backed Security, when issued, is a Pledged Security, Credit Agent’s security interest continues in the Pledged Loans backing that Pledged Security and Credit Agent is entitled to possession of the Pledged Security in the manner provided in this Agreement.

4.3 (b) If Pledged Loans are transferred to an Approved Custodian and included in an Eligible Mortgage Pool, Credit Agent’s security interest in the Pledged Loans included in the Eligible Mortgage Pool will be released upon the delivery of the Agency Security to Credit Agent (including delivery to or registration in the name of a third party on behalf of Credit Agent) and that Agency Security is a Pledged Security. Credit Agent’s security interest in that Pledged Security will be released only against payment to Credit Agent of the Release Amount in connection with the Mortgage Loans backing that Pledged Security.

4.3 (c) Credit Agent has the exclusive right to possession of all Pledged Securities or, if Pledged Securities are issued in book-entry form or issued in certificated form and delivered to a clearing corporation (as that term is defined in the Uniform Commercial Code of Minnesota) or its nominee, Credit Agent has the right to have the Pledged Securities registered in the name of a securities intermediary (as that term is defined in the Uniform Commercial Code of Minnesota) in an account containing only customer securities and credited to an account of Credit Agent with respect to which Credit Agent is the entitlement holder. Credit Agent has no duty or obligation to deliver Pledged Securities to an Investor or to credit Pledged Securities to the account of an Investor or an Investor’s designee except against payment for those Pledged Securities. Borrowers acknowledge that Credit Agent may enter into one or more standing arrangements with securities intermediaries with respect to Pledged Securities issued in book entry form or issued in certificated form and delivered to a clearing corporation or its designee, under which the Pledged Securities are registered in the name of the securities intermediary, and Borrowers agree, upon request of Credit Agent, to execute and deliver to those securities intermediaries Borrowers’ written concurrence in any such standing arrangements.

4.3 (d) If no Default or Event of Default occurs, Borrowers may redeem a Pledged Loan, a Pledged Security or an Agreement for Deed from Credit Agent’s security interest by notifying Credit Agent of its intention to redeem the Pledged Loan, Pledged Security or Agreement for Deed from pledge and either (1) paying, or causing an Investor to pay, to Credit Agent, for application as a prepayment on the principal balance of the Warehousing Notes, the Release Amount in connection with the Pledged Loan or the Pledged Loans backing that Pledged Security or the Agreement for Deed, or (2) delivering substitute Collateral that, in addition to being acceptable to Credit Agent in

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its sole discretion, will, when included with the remaining Collateral, result in a Warehousing Collateral Value of all Collateral held by Credit Agent that is at least equal to the aggregate outstanding Advances.

4.3 (e) After a Default or Event of Default occurs, Credit Agent may, with no liability to Borrowers or any Person, continue to release its security interest in any Pledged Loan, Pledged Security or Pledged Agreement for Deed against payment of the Release Amount for that Pledged Loan, or for the Pledged Loans backing that Pledged Security or for that Pledged Agreement for Deed.

4.3 (f) The amount to be paid by Borrowers to obtain the release of Credit Agent’s security interest in a Pledged Loan or Pledged Agreement for Deed (“Release Amount”) will be (1) in connection with the sale of a Pledged Loan or Pledged Agreement for Deed by Borrowers, the payment required in any bailee letter pursuant to which Credit Agent ships that Pledged Loan or Pledged Agreement for Deed to an Investor, Approved Custodian, pool custodian or other party, (2) in connection with the sale of a Pledged Loan or Pledged Agreement for Deed by Credit Agent while an Event of Default exists, the amount paid to Credit Agent in a commercially reasonable disposition of that Pledged Loan or Pledged Agreement for Deed and (3) otherwise, until an Event of Default occurs, the principal amount of the Warehousing Advance outstanding against the Pledged Loan or Pledged Agreement for Deed.

4.4. Collection and Servicing Rights

4.4 (a) If no Event of Default exists, Borrowers may service and receive and collect directly all sums payable to Borrowers in respect of the Collateral other than proceeds of any Purchase Commitment or proceeds of the sale of any Collateral. All proceeds of any Purchase Commitment or any other sale of Collateral must be paid directly to the Cash Collateral Account for application as provided in this Agreement.

4.4 (b) After an Event of Default, Credit Agent or its designee is entitled to service and receive and collect all sums payable to Borrowers in respect of the Collateral, and in such case (1) Credit Agent or its designee in its discretion may, in its own name, in the name of Borrowers or otherwise, demand, sue for, collect or receive any money or property at any time payable or receivable on account of or in exchange for any of the Collateral, but Credit Agent has no obligation to do so, (2) Borrowers must, if Credit Agent requests them to do so, hold in trust for the benefit of Credit Agent and immediately pay to Credit Agent at its office designated by Notice, all amounts received by Borrowers upon or in respect of any of the Collateral, advising Credit Agent as to the source of those funds and (3) all amounts so received and collected by Credit Agent will be held by it as part of the Collateral.

4.5. Return of Collateral at End of Commitments

If (a) the Commitments have expired or been terminated, and (b) no Advances, interest or other Obligations are outstanding and unpaid, Credit Agent will release its security interest and will deliver all Collateral in its possession to Borrowers at Borrowers’ expense. Borrowers’ acknowledgement or receipt for any Collateral released or delivered to Borrowers under any provision of this Agreement is a complete and full acquittance for the Collateral so returned, and Credit Agent is discharged from any liability or responsibility for that Collateral.

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4.6. Delivery of Collateral Documents

4.6 (a) Credit Agent may deliver documents relating to the Collateral to Borrowers for correction or completion under a Trust Receipt.

4.6 (b) If no Default or Event of Default exists, upon delivery by Borrowers to Credit Agent of shipping instructions pursuant to the applicable Exhibit B, Credit Agent will deliver the Mortgage Notes evidencing Pledged Loans or Pledged Securities, together with all related loan documents and pool documents previously received by Credit Agent under the requirements of the applicable Exhibit B, to the designated Investor or Approved Custodian or to another party designated by Borrowers and acceptable to Credit Agent in its sole discretion.

4.6 (c) If a Default or Event of Default exists, Credit Agent may, without liability to Borrowers or any other Person, continue to deliver Pledged Loans or Pledged Securities, together with all related loan documents and pool documents in Credit Agent’s possession, to the applicable Investor, or Approved Custodian or to another party acceptable to Credit Agent in its sole discretion.

4.6 (d) Upon receipt of Notice from Borrowers under Section 3.3(g), and payment of the Release Amount with respect to a Pledged Asset identified by Borrowers, Credit Agent will, at Borrowers’ request, release to Borrowers any Collateral Documents relating to the redeemed Pledged Asset or the Pledged Loans backing a Pledged Security that Credit Agent has in its possession and that have not been delivered to an Investor or Approved Custodian; provided, that Credit Agent shall, if requested by an Investor or Approved Custodian or consistent with past practices, provide the Collateral Documents for any Pledged Asset purchased to such Investor, and the Collateral Documents for any Pledged Loan backing Mortgage-backed Securities to the Approved Custodian.

4.7. Borrowers Remains Liable

Anything herein to the contrary notwithstanding, Borrowers shall remain liable under each item of the Collateral to observe and perform all the conditions and obligations to be observed and performed by it thereunder, all in accordance with the terms thereof and any other agreement giving rise thereto, and in accordance with and pursuant to the terms and provisions thereof. Whether or not Credit Agent has exercised any rights in any of the Collateral, neither Credit Agent, nor any Lender shall have any obligation or liability under any of the Collateral (or any agreement giving rise thereto) by reason of or arising out of this Agreement or the receipt by Credit Agent of any payment relating thereto, nor shall Credit Agent nor any Lender be obligated in any manner to perform any of the obligations of Borrowers under or pursuant to any of the Collateral (or any agreement giving rise thereto) to make any payment, to make any inquiry as to the nature or the sufficiency of any payment received by it or as to the sufficiency of any performance by any party under any of the Collateral (or any agreement giving rise thereto), to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to it or to which it may be entitled at any time or times.

4.8. Further Assurance

Borrowers authorize Credit Agent to file any financing statements, and Borrowers agree to take whatever other actions are requested by Credit Agent to perfect and continue Credit Agent’s security interest in the Collateral. Borrowers will execute and cooperate with Credit Agent in obtaining from third parties control agreements in form satisfactory to Credit Agent with respect to collateral consisting of investment property, deposit accounts, letter-of-credit rights, and electronic chattel paper.

End of Article 4

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5. CONDITIONS PRECEDENT

5.1. Initial Advance

Lenders’ obligation to make Warehousing Advances and RFC’s obligation to make RFC Direct Advances, is subject to the satisfaction, in the sole discretion of Credit Agent, of the following conditions precedent:

5.1 (a) Credit Agent must receive the following, all of which must be satisfactory in form and content to Credit Agent, in its sole discretion:

(1) The Notes and this Agreement duly executed by Borrowers.

(2) The Lennar Undertaking, on the form prescribed by Credit Agent, duly executed by Lennar.

(3) UAMCLLC’s articles of organization, together with all amendments, as certified by the Secretary of State of Florida, UAMCLLC’s operating agreement, together with all amendments, certified by the manager of UAMCLLC, or a certificate of UAMCLLC stating that there has been no change in either UAMCLLC’s articles of organization or operating agreement since those delivered in connection with the Existing Agreement, and certificates of good standing dated within 60 days of the date of this Agreement.

(4) A resolution, consent or approval of all of the members of UAMCLLC authorizing the execution, delivery and performance of this Agreement and the other Loan Documents, each Advance Request and all other agreements, instruments or documents to be delivered by UAMCLLC under this Agreement.

(5) A certificate as to the incumbency and authenticity of the signatures of the managers of UAMCLLC executing this Agreement and the other Loan Documents.

(6) Assumed Name Certificates dated within 30 days of the date of this Agreement for any assumed name used by UAMCLLC in the conduct of its business.

(7) EHMI’s articles of incorporation, together with all amendments, as certified by the Secretary of State of Washington; EHMI’s bylaws, together with all amendments, certified by the corporate secretary or assistant secretary of EHMI; or a certificate of EHMI stating that there has been no change in either EHMI’s articles of incorporation or bylaws since those delivered in connection with the Existing Agreement, and certificates of good standing dated within 60 days of the date of this Agreement.

(8) A resolution of the board of directors of EHMI authorizing the execution, delivery and performance of this Agreement and the other Loan Documents, each Advance Request and all other agreements, instruments or documents to be delivered by EHMI under this Agreement.

(9) A certificate as to the incumbency and authenticity of the signatures of the officers of EHMI executing this Agreement and the other Loan Documents.

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(10) Assumed Name Certificates dated within 30 days of the date of this Agreement for any assumed name used by EHMI in the conduct of its business.

(11) AFSI’s articles of incorporation, together with all amendments, as certified by the Secretary of State of California; AFSI’s bylaws, together with all amendments, certified by the corporate secretary or assistant secretary of AFSI; or a certificate of AFSI stating that there has been no change in either AFSI’s articles of incorporation or bylaws since those delivered in connection with the Existing Agreement, and certificates of good standing dated within 30 days of the date of this Agreement.

(12) A resolution of the board of directors of AFSI authorizing the execution, delivery and performance of this Agreement and the other Loan Documents, each Advance Request and all other agreements, instruments or documents to be delivered by AFSI under this Agreement.

(13) A certificate as to the incumbency and authenticity of the signatures of the officers of AFSI executing this Agreement and the other Loan Documents.

(14) Assumed Name Certificates dated within 30 days of the date of this Agreement for any assumed name used by AFSI in the conduct of its business.

(15) UAMCC’s articles of incorporation, together with all amendments, as certified by the Secretary of State of California; UAMCC’s bylaws, together with all amendments, certified by the corporate secretary or assistant secretary of UAMCC; or a certificate of UAMCC stating that there has been no change in either UAMCC’s articles of incorporation or bylaws since those delivered in connection with the Existing Agreement, and certificates of good standing dated within 30 days of the date of this Agreement.

(16) A resolution of the board of directors of UAMCC authorizing the execution, delivery and performance of this Agreement and the other Loan Documents, each Advance Request and all other agreements, instruments or documents to be delivered by UAMCC under this Agreement.

(17) A certificate as to the incumbency and authenticity of the signatures of the officers of UAMCC executing this Agreement and the other Loan Documents.

(18) Assumed Name Certificates dated within 30 days of the date of this Agreement for any assumed name used by UAMCC in the conduct of its business.

(19) UAMC Asset’s articles of incorporation, together with all amendments, as certified by the Secretary of State of Nevada; UAMC Asset’s bylaws, together with all amendments, certified by the corporate secretary or assistant secretary of UAMC Asset; or a certificate of UAMC Asset stating that there has been no change in either UAMC Asset articles of incorporation or bylaws since those delivered in connection with the Existing Agreement, and certificates of good standing dated within 30 days of the date of this Agreement.

(20) A resolution of the board of directors of UAMC Asset authorizing the execution, delivery and performance of this Agreement and the other Loan Documents, each Advance Request and all other agreements, instruments or documents to be delivered by UAMC Asset under this Agreement.

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(21) A certificate as to the incumbency and authenticity of the signatures of the officers of UAMC Asset executing this Agreement and the other Loan Documents.

(22) Assumed Name Certificates dated within 30 days of the date of this Agreement for any assumed name used by UAMC Asset in the conduct of its business.

(23) Lennar’s articles or certificate of incorporation, together with all amendments, as certified by the Secretary of State of Florida, bylaws certified by the corporate secretary of Lennar, or a certificate of Lennar stating that there has been no change in either Lennar’s articles or certificate of incorporation or bylaws since those delivered in connection with the Existing Agreement, and certificates of good standing dated within 30 days of the date of this Agreement.

(24) A resolution of the board of directors of Lennar, certified as of the date of the Agreement by its corporate secretary, authorizing the execution, delivery and performance of Lennar Undertaking, and all other agreements, instruments or documents to be delivered by Lennar under this Agreement.

(25) A certificate as to the incumbency and authenticity of the signatures of the officers of Lennar executing Lennar Undertaking and all other agreements, instruments or documents to be delivered under this Agreement (Lender being entitled to rely on that certificate until a new incumbency certificate has been furnished to Lender).

(26) A favorable written opinion of counsel to Borrowers and Lennar (or of separate counsel at the option of Borrowers and Lennar), addressed to Lenders and dated as of the date of this Agreement, covering such matters as Lenders may reasonably request.

(27) Uniform Commercial Code, tax lien and judgment searches of the appropriate public records for each Borrower that do not disclose the existence of any prior Lien on the Collateral other than in favor of Credit Agent or as permitted under this Agreement.

(28) Copies of the certificates, documents or other written instruments that evidence Borrowers’ eligibility described in Section 9.1, all in form and substance satisfactory to Credit Agent.

(29) Copies of each Borrowers’ errors and omissions insurance policy or mortgage impairment insurance policy, and blanket bond coverage policy, or certificates in lieu of policies, showing compliance by each Borrower as of the date of this Agreement with the provisions of Section 7.9.

(30) An agreement among each Borrower that is selling Loans to Fannie Mae, Credit Agent and Fannie Mae in which Fannie Mae agrees to send all cash proceeds of Mortgage Loans sold by such Borrower to Fannie Mae to the Cash Collateral Account, each in form and substance satisfactory to Credit Agreement.

(31) Receipt by Credit Agent and Lenders of any fees due on the date of this Agreement.

(32) An executed Electronic Tracking Agreement among Borrowers, Credit Agent and Mortgage Electronic Registration Systems, Inc. (“MERS”), and MERCORP, Inc., pursuant to which Credit Agent will have the authority to, among other things, withdraw Mortgages from the MERS system, if either the Mortgage Loan has

Page 5-3

been registered on the MERS system naming Borrowers as servicer or subservicer, or the Mortgage Loan has not yet been registered on the MERS system.

5.1 (b) If, as of the date of this Agreement, any Borrower has any indebtedness for borrowed money to any of its managers, members or Affiliates or any director, officer or shareholder of any manager, member or Affiliate of any manager or member, which indebtedness, when added to all other such indebtedness of each Borrower, results in an aggregate amount of such indebtedness in excess of $35,000,000, the Person to whom that Borrower is indebted must have executed a Subordination of Debt Agreement, on the form prescribed by Credit Agent; and Credit Agent must have received an executed copy of that Subordination of Debt Agreement, certified by the secretary of the respective Borrower to be true and complete and in full force and effect as of the date of the Advance.

5.1 (c) No Borrower must have incurred any material liabilities, direct or contingent, other than in the ordinary course of its business, since the Audited Statement Date.

5.2. Each Advance

Lenders’ obligation to make the each Warehousing Advance and RFC’s obligation to make each RFC Direct Advance is subject to the satisfaction, in the sole discretion of Credit Agent, as of the date of each Advance, of the following additional conditions precedent:

5.2 (a) Borrowers must have delivered to Credit Agent the applicable Warehousing Advance Request and Collateral Documents required by, and must have satisfied the procedures set forth in, Article 2 and the Exhibits described in that Article. All items delivered to Credit Agent must be satisfactory to Credit Agent in form and content, and Credit Agent may reject any item that does not satisfy the requirements of this Agreement or of the related Purchase Commitment.

5.2 (b) Credit Agent must have received evidence satisfactory to it confirming the making or continuation of any book entry or the due filing and recording in all appropriate offices of all financing statements and other instruments necessary to perfect the security interest of Credit Agent in the Collateral under the Uniform Commercial Code or other applicable law.

5.2 (c) The representations and warranties of Borrowers contained in Article 6 and Article 9 and the representations and warranties of Lennar under the Lennar Undertaking must be accurate and complete in all material respects as if made on and as of the date of each Advance.

5.2 (d) Borrowers must have performed all agreements to be performed by each of them under this Agreement, and after giving effect to the requested Advance, no Default or Event of Default will exist under this Agreement.

5.2 (e) Lennar must have performed all agreements to be performed by it under the Lennar Undertaking.

Delivery of a Warehousing Advance Request by a Borrower will be deemed a representation by Borrowers that all conditions set forth in this Section have been satisfied as of the date of the Advance.

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5.3. Force Majeure

Notwithstanding Borrowers’ satisfaction of the conditions set forth in this Agreement, Credit Agent and Lenders have no obligation to make a Warehousing Advance and RFC has no obligation to make an RFC Direct Advance, if Lenders or Credit Agent are prevented from obtaining the funds necessary to make an Advance, or are otherwise prevented from making an Advance as a result of any fire or other casualty, failure of power, strike, lockout or other labor trouble, banking moratorium, embargo, sabotage, confiscation, condemnation, riot, civil disturbance, insurrection, act of terrorism, war or other activity of armed forces, act of God or other similar reason beyond the control of Lenders or Credit Agent. Lenders and Credit Agent will make the requested Warehousing Advance and RFC will make the requested RFC Direct Advance as soon as reasonably possible following the occurrence of such an event.

End of Article 5

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6. GENERAL REPRESENTATIONS AND WARRANTIES

Each Borrower represents and warrants to Credit Agent and Lenders, as of the date of this Agreement and as of the date of each Warehousing Advance Request and the making of each Advance, that:

6.1. Place of Business

As of the Closing Date, and thereafter until Borrowers provide Credit Agent with Notice of any change:

6.1 (a) UAMCLLC’s chief executive office and principal place of business is 311 Park Place Boulevard, 5^th Floor, Clearwater, FL 33758.

6.1 (b) EHMI’s chief executive office and principal place of business is 11000 NE 33^rd Place, Suite 300, Bellevue, Washington 98004.

6.1 (c) AFSI’s chief executive office and principal place of business is 24896 Chrisanta Drive, Mission Viejo, CA 92691.

6.1 (d) UAMCC’s chief executive office and principal place of business is 24896 Chrisanta Drive, Mission Viejo, CA 92691.

6.1 (e) UAMC Asset’s chief executive office and principal place of business is 700 NW 107^th Avenue, 3rd Floor, Miami, Florida 33173.

From and after the time Borrower provides Lenders with Notice of any change of address, the new address shall remain the chief executive office and principal place of business of the applicable Borrower(s) until Notice of a subsequent change of address is given.

6.2. Organization; Good Standing; Subsidiaries

UAMCLLC is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Florida, and has the full legal power and authority to own its property and to carry on its business as currently conducted. EHMI is a corporation duly organized, validly existing and in good standing under the laws of the State of Washington, and has the full legal power and authority to own its property and to carry on its business as currently conducted. AFSI is a corporation duly organized, validly existing and in good standing under the laws of the State of California, and has the full legal power and authority to own its property and to carry on its business as currently conducted. UAMCC is a corporation duly organized, validly existing and in good standing under the laws of the State of California, and has the full legal power and authority to own its property and to carry on its business as currently conducted. UAMC Asset is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada, and has the full legal power and authority to own its property and to carry on its business as currently conducted. Each Subsidiary of each Borrower is duly organized, validly existing and in good standing under the laws of its jurisdiction of formation, and has the full legal power and authority to own its property and conduct its business as currently conducted. Each Borrower and each Subsidiary of each Borrower is duly qualified as a foreign corporation to do business and is in good standing in each jurisdiction in which the transaction of its business makes qualification necessary, except in jurisdictions, if any, where a failure to be in good standing has no material adverse effect on Borrowers’ or the Subsidiaries’ business, operations, assets or financial condition as a whole. For the purposes of this Agreement, good standing includes qualification for any and all licenses and payment of any and all taxes required in the

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jurisdiction of its incorporation and in each jurisdiction in which Borrower transacts business. As of the date of this Agreement, no Borrower has any Subsidiaries except as set forth on Exhibit D, which sets forth with respect to each Subsidiary, its name, address, place of incorporation, each state in which it is qualified as a foreign corporation, and the percentage ownership of its capital stock by the respective Borrower.

6.3. Authorization and Enforceability

Each Borrower has the power and authority to execute, deliver and perform this Agreement, the Notes and other Loan Documents to which Borrowers are party and to make the borrowings under this Agreement. The execution, delivery and performance by Borrowers of this Agreement, the Notes and the other Loan Documents to which Borrowers are party and the making of the borrowings under this Agreement and the Notes, have been duly and validly authorized by all necessary company action on the part of each Borrower (none of which actions has been modified or rescinded, and all of which actions are in full force and effect) and do not and will not (a) conflict with or violate any provision of law, of any judgments binding upon any Borrower, or of the organizational documents of each Borrower, or (b) conflict with or result in a breach of, constitute a default or require any consent under, or result in or require the acceleration of any indebtedness of any Borrower under any agreement, instrument or indenture to which any Borrower is a party or by which any Borrower or its property may be bound or affected, or result in the creation of any Lien upon any property or assets of any Borrower (other than the Lien on the Collateral granted under this Agreement). This Agreement, the Notes and the other Loan Documents constitute the legal, valid and binding obligations of Borrowers, enforceable in accordance with their respective terms, except as limited by bankruptcy, insolvency or other such laws affecting the enforcement of creditors’ rights.

6.4. Authorization and Enforceability of Lennar Undertaking

Lennar has the power and authority to execute, deliver and perform the Lennar Undertaking. The Lennar Undertaking constitutes the legal, valid, and binding obligation of Lennar, enforceable in accordance with its terms, except as limited by bankruptcy, insolvency or other such laws affecting the enforcement of creditors’ rights.

6.5. Approvals

The execution and delivery of this Agreement, the Notes and the other Loan Documents and the performance of each Borrower’s obligations under this Agreement, the Notes and the other Loan Documents and the validity and enforceability of this Agreement, the Notes and the other Loan Documents do not require any license, consent, approval or other action of any state or federal agency or governmental or regulatory authority other than those that have been obtained and remain in full force and effect.

6.6. Financial Condition

The balance sheet of UAMCLLC (and its Subsidiaries, on a consolidated basis) as of each Statement Date, and the related statements of income, cash flows and changes in stockholders’ equity for the fiscal period ended on each Statement Date, previously furnished to Credit Agent, fairly present the financial condition of UAMCLLC (and its Subsidiaries) as at that Statement Date and the results of its operations for the fiscal period ended on that Statement Date. Each Borrower had, on each Statement Date, no known material liabilities, direct or indirect, fixed or contingent, matured or unmatured, or liabilities for taxes, long-term leases or unusual forward or long-term commitments not disclosed by, or reserved against in, said balance sheet and related statements, and at the present time there are no material unrealized or anticipated losses from any loans, advances or other commitments of any Borrower except as previously disclosed to

Page 6-2

Credit Agent in writing. Those financial statements were prepared in accordance with GAAP applied on a consistent basis throughout the periods involved. Since the Audited Statement Date, there has been no material adverse change in the business, operations, assets or financial condition of any Borrower, nor is any Borrower aware of any state of facts that (with or without notice or lapse of time or both) would or could result in any such material adverse change.

6.7. Litigation

There are no actions, claims, suits or proceedings pending or, to any Borrower’s knowledge, threatened or reasonably anticipated against or affecting Borrowers or any Subsidiary of Borrowers in any court or before any arbitrator or before any government commission, board, bureau or other administrative agency that, if adversely determined, may reasonably be expected to result in a material adverse change in any Borrower’s business, operations, assets or financial condition as a whole, or that would affect the validity or enforceability of this Agreement, the Notes or any other Loan Document.

6.8. Compliance with Laws

No Borrower nor any Subsidiary of any Borrower is in violation of any provision of any law, or of any judgment, award, rule, regulation, order, decree, writ or injunction of any court or public regulatory body or authority that could result in a material adverse change in any Borrower’s business, operations, assets or financial condition as a whole or that would affect the validity or enforceability of this Agreement, the Notes or any other Loan Document.

6.9. Regulation U

No Borrower is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying Margin Stock, and no part of the proceeds of any Advance made under this Agreement will be used to purchase or carry any Margin Stock or to extend credit to others for the purpose of purchasing or carrying any Margin Stock.

6.10. Investment Company Act

No Borrower is an “investment company” or controlled by an “investment company” within the meaning of the Investment Company Act.

6.11. Payment of Taxes

Each Borrower and each of their respective Subsidiaries has filed or caused to be filed all federal, state and local income, excise, property and other tax returns that are required to be filed with respect to the operations of Borrowers and their Subsidiaries, all such returns are true and correct and Borrowers and each of their Subsidiaries has paid or caused to be paid all taxes shown on those returns or on any assessment, to the extent that those taxes have become due, including all FICA payments and withholding taxes, if appropriate. The amounts reserved as a liability for income and other taxes payable in the financial statements described in Section 6.6 are sufficient for payment of all unpaid federal, state and local income, excise, property and other taxes, whether or not disputed, of Borrowers and their Subsidiaries accrued for or applicable to the period and on the dates of those financial statements and all years and periods prior to those financial statements and for which Borrowers and their Subsidiaries may be liable in their own right or as transferee of the assets of, or as successor to, any other Person. No tax Liens have been filed and no material claims are being asserted against any Borrower, any Subsidiary of any Borrower or any property of any Borrower or any Subsidiary of any Borrower with respect to any taxes, fees or charges.

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6.12. Agreements

No Borrower nor any Subsidiary of any Borrower is a party to any agreement, instrument or indenture or subject to any restriction materially and adversely affecting its business, operations, assets or financial condition, except as disclosed in the financial statements described in Section 6.6. No Borrower nor any Subsidiary of any Borrower is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement, instrument, or indenture which default could result in a material adverse change in any Borrower’s business, operations, properties or financial condition as a whole. No holder of any indebtedness of any Borrower or of any of their respective Subsidiaries has given notice of any asserted default under that indebtedness, and no liquidation or dissolution of any Borrower or of any of their Subsidiaries and no receivership, insolvency, bankruptcy, reorganization or other similar proceedings relative to Borrowers or of any of their Subsidiaries or any of their properties is pending, or to the knowledge of Borrowers, threatened.

6.13. Title to Properties

Each Borrower and each Subsidiary of each Borrower has good, valid, insurable and (in the case of real property) marketable title to all of its properties and assets (whether real or personal, tangible or intangible) reflected on the financial statements described in Section 6.6, except for those properties and assets that Borrowers have disposed of since the date of those financial statements either in the ordinary course of business or because they were no longer used or useful in the conduct of Borrowers’ or the respective Subsidiary’s business. All of Borrowers’ properties and assets are free and clear of all Liens except as disclosed in Borrowers’ financial statements.

6.14. ERISA

Each Plan is in compliance with all applicable requirements of ERISA and the Internal Revenue Code and with all material applicable rulings and regulations issued under the provisions of ERISA and the Internal Revenue Code setting forth those requirements, except where any failure to comply would not result in a material loss to Borrowers or any ERISA Affiliate. All of the minimum funding standards or other contribution obligations applicable to each Plan have been satisfied. No Plan is a defined-benefit pension plan subject to Title IV of ERISA, and there is no Multiemployer Plan.

6.15. No Retiree Benefits

Except as required under Section 4980B of the Internal Revenue Code, Section 601 of ERISA or applicable state law, no Borrower nor, if applicable, any Subsidiary, is obligated to provide post-retirement medical or insurance benefits with respect to employees or former employees.

6.16. Assumed Names

No Borrower originates Mortgage Loans or otherwise conducts business under any names other than its legal name and the assumed names set forth on Exhibit G. Each Borrower has made all filings and taken all other action as may be required under the laws of any jurisdiction in which it originates Mortgage Loans or otherwise conducts business under any assumed name. To the best of Borrowers’ knowledge, each Borrower’s use of the assumed names set forth on Exhibit G does not conflict with any other Person’s legal rights to any such name, nor otherwise give rise to any liability by Borrowers to any other Person. Borrowers may amend Exhibit G to add or delete any assumed names used by Borrowers to conduct business. An amendment to Exhibit G to add an assumed name is not effective until Borrowers have delivered to Credit Agent an assumed name certificate in the jurisdictions in which the assumed name is to be used, which must be

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satisfactory in form and content to Credit Agent, in its sole discretion. In connection with any amendment to delete a name from Exhibit G, Borrowers represent and warrant that they have ceased using that assumed name in all jurisdictions.

6.17. Servicing

Exhibit C is a true and complete list of Borrowers’ Servicing Portfolio. All of Borrowers’ Servicing Contracts are in full force and effect, and are unencumbered by Liens other than Liens disclosed in Exhibit C. No default or event that, with notice or lapse of time or both, would become a default, exists under any of Borrowers’ Servicing Contracts.

End of Article 6

Page 6-5

7. AFFIRMATIVE COVENANTS

As long as the Commitments are outstanding or there remain any Obligations to be paid or performed under this Agreement or under any other Loan Document, Borrowers must:

7.1. Payment of Obligations

Punctually pay or cause to be paid all Obligations, including the Obligations payable under this Agreement and under the Notes, in accordance with their terms.

7.2. Financial Statements

Deliver to Credit Agent and each Lender:

7.2 (a) As soon as available and in any event within 45 days after the end of each fiscal quarter, including the last fiscal quarter of UAMCLLC’s fiscal year, an interim statement of income of UAMCLLC (and its Subsidiaries, on a consolidated basis) for the immediately preceding fiscal quarter, and the related balance sheet as at the end of the immediately preceding fiscal quarter, all in reasonable detail, subject, however, to year-end audit adjustments.

7.2 (b) As soon as available and in any event within 90 days after the end of each fiscal year of Borrowers, fiscal year-end statements of income, changes in members’ equity and cash flow of UAMCLLC (and its Subsidiaries, on a consolidated basis) for that year, and the related balance sheet as of the end of that year (setting forth in comparative form the corresponding figures for the preceding fiscal year), all in reasonable detail and accompanied by (1) an opinion as to those financial statements in form and substance satisfactory to Credit Agent and prepared by independent certified public accountants of recognized standing acceptable to Credit Agent and (2) any management letters, management reports or other supplementary comments or reports delivered by those accountants to any Borrower or its board of directors.

7.2 (c) Together with each delivery of financial statements required by this Section, a Compliance Certificate for each Borrower substantially in the form of Exhibit E.

7.2 (d) Copies of all regular or periodic financial and other reports that any Borrower files with the Securities and Exchange Commission or any successor governmental agency or other entity.

7.3. Other Borrower Reports

Deliver to Credit Agent and each Lender:

7.3 (a) If at any time Borrowers’ consolidated Servicing Portfolio exceeds $500,000,000, then as soon as available and in any event within 45 days after the end of each Calendar Quarter, a consolidated report (“Servicing Portfolio Report”) as of the end of the Calendar Quarter, as to all Mortgage Loans the servicing rights to which are owned by Borrowers (specified by investor type, recourse and non-recourse) regardless of whether the Mortgage Loans are Pledged Loans. The Servicing Portfolio Report must indicate which Mortgage Loans (1) are current and in good standing, (2) are more than 30, 60 or 90 days past due, (3) are the subject of pending bankruptcy or foreclosure proceedings, or (4) have been converted (through foreclosure or other proceedings in lieu of foreclosure) into real estate owned by Borrowers.

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7.3 (b) With each Officer’s Certificate, a monthly status report on each Construction/Perm Mortgage Loan, including, without limitation, the loan number, mortgagor name(s), property address, general contractor name, completion status (percent completed or staged draw no. and brief description), estimated completion date (if completion date is behind schedule, then an explanation of delay), date of last on-site inspection, and Pledged Mortgage payment status.

7.3 (c) Weekly or more frequently as Credit Agent may from time to time request, a commitment summary and pipeline report substantially in the form of Exhibit O (“Commitment Summary Report”) including a report on Borrower’s Weighted Average Committed Purchase Price for each type of Mortgage Loan owned by Borrowers and dated as of the close of business on the first Business Day of each week and provided to Credit Agent by facsimile by the close of business on the next succeeding Business Day.

7.3 (d) As soon as available and in any event within 45 days after the end of each fiscal quarter, a consolidated loan production report as of the end of that fiscal quarter, presenting the total dollar volume and the number of Mortgage Loans originated and closed or purchased during that fiscal quarter and for the fiscal year-to-date, in form acceptable to Credit Agent in its sole discretion.

7.3 (e) As soon as available and in any event within 30 days after filing with the Securities and Exchange Commission, a copy of the 10-Q and 10-K of Lennar.

7.3 (f) Other reports in respect of Pledged Assets, including copies of purchase confirmations issued by Investors purchasing Pledged Loans from Borrowers, in such detail and at such times as Credit Agent in its discretion may reasonably request.

7.3 (g) With reasonable promptness, such further information regarding the business, operations, properties or financial condition of each Borrower as Credit Agent, or any Lender, through Credit Agent, may reasonably request, including copies of any audits completed by HUD, Ginnie Mae, Fannie Mae or Freddie Mac.

7.4. Maintenance of Existence; Conduct of Business

Preserve and maintain each Borrower’s organizational existence in good standing and all of its rights, privileges, licenses and franchises necessary or desirable in the normal conduct of its business, including its eligibility as lender, seller/servicer and issuer described under Section 9.1; conduct its business in an orderly and efficient manner; maintain a net worth of acceptable assets as required for maintaining each Borrower’s eligibility as lender, seller/servicer and issuer described under Section 9.1; and make no material change in the nature or character of its business or engage in any business in which it was not engaged on the date of this Agreement.

7.5. Compliance with Applicable Laws

Comply with the requirements of all applicable laws, rules, regulations and orders of any governmental authority, a breach of which could result in a material adverse change in each Borrower’s business, operations, assets, or financial condition as a whole or on the enforceability of this Agreement, the Notes, any other Loan Document or any Collateral, except where contested in good faith and by appropriate proceedings.

7.6. Inspection of Properties and Books; Operational Reviews

7.6 (a) Permit Credit Agent, any Lender or any Participant (and their authorized representatives) to discuss the business, operations, assets and financial condition of each Borrower and their respective Subsidiaries with each Borrower’s officers, agents and employees, and to

Page 7-2

examine and make copies or extracts of each Borrower’s and their respective Subsidiaries’ books of account, all at such reasonable times and, as long as no Default or Event of Default has occurred and is continuing, on such reasonable Notice, as Credit Agent, any Lender or any Participant may request.

7.6 (b) Provide its accountants with a copy of this Agreement promptly after its execution and authorize and instruct them to answer candidly all questions that the officers of Credit Agent, any Lender or any Participant or any authorized representatives of Credit Agent, any Lender or any Participant may address to them in reference to the financial condition or affairs of each Borrower and their respective Subsidiaries. As long as no Default or Event of Default has occurred and is continuing, Credit Agent or any Lender will provide Borrowers with advance notice of any such inquiry to Borrowers’ accountants. Each Borrower may have its representatives in attendance at any meetings held between the officers or other representatives of Credit Agent, any Lender or any Participant and each Borrower’s accountants under this authorization.

7.6 (c) Permit Credit Agent, any Lender or any Participant (and their authorized representatives) access to each Borrower’s premises and records for the purpose of conducting a review of each Borrower’s general mortgage business methods, policies and procedures, auditing its loan files and reviewing the financial and operational aspects of such Borrower’s business.

7.7. Notice

Give prompt Notice to Credit Agent of (a) any action, suit or proceeding instituted by or against any Borrower or any of its Subsidiaries in any federal or state court or before any commission or other regulatory body (federal, state or local, domestic or foreign), which action, suit or proceeding has at issue in excess of $1,000,000, or any such proceedings threatened against any Borrower or any of its Subsidiaries in writing containing the details of that action, suit or proceeding; (b) the filing, recording or assessment of any federal, state or local tax Lien against any Borrower, or any of its assets or any of its Subsidiaries; (c) an Event of Default; (d) a Default that continues for more than 4 days; (e) the suspension, revocation or termination of any Borrower’s eligibility, in any respect, as lender, seller/servicer or issuer as described under Section 9.1; (f) the transfer, loss, nonrenewal or termination of any Servicing Contracts to which any Borrower is a party, or which is held for the benefit of such Borrower, and the reason for that transfer, loss, nonrenewal or termination; (g) any Prohibited Transaction with respect to any Plan, specifying the nature of the Prohibited Transaction and what action such Borrower proposes to take with respect to it; and (h) any other action, event or condition of any nature that could lead to or result in a material adverse change in the business, operations, assets or financial condition of Borrowers or any of their respective Subsidiaries.

7.8. Payment of Debt, Taxes and Other Obligations

Pay, perform and discharge, or cause to be paid, performed and discharged, all of the obligations and indebtedness of each Borrower and its Subsidiaries, all taxes, assessments and governmental charges or levies imposed upon Borrowers or their respective Subsidiaries or upon their respective income, receipts or properties before those taxes, assessments and governmental charges or levies become past due, and all lawful claims for labor, materials and supplies or otherwise that, if unpaid, could become a Lien or charge upon any of their respective properties or assets. Each Borrower and their respective Subsidiaries are not required to pay, however, any taxes, assessments and governmental charges or levies or claims for labor, materials or supplies for which such Borrower or its Subsidiaries have obtained an adequate bond or insurance or that are being contested in good faith and by proper proceedings that are being reasonably and diligently pursued and for which proper reserves have been created.

Page 7-3

7.9. Insurance

Maintain blanket bond coverage and errors and omissions insurance or mortgage impairment insurance, with such companies and in such amounts as satisfy prevailing requirements applicable to a lender, seller/servicer and issuer described under Section 9.1, and liability insurance and fire and other hazard insurance on its properties, in each case with responsible insurance companies acceptable to Credit Agent, in such amounts and against such risks as is customarily carried by similar businesses operating in the same location. Within 30 days after Notice from Credit Agent, obtain such additional insurance as Credit Agent may reasonably require, all at the sole expense of Borrowers. Copies of such policies must be furnished to Credit Agent without charge upon request of Credit Agent.

7.10. Closing Instructions

Indemnify and hold Credit Agent and Lenders harmless from and against any loss, including reasonable attorneys’ fees and costs, attributable to the failure of any title insurance company, agent or attorney to comply with any Borrower’s disbursement or instruction letter relating to any Mortgage Loan. Credit Agent has the right to pre-approve Borrowers’ choice of title insurance company, agent or attorney and Borrowers’ disbursement or instruction letter to them in any case in which Borrowers intend to obtain a Warehousing Advance against the Mortgage Loan to be created at settlement or to pledge that Mortgage Loan as Collateral under this Agreement.

7.11. Subordination of Certain Indebtedness

Cause any indebtedness of any Borrower for borrowed money to any member, manager or Affiliate or any shareholder, director or officer of any manager, member or Affiliate of Borrower, which indebtedness, when added to all other such indebtedness of each Borrower, results in an aggregate amount of such indebtedness in excess of $35,000,000, to be subordinated to the Obligations by the execution and delivery to Credit Agent of a Subordination of Debt Agreement, on the form prescribed by Credit Agent, certified by the corporate secretary of that Borrower to be true and complete and in full force and effect.

7.12. Other Loan Obligations

Perform all material obligations under the terms of each loan agreement, note, mortgage, security agreement or debt instrument by which any Borrower is bound or to which any of its property is subject, and promptly notify Credit Agent in writing of a declared default under or the termination, cancellation, reduction or nonrenewal of any of its other lines of credit or agreements with any other lender. Exhibit F is a true and complete list of all such lines of credit or agreements as of the date of this Agreement. Borrowers must give Credit Agent at least 30 days Notice before entering into any additional lines of credit or agreements.

7.13. ERISA

Maintain (and, if applicable, cause each ERISA Affiliate to maintain) each Plan in compliance with all material applicable requirements of ERISA and of the Internal Revenue Code and with all applicable rulings and regulations issued under the provisions of ERISA and of the Internal Revenue Code, and not (and, if applicable, not permit any ERISA Affiliate to), (a) engage in any transaction in connection with which any Borrower or any ERISA Affiliate would be subject to either a civil penalty assessed pursuant to Section 502(i) of ERISA or a tax imposed by Section 4975 of the Internal Revenue Code, in either case in an amount exceeding $25,000 or (b) fail to make full payment when due of all amounts that, under the provisions of any Plan, any Borrower or any ERISA Affiliate is required to pay as contributions to that Plan, or permit to exist

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any accumulated funding deficiency (as such term is defined in Section 302 of ERISA and Section 412 of the Internal Revenue Code), whether or not waived, with respect to any Plan in an aggregate amount exceeding $25,000.

7.14. Use of Proceeds of Advances

Use the proceeds of each Advance solely for the purpose of funding Eligible Assets and against the pledge of those Eligible Assets as Collateral or, in the case of Advances against Foreclosure Mortgage Loans and Foreclosure Claim Receivables, repaying Advances outstanding against or repurchase obligations with respect to the related Mortgage Loans.

End of Article 7

Page 7-5

8. NEGATIVE COVENANTS

As long as the Commitments are outstanding or there remain any Obligations to be paid or performed, Borrowers must not, either directly or indirectly, without the prior written consent of Credit Agent :

8.1. Contingent Liabilities

Assume, guarantee, endorse or otherwise become contingently liable for the obligation of any Person (including any Subsidiary that is not a Borrower), except by endorsement of negotiable instruments for deposit or collection in the ordinary course of business, and except for obligations arising in connection with the sale of Mortgage Loans without credit recourse (but subject to recourse for breaches of normal representations, warranties and other provisions) in the ordinary course of Borrowers’ business, obligations arising in connection with the sale of Mortgage Loans without credit recourse (but subject to recourse for breaches of normal representations, warranties and other provisions) to UAMC Capital in connection with the UAMC Capital Warehousing Facility, and other contingent liabilities in an aggregate amount not greater than $10,000,000.

8.2. Restrictions on Fundamental Changes

8.2 (a)  Consolidate, merge or enter into any analogous reorganization or transaction with any Person, except that any Borrower may merge with another Borrower and any Borrower may enter into a merger if the surviving corporation will be a wholly-owned Subsidiary of UAMCLLC.

8.2 (b)  Liquidate, wind up or dissolve (or suffer any liquidation or dissolution).

8.2 (c)  Cease actively to engage in the business of originating or acquiring Mortgage Loans or make any other material change in the nature or scope of the business in which each Borrower engages as of the date of this Agreement.

8.2 (d)  Sell, assign, lease, convey, transfer or otherwise dispose of (whether in one transaction or a series of transactions) all or any substantial part of each Borrower’s business or assets, whether now owned or acquired after the Closing Date, other than, in the ordinary course of business and to the extent not otherwise prohibited by this Agreement, sales of (1) Mortgage Loans, (2) Mortgage-backed Securities and (3) Servicing Contracts.

8.2 (e)  Change its name or jurisdiction of incorporation or formation without providing 30 days prior written notice to Credit Agent.

8.3. Deferral of Subordinated Debt

Pay any Subordinated Debt of any Borrower in advance of its stated maturity or, after a Default or Event of Default under this Agreement has occurred, make any payment of any kind on any Subordinated Debt of any Borrower until all of the Obligations have been paid and performed in full and any applicable preference period has expired.

8.4. Loss of Eligibility

Take any action that would cause any Borrower to lose all or any part of its status as an eligible lender, seller/servicer or issuer as described under Section 9.1.

Page 8-1

8.5. Accounting Changes

Make, or permit any Subsidiary of any Borrower to make, any significant change in accounting treatment or reporting practices, except as required by GAAP, or change its fiscal year or the fiscal year of any Subsidiary of any Borrower.

8.6. Tangible Leverage Ratio

Permit UAMCC’s Tangible Leverage Ratio at any time to exceed 10 to 1.

8.7. Minimum Tangible Net Worth

Permit UAMCC’s Tangible Net Worth at any time to be less than $75,000,000.

8.8. Distributions to Members

Make any distributions to UAMCLLC’s Members or EHMI’s, AFSI’s, UAMCC’s and UAMC Asset’s shareholders (including any purchase or redemption of stock) if a Default or Event of Default exists or would occur as a result of the dividend or distribution.

8.9. Transactions with Affiliates

Directly or indirectly (a) make any loan, advance, extension of credit or capital contribution to any of Borrowers’ Affiliates, except (i) any Borrower may make loans, advances, extensions of credit or capital contributions to another Borrower, (ii) UAMCLLC may make loans to Lennar, and (iii) Borrowers may make additional loans, advances, extensions of credit and capital contributions to Affiliates in an aggregate amount at any time outstanding not in excess of $30,000,000, in each case as long as both before and after giving effect thereto, no Default or Event of Default will exist, (b) sell, transfer, pledge or assign any of its assets to or on behalf of those Affiliates, except for sales and repurchases of Mortgage Loans to and from UAMC Capital (which may be evidenced by appropriate intercompany accounting entries) in connection with the UAMC Capital Warehousing Facility, or (c) pay management fees to or on behalf of those Affiliates.

8.10. Recourse Servicing Contracts

Acquire or enter into Servicing Contracts under which Borrowers must repurchase or indemnify the holder of the Mortgage Loans as a result of defaults on the Mortgage Loans at any time during the term of those Mortgage Loans (but subject to recourse for breaches of normal representations, warranties and other provisions), if the aggregate principal amount of Mortgage Loans serviced pursuant to such Servicing Contracts would exceed by all Borrowers $250,000,000.

8.11. Limitation on Liens.

Create, incur, assume or permit to exist any Lien with respect to any property now owned or hereafter acquired by any Borrower or any Subsidiary, or any income or profits therefrom, except (a) the security interests granted to Credit Agent, for the benefit of Lenders, under the Loan Documents; (b) Liens described on Exhibit L; (c) Liens in connection with deposits or pledges to secure payment of workers’ compensation, unemployment insurance, old age pensions or other social security obligations, in the ordinary course of business of any Borrower or any Subsidiary; (d) Liens for taxes, fees, assessments and governmental charges not delinquent or which are being contested in good faith by appropriate proceedings and for which appropriate reserves

Page 8-2

have been established in accordance with GAAP; (e) encumbrances consisting of zoning regulations, easements, rights of way, survey exceptions and other similar restrictions on the use of real property and minor irregularities in title thereto which do not materially impair their use in operation of its business; (f) contingent Liens on office equipment arising under leases of office space; (g) Liens on equipment to secure Debt incurred to finance the acquisition of such Equipment, including, without limitations, capitalized leases, (h) Liens incurred in connection with gestation agreements with respect to the property described in the definition of such term, and (i) other Liens, provided the Debt secured by such Liens is permitted pursuant to Section 8.12.

8.12. Limitation on Debt.

Incur or permit to remain outstanding any Debt other than (a) Debt incurred under this Agreement, (b) Debt described on Exhibit M hereto, (c) Debt incurred to finance the acquisition by any Borrower or a Subsidiary of equipment used in the ordinary course of its business, (d) Debt incurred under gestation agreements, (e) current liabilities, not overdue unless contested in good faith, incurred by any Borrower or any Subsidiary otherwise than for borrowed money, (f) deferred taxes arising from capitalized excess servicing fees and capitalized servicing rights, (g) Subordinated Debt, (h) Debt arising under Hedging Arrangements, and (i) other Debt in an aggregate amount at any time outstanding of not more than $50,000,000.

End of Article 8

Page 8-3

9. SPECIAL REPRESENTATIONS, WARRANTIES AND COVENANTS CONCERNING COLLATERAL

9.1. Special Representations and Warranties Concerning Eligibility as Seller/Servicer of Mortgage Loans

Borrowers represent and warrant to Credit Agent and Lenders, as of the date of this Agreement and as of the date of each Warehousing Advance Request and the making of each Warehousing Advance, that each Borrower is approved and qualified and in good standing as a lender, seller/servicer or issuer, as set forth below, and meets all requirements applicable to its status as such:

9.2. Special Representations and Warranties Concerning Eligibility as Seller/Servicer of Mortgage Loans

9.2 (a)  UAMCLLC is approved and qualified and in good standing as a lender or seller/servicer, as set forth below, and meets all requirements applicable to its status as:

(i) An FHA-approved mortgagee, eligible to originate, purchase, hold, sell and service FHA fully insured Mortgage Loans.

(ii) A Ginnie Mae-approved seller/servicer of Mortgage Loans and issuer of Mortgage-backed Securities guaranteed by Ginnie Mae.

(iii) A lender in good-standing under the VA loan guarantee program eligible to originate, purchase, hold, sell and service VA-guaranteed Mortgage Loans.

(iv) A Fannie Mae-approved seller/servicer of Mortgage Loans, eligible to originate, purchase, hold, sell and service Mortgage Loans to be sold to Fannie Mae.

(v) A Freddie Mac-approved seller/servicer of Mortgage Loans, eligible to originate, purchase, hold, sell and service Mortgage Loans to be sold to Freddie Mac.

(vi) An RFC-approved seller/servicer of Mortgage Loans, eligible to originate, purchase, hold, sell and service Loans to be sold to RFC.

9.2 (b)  EHMI is approved and qualified and in good standing as a lender or seller/servicer, as set forth below, and meets all requirements applicable to its status as:

(i) FHA-approved mortgagee, eligible to originate, purchase, hold, sell and service FHA fully insured Mortgage Loans.

(ii) A Ginnie Mae-approved seller/servicer of Mortgage Loans and issuer of Mortgage-backed Securities guaranteed by Ginnie Mae.

(iii) A lender in good-standing under the VA loan guarantee program eligible to originate, purchase, hold, sell and service VA-guaranteed Mortgage Loans.

(iv) A Fannie Mae-approved seller/servicer of Mortgage Loans, eligible to originate, purchase, hold, sell and service Mortgage Loans to be sold to Fannie Mae.

Page 9-1

(v) A Freddie Mac-approved seller/servicer of Mortgage Loans, eligible to originate, purchase, hold, sell and service Mortgage Loans to be sold to Freddie Mac.

(vi) An RFC-approved seller/servicer of Mortgage Loans, eligible to originate, purchase, hold, sell and service Loans to be sold to RFC.

9.2 (c) AFSI is approved and qualified and in good standing as a lender or seller/servicer, as set forth below, and meets all requirements applicable to its status as:

(i) FHA-approved mortgagee, eligible to originate, purchase, hold, sell and service FHA fully insured Mortgage Loans.

(ii) A lender in good-standing under the VA loan guarantee program eligible to originate, purchase, hold, sell and service VA-guaranteed Mortgage Loans.

9.2 (d) UAMCC is approved and qualified and in good standing as a lender or seller/servicer, as set forth below, and meets all requirements applicable to its status as:

(i) FHA-approved mortgagee, eligible to originate, purchase, hold, sell and service FHA fully insured Mortgage Loans.

(ii) A lender in good-standing under the VA loan guarantee program eligible to originate, purchase, hold, sell and service VA-guaranteed Mortgage Loans.

9.3. Special Representations and Warranties Concerning Warehousing Collateral

Each Borrower represents and warrants to Credit Agent and Lenders, as of the date of this Agreement and as of the date of each Warehousing Advance Request and the making of each Advance, that:

9.3 (a) No Borrower has selected the Collateral in a manner so as to affect adversely Lenders’ interests.

9.3 (b) Borrowers are the legal and equitable owner and holder, free and clear of all Liens (other than Liens granted under this Agreement) of the Pledged Assets. All Pledged Assets and related Purchase Commitments have been duly authorized and validly issued to Borrowers, and all of the foregoing items of Collateral comply with all of the requirements of this Agreement, and have been and will continue to be validly pledged or assigned to Credit Agent, subject to no other Liens.

9.3 (c) Each Borrower has, and will continue to have, the full right, power and authority to pledge the Collateral pledged and to be pledged by it under this Agreement.

9.3 (d) Each Mortgage Loan and each related document included in the Pledged Loans (1) has been duly executed and delivered by the parties to that Mortgage Loan and that related document, (2) has been made in compliance with all applicable laws, rules and regulations (including all laws, rules and regulations relating to usury), (3) is and will continue to be a legal, valid and binding obligation, enforceable in accordance with its terms, without setoff, counterclaim or defense in favor of the mortgagor under the Mortgage Loan or any other obligor on the Mortgage Note, (4) has not been modified, amended or any requirements of which waived, except in writing that is part of the Collateral Documents, and (5) is an Eligible Asset as described on Exhibit H.

Page 9-2

9.3 (e) Each Pledged Loan is secured by a Mortgage, and each Pledged Agreement for Deed constitutes a Lien, on real property and improvements located in one of the states of the United States or the District of Columbia.

9.3 (f) Except for open-ended Second Mortgage Loans, Construction/Perm Mortgage Loans and Third Party Builder Construction Mortgage Loans, each Pledged Loan has been closed or will be closed and funded with the Advance made against it.

9.3 (g) Each First Mortgage Loan is secured by a First Mortgage on the real property and improvements described in or covered by that Mortgage.

9.3 (h) Each First Mortgage Loan has or will have a title insurance policy, in ALTA form or equivalent, from a recognized title insurance company, insuring the priority of the Lien of the Mortgage and meeting the usual requirements of Investors purchasing those Mortgage Loans.

9.3 (i) Each Second Mortgage Loan is secured by a Second Mortgage on the real property and improvements described in or covered by that Mortgage.

9.3 (j) To the extent required by the related Purchase Commitment or by Investors generally for similar Mortgage Loans, each Second Mortgage Loan has or will have a title insurance policy, in ALTA form or equivalent, from a recognized title insurance company, insuring the priority of the Lien of the Mortgage and meeting the usual requirements of Investors purchasing those Mortgage Loans.

9.3 (k) Each Mortgage Loan has been evaluated or appraised in accordance with Title XI of FIRREA.

9.3 (l) The Mortgage Note for each Pledged Loan is (1) payable or endorsed to the order of Borrower, (2) an “instrument” within the meaning of Article 9 of the Uniform Commercial Code of all applicable jurisdictions and (3) is denominated and payable in United States dollars.

9.3 (m) No default has existed for 60 days or more under any Mortgage Loan included in the Pledged Loans, except for a Foreclosure Mortgage Loan, or under any Pledged Agreement for Deed.

9.3 (n) No party to an Eligible Asset or any related document is in violation of any applicable law, rule or regulation that would impair the collectibility of the Eligible Asset or the performance by the mortgagor or any other obligor of its obligations under the Eligible Asset or any related document.

9.3 (o) All fire and casualty policies covering the real property and improvements encumbered by each Mortgage included in the Pledged Loans and each Pledged Agreement for Deed (1) name and will continue to name a Borrower and its successors and assigns as the insured under a standard mortgagee clause, (2) are and will continue to be in full force and effect and (3) afford and will continue to afford insurance against fire and such other risks as are usually insured against in the broad form of extended coverage insurance generally available.

9.3 (p) Pledged Loans and Pledged Agreements for Deed secured by real property and improvements located in a special flood hazard area designated as such by the Director of the Federal Emergency Management Agency are and will continue to be covered by special flood insurance under the National Flood Insurance Program.

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9.3 (q) Each Pledged Loan against which an Advance is made on the basis of a Purchase Commitment meets all of the requirements of that Purchase Commitment, and each Pledged Security against which an Advance is outstanding meets all of the requirements of the related Purchase Commitment.

9.3 (r) Pledged Loans that are intended to be exchanged for Agency Securities comply or, prior to the issuance of the Agency Securities will comply, with the requirements of any governmental instrumentality, department or agency issuing or guaranteeing the Agency Securities.

9.3 (s) Pledged Loans that are intended to be used in the formation of Mortgage-backed Securities (other than Agency Securities) comply with the requirements of the issuer of the Mortgage-backed Securities (or its sponsor) and of the Rating Agencies.

9.3 (t) The original assignments of Mortgage delivered to Credit Agent for each Pledged Loan and Pledged Agreement for Deed are in recordable form and comply with all applicable laws and regulations governing the filing and recording of such documents.

9.3 (u) None of the mortgagors, guarantors or other obligors of any Pledged Asset is a Person named in any Restriction List and to whom the provision of financial services is prohibited or otherwise restricted by applicable law.

9.3 (v) No Pledged Loan delivered to Lender is a Discontinued Loan.

9.3 (w) Each Pledged Asset secured by real property to which a Manufactured Home is affixed will create a valid Lien on that Manufactured Home that will have priority over any other Lien on the Manufactured Home, whether or not arising under applicable real property law.

9.4. Special Affirmative Covenants Concerning Warehousing Collateral

As long as the Commitments are outstanding or there remain any Obligations to be paid or performed under this Agreement or under any other Loan Document, each Borrower will:

9.4 (a) Warrant and defend the right, title and interest of Credit Agent and Lenders in and to the Collateral against the claims and demands of all Persons.

9.4 (b) Service or cause to be serviced all Pledged Loans in accordance with the standard requirements of the issuers of Purchase Commitments covering them and all applicable HUD, Fannie Mae and Freddie Mac requirements, including taking all actions necessary to enforce the obligations of the obligors under such Mortgage Loans. Service or cause to be serviced all Mortgage Loans backing Pledged Securities in accordance with applicable governmental requirements and requirements of issuers of Purchase Commitments covering them. Hold all escrow funds collected in respect of Pledged Loans and Mortgage Loans backing Pledged Securities in trust, without commingling the same with non-custodial funds, and apply them for the purposes for which those funds were collected.

9.4 (c) Execute and deliver to Credit Agent with respect to the Collateral those further instruments of sale, pledge, assignment or transfer, and those powers of attorney, as required by Credit Agent, and do and perform all matters and things necessary or desirable to be done or observed, for the purpose of effectively creating, maintaining and preserving the security and benefits intended to be afforded Credit Agent under this Agreement.

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9.4 (d) Notify Credit Agent within 2 Business Days of any default under, or of the termination of, any Purchase Commitment relating to any Pledged Loan, Eligible Mortgage Pool, or Pledged Security.

9.4 (e) Promptly comply in all respects with the terms and conditions of all Purchase Commitments, and all extensions, renewals and modifications or substitutions of or to all Purchase Commitments. Deliver or cause to be delivered to the Investor the Pledged Loans and Pledged Securities to be sold under each Purchase Commitment not later than the mandatory delivery date of the Pledged Loans or Pledged Securities under the Purchase Commitment.

9.4 (f) Compare the names of every mortgagor, guarantor and other obligor of every Mortgage Loan, together with appropriate identifying information concerning those Persons obtained by any Borrower, against every Restriction List, and make certain that none of the mortgagors, guarantors or other obligors of any Mortgage Loan is a Person named in any Restriction List and to whom the provision of financial services is prohibited or otherwise restricted by applicable law.

9.4 (g) Prior to the origination by any Borrower of any Mortgage Loans for sale to Fannie Mae, enter into an agreement among such Borrower, Lender and Fannie Mae, pursuant to which Fannie Mae agrees to send all cash proceeds of Mortgage Loans sold by such Borrower to Fannie Mae to the Cash Collateral Account.

9.4 (h) Prior to the origination by any Borrower of any Mortgage Loan to be registered on the MERS system, obtain the approval of Credit Agent and enter into an Electronic Tracking Agreement.

9.5. Special Negative Covenants Concerning Warehousing Collateral

As long as the Commitments are outstanding or there remain any Obligations to be paid or performed, no Borrower will, either directly or indirectly, without the prior written consent of Credit Agent:

9.5 (a) Amend or modify, or waive any of the terms and conditions of, or settle or compromise any claim in respect of, any Pledged Asset, except in a manner consistent with the terms of the related Purchase Commitment, if applicable, and any FHA Insurance policy or VA guaranty.

9.5 (b) Sell, transfer or assign, or grant any option with respect to, or pledge (except under this Agreement and, with respect to each Pledged Asset, the related Purchase Commitment) any of the Collateral or any interest in any of the Collateral.

9.5 (c) Make any compromise, adjustment or settlement in respect of any of the Collateral or accept other than cash in payment or liquidation of the Collateral.

9.5 (d) Cause UAMC Asset to issue any stock or other securities in addition to or in substitution for the Pledged Shares, except to UAMCLLC, and UAMCLLC will pledge hereunder, immediately upon its acquisition (directly or indirectly) thereof, any and all additional shares of stock or other securities of UAMC Asset.

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9.6. Special Affirmative Covenants Concerning Construction/Perm Mortgage Loans and Third-Party Builder Construction Mortgage Loans

As long as the Commitments are outstanding or there remain any Obligations to be paid or performed under this Agreement or under any other Loan Document, each Borrower will:

9.6 (a) Prior to the submission of a request for an initial RFC Direct Advance against a Third Party Builder Construction Mortgage Loan, Borrowers reviewed the financial and business ability of the builder to complete the improvements to the premises encumbered by a Pledged Mortgage in a timely and cost efficient manner.

9.6 (b) Notify Credit Agent within 2 Business Days of the following events: (1) a lien filed against premises encumbered by a Pledged Mortgage and not removed within 15 days of the filing, (2) a Pledged Mortgage being out of balance with the Cost Breakdown and not brought back in balance by the mortgagor within 15 days after such determination by such Borrower, and (3) any damage or destruction of the premises encumbered by a Pledged Mortgage.

9.7. Special Representations Concerning Construction/Perm Mortgage Loans and Third Party Builder Construction Mortgage Loans

Borrowers represent and warrant to Credit Agent and Lenders, as of the date of this Agreement and as of the date of each Advance Request, that:

9.7 (a) Each Construction/Perm Mortgage Loan and Third Party Builder Construction Loan included in the Pledged Loans (1) has an American Land Title Association Lender’s construction loan policy or commitment, (2) has “all risk” builder’s insurance and workers’ compensation insurance, (3) has a survey prepared and certified by a duly registered surveyor or title company showing no encroachments of the improvements or the proposed improvements to be constructed on the premises encumbered by the Pledged Loan on to other lands or easements or restrictions, unless such encroachments have been insured over or are acceptable to the Investor, (4) has building permits and all necessary licenses and approvals for the construction of the improvements on the premises encumbered by the Pledged Loan, (5) has a “as completed” appraisal, (6) has a fixed price general contract issued by a licensed contractor, and (7) has all necessary utilities available to the premises encumbered by the Pledged Loan.

9.7 (b) Prior to the initial Advance against a Construction/Perm Mortgage Loan or a Third Party Builder Construction Mortgage Loan included in the Pledged Loans, Borrowers shall have received (1) a Cost Breakdown, (2) a draw schedule, and (3) an inspection report.

9.7 (c) Prior to each Advance against a Construction/Perm Mortgage Loan or a Third Party Builder Construction Mortgage Loan included in the Pledged Loans, Borrowers (i) shall have received (A) an inspection report confirming completion of the work for which such Advance is being requested and the Total Hard Costs are adequate to complete the improvements and (B) invoices for each soft cost reimbursement for which such Advance is being requested, and (ii) shall not have received a notice of intent to assert a Lien from any contract, subcontractor, material supplier or other Person.

9.7 (d) Prior to the final Advance against a Construction/Perm Mortgage Loan or a Third Party Builder Construction Mortgage Loan included in the Pledged Loans, Borrowers shall have received, (1) a final inspection report or certificate of occupancy confirming completion of all work in accordance with the plans and specifications, (2) final lien waivers, (3) final certificate of appraiser that the premises encumbered by the Pledged Loan equals the As

Page 9-6

Completed Appraised Value, and (4) a datedown endorsement from the title insurance company showing clear title as of the date of disbursement of such Advance.

9.7 (e)  Within 15 days after the final Advance against a Construction/Perm Mortgage Loan or a Third Party Builder Construction Mortgage Loan included in the Pledged Loan, Borrowers shall receive any Mortgage Note modification or modified Mortgage Note delivered in connection with a Construction/Perm Mortgage Loan and a Mortgage Note or Wet Settlement package evidencing a Mortgage Loan which refinances a related Mortgage Loan.

9.8. Special Representations and Warranties Concerning Receivables

Borrowers hereby represent and warrant to Credit Agent and Lenders, as of the date of this Agreement and as of the date of each Advance Request and the making of each Advance that:

9.8 (a)  Borrowers are the legal and equitable owners and holders, free and clear of all Liens (other than Liens granted hereunder) of the Receivables, and the Receivables have been and will continue to be subject to a security interest in favor of the Credit Agent, subject to no other Liens.

9.8 (b)  Borrowers have, and will continue to have, the full right, power and authority to grant a security interest in the Receivables to the Credit Agent.

9.8 (c)  Each Receivable is a valid, enforceable right to retain amounts received from obligors under Mortgage Loans serviced by Borrowers, or a valid, enforceable right to payment from Fannie Mae, Freddie Mac, Ginnie Mae, VA, FHA or a private mortgage insurer, is currently due, and as to which no condition exists that will impair or materially delay payment thereof.

9.8 (d)  To the best of Borrowers’ knowledge, with respect to any Receivables, the mortgagor who is liable for payments that will be applicable to such Receivables, or Fannie Mae, Freddie Mac, Ginnie Mae, FHA, VA or the private mortgage insurer, obligated thereon, has no defense, setoff, claim or counterclaim against Borrowers which can be asserted against the Credit Agent, whether in any proceeding to enforce the Credit Agent’s security interest in such Receivable or otherwise.

9.8 (e)  Except for the Acknowledgment Agreements, to the extent required, no consent of any Person is required for the grant of a security interest in the Receivables to the Credit Agent, and no consent will need to be obtained upon the occurrence of an Event of Default for the Credit Agent to exercise its rights with respect to any of the Receivables.

9.9. Special Representations Concerning Pledged Shares

Borrowers hereby represent and warrant to Credit Agent and Lenders, as of the date of this Agreement and as of the date of each Advance Request for an Advance and the making of each such Advance, that:

9.9 (a)  UAMCLLC has title to the Pledged Shares and will have title to all further Pledged Shares hereafter issued, free of all Liens except the security interest in favor of the Credit Agent.

9.9 (b)  UAMCLLC has full power and authority to subject the Pledged Shares to the security interest created hereby.

9.9 (c)  No financing statement covering all or part of the Pledged Shares is on file in any public office (except for any financing statements filed by the Credit Agent).

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9.9 (d)  The Pledged Shares have been duly authorized and validly issued by UAMC Asset and are fully paid and non-assessable. The certificates representing the Pledged Shares are genuine. The Pledged Shares are not subject to any offset or similar right or claim of the issuers thereof.

9.9 (e)  The Pledged Shares constitute 100% of the issued and outstanding shares of capital stock of UAMC Asset.

9.10. Special Representations and Warranties Concerning Foreclosure Claim Receivables and Foreclosure Mortgage Loans

Borrowers hereby represent and warrant to Credit Agent and Lenders, as of the date of this Agreement and as of the date of each Advance Request for an Advance against Foreclosure Claim Receivables or Foreclosure Mortgage Loans and the making of each such Advance, that:

9.10 (a)  The Mortgage Loan with respect to which such Advance was made by Borrowers is in foreclosure, or there will be commenced and continuing bankruptcy or similar proceedings involving the obligor on such Mortgage Loan, or a Borrower has commenced loss mitigation action with respect to such Mortgage Loans.

9.10 (b)  In the event the obligor on such Mortgage Loan fails to make the payment as to which said receivable relates, Borrowers are entitled to reimbursement therefore on a priority basis pursuant to the terms of the applicable Servicing Contract out of proceeds of the sale or other disposition or liquidation of said Mortgage Loan or out of insurance proceeds, including, without limitation, private mortgage insurance proceeds and the proceeds of any guaranty of the obligations of the obligor thereunder.

9.10 (c)  Said receivable is and will be free and clear of all Liens, claims and encumbrances, except Liens in favor of the Credit Agent for the benefit of the Lenders.

9.11. Voting Rights; Dividends; Etc.

9.11 (a)  Subject to paragraph (d) of this Section 9.11, UAMCLLC shall be entitled to exercise or refrain form exercising any and all voting and other consensual rights pertaining to the Pledged Shares for any purpose not inconsistent with the terms of this Agreement; provided, however, that UAMCLLC shall not exercise or refrain from exercising any such right if such action could reasonably be expected to have a material adverse effect on the value of the Collateral or any material part thereof.

9.11 (b)  Any and all dividends paid in respect of the Pledged Shares after the occurrence and during the continuance of any Default or Event of Default shall be forthwith delivered to the Credit Agent to hold as Collateral and shall, if received by any Borrower, be received in trust for the benefit of Lenders, be segregated from the other property or funds of Borrowers, and be forthwith delivered to Credit Agent as Collateral in the same form as so received (with any necessary endorsement or assignment). Each Borrower shall, upon request by Lenders, promptly execute all such documents and do all such acts as may be necessary or desirable to give effect to the provisions of this Section 9.11(b).

9.11 (c)  Credit Agent will execute and deliver (or cause to be executed and delivered) to UAMCLLC all such proxies and other instruments as UAMCLLC may reasonable request for the purpose of enabling UAMCLLC to exercise the voting and other rights that it is entitled to exercise pursuant to Section 9.11(a) and to receive the dividends that it is authorized to receive and retain pursuant to Section 9.11(b).

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9.11 (d)  Upon the occurrence and during the continuance of any Event of Default, Credit Agent shall have the right in its sole discretion, and Borrowers shall execute and deliver all such proxies and other instruments as may be necessary or appropriate to give effect to such right, to terminate all rights of Borrowers to exercise or refrain from exercising the voting and other consensual rights that it would otherwise be entitled to exercise pursuant to Section 9.11(a) hereof, and all such rights shall thereupon become vested in Credit Agent who will thereupon have the sole right to exercise or refrain from exercising such voting and other consensual rights; provided, however, that Credit Agent and Lenders shall not be deemed to possess or have control over any voting rights with respect to any Collateral unless and until Credit Agent has given written notice to Borrowers that any further exercise of such voting rights by Borrowers is prohibited and that Credit Agent and/or its assigns will henceforth exercise such voting rights; and provided further, that neither the registration of any item of Collateral in Credit Agent’s name nor the exercise of any voting rights with respect thereto shall be deemed to constitute a retention by Credit Agent or Lenders of any such Collateral in satisfaction of the Obligations or any part thereof.

End of Article 9

Page 9-9

10. DEFAULTS; REMEDIES

10.1. Events of Default

The occurrence of any of the following is an event of default (“Event of Default”):

10.1 (a)  Any Borrower fails to pay the principal of any Advance when due, whether at stated maturity, by acceleration, or otherwise; or fails to pay any installment of interest on any Advance within 9 days after the date of Credit Agent’s invoice or, if applicable, within 2 days after the date of Credit Agent’s account analysis statement; or fails to pay, within any applicable grace period, any other amount due under this Agreement or any other Obligation of Borrowers to Credit Agent and Lenders.

10.1 (b)  Any Borrower or any of their Subsidiaries, other than USH Funding Inc. or Edgewater Reinsurance Ltd., fails to pay, or defaults in the payment of any principal or interest on, any other indebtedness or any contingent obligation within any applicable grace period; breaches or defaults with respect to any other material term of any other indebtedness or of any loan agreement, mortgage, indenture or other agreement relating to that indebtedness, if the effect of that breach or default is to cause, or to permit the holder or holders of that indebtedness (or a trustee on behalf of such holder or holders) to cause, indebtedness of Borrower or its Subsidiaries, other than USH Funding Inc. or Edgewater Reinsurance Ltd., in the aggregate amount of $2,000,000 or more to become or be declared due before its stated maturity (upon the giving or receiving of notice, lapse of time, both, or otherwise).

10.1 (c)  Any Borrower fails to perform or comply with any term or condition applicable to it contained in Sections 7.4 or 7.14 or in any Section of Article 9.

10.1 (d)  Any representation or warranty made or deemed made by any Borrower under this Agreement, in any other Loan Document or in any written statement or certificate at any time given by such Borrower, other than the representations and warranties set forth in Article 9 with respect to specific Pledged Loans, is inaccurate or incomplete in any material respect on the date as of which it is made or deemed made.

10.1 (e)  Any Borrower defaults in the performance of or compliance with any term contained in this Agreement or any other Loan Document other than those referred to in Sections 10.1(a), 10.1(c) or 10.1(d) and such default has not been remedied or waived within 30 days after the earliest of (1) receipt by Borrowers of Notice from Credit Agent of that default, (2) receipt by Credit Agent of Notice from Borrowers of that default or (3) the date Borrowers should have notified Credit Agent of that default under Section 7.7(c) or 7.7(d).

10.1 (f)  An “event of default” (however defined) occurs under any agreement between Borrowers and Credit Agent other than this Agreement and the other Loan Documents.

10.1 (g)  A case (whether voluntary or involuntary) is filed by or against any Borrower under any applicable bankruptcy, insolvency or other similar federal or state law; or a court of competent jurisdiction appoints a receiver (interim or permanent), liquidator, sequestrator, trustee, custodian or other officer having similar powers over any Borrower or over all or a substantial part of their respective properties or assets; or any Borrower (1) consents to the appointment of or possession by a receiver (interim or permanent), liquidator, sequestrator, trustee, custodian or other officer having similar powers over any Borrower, or over all or a substantial part of their respective properties or assets,

Page 10-1

(2) makes an assignment for the benefit of creditors, or (3) fails, or admits in writing its inability, to pay its debts as those debts become due.

10.1 (h)  Any Borrower fails to perform any contractual obligation to repurchase Mortgage Loans, if such obligations in the aggregate exceed $2,000,000.

10.1 (i)  Any money judgment, writ or warrant of attachment or similar process involving an amount in excess of $2,000,000 is entered or filed against any Borrower or any of their Subsidiaries or any of their respective assets and remains undischarged, unvacated, unbonded or unstayed for a period of 30 days or 5 days before the date of any proposed sale under that money judgment, writ or warrant of attachment or similar process.

10.1 (j)  Any order, judgment or decree decreeing the dissolution of any Borrower is entered and remains undischarged or unstayed for a period of 20 days.

10.1 (k)  Any Borrower purports to disavow the Obligations or contests the validity or enforceability of any Loan Document.

10.1 (l)  Lennar purports to disavow its obligations under the Lennar Undertaking or contests the validity or enforceability of the Lennar Undertaking.

10.1 (m)  Credit Agent’s security interest on any portion of the Collateral becomes unenforceable or otherwise impaired and all Advances made against any of that Collateral are not paid in full, or the impairment is not cured, within 10 days after earliest of (i) receipt by Borrower of Notice from Credit Agent of the impairment, (ii) receipt by Credit Agent of Notice from Borrower of the impairment, or (iii) the date Borrower should have notified Credit Agent of the impairment under Article 7.

10.1 (n)  A material adverse change occurs in any Borrower’s financial condition, business, properties, operations or prospects, or in any Borrower’s ability to repay the Obligations.

10.1 (o)  Any Lien for any taxes, assessments or other governmental charges (1) is filed against any Borrower or any of its property, or is otherwise enforced against any Borrower or any of its property, or (2) obtains priority that is equal to or greater than the priority of Credit Agent’s security interest in any of the Collateral.

10.1 (p)  UAMCLLC ceases to own, directly, all of the capital stock of each other Borrower, or Lennar ceases to own, directly or indirectly, a majority of each class of the capital stock of UAMCLLC.

10.1 (q)  UAMC Asset shall incur any Debt, other than Debt owed to Lenders, or any Pledged Asset owned by UAMC Asset shall become subject to any Lien, other than Liens in favor of the Credit Agent.

10.2. Remedies

10.2 (a)  If a Lender shall have knowledge of a Default or an Event of Default, it shall immediately give Notice thereof to Credit Agent. If Credit Agent has knowledge of a Default or an Event of Default, it shall give Notice thereof to each Lender and to Borrowers. Credit Agent will not be deemed to have knowledge or Notice of the occurrence of a Default or an Event of Default unless Credit Agent has received Notice from a Lender or a Borrower. No Lender will be deemed to have knowledge or Notice of the occurrence of a Default or an Event of Default unless such Lender has received Notice from the Credit Agent or a Borrower.

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10.2 (b)  If an Event of Default described in Section 10.1(g) occurs with respect to any Borrower, the Commitments will automatically terminate and the unpaid principal amount of and accrued interest on the Notes and all other Obligations will automatically become due and payable, without presentment, demand or other Notice or requirements of any kind, all of which Borrowers expressly waive.

10.2 (c)  If any other Event of Default occurs, Majority Lenders may, by Notice to each Borrower, terminate the Commitments and declare the Obligations to be immediately due and payable.

10.2 (d)  If any Event of Default occurs, Credit Agent may, on behalf of Lenders, and shall at the direction of the Majority Lenders (subject to Section 11.3(c)), also take any of the following actions:

(1) Foreclose upon or otherwise enforce its security interest in any Lien on the Collateral to secure all payments and performance of the Obligations in any manner permitted by law or provided for in the Loan Documents.

(2) Notify all obligors under any of the Collateral that the Collateral has been assigned to Credit Agent (or to another Person designated by Credit Agent) and that all payments on that Collateral are to be made directly to Credit Agent (or such other Person); settle, compromise or release, in whole or in part, any amounts any obligor or Investor owes on any of the Collateral on terms acceptable to Credit Agent; enforce payment and prosecute any action or proceeding involving any of the Collateral; and where any Collateral is in default, foreclose on and enforce any Liens securing that Collateral in any manner permitted by law and sell any property acquired as a result of those enforcement actions.

(3) Prepare and submit for filing Uniform Commercial Code amendment statements evidencing the assignment to Credit Agent or its designee of any Uniform Commercial Code financing statement filed in connection with any item of Collateral.

(4) Act, or contract with a third party to act, at Borrowers’ expense, as servicer or subservicer of Collateral requiring servicing, and perform all obligations required under any Collateral, including Servicing Contracts and Purchase Commitments.

(5) Require Borrowers to assemble and make available to Credit Agent the Collateral and all related books and records at a place designated by Credit Agent.

(6) Enter onto property where any Collateral or related books and records are located and take possession of those items with or without judicial process; and obtain access to Borrowers’ data processing equipment, computer hardware and software relating to the Collateral and use all of the foregoing and the information contained in the foregoing in any manner Credit Agent deems necessary for the purpose of effectuating its rights under this Agreement and any other Loan Document.

(7) Before the disposition of the Collateral, prepare it for disposition in any manner and to the extent Credit Agent deems appropriate.

(8) Exercise all rights and remedies of a secured creditor under the Uniform Commercial Code of Minnesota or other applicable law, including selling or

Page 10-3

otherwise disposing of all or any portion of the Collateral at one or more public or private sales, whether or not the Collateral is present at the place of sale, for cash or credit or future delivery, on terms and conditions and in the manner as Credit Agent may determine, including sale under any applicable Purchase Commitment. Borrowers waive any right they may have to prior notice of the sale of all or any portion of the Collateral to the extent allowed by applicable law. If notice is required under applicable law, Credit Agent will give Borrowers not less than 10 days’ notice of any public sale or of the date after which any private sale may be held. Borrowers agree that 10 days’ notice is reasonable notice. Credit Agent may, without notice or publication, adjourn any public or private sale one or more times by announcement at the time and place fixed for the sale, and the sale may be held at any time or place announced at the adjournment. In the case of a sale of all or any portion of the Collateral on credit or for future delivery, the Collateral sold on those terms may be retained by Credit Agent until the purchaser pays the selling price or takes possession of the Collateral. Credit Agent has no liability to Borrowers if a purchaser fails to pay for or take possession of Collateral sold on those terms, and in the case of any such failure, Credit Agent may sell the Collateral again upon notice complying with this Section.

(9) Instead of or in conjunction with exercising the power of sale authorized by Section 10.2(c)(8), Credit Agent may proceed by suit at law or in equity to collect all amounts due on the Collateral, or to foreclose Credit Agent’s Lien on and sell all or any portion of the Collateral pursuant to a judgment or decree of a court of competent jurisdiction.

(10) Proceed against Borrowers on the Notes or against Lennar under the Lennar Undertaking.

(11) Retain all excess proceeds from the sale or other disposition of the Collateral, and apply them to the payment of the Obligations under Section 10.3.

Credit Agent will follow the instructions of the Majority Lenders in exercising or not exercising its rights under this Section 10.2, but (i) Credit Agent will have no obligation to take or not to take any action which it believes may expose it to any liability, and (ii) Credit Agent may, but is under no obligation to, await instructions from the Majority Lenders before exercising or not exercising its rights under this Section 10.2.

10.2 (e)  Neither Credit Agent nor any Lender will incur liability as a result of the commercially reasonable sale or other disposition of all or any portion of the Collateral at any public or private sale or other disposition. Borrowers waive (to the extent permitted by law) any claims they may have against Credit Agent or any Lender arising by reason of the fact that the price at which the Collateral may have been sold at a private sale was less than the price that Credit Agent might have obtained at a public sale, or was less than the aggregate amount of the outstanding Advances, accrued and unpaid interest on those Advances, and unpaid fees, even if Credit Agent accepts the first offer received and does not offer the Collateral to more than one offeree. Borrowers agree that any sale of Collateral under the terms of a Purchase Commitment, or any other disposition of Collateral arranged by Borrowers, whether before or after the occurrence of an Event of Default, will be deemed to have been made in a commercially reasonable manner.

10.2 (f)  Each Borrower acknowledges that Mortgage Loans are collateral of a type that is the subject of widely distributed standard price quotations and that Mortgage-backed Securities are collateral of a type that is customarily sold on a recognized market. Each Borrower waives any right it may have to prior notice of the sale of Pledged Securities,

Page 10-4

and agrees that Credit Agent or Lenders may purchase Pledged Loans and Pledged Securities at a private sale of such Collateral.

10.2 (g)  Each Borrower specifically waives and releases (to the extent permitted by law) any equity or right of redemption, stay or appraisal that Borrowers have or may have under any rule of law or statute now existing or adopted after the date of this Agreement, and any right to require Credit Agent to (1) proceed against any Person, (2) proceed against or exhaust any of the Collateral or pursue its rights and remedies against the Collateral in any particular order, or (3) pursue any other remedy within its power. Credit Agent is not required to take any action to preserve any rights of Borrowers against holders of mortgages having priority to the Lien of any Mortgage or Security Agreement included in the Collateral or to preserve Borrowers’ rights against other prior parties.

10.2 (h)  Credit Agent may, but is not obligated to, advance any sums or do any act or thing necessary to uphold or enforce the Lien and priority of, or the security intended to be afforded by, any Mortgage or Security Agreement included in the Collateral, including payment of delinquent taxes or assessments and insurance premiums. All advances, charges, costs and expenses, including reasonable attorneys’ fees and disbursements, incurred or paid by Credit Agent in exercising any right, power or remedy conferred by this Agreement, or in the enforcement of this Agreement, together with interest on those amounts at the Default Rate, from the time paid by Credit Agent until repaid by Borrowers, are deemed to be principal outstanding under this Agreement and the Notes.

10.2 (i)  No failure or delay on the part of Credit Agent or any Lender to exercise any right, power or remedy provided in this Agreement or under any other Loan Document, at law or in equity, will operate as a waiver of that right, power or remedy. No single or partial exercise by Credit Agent or any Lender of any right, power or remedy provided under this Agreement or any other Loan Document, at law or in equity, precludes any other or further exercise of that right, power, or remedy by Credit Agent or any Lender, or Credit Agent’s or any Lender’s exercise of any other right, power or remedy. Without limiting the foregoing, Borrowers waive all defenses based on the statute of limitations to the extent permitted by law. The remedies provided in this Agreement and the other Loan Documents are cumulative and are not exclusive of any remedies provided at law or in equity.

10.2 (j)  Borrowers grant Credit Agent and Lenders a license or other right to use, without charge, Borrowers’ computer programs, other programs, labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks, service marks and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in advertising for sale and selling any of the Collateral and Borrowers’ rights under all licenses and all other agreements related to the foregoing inure to Credit Agent’s and Lenders’ benefit until the Obligations are paid in full.

10.3. Application of Proceeds

The proceeds of any sale, disposition or other enforcement of Credit Agent’s security interest in all or any part of the Collateral shall be applied by Credit Agent as follows:

10.3 (a)  With respect to the proceeds of Eligible Loans, other than Unimproved Land Loans and Third-Party Builder Construction Mortgage Loans, and related Collateral:

First, to the payment of the costs and expenses of such sale or enforcement, including reasonable compensation to Credit Agent’s agents and counsel, and all expenses, liabilities and advances made or incurred by or on behalf of Credit Agent in connection therewith.

Page 10-5

Second, to the payment of the costs and expenses of such sale or enforcement, including reasonable compensation to the Lenders’ agents and counsel, and all expenses, liabilities and advances made or incurred by or on behalf of any Lender in connection therewith.

Third, to RFC, in an amount equal to the amount of accrued interest owed to RFC in respect of Swingline Advances, until paid in full.

Fourth, to RFC until the principal amount of all Swingline Advances outstanding are paid in full.

Fifth, to Lenders holding Warehousing Advances, pro rata in accordance with their respective Percentage Shares of accrued interest owed to each of them in respect to Warehousing Advances until the amount is paid in full.

Sixth, to Lenders holding Warehousing Advances, pro rata in accordance with their respective Percentage Shares, until the principal amounts of all Warehousing Advances outstanding are paid in full.

Seventh, to Lenders holding Warehousing Advances, pro rata in accordance with their respective Percentage Shares, until all fees and other Obligations accrued by or due each Lender and Credit Agent are paid in full.

Eighth, to RFC until all interest, fees and principal relating to RFC Direct Advances are paid in full.

Ninth, to the remaining Obligations.

Finally, to the payment to Borrowers, or to their successors or assigns, or as a court of competent jurisdiction may direct, of any surplus then remaining from such proceeds.

10.3 (b)  With respect to the proceeds of Unimproved Land Loans and Third-Party Builder Construction Mortgage Loans and related Collateral:

First, to the payment of the costs and expenses of such sale or enforcement, including reasonable compensation to Credit Agent’s agents and counsel, and all expenses, liabilities and advances made or incurred by or on behalf of Credit Agent in connection therewith.

Second, to RFC until all interest, fees and principal relating to RFC Direct Advances outstanding are paid in full.

Third, to Lenders holding Warehousing Advances, pro rata in accordance with their respective Percentage Shares until all Obligations owed to Lenders are paid in full.

Finally, to Borrowers, or to their successors or assigns, or as a court of competent jurisdiction may direct, of any surplus then remaining from such proceeds.

10.3 (c)  If the proceeds of any such sale, disposition or other enforcement are insufficient to cover the costs and expenses of such sale, as aforesaid, and the payment in full of all Obligations, Borrowers will remain liable for any deficiency.

Page 10-6

10.4. Credit Agent Appointed Attorney-in-Fact

Each Borrower appoints Credit Agent its attorney-in-fact, with full power of substitution, for the purpose of carrying out the provisions of this Agreement, the Notes and the other Loan Documents and taking any action and executing any instruments that Credit Agent deems necessary or advisable to accomplish that purpose. Borrowers’ appointment of Credit Agent as attorney-in-fact is irrevocable and coupled with an interest. Without limiting the generality of the foregoing, Credit Agent may give notice of its Lien on the Collateral to any Person, either in Borrowers’ name or in its own name, endorse all Pledged Loans or Pledged Securities payable to the order of Borrowers, change or cause to be changed the book-entry registration or name of subscriber or Investor on any Pledged Security, prepare and submit for filing Uniform Commercial Code amendment statements with respect to any Uniform Commercial Code financing statements filed in connection with any item of Collateral or receive, endorse and collect all checks made payable to the order of Borrowers representing payment on account of the principal of or interest on, or the proceeds of sale of, any of the Pledged Loans or Pledged Securities and give full discharge for those transactions.

10.5. Right of Set-Off

If Borrowers default in the payment of any Obligation or in the performance of any of their duties under the Loan Documents, each Lender may, without Notice to or demand on Borrowers (which Notice or demand each Borrower expressly waives), set-off, appropriate or apply any property of Borrowers held at any time by each Lender, or any indebtedness at any time owed by each Lender to or for the account of Borrowers, against the Obligations, whether or not those Obligations have matured.

10.6. Sharing of Payments

If upon the occurrence of an Event of Default and acceleration of the Obligations any Lender shall hold or receive and retain any payment, whether by setoff, application of deposit balance or security, or otherwise, in respect of the Obligations, then such Lender shall purchase from the other Lenders for cash and at face value and without recourse, such participation in the Obligations held by them as shall be necessary to cause such payment to be shared ratably with each of them; provided, that if such payment or part thereof is thereafter recovered from such purchasing Lender, the related purchases from the other Lenders shall be rescinded ratably and the purchase price restored as to the portion of such excess payment so recovered, but without interest thereon unless the purchasing Lender is required to pay interest on such amounts to the Person recovering such payment, in which case with interest thereon, computed at the same rate, and on the same basis, as the interest that the purchasing Lender is required to pay; provided, further, this provision shall not apply to payments held or received by RFC with respect to RFC Direct Advances against Unimproved Land Loans and Third-Party Builder Construction Mortgage Loans. If any Lender receives a payment from Borrowers not in respect of the Obligations, but relating to another relationship of such Lender and Borrowers, such Lender may apply the payment first to the indebtedness arising out of the other relationship and then against the Obligations as provided above.

End of Article 10

Page 10-7

11. AGENT

11.1. Appointment

Each Lender hereby irrevocably designates and appoints Credit Agent as the agent of such Lender under the Loan Documents and each such Lender hereby irrevocably authorizes Credit Agent to take such action on its behalf under the provisions of the Loan Documents and to exercise such powers and perform such duties as are expressly delegated to Credit Agent by the terms of the Loan Documents, together with such other powers as are reasonably incidental thereto. Credit Agent hereby accepts such appointment and agrees to act in accordance with this Agreement.

11.2. Duties of Agent

11.2 (a)  The provisions of the Loan Documents set forth the exclusive duties of Credit Agent and no implied duties or obligations shall be read into the Loan Documents against Credit Agent. Credit Agent shall not be bound in any way by any agreement or contract other than the Loan Documents and any other agreement to which it is a party. Credit Agent shall act as an independent contractor in performing its obligations as Credit Agent under the Loan Documents and nothing herein contained shall be deemed to create any fiduciary relationship among or between Credit Agent, Borrowers or the Lenders.

11.2 (b)  Credit Agent shall examine the Pledged Loans delivered by or on behalf of the Borrowers hereunder to determine whether each Pledged Loan: (i) includes the documents and instruments to be delivered for each Pledged Loan required pursuant to Section 2.1 and the applicable Exhibits, (ii) conforms with the requirements of this Agreement (including the limitations of Exhibit H), and (iii) is otherwise in conformity with any customary collateral review criteria that Credit Agent may use from time to time. If Credit Agent shall have determined that any Mortgage Loan delivered to Credit Agent does not meet the requirements of this Agreement, Credit Agent may return to Borrowers all Collateral Documents relating thereto.

11.2 (c)  As to any Pledged Loan against which Advances may be made, if Credit Agent shall note any minor discrepancies or deficiencies in any Collateral Documents pertaining thereto, Credit Agent shall: (a) immediately notify Borrowers thereof, (b) if such discrepancies or deficiencies can be cured without returning any Collateral Documents to Borrowers, request that Borrowers cure such discrepancies or deficiencies immediately, and (c) if such discrepancies or deficiencies can only be cured by returning Collateral Documents to Borrowers, return any Collateral Documents containing any discrepancy or deficiency to Borrowers for correction against a Trust Receipt pursuant to Section 4.6(a).

11.2 (d)  Not later than the 10^th day of each month, Credit Agent will deliver to each Lender a loans-in-warehouse report for the immediately preceding month setting forth in detail all Pledged Loans and Advances against such Pledged Loans for such month.

11.3. Standard of Care

Credit Agent shall act in accordance with customary standards for those engaged as credit agents or collateral agents of commercial transactions in similar capacities.

11.3 (a)  Credit Agent is not required to ascertain or inquire as to the performance or observance of any of the conditions or agreements to be performed or observed by any other party, except as specifically provided in the Loan Documents. Credit Agent disclaims any

Page 11-1

responsibility for the validity or accuracy of the recitals to the Loan Documents and any representations and warranties contained herein, unless specifically identified as recitals, representations or warranties of Credit Agent.

11.3 (b)  Credit Agent has no responsibility for ascertaining the value, collectibility, insurability, enforceability, effectiveness or suitability of any Collateral, the title of any party therein, the validity or adequacy of the security afforded thereby, or the validity of the Loan Documents (except as to (i) its authority to enter into this Agreement and the other Loan Documents and (ii) its undertaking to perform its duties and obligations hereunder and thereunder).

11.3 (c)  No provision of this Agreement requires Credit Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers, if, in its sole judgment, it shall believe that repayment of such funds or adequate indemnity against such risk or liability is not assured to it.

11.3 (d)  Credit Agent is not responsible for preparing or filing any reports or returns relating to federal, state or local income taxes with respect to this Agreement, other than for its compensation or for reimbursement of expenses.

11.4. Delegation of Duties

Credit Agent may execute any of its duties under the Loan Documents by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. Credit Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care.

11.5. Exculpatory Provisions

Credit Agent or any of its respective officers, directors, employees, agents, attorneys-in-fact or Affiliates shall not be (a) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with the Loan Documents (except for its or such Person’s own gross negligence or willful misconduct), or (b) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by Borrowers or any officer thereof contained in the Loan Documents or in any certificate, report, statement or other document referred to or provided for in, or received by Credit Agent under or in connection with, the Loan Documents or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of the Loan Documents or for any failure of Borrowers to perform their obligations under any Loan Document. Credit Agent shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, the Loan Documents or to inspect the properties, books or records of Borrowers or any of their Subsidiaries.

11.6. Reliance by Agent

Credit Agent shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, consent, certification, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document or conversation reasonably believed by it to be correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to Borrowers), independent accountants (including, without limitation, accountants to Borrowers) and other experts selected by Credit Agent. Credit Agent may deem and treat the payee of any Note as the owner thereof for all purposes. Credit Agent shall be fully justified in failing or refusing to take any

Page 11-2

action under the Loan Documents unless it shall first receive such advice or concurrence of the Majority Lenders or all of the Lenders, as appropriate, or it shall first be indemnified to its satisfaction by the Lenders ratably in accordance with their respective Percentage Shares against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any action (except for liabilities and expenses resulting from Credit Agent’s gross negligence or willful misconduct), (b) Credit Agent shall in all cases be fully protected in acting, or in refraining from acting, under the Loan Documents in accordance with a request of the Majority Lenders or all of the Lenders, as appropriate, and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders, (c) Credit Agent shall be fully justified in failing or refusing to take any action under the Loan Documents unless it shall first receive such advice or concurrence of Credit Agent, and (d) Credit Agent shall in all cases be fully protected in acting, or in refraining from acting, under the Loan Documents in accordance with a request of or instructions from Credit Agent, and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders.

11.7. Non-Reliance on Agent or Other Lenders

Each Lender expressly acknowledges that neither Credit Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates has made any representations or warranties to such Lender and that no act by Credit Agent hereafter taken, including any review of the affairs of Borrowers, shall be deemed to constitute any representation or warranty by Credit Agent to any Lender. Each Lender represents to Credit Agent that it has, independently and without reliance upon Credit Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of Borrowers and made its own decision to enter into and make Warehousing Advances or RFC Direct Advances under the Agreement. Each Lender also represents that it will, independently and without reliance upon Credit Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under the Agreement, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of Borrowers. Except for notices, reports and other documents expressly required to be furnished to Lenders by Credit Agent hereunder, Credit Agent shall have no duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, property, financial or other condition or creditworthiness of Borrowers or any Subsidiary which may come into the possession of Credit Agent or any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates.

11.8. Agent in Individual Capacity

Credit Agent may make loans to, purchase Mortgage Loans and other assets from, and generally engage in any kind of business with Borrowers as though it were not an agent hereunder. With respect to the Warehousing Advances or RFC Direct Advances made or renewed by it and any Note issued to it, Credit Agent shall have the same rights and powers under the Loan Documents as any Lender and may exercise the same as though it were not Credit Agent, and the terms “Lender” and “Lenders” shall include Credit Agent in its individual capacity.

11.9. Successor Agent

Credit Agent may resign as such at any time upon giving 30 days Notice to Borrowers and Lenders. Credit Agent may be removed immediately with cause or at any time upon 10 days Notice from the Majority Lenders to Credit Agent and Borrowers. Upon Notice of such resignation or removal, the Majority Lenders may appoint a successor Credit Agent (which successor Credit Agent, assuming that no Default or Event of Default exists, shall be reasonably acceptable to Borrowers). The date on which Borrowers, Credit Agent and Lenders have received Notice from

Page 11-3

such successor of its acceptance of appointment as Credit Agent shall constitute the effective date of resignation or removal of the resigning or removed Credit Agent. If no successor Credit Agent shall have been so appointed by the Majority Lenders, and shall have accepted such appointment within the allotted time period, then, upon 5 days Notice to Borrowers, the resigned or removed Credit Agent may, on behalf of the Lenders, appoint a successor. Upon the effective date of resignation or removal of the resigning or removed Credit Agent, such successor will thereupon succeed to and become vested with all the rights, powers, privileges, and duties of the resigning or removed Credit Agent, but the resigning or removed Credit Agent shall not be discharged from any liability as a result of its or its directors’, officers’, agents’, or employees’ gross negligence or willful misconduct in the performance of its duties and obligations under this Agreement prior to the effective date of its resignation or removal. Upon the effective date of its resignation or removal, Credit Agent shall assign all of its right, title and security interest in and to all Collateral to its successor, without recourse, warranty or representation, express or implied.

11.10. Inspection

Each of the Lenders and their agents, accountants, attorneys and auditors will be permitted during normal business hours at any time and from time to time upon reasonable notice to the Credit Agent to examine (to the extent permitted by applicable law) the files, documents, records and other papers in the possession or under the control of the Credit Agent relating to any or all of the Collateral and to make copies thereof. As long as no Default or Event of Default shall have occurred and be continuing, any such activity will be at no cost or expense to Borrowers; if a Default or Event of Default shall have occurred and be continuing, all costs and expenses associated with the exercise from time to time by any Lender of its rights under this Section shall be promptly paid by Borrowers upon demand.

End of Article 11

Page 11-4

12. MISCELLANEOUS

12.1. Notices

Except where telephonic or facsimile notice is expressly authorized by this Agreement, all communications required or permitted to be given or made under this Agreement (“Notices”) must be in writing and must be sent by manual delivery, overnight courier or United States mail (postage prepaid), addressed as follows (or at such other address as may be designated by it in a Notice to the other):

If to Borrowers:	Universal American Mortgage Company, LLC
	700 NW 107th Avenue
	3rd Floor
	Miami, FL 33173
	Attention: Janice Munoz,
	Vice President and Treasurer
	Facsimile: (303) 229-6657
If to Credit Agent:	Residential Funding Corporation
	7501 Wisconsin Avenue
	Bethesda, MD 20814
	Attention: Jim Clapp, Director
	Facsimile: (301) 215-6288
If to Lenders:	As set forth on the signature pages hereof or of any amendment hereto.

In addition, Credit Agent will use its best efforts to provide a copy of any Notice to counsel as Borrower may designate, but failure to provide such copy shall not render any such Notice ineffective.

All periods of Notice will be measured from the date of delivery if delivered manually or by facsimile, from the first Business Day after the date of sending if sent by overnight courier or from 4 days after the date of mailing if sent by United States mail, except that Notices to Credit Agent under Article 2 and Section 3.3(f) shall be deemed to have been given only when actually received by Credit Agent. Borrowers authorize Credit Agent to accept Borrowers’ bailee pledge agreements, Warehousing Advance Requests, shipping requests, wire transfer instructions and security delivery instructions transmitted to Credit Agent by facsimile or RFConnects Delivery, and those documents, when transmitted to Credit Agent by facsimile or by RFConnects Delivery, have the same force and effect as the originals.

12.2. Reimbursement Of Expenses; Indemnity

Borrowers must: (a) pay such documentation production fees as Credit Agent may require and all out-of-pocket costs and expenses of Credit Agent, including reasonable fees, service charges and disbursements of counsel (including allocated costs of internal counsel), in connection with the amendment, enforcement and administration of this Agreement, the Notes, and other Loan Documents and the making and repayment of the Advances, and the payment of interest thereon; (b) indemnify, pay, and hold harmless Credit Agent, and any other holder of the Notes from and against, all present and future stamp, documentary and other similar taxes with respect to the foregoing matters and save Credit Agent, and any other holder of the Notes harmless from and against any and all liabilities with respect to or resulting from any delay or omission to pay such taxes; and (c) indemnify, pay and hold harmless Credit Agent, each Lender, any of their officers,

Page 12-1

directors, employees or agents and any subsequent holder of the Notes (collectively called the “Indemnitees”) from and against all liabilities, obligations, actual losses, damages, penalties, judgments, direct suits, costs, expenses and disbursements of any kind or nature whatsoever (including the reasonable fees and disbursements of counsel of the Indemnitees (including allocated costs of internal counsel), exclusive of indirect, consequential and other similar losses, in connection with any investigative, administrative or judicial proceeding, whether or not the Indemnitees have been designated as parties to such proceeding) that may be imposed upon, incurred by or asserted against such Indemnitees in any manner relating to or arising out of this Agreement, the Notes, or any other Loan Document or any of the transactions contemplated hereby or thereby, including against all liabilities, obligations, losses, damages, penalties, judgments, suits, costs, expenses and disbursements of every kind or nature (including the reasonable fees and disbursements of counsel to the Indemnitees (including allocated costs of internal counsel) in connection with any investigative, administrative or judicial proceeding, whether or not the Indemnitees have been designated as parties to such proceeding) arising from any breach of Sections 9.3(u) or 9.4(f) or the making of any Mortgage Loan in which any mortgagor, guarantor or other obligor is a Person named in any Restriction List and to whom the provision of financial services is prohibited or otherwise restricted by applicable law (“Indemnified Liabilities”), except that Borrowers have no obligation under this Agreement to any Indemnity with respect to Indemnified Liabilities arising from the gross negligence or willful misconduct of such Indemnitee. To the extent that the undertaking to indemnify, pay and hold harmless as set forth in the preceding sentence may be unenforceable because it is violative of any law or public policy, Borrowers must contribute the maximum portion that they are permitted to pay and satisfy under applicable law to the payment and satisfaction of all Indemnified Liabilities incurred by the Indemnitees or any of them. The agreement of Borrowers contained in this Article survives the expiration or termination of this Agreement and the payment in full of the Notes. Attorneys’ fees and disbursements incurred in enforcing, or on appeal from, a judgment under this Agreement are recoverable separately from and in addition to any other amount included in such judgment, and this clause is intended to be severable from the other provisions of this Agreement and to survive and not be merged into such judgment.

12.3. Indemnification by Lenders

Each Lender agrees to indemnify Credit Agent in its capacity as such (to the extent not reimbursed by Borrowers and without limiting the obligation of Borrowers to do so), ratably according to the respective amounts of their Percentage Shares, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time (including without limitation at any time following the payment of the Obligations) be imposed on, incurred by or asserted against Credit Agent in any way relating to or arising out of the Loan Documents or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by Credit Agent under or in connection with any of the foregoing; provided that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from Credit Agent’s gross negligence or willful misconduct. The agreements in this Section shall survive the payment of the Obligations and the termination of this Agreement. Attorneys’ fees and disbursements incurred in enforcing, or on appeal from, a judgment pursuant hereto shall be recoverable separately from and in addition to any other amount included in such judgment, and this clause is intended to be severable from the other provisions of this Agreement and to survive and not be merged into such judgment.

12.4. Financial Information

All financial statements and reports furnished to Credit Agent and Lenders under this Agreement must be prepared in accordance with GAAP, applied on a basis consistent with that applied in

Page 12-2

preparing the financial statements as at the end of and for each Borrower’s most recent fiscal year (except to the extent otherwise required to conform to good accounting practice).

12.5. Terms Binding Upon Successors; Survival of Representations

The terms and provisions of this Agreement are binding upon and inure to the benefit of each Borrower, Credit Agent, each Lender and their respective successors and assigns. All of Borrowers’ representations, warranties, covenants and agreements survive the making of any Warehousing Advance, and except where a longer period is set forth in this Agreement, remain effective for as long as the Commitments are outstanding or there remain any Obligations to be paid or performed.

12.6. Lenders in Individual Capacity

Any Lender and its Affiliates may make loans to, accept deposits from and generally engage in any kind of business with Borrowers, any Subsidiary and/or Lennar regardless of its capacity as a Lender hereunder. Any Lender may disclose to the other Lenders information regarding other relationships which it may have with Borrowers and Borrowers hereby consent to these disclosures.

12.7. Assignment and Participation

This Agreement and the Obligations of Borrowers may not be assigned by Borrowers. Any Lender may, subject to the limitations set forth below, assign or transfer, in whole or in part, its Warehousing Commitments in excess of $15,000,000 and the related Warehousing Advances, together with its corresponding rights under this Agreement and the other Loan Documents, and further may sell participations in all or any part of any of its Warehousing Commitment and the related Warehousing Advances or any other interest in the Obligations or any of its obligations hereunder to another Person, in which event: (a) in the case of an assignment, upon consent by Credit Agent and Borrowers (such consent in each case not to be unreasonably withheld), the assignee shall have, to the extent of such assignment (unless otherwise provided thereby), the same rights and benefits as it would have if it were a “Lender” hereunder, and, if the assignee has expressly assumed, for the benefit of Borrowers, such Lender’s obligations hereunder, such Lender shall be relieved of its obligations hereunder to the extent of such assignment and assumption, and (b) in the case of a participation, the participating Person’s (a “Participant”) rights against the Lender from whom it has purchased such participation in respect of such participation are those set forth in the agreement executed by such Lender in favor of the Participant relating thereto. Such Lender shall remain solely responsible to the other parties hereto for the performance of such Lender’s obligations under the Loan Documents, whether or not such Lender shall remain the holder of any Note. Such Lender shall retain all voting rights with respect to such Note, the Advances hereunder and such Lender’s Warehousing Commitment Amount. Borrowers, Credit Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under the Loan Documents. Without limiting any Lender’s exclusive right to collect and enforce the Obligations owed to it, Borrowers agree that each participation will give rise to a debtor-creditor relationship between Borrowers and Participant, and Borrowers authorize each Participant, upon an occurrence of an Event of Default, to proceed directly by right of setoff, bankers’ lien or otherwise, against any assets of Borrowers that may be held by that Participant. Notwithstanding the foregoing, nothing contained herein shall in any manner or to any extent affect the right of any Lender to pledge or assign Notes and interests in this Agreement to any Federal Reserve Bank pursuant to applicable laws and regulations, or to assign its Notes and its right to receive and retain payments on its Notes provided such Lender remains primarily and directly liable pursuant to the terms and conditions of this Agreement to keep, observe and perform all of its obligations under this Agreement, and all such assignments shall be treated, considered and administered as a sale of a participation and not as an assignment and shall be subject to and governed by the provisions of this Section. Any Lender may furnish any information concerning Borrowers in the possession of such Lender from time to time to

Page 12-3

Affiliates of such Lender and to assignees and Participants (including prospective assignees and Participants) and Borrowers hereby consent to the provision of such information.

12.8. Commitment Increases

12.8 (a) At any time and from time to time after the Closing Date, the Warehousing Credit Limit may be increased either by an Additional Lender establishing a Warehousing Commitment or by one or more then existing Lenders (“Increase Lender”) increasing its Warehousing Commitment Amount (each such increase by either means, a “Commitment Increase”) provided that no Commitment Increase shall become effective unless and until (i) Borrowers, Credit Agent and the Additional Lender or the Increase Lender shall have executed and delivered an amendment with respect to such Commitment Increase, and (ii) if, after giving effect thereto, the Warehousing Credit Limit would exceed $500,000,000, such Commitment Increase shall have been consented to in an amendment of this Agreement by each of the other Lenders. Prior to the effective date (“Effective Date”) of any Commitment Increase that involves an Additional Lender, Borrowers shall issue promissory notes to the Additional Lender. Such new promissory note or notes shall constitute a “Warehousing Note” or “Sublimit Note,” as applicable, for the purposes of the Loan Documents. The Credit Agent will distribute to each Lender an original (if executed by such Lender) or a copy (if not executed by such Lender) of each amendment effecting a Commitment Increase on or prior to the Effective Date of such amendment. No Lender has implicitly or explicitly agreed to make any future Commitment Increase by entering into this Agreement.

12.8 (b) On the Effective Date of such Commitment Increase, Credit Agent shall recompute the Percentage Share for each Lender based on the new Warehousing Credit Limit which results from the Commitment Increase, and Credit Agent shall request Warehousing Advances from or shall direct prepayments to each Lender so that the total amount of all then outstanding Warehousing Advances are shared pro rata by each Lender. On the effective date of any reduction of the Warehousing Credit Limit resulting from the expiration of a temporary increase in any Lender’s Warehousing Commitment Amount, Borrowers shall prepay the Warehousing Advances in an amount equal to the amount by which the aggregate unpaid principal balance of such Lender’s Warehousing Advances exceeds its permanent Warehousing Commitment Amount, and Credit Agent shall direct such prepayments to such Lender.

12.9. Amendments

12.9 (a) Other than as permitted by Section 12.8, this Agreement may not be amended or terms or provisions hereof waived unless such amendment or waiver is in writing and signed by the Majority Lenders, Credit Agent and Borrower; provided, however, that without the prior written consent of 100% of the Lenders, no amendment or waiver shall: (1) waive or amend any term or provision of Sections 7.4 or 7.14 hereof or the definition of any type of Collateral or the provisions of Section 4.1 hereof, (2) reduce the principal of, or rate of interest or fees on, the Warehousing Advances or any Lender’s Warehousing Commitment, (3) other than as permitted by Section 12.8, modify the Warehousing Credit Limit, (4) other than as permitted by Section 12.8, modify any Lender’s Percentage Share of the Warehousing Credit Limit, (5) modify the definition of “Majority Lenders,” or of the number or percentage of Lenders that are required to take action under the Loan Documents, (6) extend the Warehousing Maturity Date or modify the times that payments are due from Borrowers under this Agreement, (7) release any portion of the Collateral, except as expressly contemplated by the Loan Documents or in connection with a sale of such Collateral permitted hereunder, (8) release any Borrower from its obligations under Section 1.9, or amend or waive Section 1.9 or Exhibit N, (9) modify the several nature of each Lender’s obligations under this

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Agreements, (10) amend or waive the first sentence of Section 12.7, (11) amend or waive Section 3.11, Section 3.12, or Section 3.13, (12) amend Exhibit H, or (13) amend this Section. It is expressly agreed and understood that the failure by the Majority Lenders to elect to accelerate amounts outstanding hereunder or to terminate the obligation of Lenders to make Warehousing Advances or RFC Direct Advances hereunder shall not constitute an amendment or waiver of any term or provision of this Agreement.

12.9 (b) Borrowers hereby agree that they shall, upon requesting the third and any subsequent amendments of this Agreement or any other Loan Document or any waiver of any material term or provision of this Agreement or any other Loan Document (except an extension of the Warehousing Maturity Date), pay at the time of such request a modification fee (1) to Credit Agent in a minimum amount of $1,000 or such greater amount as may be notified to Borrowers by Credit Agent in its sole discretion and (2) to each Lender (except any Lender which becomes party to the Agreement by virtue of such amendment) in a minimum amount of $1,000 or such greater amount as may be notified to Borrowers by the Majority Lenders, acting through Credit Agent, in their sole discretion. The payment of such modification fees shall be in addition to and shall not limit Borrowers’ reimbursement obligations pursuant to Section 11.2 hereof, and any other fee or charge imposed by Credit Agent or Lenders as a condition to any amendment.

12.10. Governing Law

This Agreement and the other Loan Documents are governed by the laws of the State of Minnesota, without reference to its principles of conflicts of laws.

12.11. Relationship of the Parties

This Agreement provides for the making and repayment of Warehousing Advances or RFC Direct Advances by Lenders (in their capacities as lenders) to Borrowers (in their capacity as a borrower), for the payment of interest on those Warehousing Advances or RFC Direct Advances and for the payment of certain fees by Borrowers to Lenders and Credit Agent. The relationship between Lenders and Borrowers is limited to that of creditor and secured party on the part of Lenders and of debtor on the part of Borrowers. The provisions of this Agreement and the other Loan Documents for compliance with financial covenants and the delivery of financial statements and other operating reports are intended solely for the benefit of Lenders and Credit Agent to protect their interest as a creditors and secured party. Nothing in this Agreement creates or may be construed as permitting or obligating Credit Agent or any Lender to act as a financial or business advisor or consultant to Borrowers, as permitting or obligating Lenders or Credit Agent to control Borrowers or to conduct Borrowers’ operations, as creating any fiduciary obligation on the part of Credit Agent or any Lender to Borrowers, or as creating any joint venture, agency, partnership or other relationship between Credit Agent or any Lender and Borrowers other than as explicitly and specifically stated in the Loan Documents. Borrowers acknowledge that they have had the opportunity to obtain the advice of experienced counsel of its own choice in connection with the negotiation and execution of the Loan Documents and to obtain the advice of that counsel with respect to all matters contained in the Loan Documents, including the waivers of jury trial and of punitive, consequential, special or indirect damages contained in Sections 12.18 and 12.19, respectively. Borrowers further acknowledge that they are experienced with respect to financial and credit matters and have made their own independent decisions to apply to Lenders for credit and to execute and deliver this Agreement.

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12.12. Severability

If any provision of this Agreement is declared to be illegal or unenforceable in any respect, that provision is null and void and of no force and effect to the extent of the illegality or unenforceability, and does not affect the validity or enforceability of any other provision of the Agreement.

12.13. Consent to Credit References

Borrowers consent to the disclosure of information regarding each Borrower and its Subsidiaries and their relationships with Credit Agent and Lenders to Persons making credit inquiries to Credit Agent or any Lender. This consent is revocable by Borrowers at any time upon Notice to Credit Agent and Lenders as provided in Section 12.1.

12.14. Counterparts

This Agreement may be executed in any number of counterparts, each of which will be deemed an original, but all of which together constitute but one and the same instrument.

12.15. Headings/Captions

The captions or headings in this Agreement and the other Loan Documents are for convenience only and in no way define, limit or describe the scope or intent of any provision of this Agreement or any other Loan Document.

12.16. Entire Agreement

This Agreement, the Notes and the other Loan Documents represent the final agreement among the parties with respect to their subject matter, and may not be contradicted by evidence of prior or contemporaneous oral agreements among the parties. There are no oral agreements among the parties with respect to the subject matter of this Agreement, the Notes and the other Loan Documents.

12.17. Consent to Jurisdiction

AT THE OPTION OF CREDIT AGENT, THIS AGREEMENT, THE NOTES AND THE OTHER LOAN DOCUMENTS MAY BE ENFORCED IN ANY STATE OR FEDERAL COURT WITHIN THE STATE OF MINNESOTA. EACH BORROWER CONSENTS TO THE JURISDICTION AND VENUE OF THOSE COURTS, AND WAIVES ANY OBJECTION TO THE JURISDICTION OR VENUE OF ANY OF THOSE COURTS, INCLUDING THE OBJECTION THAT VENUE IN THOSE COURTS IS NOT CONVENIENT. ANY SUCH SUIT, ACTION OR PROCEEDING MAY BE COMMENCED AND INSTITUTED BY SERVICE OF PROCESS UPON EACH BORROWER BY FIRST CLASS REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, ADDRESSED TO BORROWER AT ITS ADDRESS LAST KNOWN TO CREDIT AGENT. EACH BORROWER’S CONSENT AND AGREEMENT UNDER THIS SECTION DOES NOT AFFECT CREDIT AGENT’S RIGHT TO ACCOMPLISH SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST ANY BORROWER IN ANY OTHER JURISDICTION OR COURT. IN THE EVENT ANY BORROWER COMMENCES ANY ACTION IN ANOTHER JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT THEORY ARISING DIRECTLY OR INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, CREDIT AGENT AT ITS OPTION MAY HAVE THE CASE TRANSFERRED TO A STATE OR FEDERAL COURT WITHIN THE STATE OF

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MINNESOTA OR, IF A TRANSFER CANNOT BE ACCOMPLISHED UNDER APPLICABLE LAW, MAY HAVE BORROWER’S ACTION DISMISSED WITHOUT PREJUDICE.

12.18. Waiver of Jury Trial

EACH BORROWER, EACH OF LENDERS AND CREDIT AGENT EACH COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY A JURY, AND FULLY WAIVES ANY RIGHT TO TRIAL BY JURY TO THE EXTENT THAT ANY SUCH RIGHT NOW EXISTS OR HEREAFTER ARISES. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS SEPARATELY GIVEN, KNOWINGLY AND VOLUNTARILY, BY BORROWER AND CREDIT AGENT, AND IS INTENDED TO ENCOMPASS EACH INSTANCE AND EACH ISSUE FOR WHICH THE RIGHT TO TRIAL BY JURY WOULD OTHERWISE APPLY. CREDIT AGENT, EACH OF LENDERS AND BORROWER ARE EACH AUTHORIZED AND DIRECTED TO SUBMIT THIS AGREEMENT TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE PARTIES TO THIS AGREEMENT AS CONCLUSIVE EVIDENCE OF THIS WAIVER OF THE RIGHT TO JURY TRIAL. FURTHER, EACH BORROWER, EACH OF LENDERS AND CREDIT AGENT EACH CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF THE OTHER PARTY, INCLUDING THE OTHER PARTY’S COUNSEL, HAS REPRESENTED, EXPRESSLY OR OTHERWISE, TO ANY OF ITS REPRESENTATIVES OR AGENTS THAT THE OTHER PARTY WILL NOT SEEK TO ENFORCE THIS WAIVER OF RIGHT TO TRIAL BY JURY.

12.19. Waiver of Punitive, Consequential, Special or Indirect Damages

BORROWERS WAIVE ANY RIGHT THEY MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL OR INDIRECT DAMAGES FROM CREDIT AGENT, ANY LENDER OR ANY OF THEIR AFFILIATES, OFFICERS, DIRECTORS, EMPLOYEES OR AGENTS WITH RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY BORROWERS AGAINST ANY LENDER, CREDIT AGENT OR ANY OF THEIR AFFILIATES, OFFICERS, DIRECTORS, EMPLOYEES OR AGENTS WITH RESPECT TO ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT. THIS WAIVER OF THE RIGHT TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL OR INDIRECT DAMAGES IS KNOWINGLY AND VOLUNTARILY GIVEN BY BORROWERS, AND IS INTENDED TO ENCOMPASS EACH INSTANCE AND EACH ISSUE FOR WHICH THE RIGHT TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL OR INDIRECT DAMAGES WOULD OTHERWISE APPLY. CREDIT AGENT AND EACH LENDER IS AUTHORIZED AND DIRECTED TO SUBMIT THIS AGREEMENT TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE PARTIES TO THIS AGREEMENT AS CONCLUSIVE EVIDENCE OF THIS WAIVER OF THE RIGHT TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL OR INDIRECT DAMAGES.

12.20. Confidentiality

The Credit Agent and each Lender shall use reasonable efforts to assure that information about the Borrower and its operations, affairs and financial condition, not generally disclosed to the public or to trade and other creditors, which is furnished to the Credit Agent or such Lender pursuant to the provisions hereof is used only for the purposes of this Agreement and any other relationship between the Credit Agent or such Lender and the Borrower and not divulged to any Person other than the Credit Agent, such Lender, its Affiliates and their respective officers, directors, employees and agents, except: (a) to their attorneys and accountants, (b) in connection with the enforcement of the rights of the Credit Agent or such Lender hereunder and under the other Loan Documents or otherwise in connection with applicable litigation, (c) in connection with assignments and participations and the solicitation of prospective assignees and participants referred to in Section 12.7 (provided such assignees, participants and prospecting assignees and participants agree to be bound by this Section 12.20) and (d) as may otherwise be required or requested by any regulatory authority having jurisdiction over the Credit Agent or by any applicable law, rule, regulation or judicial process, the opinion of the Credit Agent’s counsel concerning the making of such disclosure to be binding on the parties hereto.

End of Article 11

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13. DEFINITIONS

13.1. Defined Terms

Capitalized terms defined below or elsewhere in this Agreement have the following meanings or, as applicable, the meanings given to those terms in Exhibits to this Agreement:

“Accrual Basis” has the meaning set forth in Section 3.1(c).

“Acquisition Cost” means, with respect to any Mortgage Loan, the cash purchase price paid by Borrowers to acquire such Mortgage Loan minus any portion thereof attributable to amounts other than principal payable with respect to such Mortgage Loan.

“Additional Lender” means a Person admitted as a Lender under the Agreement by assignment or by the terms of an amendment hereto. Credit Agent will use its best efforts to notify Borrowers of the identity of any Person (other than RFC) proposed by Credit Agent to be admitted as a Lender at least 10 Business Days prior to the date on which such Person is proposed to be admitted as a Lender, provided that Credit Agent shall incur no liability to Borrowers or any other Person for any failure to give such notification.

“Advance” means a Warehousing Advance, a Swingline Advance, or an RFC Direct Advance.

“Advance Certificate” has the meaning set forth in Section 1.5.

“Advance Rate” means, with respect to any Eligible Loan, the Advance Rate set forth in Exhibit H for that type of Eligible Loan.

“Advance Request” means a Warehousing Advance Request Against Eligible Assets or a Warehousing Advance Request Against Constructon/Perm Mortgage Loans.

“Affiliate” means, when used with reference to any Person, (a) each Person that, directly or indirectly, controls, is controlled by or is under common control with, the Person referred to, (b) each Person that beneficially owns or holds, directly or indirectly, 5% or more of any class of voting Equity Interests of the Person referred to, (c) each Person, 5% or more of the voting Equity Interests of which is beneficially owned or held, directly or indirectly, by the Person referred to, and (d) each of such Person’s officers, directors, joint venturers and partners. For these purposes, the term “control” (including the terms “controlled by” and “under common control with”) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of the Person in question.

“Agency Security” means a Mortgage-backed Security issued or guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae.

“Agent’s Fee” has the meaning set forth in Section 3.6 of the Agreement.

“Agreement” means this First Amended and Restated Warehousing Credit and Security Agreement, either as originally executed or as it may be amended, restated, renewed or replaced.

“Agreement for Deed” means an agreement between Lennar and the purchaser of the Single Family Properties in a development built by Lennar, pursuant to which the purchasers agree to make payments to Lennar and its assigns over a period of time and Lennar agrees, upon receipt of all such payments, to transfer title to the common areas in such development to such purchaser or a homeowners association.

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“Appraised Property Value” means with respect to an interest in real property, the then current fair market value of the real property and any improvements on it as of recent date determined in accordance with Title XI of FIRREA by a qualified appraiser who is a member of the American Institute of Real Estate Appraisers or other group of professional appraisers.

“Approved Custodian” means a pool custodian or other Person that Lender deems acceptable, in its sole discretion, to hold Mortgage Loans for inclusion in a Mortgage Pool or to hold Mortgage Loans as agent for an Investor that has issued a Purchase Commitment for those Mortgage Loans.

“Audited Statement Date” means the date of each Borrower’s most recent audited financial statements (and, if applicable, such Borrower’s Subsidiaries, on a consolidated basis) delivered to Credit Agent and Lenders under the Existing Agreement or this Agreement.

“Balance Deficiency Fee” has the meaning set forth in Section 3.1(b).

“Balance Funded Agreement” has the meaning set forth in Section 3.1(b).

“Balance Funded Portion” has the meaning set forth in Section 3.1(b).

“Balance Funded Rate” means, for Warehousing Advances made by any Lender that is a party to a Balance Funded Agreement, the applicable rate set forth Exhibit H.

“Bank One” means Bank One, National Association, or any successor bank.

“Bank One Prime Rate” means, as of any date of determination, the highest prime rate quoted by Bank One and most recently published by Bloomberg L.P. If the prime rate for Bank One is not quoted or published for any period, then during that period the term “Bank One Prime Rate” means the highest prime rate published in the most recent edition of The Wall Street Journal in its regular column entitled “Money Rates.”

“Borrowers” has the meaning set forth in the first paragraph of this Agreement.

“BPO Value” means, with respect to the improved real property securing any Mortgage Loan, the lowest fair market value for such real property or ownership interest and occupancy rights as set forth in an opinion of a real estate broker acceptable to the Lender as to the value of such improved real property if sold within a 30-day marketing period. Each such broker price opinion shall be obtained from a real estate broker with substantial experience in the purchase and sale of similar properties in the geographic area in which the real property or ownership interest and occupancy rights to be value is located.

“Business Day” means any day other than Saturday, Sunday or any other day on which national banking associations are closed for business.

“Buydown” has the meaning set forth in Section 3.4.

“Calendar Quarter” means the 3 month period beginning on each January 1, April 1, July 1 or October 1.

“Cash Collateral Account” means a demand deposit account maintained at the Funding Bank in Credit Agent’s name and designated for receipt of the proceeds of the sale or other disposition of Collateral.

“Closing Date” has the meaning set forth on the signature page of Credit Agent to this Agreement.

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“Collateral” has the meaning set forth in Section 4.1.

“Collateral Documents” means, with respect to each Mortgage Loan, (a) the Mortgage Note, the Mortgage and all other documents including, if applicable, any Security Agreement, executed in connection with or relating to the Mortgage Loan; (b) as applicable, the original lender’s ALTA Policy of Title Insurance or its equivalent, documents evidencing the FHA Commitment to Insure, the VA Guaranty or private mortgage insurance, the appraisal, the Regulation Z statement, the environmental assessment, the engineering report, certificates of casualty or hazard insurance, credit information on the maker of the Mortgage Note, the HUD-1 or corresponding purchase advice; (c) any other document listed in Exhibit B; and (d) any other document that is customarily desired for inspection or transfer incidental to the purchase of any Mortgage Note by an Investor or that is customarily executed by the seller of a Mortgage Note to an Investor.

“Commitment Increase” has the meaning set forth in Section 12.8.

“Commitments” mean the Warehousing Commitment and the RFC Direct Commitment.

“Committed Purchase Price” means for an Eligible Loan (a) the dollar price as set forth in the Purchase Commitment or, if the price is not expressed in dollars, the product of the Mortgage Note Amount multiplied by the price (expressed as a percentage) as set forth in the Purchase Commitment for the Eligible Loan, or (b) if the Eligible Loan is to be used to back an Agency Security, an amount equal to the product of the Mortgage Note Amount multiplied by the price (expressed as a percentage) as set forth in the Purchase Commitment for the Agency Security.

“Compliance Certificate” means a certificate executed on behalf of Borrowers by UAMCLLC’s manager having principal financial accounting responsibilities, substantially in the form of Exhibit E.

“Cost Breakdown” means a list of the costs and expenses to be financed by Advances against a Third Party Builder Construction Mortgage Loan or a Construction/Perm Mortgage Loan, including, without limitation, real property acquisition costs, hard and soft construction costs, architectural fees, the Rehab Escrow and any other costs and expenses budgeted to construct and complete the improvements.

“Construction/Perm Mortgage Loan” has the meaning set forth in Exhibit H.

“Credit Agent” has the meaning set forth in the first paragraph of this Agreement.

“Credit Score” means a mortgagor’s overall consumer credit rating, represented by a single numeric credit score using the Fair, Isaac consumer credit scoring system, provided by a credit repository acceptable to Credit Agent and the Investor that issued the Purchase Commitment covering the related Mortgage Loan (if a Purchase Commitment is required by Exhibit H).

“Debt” means (a) all indebtedness or other obligations of a Person (and, if applicable, that Person’s Subsidiaries, on a consolidated basis) that, in accordance with GAAP, would be included in determining total liabilities as shown on the liabilities side of a balance sheet of that Person on the date of determination, plus (b) all indebtedness or other obligations of that Person (and, if applicable, that Person’s Subsidiaries, on a consolidated basis) for borrowed money or for the deferred purchase price of property or services. For purposes of calculating a Person’s Debt, Subordinated Debt due more than 1 year after the Warehousing Maturity Date may be excluded from that Person’s indebtedness.

“Default” means the occurrence of any event or existence of any condition that, but for the giving of Notice or the lapse of time, would constitute an Event of Default.

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“Default Rate” means, for any Advance, the Interest Rate applicable to that Advance plus 2% per annum. If no Interest Rate is applicable to an Advance, “Default Rate” means, for that Advance, the highest Interest Rate then applicable to any outstanding Advance plus 2% per annum.

“Depository Benefit” means the compensation received by any Lender, directly or indirectly, as a result of Borrowers’ maintenance of Eligible Balances with a Designated Bank.

“Designated Bank” means any bank designated by any Lender as a Designated Bank, but only for as long as such Lender has an agreement under which that Lender receives Depository Benefits from that bank.

“Designated Bank Charges” means any fees, interest or other charges that would otherwise be payable to a Designated Bank in connection with Eligible Balances maintained at the Designated Bank, including deposit insurance premiums, service charges and any other charges that may be imposed by governmental authorities from time to time.

“Discontinued Loan” has the meaning set forth in the GMAC-RFC Client Guide.

“Electronic Advance Request” means an electronic transmission through RFConnects Delivery containing the same information as Exhibit A to this Agreement.

“Electronic Tracking Agreement” means an Electronic Tracking Agreement, on the form prescribed by Credit Agent, among a Borrower, Credit Agent, MERS and MERSCORP, Inc.

“Eligible Asset” means a Mortgage Loan, Agreement for Deed or Foreclosure Claim Receivable that satisfies the conditions and requirements set forth in Exhibit H or the UAMC Asset Account.

“Eligible Balances” means all funds of or maintained by Borrowers (and, if applicable, Borrowers’ Subsidiaries) in demand deposit or time deposit accounts at a Designated Bank, minus balances to support float, reserve requirements and any other reductions that may be imposed by governmental authorities from time to time.

“Eligible Loan” means a Single Family Mortgage Loan that satisfies the conditions and requirements set forth in Exhibit H.

“Eligible Mortgage Pool” means a Mortgage Pool for which (a) an Approved Custodian has issued its initial certification, (b) there exists a Purchase Commitment covering the Agency Security to be issued on the basis of that certification and (c) the Agency Security will be delivered to Credit Agent.

“Equity Interests” means all shares, interests, participations or other equivalents, however, designated, of or in a Person (other than a natural person), whether or not voting, including common stock, membership interests, warrants, preferred stock, convertible debentures and all agreements, instruments and documents convertible, in whole or in part, into any one or more of the foregoing.

“ERISA” means the Employee Retirement Income Security Act of 1974 and all rules and regulations promulgated under that statute, as amended, and any successor statute, rules, and regulations.

“ERISA Affiliate” means any trade or business (whether or not incorporated) that is a member of a group of which any Borrower is a member and that is treated as a single employer under Section 414 of the Internal Revenue Code.

“Event of Default” means any of the conditions or events set forth in Section 10.1.

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“Excess Buydown” has the meaning set forth in Section 3.4.

“Exchange Act” means the Securities Exchange Act of 1934 and all rules and regulations promulgated under that statute, as amended, and any successor statute, rules, and regulations.

“Exhibit A” means Exhibit A-SF, Exhibit A-Construction, Exhibit A-Other Investments and Exhibit A-UNI, as applicable to the type of Eligible Asset being financed.

“Exhibit B” means Exhibit B-SF, Exhibit B-Construction, Exhibit B-Foreclosure Claim Receivable and Exhibit B-Investment Mortgage Loans, as applicable to the type of Eligible Asset being financed.

“Existing Agreement” means the Warehousing Credit and Security Agreement dated as of June 25, 2001, as amended, between Borrowers, Credit Agent and Lenders.

“Fair Market Value” means, at any time for an Eligible Loan or a related Agency Security (if the Eligible Loan is to be used to back an Agency Security) as of any date of determination, (a) the Committed Purchase Price if the Eligible Loan is covered by a Purchase Commitment from Fannie Mae or Freddie Mac or the Eligible Loan is to be exchanged for an Agency Security and that Agency Security is covered by a Purchase Commitment from an Investor, or (b) otherwise, the market price for such Eligible Loan or Agency Security, determined by Credit Agent based on market data for similar Mortgage Loans or Agency Securities and such other criteria as Credit Agent deems appropriate in its sole discretion.

“Fannie Mae” means Fannie Mae, a corporation created under the laws of the United States, and any successor corporation or other entity.

“Federal Funds Rate” means, for each week, the effective Federal Funds Rate (per annum) of interest in effect on the first Business Day of that week, as published by Bloomberg L.P. If the Federal Funds Rate is not published by Bloomberg L.P. on the first Business Day of any week, then the term “Federal Funds Rate” means the highest Federal Funds Rate published in the The Wall Street Journal in its regular column entitled “Money Rates” on the first Business Day of that week.

“FHA” means the Federal Housing Administration and any successor agency or other entity.

“FICA” means the Federal Insurance Contributions Act and all rules and regulations promulgated under that statute, as amended, and any successor statute, rules and regulations.

“FIRREA” means the Financial Institutions Reform, Recovery and Enforcement Act of 1989 and all rules and regulations promulgated under that statute, as amended, and any successor statute, rules, and regulations.

“First Mortgage” means a Mortgage that constitutes a first Lien on the real property and improvements described in or covered by that Mortgage.

“First Mortgage Loan” means a Mortgage Loan secured by a First Mortgage.

“Foreclosure Claim Receivable” means a valid, readily enforceable and liquidated claim of UAMC Asset for the payment of money against FHA or VA under an FHA mortgage insurance policy insuring payment of, or VA guaranty of, all or a part of a defaulted Single Family Mortgage Loan foreclosed by one of the Borrowers.

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“Foreclosure Mortgage Loan” means a Mortgage Loan that has been repurchased by a Borrower from an Investor or out of a Mortgage Pool and assigned to UAMC Asset, and is in the process of foreclosure.

“Freddie Mac” means the Federal Home Loan Mortgage Corporation, a corporation created under the laws of the United States, and any successor corporation or other entity.

“Funding Bank” means Bank One or any other bank designated by Credit Agent as a Funding Bank.

“Funding Bank Agreement” means a letter agreement on the form prescribed by Credit Agent between the Funding Bank and Borrowers authorizing Credit Agent’s access to the Operating Account.

“GAAP” means generally accepted accounting principles set forth in opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and in statements and pronouncements of the Financial Accounting Standards Board, or in opinions, statements or pronouncements of any other entity approved by a significant segment of the accounting profession, which are applicable to the circumstances as of the date of determination.

“Ginnie Mae” means the Government National Mortgage Association, an agency of the United States government, and any successor agency or other entity.

“GMAC-RFC Client Guide” means the applicable loan purchase guide issued by RFC, as the same may be amended or replaced.

“Government Mortgage Loan” means a closed-end First Mortgage Loan that is either HUD/FHA insured (other than a HUD 203(K) Mortgage Loan or a Title I Mortgage Loan) or VA guaranteed.

“Hedging Arrangements” means, with respect to any Person, any agreements or other arrangements (including interest rate swap agreements, interest rate cap agreements and forward sale agreements) entered into to protect that Person against changes in interest rates or the market value of assets.

“HUD” means the Department of Housing and Urban Development, and any successor agency or other entity.

“HUD 203(K) Mortgage Loan” means an FHA-insured closed-end First Mortgage Loan to an individual obligor the proceeds of which will be used for the purpose of rehabilitating and repairing the related single family property, and which satisfies the definition of “rehabilitation loan” in 24 C.F.R. 203.50(a).

“Indemnified Liabilities” has the meaning set forth in Section 12.2.

“Indemnitees” has the meaning set forth in Section 12.2.

“Interest Rate” means, for any Advance, the floating rate of interest specified for that Advance in Exhibit H.

“Interim Statement Date” means the date of the most recent unaudited financial statements of each Borrower (and, if applicable, each Borrower’s Subsidiaries, on a consolidated basis) delivered to Credit Agent and Lender under the Existing Agreement or this Agreement.

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“Internal Revenue Code” means the Internal Revenue Code of 1986, Title 26 of the United States Code, and all rules, regulations and interpretations issued under those statutory provisions, as amended, and any subsequent or successor federal income tax law or laws, rules, regulations and interpretations.

“Investment” means any direct or indirect purchase or other acquisition by any Person of, or a beneficial interest in, stock or other securities of any other Person, or any direct or indirect loan, advance (other than advances to employees for moving and travel expenses, drawing accounts and similar expenditures in the ordinary course of business) or capital contribution by that Person to any other Person, including all Debt and accounts receivable from that Person which are not current assets or did not arise from sales to that other Person in the ordinary course of business.

“Investment Company Act” means the Investment Company Act of 1940 and all rules and regulations promulgated under that statute, as amended, and any successor statute, rules, and regulations.

“Investment Mortgage Loan” means a Prime First Mortgage Loan or a Subprime Mortgage Loan held by a Borrower for investment rather than sale.

“Investor” means Fannie Mae, Freddie Mac or a financially responsible private institution that Lender deems acceptable, in its sole discretion, to issue Purchase Commitments with respect to a particular category of Eligible Loans.

“Lenders” has the meaning set forth in the first paragraph of this Agreement.

“Lennar” means LENNAR CORPORATION, a Delaware corporation.

“Lennar Undertaking” means a guaranty of certain of Borrowers’ Obligations by Lennar.

“LIBOR” means, for each week, the rate of interest per annum that is equal to the arithmetic mean of the U.S. Dollar London Interbank Offered Rates for 1 month periods of certain U.S. banks as of 11:00 a.m. (London time) on the first Business Day of each week on which the London Interbank market is open, as published by Bloomberg L.P. If those interest rates are not offered or published for any period, then during that period LIBOR means the London Interbank Offered Rate for 1 month periods as published in The Wall Street Journal in its regular column entitled “Money Rates” on the first Business Day of each week on which the London Interbank market is open.

“Lien” means any lien, mortgage, deed of trust, pledge, security interest, charge or encumbrance of any kind (including any conditional sale or other title retention agreement, any lease in the nature of such an agreement and any agreement to give any security interest).

“Loan Documents” means this Agreement, the Notes, the Lennar Undertaking, any agreement of Borrowers relating to Subordinated Debt, and each other document, instrument or agreement executed by Borrowers in connection with any of those documents, instruments and agreements, as originally executed or as any of the same may be amended, restated, renewed or replaced.

“Loan Package Fee” has the meaning set forth in Section 3.7.

“Loan-to-Value Ratio” means, for any Mortgage Loan, the ratio of (a) the maximum amount that may be borrowed under the Mortgage Loan (whether or not borrowed) at the time of origination, plus the Mortgage Note Amounts of all other Mortgage Loans secured by senior or pari passu Liens on the related property, to (b) the Appraised Property Value of the related property.

Page 13-7

“Majority Lenders” means at any date Lenders holding not less than 66-2/3% of the aggregate Warehousing Credit Limit. Notwithstanding the foregoing, if there are only 2 Lenders the term “Majority Lenders” shall, except for purposes of Section 11.2(c), include both Lenders.

“Manufactured Home” means a structure that is built on a permanent chassis (steel frame) with the wheel assembly necessary for transportation in one or more sections to a permanent site or semi-permanent site.

“Margin Stock” has the meaning assigned to that term in Regulation U of the Board of Governors of the Federal Reserve System, as amended.

“MERS” means Mortgage Electronic Registrations Systems, Inc. and any successor entity.

“Miscellaneous Fees and Charges” means the Collateral Operations Fees set forth on Lender’s fee schedule attached as Exhibit I and all miscellaneous disbursements, charges and expenses incurred by or on behalf of Lender for the handling and administration of Advances and Collateral, including costs for Uniform Commercial Code, tax lien and judgment searches conducted by Lender, filing fees, charges for wire transfers and check processing charges, charges for security delivery fees, charges for overnight delivery of Collateral to Investors, recording fees, Funding Bank service fees and overdraft charges and Designated Bank Charges. Upon not less than 3 Business Days’ prior Notice to Borrower, Lender may modify the Collateral Operations Fees set forth in Exhibit I to conform to current Lender practices and, as so modified, the revised Exhibit I will become part of this Agreement.

“Mortgage” means a mortgage or deed of trust on real property that is improved and substantially completed (including real property to which a Manufactured Home has been affixed in a manner such that the Lien of a mortgage or deed of trust would attach to the Manufactured Home under applicable real property law).

“Mortgage-backed Securities” means securities that are secured or otherwise backed by Mortgage Loans.

“Mortgage Loan” means any loan evidenced by a Mortgage Note and secured by a Mortgage and, if applicable, a Security Agreement.

“Mortgage Note” means a promissory note secured by one or more Mortgages and, if applicable, one or more Security Agreements.

“Mortgage Note Amount” means, as of any date of determination, the then outstanding and unpaid principal amount of a Mortgage Note (whether or not an additional amount is available to be drawn under that Mortgage Note).

“Mortgage Pool” means a pool of one or more Pledged Loans on the basis of which a Mortgage-backed Security is to be issued.

“Multiemployer Plan” means a “multiemployer plan” as defined in Section 4001(a)(3) of ERISA, to which either Borrower or any ERISA Affiliate of Borrower has any obligation with respect to its employees.

“Notes” means the Warehousing Notes, the Sublimit Notes, the RFC Direct Promissory Note and the Swingline Note.

“Notices” has the meaning set forth in Section 12.1.

Page 13-8

“Obligations” means any and all indebtedness, obligations and liabilities of each Borrower to Lenders and Credit Agent (whether now existing or arising after the date of this Agreement, voluntary or involuntary, joint or several, direct or indirect, absolute or contingent, liquidated or unliquidated, or decreased or extinguished and later increased and however created or incurred) under the Loan Documents.

“Operating Account” means the demand deposit account number 1078657 maintained at the Funding Bank in Borrowers’ name and designated for funding that portion of each Eligible Asset not funded by an Advance made against that Eligible Asset and for returning any excess payment from an Investor for a Pledged Asset.

“Other Investments” has the meaning set forth on Exhibit H.

“Participant” has the meaning set forth in Section 12.7.

“Percentage Share” means, for any Lender at any date, the percentage which such Lender’s Warehousing Commitment Amount bears to the Warehousing Credit Limit.

“Person” means and includes natural persons, corporations, limited liability companies, limited liability partnerships, limited partnerships, general partnerships, joint stock companies, joint ventures, associations, companies, trusts, banks, trust companies, land trusts, business trusts or other organizations, whether or not legal entities, and governments and agencies and political subdivisions of those governments.

“Plan” means each employee benefit plan (whether in existence on the date of this Agreement or established after that date), as that term is defined in Section 3 of ERISA, maintained for the benefit of directors, officers or employees of Borrower or any ERISA Affiliate.

“Pledged Agreements for Deed” has the meaning set forth in Section 4.1(c).

“Pledged Assets” means, collectively, Pledged Loans, Pledged Agreements for Deed, Foreclosure Claim Receivables and Pledged Securities.

“Pledged Hedging Accounts” has the meaning set forth in Section 4.1 (i).

“Pledged Hedging Arrangements” has the meaning set forth in Section 4.1 (i).

“Pledged Loans” has the meaning set forth in Section 4.1(b).

“Pledged Securities” has the meaning set forth in Section 4.1(d).

“Pledged Shares” has the meaning set forth in Section 4.1(j).

“Prime Mortgage Loan” has the meaning set forth in Exhibit H.

“Prohibited Transaction” has the meanings set forth for such term in Section 4975 of the Internal Revenue Code and Section 406 of ERISA.

“Purchase Commitment” means a written commitment, in form and substance satisfactory to Lender, issued in favor of Borrower by an Investor under which that Investor commits to purchase Mortgage Loans or Mortgage-backed Securities.

“Rating Agency” means any nationally recognized statistical rating organization that in the ordinary course of its business rates Mortgage-backed Securities.

Page 13-9

“Receivables” has the meaning set forth in Section 4.1(f).

“Release Amount” has the meaning set forth in Section 4.3(f).

“Restriction List” and “Restriction Lists” means each and every list of Persons to whom the Government of the United States prohibits or otherwise restricts the provision of financial services. For the purposes of this Agreement, Restriction Lists include the list of Specifically Designated Nationals and Blocked Persons established pursuant to Executive Order 13224 (September 23, 2001) and maintained by the Office of Foreign Assets Control, U.S. Department of the Treasury, current as of the day the Restriction List is used for purposes of comparison in accordance with the requirements of this Agreement.

“RFC Advance” has the meaning set forth in Section 3.4.

“RFC Direct Advance” means a disbursement by RFC under the RFC Direct Commitment.

“RFC Direct Commitment” means the obligation of RFC to make RFC Direct Advances to Borrowers under Section 1.3.

“RFC Direct Commitment Amount” means as of any date of determination, the lesser of (a) $55,000,000, and (b) the difference between RFC’s Warehousing Commitment Amount and the aggregate principal amount of RFC’s Warehousing Advances as of such date.

“RFC Direct Note” has the meaning set forth in Section 1.6.

“RFConnects Delivery” means Credit Agent’s proprietary service to support the electronic exchange of information between Credit Agent and Borrowers, including Warehousing Advance Requests, shipping requests, payoff requests, wire transfer instructions, security delivery instructions, activity reports and exception reports.

“RFConnects Pledge Agreement” means an agreement (on the then current form prescribed by Credit Agent) granting Credit Agent on behalf of Lenders a security interest in Mortgage Loans for which Borrowers have requested Warehousing Advances using RFConnects Delivery.

“Second Mortgage” means a Mortgage that constitutes a second Lien on the real property and improvements described in or covered by that Mortgage.

“Second Mortgage Loan” means a Mortgage Loan secured by a Second Mortgage.

“Security Agreement” means a security agreement or other agreement that creates a Lien on personal property, including furniture, fixtures and equipment, to secure repayment of a Mortgage Loan.

“Servicing Contract” means, with respect to any Person, the arrangement, whether or not in writing, under which that Person has the right to service Mortgage Loans.

“Servicing Portfolio” means, as to any Person, the unpaid principal balance of Mortgage Loans serviced by that Person under Servicing Contracts, minus the principal balance of all Mortgage Loans that are serviced by that Person for others under subservicing arrangements.

“Servicing Portfolio Report” has the meaning set forth in Section 7.3(a).

“Single Family Mortgage Loan” means a Mortgage Loan secured by a Mortgage on improved real property on which is located a 1-to-4 family residence.

Page 13-10

“Single Family Property” means improved real property containing one to four family residences.

“Statement Date” means the Audited Statement Date or the Interim Statement Date, as applicable.

“Sublimit” means the aggregate amount of Advances (expressed as a dollar amount of the Warehousing Credit Amount) that is permitted to be outstanding at any one time against a specific type of Eligible Loan.

“Subordinated Debt” means (a) all indebtedness of Borrowers for borrowed money that is effectively subordinated in right of payment to all present and future Obligations either (1) under a Subordination of Debt Agreement on the form prescribed by Credit agent or (2) otherwise on terms acceptable to Credit Agent, and (b) solely for purposes of Section 8.3, all indebtedness of Borrowers that is required to be subordinated by Sections 5.1(b) and 7.11.

“Subprime Mortgage Loan” has the meaning set forth in Exhibit H.

“Subsidiary” means any corporation, partnership, association or other business entity in which more than 50% of the shares of stock or other ownership interests having voting power for the election of directors, managers, trustees or other Persons performing similar functions is at the time owned or controlled by any Person either directly or indirectly through one or more Subsidiaries of that Person.

“Swingline Advance” means an Advance made by RFC under Section 1.5.

“Swingline Facility Amount” means the maximum amount of Swingline Advances to be made by RFC from time to time, but not to exceed $75,000,000.

“Swingline Note” has the meaning set forth in Section 1.6.

“Tangible Leverage Ratio” means the ratio of a Person’s Debt to Tangible Net Worth.

“Tangible Net Worth” means the excess of a Person’s (and, if applicable, the Person’s Subsidiaries, on a consolidated basis) total assets over total liabilities as of the date of determination, each determined in accordance with GAAP applied in a manner consistent with UAMCLLC’s audited financial statements as of November 30, 2002, plus that portion of Subordinated Debt not due within 1 year of that date. For purposes of calculating a Person’s Tangible Net Worth, advances or loans to shareholders, directors, officers, employees or Affiliates (but not including advances and loans to Lennar and Lennar Financial Services, LLC), investments in Affiliates, assets pledged to secure any liabilities not included in the Debt of the Person, intangible assets, Servicing Contracts of the type described in Section 8.10, those other assets that would be deemed by HUD to be non-acceptable in calculating adjusted net worth in accordance with its requirements in effect as of that date, as those requirements appear “Consolidated Audit Guide for Audits of HUD Programs,” and other assets Credit Agent deems unacceptable, in its sole discretion, must be excluded from a Person’s total assets.

“Taxes” has the meaning set forth in Section 3.13(a)(1).

“Third Party Builder Construction Mortgage Loan” has the meaning set forth on Exhibit H.

“Third Party Originated Loan” means a Mortgage Loan originated and funded by a third party (other than with funds provided by a Borrower at closing to purchase the Mortgage Loan) and subsequently purchased by a Borrower.

Page 13-11

“Title I Mortgage Loan” means an FHA co-insured closed-end First Mortgage Loan or Second Mortgage Loan that is underwritten in accordance with HUD underwriting standards for the Title I Property Improvement Program set forth in, and that is reported for insurance under, the Mortgage Insurance Program authorized and administered under Title I of the National Housing Act of 1934, as amended, and the regulations related to that statute.

“Total Hard Costs” means the total of the costs and expenses listed on the Cost Breakdown.

“Trust Receipt” means a trust receipt in a form approved by and under which Credit Agent may deliver any document relating to the Collateral to Borrowers for correction or completion.

“UAMC Capital” means UAMC Capital, LLC, a Delaware limited liability company.

“UAMC Capital Warehousing Facility” means the warehousing facility created pursuant to the Loan Agreement dated as of May 23, 2003, by and among UAMC Capital (the “Issuers”) party thereto, Credit Lyonnais New York Branch, as administrative agent (the “Managing Agent”) party thereto and UAMC, as Servicer, either as originally executed or as it may be amended, restated, renewed or replaced.

“Warehouse Period” means, for any Eligible Loan, the maximum number of days a Warehousing Advance against that type of Eligible Loan may remain outstanding as set forth in Exhibit H.

“Warehousing Advance” means a disbursement by a Lender under its Warehousing Commitment.

“Warehousing Advance Request” has the meaning set forth in Section 2.1.

“Warehousing Collateral Value” means, as of any date of determination, (a) with respect to any Eligible Loan, the lesser of (1) the amount of any Warehousing Advance made, or that could be made, against such Eligible Loan under Exhibit H or (2) an amount equal to the Advance Rate for the applicable type of Eligible Loan multiplied by the Fair Market Value of such Eligible Loan; (b) if Eligible Loans have been exchanged for Agency Securities, the lesser of (1) the amount of any Warehousing Advances outstanding against the Eligible Loans backing the Agency Securities or (2) an amount equal to the Advance Rates for the applicable types of Eligible Loans backing the Agency Securities multiplied by the Fair Market Value of the Agency Securities; and (c) with respect to cash, the amount of the cash.

“Warehousing Commitment” means the obligation of each Lender to make Warehousing Advances to Borrowers under Section 1.1.

“Warehousing Commitment Amount” means, for any Lender at any date, that dollar amount designated as such opposite such Lender’s name on Exhibit J as its Warehousing Commitment Amount, as the same may be amended from time to time in accordance with this Agreement.

“Warehousing Commitment Fee” has the meaning set forth in Section 3.4.

“Warehousing Credit Limit” means the sum of the Warehousing Commitment Amounts of all of the Lenders.

“Warehousing Fee” has the meaning set forth in Section 3.5.

“Warehousing Maturity Date” has the meaning set forth in Section 1.2.

“Warehousing Note” has the meaning set forth in Section 1.6.

Page 13-12

“Weighted Average Committed Purchase Price” means the weighted average of the Committed Purchase Prices of the unfilled Purchase Commitments (expressed as a percentage) for Mortgage Loans or Mortgage-backed Securities of the same type, interest rate and term.

“Wet Settlement Advance” means with respect to any Warehousing Advance, the time from the date the Warehousing Advance is made until the date of Credit Agent’s receipt of the Collateral Documents required by Article 2 and the Exhibits and documents referenced in that Article.

“Wire Disbursement Account” means a demand deposit account maintained at the Funding Bank in Credit Agent’s name for clearing wire transfers requested by Borrowers to fund Warehousing Advances.

“Wire Fee” has the meaning set forth in Section 3.7.

13.2. Other Definitional Provisions; Terms of Construction

13.2 (a)  Accounting terms not otherwise defined in this Agreement have the meanings given to those terms under GAAP.

13.2 (b)  Defined terms may be used in the singular or the plural, as the context requires.

13.2 (c)  All references to time of day mean the then applicable time in Chicago, Illinois, unless otherwise expressly provided.

13.2 (d)  References to Sections, Exhibits, Schedules and like references are to Sections, Exhibits, Schedules and the like of this Agreement unless otherwise expressly provided.

13.2 (e)  The words “include,” “includes” and “including” are deemed to be followed by the phrase “without limitation.”

13.2 (f)  Unless the context in which it is used otherwise clearly requires, the word “or” has the inclusive meaning represented by the phrase “and/or.”

13.2 (g)  All incorporations by reference of provisions from other agreements are incorporated as if such provisions were fully set forth into this Agreement, and include all necessary definitions and related provisions from those other agreements. All provisions from other agreements incorporated into this Agreement by reference survive any termination of those other agreements until the Obligations of Borrower under this Agreement and the Warehousing Note are irrevocably paid in full and the Warehousing Commitment is terminated.

13.2 (h)  All references to the Uniform Commercial Code shall be deemed to be references to the Uniform Commercial Code in effect on the date of this Agreement in the applicable jurisdiction.

13.2 (i)  Unless the context in which it is used otherwise clearly requires, all references to days, weeks and months mean calendar days, weeks and months.

End of Article 13

Page 13-13

IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date first above written.

BORROWERS:	UNIVERSAL AMERICAN MORTGAGE COMPANY, LLC,
	a Florida limited liability company
	By:	/s/    Janice Muñoz
	Its:	Vice President/Treasurer

EAGLE HOME MORTGAGE, INC.,
a Washington corporation
By:	/s/    Janice Muñoz
Its:	Vice President

AMERISTAR FINANCIAL SERVICES, INC.,
a California corporation
By:	/s/    Janice Muñoz
Its:	Vice President

UNIVERSAL AMERICAN MORTGAGE COMPANY OF CALIFORNIA,
a California corporation
By:	/s/    Janice Muñoz
Its:	Vice President/Treasurer

UAMC ASSET CORP. II,
a Nevada corporation
By:	/s/    Janice Muñoz
Its:	Vice President/Treasurer

CREDIT AGENT:	RESIDENTIAL FUNDING CORPORATION,
	a Delaware Corporation
	By:	/s/    Jim Clapp
	Its:	Director
	CLOSING DATE:    October 23, 2003

Page 13-14

LENDERS:	RESIDENTIAL FUNDING CORPORATION,
	a Delaware corporation
	By:	/s/    Jim Clapp
	Its:	Director

BANK ONE, NA,
a national banking association
By:	/s/    Rodney Davis
Its:	Associate Director

U.S. BANK NATIONAL ASSOCIATION,
a national banking association
By:	/s/    Kathleen Connor
Its:	Vice President

SUNTRUST BANK, a state bank organized
under the laws of Georgia
By:	/s/    Robert E. Hummel
Its:	Senior Vice President

NATIONAL CITY BANK OF KENTUCKY
a national banking association
By:	/s/    Pat Morrison
Its:	Vice President

COMERICA BANK
By:	/s/    Robert W. Marr
Its:	Vice President

CREDIT LYONNAIS NEW YORK BRANCH
By:	/s/    Attila Koc
Its:	Senior Vice President

Page 13-15

EX-10.13

Exhibit 10(m)

Execution Copy

SECOND AMENDED AND RESTATED

CREDIT AGREEMENT

among

LENNAR CORPORATION

and

the Lenders Party Hereto

and

BANK ONE, NA,

as Administrative Agent,

DEUTSCHE BANK TRUST COMPANY AMERICAS,

as Syndication Agent,

and

BANK OF AMERICA, N.A. CREDIT LYONNAIS NEW YORK BRANCH,

WACHOVIA BANK, N.A., and COMERICA BANK

as Documentation Agents,

and

SUNTRUST BANK, GUARANTY BANK, CITICORP NORTH AMERICA, INC. and

THE ROYAL BANK OF SCOTLAND

as Managing Agents,

with

BANC ONE CAPITAL MARKETS, INC.

and

DEUTSCHE BANK SECURITIES, INC.,

as Joint Lead Arrangers and Joint Book Runners

Dated: May 30, 2003

Table of Contents

ARTICLE I	CERTAIN DEFINED TERMS		1
SECTION 1.01.		Certain Defined Terms	1
SECTION 1.02.		Computation of Time Periods	29
SECTION 1.03.		Accounting Terms	29
ARTICLE II	THE CREDITS		30
SECTION 2.01.		Facility A Commitment	30
SECTION 2.02.		Facility B Commitment	31
SECTION 2.03.		Facility C Advances	31
SECTION 2.04.		Swing Line Loans	32
SECTION 2.05.		Types of Advances	33
SECTION 2.06.		Principal Payments	33
SECTION 2.07.		Commitment Fees; Reductions of Commitments	35
SECTION 2.08.		Method of Borrowing	36
SECTION 2.09.		Method of Selecting Types and Interest Periods for Advances	36
SECTION 2.10.		Method of Selecting Types and Interest Periods for Conversion and Continuation of Advances	37
SECTION 2.11.		Minimum Amount of Each Advance	38
SECTION 2.12.		Rate after Maturity	38
SECTION 2.13.		Method of Payment	38
SECTION 2.14.		Notes; Telephonic Notices	39
SECTION 2.15.		Interest Payment Dates; Interest and Fee Basis	39
SECTION 2.16.		Notification of Advances, Interest Rates, Prepayments and Commitment Reductions	40
SECTION 2.17.		Lending Installations	40
SECTION 2.18.		Increase in Facilities	40
SECTION 2.19.		Extension of Facility B Termination Date	43
SECTION 2.20.		Facility B Term-Out	45
SECTION 2.21.		Facility Letters of Credit	46
SECTION 2.22.		Non-Receipt of Funds by the Administrative Agent	53
SECTION 2.23.		Withholding Tax Exemption	54
SECTION 2.24.		Unconditional Obligation to Make Payment	54
SECTION 2.25.		Compensating Balances	55
SECTION 2.26.		Extension of Facility A Termination Date	55
SECTION 2.27.		Replacement of Certain Lenders	55
SECTION 2.28.		Obligations Under Prior Credit Agreement	56
ARTICLE III	CHANGE IN CIRCUMSTANCES		57
SECTION 3.01.		Yield-Protection	57
SECTION 3.02.		Changes in Capital Adequacy Regulation	57
SECTION 3.03.		Availability of Types of Advances	58
SECTION 3.04.		Funding Indemnification	58
SECTION 3.05.		Lender Statements Survival of Indemnity	58
ARTICLE IV	REPRESENTATIONS AND WARRANTIES		59
SECTION 4.01.		Organization, Powers, etc.	59
SECTION 4.02.		Authorization and Validity of this Agreement, etc.	59
SECTION 4.03.		Financial Statements	60
SECTION 4.04.		No Material Adverse Effect	60
SECTION 4.05.		Title to Properties	60

i

SECTION 4.06.		Litigation	61
SECTION 4.07.		Payment of Taxes	61
SECTION 4.08.		Agreements	61
SECTION 4.09.		Foreign Direct Investment Regulations	61
SECTION 4.10.		Federal Reserve Regulations.	62
SECTION 4.11.		Consents, etc	62
SECTION 4.12.		Compliance with Applicable Laws	62
SECTION 4.13.		Relationship of the Loan Parties	63
SECTION 4.14.		Subsidiaries; Joint Ventures	63
SECTION 4.15.		ERISA	63
SECTION 4.16.		Investment Company Act	64
SECTION 4.17.		Public Utility Holding Company Act	64
SECTION 4.18.		Subordinated Debt	64
SECTION 4.19.		Post-Retirement Benefits	64
SECTION 4.20.		Insurance	64
SECTION 4.21.		Environmental Representations	64
SECTION 4.22.		Intentionally Omitted.	64
SECTION 4.23.		Minimum Adjusted Consolidated Tangible Net Worth	64
SECTION 4.24.		Intentionally Omitted.	64
SECTION 4.25.		No Misrepresentation	65
ARTICLE V	CONDITIONS PRECEDENT; TERMINATION		65
SECTION 5.01.		Conditions of Effectiveness	65
SECTION 5.02.		Conditions Precedent to All Advances and Facility Letters of Credit.	67
ARTICLE VI	AFFIRMATIVE COVENANTS		68
SECTION 6.01.		Existence, Properties, etc.	68
SECTION 6.02.		Notice	69
SECTION 6.03.		Payments of Debts, Taxes, etc.	69
SECTION 6.04.		Accounts and Reports	69
SECTION 6.05.		Access to Premises and Records	73
SECTION 6.06.		Maintenance of Properties and Insurance	73
SECTION 6.07.		Financing: New Investing	74
SECTION 6.08.		Compliance with Applicable Laws	74
SECTION 6.09.		Advances to the Mortgage Banking Subsidiaries	74
SECTION 6.10.		Use of Proceeds	75
SECTION 6.11.		REIT Subsidiary	75
ARTICLE VII	NEGATIVE COVENANTS		75
SECTION 7.01.		Minimum Consolidated Tangible Net Worth	75
SECTION 7.02.		Limitation on Indebtedness	76
SECTION 7.03.		Guaranties	76
SECTION 7.04.		Sale of Assets; Acquisitions; Merger	76
SECTION 7.05.		Investments	77
SECTION 7.06.		Disposition; Encumbrance or Issuance of Certain Stock	78
SECTION 7.07.		Subordinated Debt	78
SECTION 7.08.		Housing Units	78
SECTION 7.09.		Construction in Progress	78
SECTION 7.10.		No Margin Stock	78
SECTION 7.11.		Mortgage Banking Subsidiaries’ Capital Ratio	79
SECTION 7.12.		Transactions with Affiliates	79

ii

SECTION 7.13.		Restrictions on Advances to Mortgage Banking Subsidiaries	79
SECTION 7.14.		Mortgage Banking Subsidiaries Adjusted Net Worth	80
SECTION 7.15.		Investments in Land	80
SECTION 7.16.		Liens and Encumbrances	80
ARTICLE VIII	COLLATERAL		80
SECTION 8.01.		Pledge Agreement	80
SECTION 8.02.		Mortgage Banking Subsidiaries Note	81
SECTION 8.03.		Collateral Trusts	82
ARTICLE IX	EVENTS OF DEFAULT		82
SECTION 9.01.		Events of Default	82
SECTION 9.02.		Remedies	84
SECTION 9.03.		Application of Payments	84
ARTICLE X	THE ADMINISTRATIVE AGENT		85
SECTION 10.01.		Appointment	85
SECTION 10.02.		Powers	86
SECTION 10.03.		General Immunity	86
SECTION 10.04.		No Responsibility for Loans, Recitals, Etc.	86
SECTION 10.05.		Employment of Agents and Counsel	86
SECTION 10.06.		Reliance on Documents; Counsel	87
SECTION 10.07.		No Waiver of Rights	87
SECTION 10.08.		Knowledge of Event of Default	87
SECTION 10.09.		Administrative Agent’s Reimbursement and Indemnification	87
SECTION 10.10.		Notices to the Borrower	88
SECTION 10.11.		Action on Instructions of Lenders	88
SECTION 10.12.		Lender Credit Decision	88
SECTION 10.13.		Collateral	88
SECTION 10.14.		Resignation or Removal of the Administrative Agent	89
SECTION 10.15.		Benefits of Article X	90
ARTICLE XI	SETOFF; RATABLE PAYMENTS		90
SECTION 11.01.		Set-off	90
SECTION 11.02.		Ratable Payments	90
ARTICLE XII	BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS		91
SECTION 12.01.		Successors and Permitted Assigns	91
SECTION 12.02.		Participations	91
SECTION 12.03.		Assignments	92
ARTICLE XIII	MISCELLANEOUS		93
SECTION 13.01.		Notice	93
SECTION 13.02.		Survival of Representations	93
SECTION 13.03.		Expenses	93
SECTION 13.04.		Indemnification of the Lenders and the Administrative Agent	94
SECTION 13.05.		Maximum Interest Rate	94
SECTION 13.06.		Modification of Agreement	94
SECTION 13.07.		Register	96
SECTION 13.08.		Preservation of Rights	96
SECTION 13.09.		Several Obligations of Lenders	97

iii

SECTION 13.10.	Severability	97
SECTION 13.11.	Counterparts	97
SECTION 13.12.	Right to Terminate Certain Commitments	97
SECTION 13.13.	Loss, etc., Notes	97
SECTION 13.14.	Governmental Regulation	97
SECTION 13.15.	Taxes	98
SECTION 13.16.	Headings	98
SECTION 13.17.	Entire Agreement	98
SECTION 13.18.	CHOICE OF LAW	98
SECTION 13.19.	CONSENT TO JURISDICTION	98
SECTION 13.20.	WAIVER OF JURY TRIAL	98

iv

SCHEDULES

Schedule	Description	References
I	Lenders	Preamble and Section 12.03(a)
II	Existing Letters Of Credit	Definitions of “Existing Letters Of Credit” and “Issuer”
III	Real Estate	Definition of “Joint Venture” and Sections 4.05 and 6.04(h)
IV	Permitted Liens	Definition
V	Consents	Section 4.11
VI	Subsidiaries	Section 4.14
VII	Subsidiaries Not Required to Deliver Guaranties	Sections 4.14, 5.01(b), 7.03 and 7.05
VIII	Subordinated Debt	Section 4.18
IX	Intentionally Omitted
X	Permitted Dispositions	Section 7.04(a)

EXHIBITS

Exhibit	Description	Reference
A	Intentionally Omitted
B	Intentionally Omitted
C	Requirements for Entitled Land	Definition of “Entitled Land”
D	Facility A Note	Definition
E	Facility B Revolver Note	Definition
F	Facility B Term Note	Definition
G	Facility C Note	Definition
H	Guaranty	Definition
I	Intercreditor Agreement	Definition
J	Intentionally Omitted
K	Intentionally Omitted
L-1	Borrower Pledge Agreement	Definition of “Pledge Agreement”
L-2	Subsidiary Pledge Agreement	Definition of “Pledge Agreement”
M	Pricing Grid	Definition
N	Intentionally Omitted
O	Commitment and Acceptance	Section 2.18(a)
P	Compliance Report	Section 6.04(l)
Q	Intentionally Omitted
R	Intentionally Omitted
S	Intentionally Omitted
T	Collateral Trust Agreement	Section 8.03(a)
U	Intentionally Omitted
V	Assignment and Assumption	Section 12.03(a)

SECOND AMENDED AND RESTATED CREDIT AGREEMENT, dated as of May 30, 2003, among LENNAR CORPORATION, a corporation organized and existing under the laws of the State of Delaware (the “Borrower”), the lenders listed in Schedule I hereto (hereinafter collectively referred to as the “Lenders”), and BANK ONE, NA, as Administrative Agent (the “Administrative Agent”).

RECITALS

A. The Borrower, certain of the Lenders (and certain other lenders) and Administrative Agent are party to a certain Amended and Restated Credit Agreement dated as of May 24, 2002, which Prior Credit Agreement amended and restated the Original Credit Agreement (defined herein) (which Amended and Restated Credit Agreement, as amended by First Amendment to Amended and Restated Credit Agreement dated as of February 28, 2003, is herein referred to as the “Prior Credit Agreement”).

B. The parties hereto desire to amend and restate the Prior Credit Agreement (1) to add certain Lenders as parties, (2) to remove certain of the “Facility A Lenders” and “Facility B Lenders” who have elected not to remain as parties, (3) to extend the Facility A Termination Date and Facility B Termination Date (as described below), (4) to increase the Aggregate Letter of Credit Commitment and (5) as otherwise provided herein.

C. This Second Amended and Restated Credit Agreement shall become effective upon (1) the execution and delivery hereof by Borrower, the Administrative Agent, the Facility A Lenders party hereto, the Facility B Lenders party hereto and Lenders (including such Facility A Lenders and Facility B Lenders) that collectively constitute the “Required Lenders” under the Prior Credit Agreement and (2) the satisfaction of the other conditions set forth in Sections 5.01 and 5.02 hereof.

AGREEMENT

In consideration of the foregoing recitals and the mutual covenants and agreements hereinafter set forth, the parties hereto hereby agree, and amend and restate the Prior Credit Agreement, as follows:

ARTICLE I

CERTAIN DEFINED TERMS

SECTION 1.01. Certain Defined Terms. As used herein, each of the following terms shall have the meaning ascribed to it below, which meaning shall be applicable to both the singular and plural forms of the terms defined:

“Acquisition” means any transaction, or any series of related transactions, consummated after the Closing Date, by which the Borrower or any of its Subsidiaries (a) acquires any going business or all or substantially all of the assets of any firm, corporation or division thereof, whether through purchase of assets, merger or otherwise or (b) directly or indirectly acquires (in one transaction or as the most recent transaction in a series of transactions) at least a majority (in the number of votes) of the Securities of a corporation which have ordinary voting power for the election of directors (other than Securities having such power only by reason of the happening of

a contingency) or a majority (by percentage of voting power) of the outstanding equity interests of another Person.

“Adjusted Consolidated Tangible Net Worth” means, at any date, Consolidated Tangible Net Worth at such date less, to the extent not already deducted in the definition of Consolidated Tangible Net Worth, the aggregate of all of the following at such date: (a) the consolidated stockholders’ equity of the Mortgage Banking Subsidiaries, and (b) the stockholders’ equity of each other Subsidiary of the Borrower which is not a Loan Party.

“Administrative Agent” means Bank One, NA in its capacity as Administrative Agent for the Lenders pursuant to Article X, and not in its individual capacity as a Lender, and any successor Administrative Agent appointed pursuant to Article X.

“Advance” means, with respect to a Facility, a borrowing hereunder or, in the case of Facility C, a borrowing under the Prior Credit Agreement to the extent outstanding on the Closing Date (or the conversion or continuation of any such borrowing) consisting of the aggregate amount of the several loans made by the Lenders under such Facility to the Borrower of the same Type and, in the case of Eurodollar Rate Advances, for the same Interest Period.

“Affiliate” of any Person means any other Person directly or indirectly controlling, controlled by or under common control with such Person. Solely for purposes of this definition, a Person shall be deemed to control another Person if the controlling Person owns 50% or more of any class of voting securities (or other ownership interests) of the controlled Person or possesses, directly or indirectly, the power to direct or cause the direction of the management or policies of the controlled Person, whether through ownership of stock, by contract or otherwise.

“AFSI” means Ameristar Financial Services, Inc.

“Aggregate Commitment” means, at any time, the sum of the then applicable Aggregate Facility A Commitment, the then applicable Aggregate Facility B Commitment, the then outstanding principal balance of the Facility B Term Loans and the then outstanding principal balance of the Facility C Loans.

“Aggregate Facility A Commitment” means $712,250,000 as such amount may be increased from time to time pursuant to Section 2.18 hereof or reduced from time to time pursuant to the terms of this Agreement.

“Aggregate Facility B Commitment” means $315,250,000 as such amount may be increased from time to time pursuant to Section 2.18(e) hereof or reduced from time to time pursuant to the terms of this Agreement.

“Aggregate Letter of Credit Commitment” means $500,000,000, as such amount may be reduced from time to time pursuant to the terms hereof.

“Agreement” means this Second Amended and Restated Credit Agreement, including the exhibits and schedules hereto, as it may be amended, renewed, modified or restated and in effect from time to time.

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“Agreement Date” means May 30, 2003.

“Alternate Base Rate” means, for any day, a rate per annum equal to the higher of (a) the Prime Rate for such day or (b) the sum of the Federal Funds Effective Rate plus 0.5%, in each case changing when and as the Prime Rate and the Federal Funds Effective Rate change.

“Applicable Commitment Fee Rate” means (a) with respect to Facility A, a rate per annum equal to the “Facility A Unused Commitment Fee” as determined from time to time pursuant to the Pricing Grid, and (b) with respect to Facility B, a rate per annum equal to the “Facility B Unused Commitment Fee” as determined from time to time pursuant to the Pricing Grid.

“Applicable Margin” means (a) with respect to Eurodollar Rate Loans for Facility A and Facility B, a rate per annum equal to the “Applicable Margin for Facility A and Facility B Eurodollar Rate Loans” as determined from time to time pursuant to the Pricing Grid; (b) with respect to Eurodollar Rate Loans for Facility C, a rate per annum equal to the “Applicable Margin for Facility C Eurodollar Rate Loans” as determined from time to time pursuant to the Pricing Grid; (c) with respect to Floating Rate Loans for Facility A and Facility B, a rate per annum equal to the “Applicable Margin for Facility A and Facility B Floating Rate Loans” determined from time to time pursuant to the Pricing Grid; and (d) with respect to Floating Rate Loans for Facility C, a rate per annum equal to the “Applicable Margin for Facility C Floating Rate Loans” as determined from time to time pursuant to the Pricing Grid.

“Applicable Pro Rata Share” means, for any Lender, such Lender’s Facility A Pro Rata Share, Facility B Revolver Pro Rata Share, Facility B Term Pro Rata Share or Facility C Pro Rata Share, as applicable.

“Article” means an article of this Agreement unless another document is specifically referenced.

“Asset Sale” means, with respect to any Person, (a) the sale, conveyance, disposition or other transfer by such Person of (i) any of its Real Estate other than in the ordinary course of business, or (ii) any of the equity Securities of any Subsidiary of such Person or (b) any Bulk Land Sale by such Person.

“Assignment and Assumption Agreement” is defined in Section 12.03(a).

“Authorized Financial Officer” means any of the chief financial officer, treasurer or controller of the Borrower.

“Authorized Officer” means any of Stuart Miller, Bruce Gross, Waynewright Malcolm, David McCain, Diane Bessette or any other Person designated by the Borrower in writing to act as an Authorized Officer hereunder, acting singly.

“Bank One” means Bank One, NA, in its individual capacity, and its successors.

“BOCM” means Banc One Capital Markets, Inc., one of the Joint Lead Arrangers hereunder.

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“Borrower” is defined in the introductory paragraph of this Agreement.

“Borrower Audited Financial Statements” is defined in Section 4.03.

“Borrower Unaudited Financial Statements” is defined in Section 4.03.

“Borrowing Base” means, from time to time, the sum of the following amounts, all as reflected from time to time in accordance with GAAP consistently applied in the consolidated balance sheet of the Borrower: (a) 100% of the Loan Parties’ unrestricted cash up to a maximum of $30,000,000 (with any excess cash being excluded from the Borrowing Base); (b) 100% of the Net Housing Unit Proceeds due to any Loan Party at closing as a result of the consummation of the sale of any Housing Unit, which Net Housing Unit Proceeds have been paid to the closing agent handling such sale but which have not yet been received by such Loan Party; provided, however, that if, and to the extent that, such Net Housing Unit Proceeds which are reported as outstanding on the last day of any fiscal quarter of the Borrower are not received by such Loan Party on or before the tenth (10th) day following the end of any such fiscal quarter, such Net Housing Unit Proceeds shall not be included in the Borrowing Base; (c) 90% of the Net Book Value of all Housing Units Under Contract; (d) 75% of the Net Book Value of all Housing Units (including, without limitation, model Housing Units) that are not subject to a contract for sale; (e) 70% of the Net Book Value of all Finished Lots; (f) 50% of the Net Book Value of all Land Under Development; and (g) 30% of the Net Book Value of all Unimproved Entitled Land, provided that the sum of the amounts determined pursuant to clauses (f) and (g) shall not exceed 30% of the Borrowing Base (with any excess being excluded from the Borrowing Base); provided further, that notwithstanding anything to the contrary provided herein, any asset which is encumbered by a Lien (other than a Lien described in clauses (b), (c), (e) or (k) of the definition of “Permitted Liens”) shall not be included in the calculation of the Borrowing Base pursuant to clauses (a) through (g) above.

“Borrowing Base Debt” means all Consolidated Indebtedness, including without limitation the Secured Obligations and the Indebtedness under the Old U.S. Home Debt Issues (whether senior or senior subordinated), but excluding (a) any Subordinated Debt of the Borrower and (b) any Non-Recourse Indebtedness secured solely by Real Estate that is owned by any Loan Party and that, if the same did not secure such Indebtedness, would be included in the determination of the Borrowing Base.

“Borrowing Base Limitation” is defined in Section 7.02.

“Borrowing Date” means a date on which an Advance is made hereunder.

“Borrowing Notice” is defined in Section 2.09.

“Bulk Land Sale” means the sale of all or any part of a Project (or more than one Project), whether or not in the ordinary course of business, in a single transaction (or a series of related transactions), to a single purchaser, or to purchasers that are Affiliates of each other, for which the aggregate consideration paid in such transaction (or series of related transactions) exceeds $20,000,000.

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“Business Day” means (a) with respect to any borrowing, payment or rate selection of Eurodollar Rate Advances, a day (other than a Saturday or Sunday) on which banks are open for business in Chicago, Illinois and New York, New York and on which dealings in United States dollars are carried on in the London interbank market, (b) with respect to Facility Letters of Credit, a day (other than a Saturday or Sunday) on which banks are open for business in Chicago, Illinois, and the city in which the office of the applicable Issuer is located and (c) for all other purposes, a day (other than a Saturday or Sunday) on which banks are open for business in Chicago, Illinois and New York, New York.

“Capitalized Lease” of a Person means any lease of property by such Person as lessee which would be capitalized on a balance sheet of such Person prepared in accordance with GAAP.

“Capitalized Lease Obligations” of a Person means the amount of the obligations of such Person under Capitalized Leases which would be shown as a liability on a balance sheet of such Person prepared in accordance with GAAP.

“Capitalized Mortgage Servicing” of the Mortgaged Banking Subsidiaries means, at any date, the following capitalized assets of the Mortgaged Banking Subsidiaries net of any amortization or write downs with respect thereto, all as determined in accordance with GAAP: (a) purchased mortgage servicing rights, (b) originated mortgage servicing rights and (c) excess servicing.

“Capital Stock” means, with respect to any corporation, any and all shares, interests, rights to purchase (other than convertible or exchangeable Indebtedness), warrants, options, participations or other equivalents of or interests (however designated) in stock issued by that corporation.

“Change in Control” means the acquisition by any Person, or two or more Persons acting in concert, of beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended) of the outstanding shares of voting stock of the Borrower that hold in excess of 50% of the voting rights held by all stockholders of all classes of common stock of the Borrower.

“Closing Date” means the date on which the Lenders shall first become obligated to make Advances after satisfaction or waiver of all of the conditions precedent set forth in Sections 5.01 and 5.02.

“Code” means the Internal Revenue Code of 1986, as amended, reformed or otherwise modified from time to time.

“Collateral” means, at any time, any assets owned by any Loan Party that then are subject to a security interest or other Lien in favor of the Administrative Agent (or a collateral trustee provided for in Section 8.03) for the benefit of the Lenders as security for the Secured Obligations.

“Collateral Trust Agreement” is defined in Section 8.03(a).

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“Commitment” means, for each of the Facility A Lenders and Facility B Lenders, the Facility A Commitment and Facility B Commitment of such Lender.

“Commitment and Acceptance” is defined in Section 2.18(a).

“Commitment Fees” means the fees provided for in Section 2.07(a).

“Completed Housing Unit” means, at any time, a Housing Unit the construction of which was commenced more than 10 months, in the case of a single family home, more than 12 months, in the case of a townhouse, or more than 18 months, in the case of a condominium, before that time or was completed prior to the expiration of the applicable period.

“Consolidated EBITDA” means, for any period, the Consolidated Net Income of the Loan Parties plus, to the extent deducted from revenues in determining Consolidated Net Income, (a) Consolidated Interest Expense, (b) expense for income taxes paid or accrued, (c) depreciation, (d) amortization and (e) extraordinary losses incurred other than in the ordinary course of business, minus, to the extent included in Consolidated Net Income, extraordinary gains realized other than in the ordinary course of business, all calculated for the Loan Parties (and excluding the Mortgage Banking Subsidiaries and any other Subsidiary of the Borrower that is not a Loan Party) on a consolidated basis.

“Consolidated Indebtedness” means the Indebtedness of the Loan Parties on a consolidated basis, and shall not include (i) Indebtedness of any Subsidiary that is not a Loan Party, (ii) Indebtedness of a Loan Party to the REIT Subsidiary or (iii) any other Indebtedness of a Loan Party to another Loan Party.

“Consolidated Interest Expense” means, for any period, the interest expense of the Loan Parties (and excluding the Mortgage Banking Subsidiaries and any other Subsidiary of the Borrower that is not a Loan Party) calculated on a consolidated basis for such period.

“Consolidated Interest Incurred” means, for any period, the aggregate amount (without duplication and determined in each case in accordance with GAAP) of (a) interest (excluding interest on Indebtedness of a Loan Party to another Loan Party) incurred, whether such interest was expensed or capitalized, paid, accrued, or scheduled to be paid or accrued by any of the Loan Parties (and excluding the Mortgage Banking Subsidiaries and any other Subsidiary of the Borrower that is not a Loan Party) during such period, including (i) original issue discount and non-cash interest payments or accruals, (ii) the interest portion of all deferred payment obligations, and (iii) all commissions, discounts and other fees and charges owed with respect to bankers’ acceptances and letter of credit financings and interest swap and hedging obligations, in each case to the extent attributable to such period plus (b) the amount of dividends accrued or payable by the Loan Parties (and excluding the Mortgage Banking Subsidiaries and any other Subsidiary of the Borrower that is not a Loan Party) in respect of Disqualified Capital Stock (excluding any amount payable to any Loan Party), which amount shall be “grossed up” to include applicable taxes on income that would be used to pay such dividends, provided, however, that interest, dividends or other payments or accruals of a consolidated Subsidiary that is not wholly owned shall be included only to the extent of the interest of such Person in such Subsidiary. For purposes of this definition, (x) interest on Capitalized Lease Obligations shall be

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deemed to accrue at an interest rate reasonably determined by the Borrower to be the rate of interest implicit in such Capitalized Lease Obligations in accordance with GAAP and (y) interest expense attributable to any Indebtedness represented by the guaranty of an obligation of another Person shall be deemed to be the interest expense attributable to the Indebtedness guaranteed.

“Consolidated Net Income” means, with respect to any Person for any period, the net income (or loss) of such Person and its Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP; provided, that (a) net income (or loss) of any other Person which is not a Subsidiary of the Person or is accounted for by such specified Person by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid to the specified Person or a Subsidiary of such Person, (b) the net income (or loss) of any other Person acquired by such specified Person or a Subsidiary of such Person in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded, (c) all gains and losses which are either extraordinary (as determined in accordance with GAAP) or are either unusual or nonrecurring (including any gain from the sale or other disposition of assets outside the ordinary course of business or from the issuance or sale of any Capital Stock), shall be excluded, and (d) the net income, if positive, of any of such Person’s consolidated Subsidiaries (other than non-guarantor Subsidiaries) to the extent that the declaration or payment of dividends or similar distributions is not at the time permitted by operation of the terms of its charter or bylaws or any other agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to such consolidated Subsidiary shall be excluded, provided, however, in the case of exclusions from Consolidated Net Income set forth in clauses (b), (c) and (d) above, such amounts shall be excluded only to the extent included in computing such net income (or loss) in accordance with GAAP and without duplication; provided further, however, that for purposes of determining Consolidated Net Income of the Loan Parties, the net income of the Mortgage Banking Subsidiaries and any other Subsidiary of the Borrower that is not a Loan Party shall be excluded.

“Consolidated Tangible Net Worth” means, at any date, the Net Worth of the Borrower and its Subsidiaries less the aggregate amount of all goodwill and other assets that are properly classified as “intangible assets” at such date in accordance with GAAP.

“Contingent Obligation” of a Person means any agreement, undertaking or arrangement by which such Person assumes, guarantees, endorses, contingently agrees to purchase or provide funds for the payment of, or otherwise becomes or is contingently liable upon, the obligation or liability of any other Person, or agrees to maintain the net worth or working capital or other financial condition of any other Person (including, without limitation, any LTV Maintenance Agreement), or otherwise assures any creditor of such other Person against loss, including, without limitation, any comfort letter, operating agreement, take-or-pay contract, “put” agreement or other similar arrangement, but excluding Repurchase Guaranties. With respect to each Loan Party, Contingent Obligation includes, without limitation of the foregoing, obligations under reimbursement agreements with financial institutions (including the Lenders) relating to Letters of Credit (other than Performance Letters of Credit) issued by such financial institutions for the account of such Loan Party and does not include reimbursement obligations to an issuer of a performance bond.

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“Controlled Group” means all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Borrower or any of its Subsidiaries, are treated as a single employer under Section 414 of the Code.

“Conversion/Continuation Notice” is defined in Section 2.10(d).

“Default Rate” means, for any day, a rate per annum equal to the sum of (a) the Alternate Base Rate for such date plus (b) five percent (5%) per annum.

“Disqualified Capital Stock” means (a) except as set forth in clause (b) below, with respect to any Person, Capital Stock of such Person that, by its terms or by the terms of any security into which it is convertible, exercisable or exchangeable, is, or upon the happening of an event or the passage of time would be, required to be redeemed or repurchased (including at the option of the holder thereof) by such Person or any of its Subsidiaries, in whole or in part, on or prior to the stated maturity of the securities, and (b) with respect to any Subsidiary of such Person (including with respect to any Subsidiary of the Borrower), any Capital Stock other than any common stock with no preference, privileges, or redemption or repayment provisions.

“Dollars” and the sign “$” each means lawful money of the United States of America.

“Eligible Assignee” means a commercial bank, financial institution, other “accredited investor” (as defined in Regulation D of the Securities Act) or a “qualified institutional buyer” as defined in Rule 144A of the Securities Act.

“Entitled Land” means a parcel of Real Estate owned by a Loan Party which is to be developed primarily for residential dwelling units and which satisfies the requirements for the state and county wherein it is located as more particularly described in the Requirements for Entitled Land attached hereto as Exhibit C.

“Environmental Laws” means any and all federal, state, local and foreign statutes, laws, judicial decisions, regulations, ordinances, rules, judgments, orders, decrees, plans, injunctions, permits, concessions, grants, franchises, licenses, agreements and other governmental restrictions relating to (a) the protection of the environment, (b) the effect of the environment on human health, (c) emissions, discharges or releases of pollutants, contaminants, Hazardous Substances or wastes into surface water, ground water or land, or (d) the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, Hazardous Substances or wastes or the clean-up or other remediation thereof.

“Equity Investment” means the ownership of, or participation in the ownership of, an equity interest in Real Estate or an equity interest in a Person in the business of owning, developing, improving, operating or managing Real Estate.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any rule or regulation issued thereunder.

“Eurodollar Base Rate” means, with respect to a Eurodollar Rate Advance for the relevant Eurodollar Interest Period, the applicable British Bankers’ Association London

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Interbank offered rate for deposits in U.S. dollars reported by any generally recognized financial information service at 11:00 a.m. (London time) two Business Days prior to the first day of such Eurodollar Interest Period, having a maturity approximately equal to such Eurodollar Interest Period.

“Eurodollar Interest Period” means, with respect to a Eurodollar Rate Advance, a period of one, two, three or six months, as available, commencing on a Business Day selected by the Borrower pursuant to this Agreement (subject to the provisions of the last sentence of this paragraph). Such Eurodollar Interest Period shall end on (but exclude) the day which corresponds numerically to such date one, two, three or six months thereafter, provided, however, that if there is no such numerically corresponding day in such next, second, third or sixth succeeding month, such Eurodollar Interest Period shall end on the last Business Day of such next, second, third or sixth succeeding month. If a Eurodollar Interest Period would otherwise end on a day which is not a Business Day, such Eurodollar Interest Period shall end on the next succeeding Business Day, provided, however, that if said next succeeding Business Day falls in a new calendar month, such Eurodollar Interest Period shall end on the immediately preceding Business Day.

“Eurodollar Rate” means, with respect to a Eurodollar Rate Advance for the relevant Eurodollar Interest Period, the sum of (a) the quotient of (i) the Eurodollar Base Rate applicable to such Eurodollar Interest Period, divided by (ii) one minus the Reserve Requirement (expressed as a decimal) applicable to such Eurodollar Interest Period, plus (b) the Applicable Margin for the Facility with respect to which the Eurodollar Rate is being determined. The Eurodollar Rate shall be rounded to the next higher multiple of 1/16 of 1% if the rate is not such a multiple.

“Eurodollar Rate Advance” means an Advance which bears interest at a Eurodollar Rate.

“Eurodollar Rate Loan” means a Loan which bears interest at a Eurodollar Rate.

“Event” means an event, circumstance, condition or state of facts.

“Event of Default” is defined in Section 9.01.

“Existing Borrower Public Debt” means the Borrower’s 7-5/8% Senior Notes due 2009, the Borrower’s 9.95% Senior Notes due 2010, the Borrower’s 5.95% Senior Notes due 2013, the Borrower’s Zero Coupon Senior Convertible Debentures due 2018 and the Borrower’s Zero Coupon Senior Subordinated Convertible Debentures due 2021.

“Existing Letters of Credit” means the outstanding Letters of Credit listed in Schedule II hereto issued for the account of the Borrower prior to the Agreement Date by the applicable Facility A Lender identified in Schedule II.

“Facilities” means Facility A, Facility B and Facility C.

“Facility A” means the revolving credit, swing line and letter of credit facilities described in Sections 2.01, 2.04 and 2.21, respectively.

“Facility A Advance” means an Advance of Facility A.

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“Facility A Commitment” means, for each of the Facility A Lenders, the obligation of such Facility A Lender to make revolving credit loans pursuant to Facility A and to purchase participations in Facility Letters of Credit in the aggregate not exceeding the amount set forth in Schedule I hereto as its “Facility A Commitment,” as such amount may be decreased from time to time pursuant to the terms hereof or increased pursuant to Section 2.18 hereof; provided, however, that the Facility A Commitment of a Lender may not be increased without its prior written approval.

“Facility A Extension Request” is defined in Section 2.26.

“Facility A Lender” means each of the Lenders holding an interest in Facility A.

“Facility A Loan” means, with respect to a Facility A Lender, a loan made by such Facility A Lender with respect to Facility A pursuant to Section 2.01 and any conversion or continuation thereof.

“Facility A Maturity Date” means the date upon which the outstanding principal amount of the Facility A Notes, all accrued and unpaid interest thereon, and all other Facility A Obligations become due and payable, whether as a result of the occurrence of the stated maturity date or the acceleration of maturity pursuant to the terms of any of the Loan Documents.

“Facility A Note” means (a) a promissory note in substantially the form of Exhibit D hereto, executed and delivered by the Borrower payable to the order of the Administrative Agent in the amount of the Aggregate Facility A Commitment, including any amendment, modification, restatement, renewal or replacement of such promissory note, (b) any “Facility A Note” executed and delivered pursuant to the Original Credit Agreement or the Prior Credit Agreement by the Borrower payable to the order of a Lender that is a Facility A Lender hereunder, including any amendment, modification, restatement, renewal or replacement of such promissory note (including without limitation a replacement delivered pursuant to clause (c) below), and (c) in the event that any Facility A Lender requests a Facility A Note in accordance with this Agreement (including without limitation a replacement of a note described in clause (b) above), a promissory note satisfactory in form to the Administrative Agent, executed and delivered by the Borrower payable to the order of such Facility A Lender in the amount of its Facility A Commitment, including any amendment, modification, restatement, renewal or replacement of such promissory note.

“Facility A Obligations” means all unpaid principal of and accrued and unpaid interest on the Facility A Loans and Swing Line Loans, all accrued and unpaid fees with respect to Facility A, the Swing Line Loans and the Facility Letters of Credit, and all expenses, reimbursements, indemnities and other obligations of the Loan Parties to the Facility A Lenders or to any Facility A Lender, the Swing Line Lender, any Issuer, the Administrative Agent or any indemnified party with respect to Facility A, the Swing Line Loans and the Facility Letters of Credit arising under the Loan Documents.

“Facility A Pro Rata Share” means, at any time for any Facility A Lender, the ratio that such Facility A Lender’s Facility A Commitment bears to the Aggregate Facility A Commitment.

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“Facility A Reply Date” is defined in Section 2.26.

“Facility A Termination Date” means May 29, 2008, or such later date, if any, to which the Facility A Termination Date may be extended pursuant to Section 2.26, subject, however, to earlier termination in whole of the Aggregate Facility A Commitment pursuant to the terms of this Agreement.

“Facility B” means the revolving credit facility described in Section 2.02 (subject to conversion of revolving credit loans to term loans pursuant to Section 2.19 or Section 2.20).

“Facility B Advance” means a Facility B Revolver Advance or an Advance of a Facility B Term Loan (as applicable).

“Facility B Commitment” means, for each of the Facility B Revolver Lenders, the obligation of such Facility B Revolver Lender to make Facility B Revolver Loans in the aggregate not exceeding the amount set forth in Schedule I hereto as its “Facility B Commitment,” as such amount may be decreased from time to time pursuant to the terms hereof or increased pursuant to the terms of Section 2.18(e) hereof, provided that the Facility B Commitment of a Lender may not be increased without its prior written approval.

“Facility B Extension Request” is defined in Section 2.19(a).

“Facility B Lender” means each of the Lenders holding an interest in Facility B.

“Facility B Obligations” means all unpaid principal of and accrued and unpaid interest on the Facility B Revolver Loans and Facility B Term Loans, all accrued and unpaid fees and all expenses, reimbursements, indemnities and other obligations of the Loan Parties to the Facility B Lenders or to any Facility B Lender, the Administrative Agent or any indemnified party arising under the Loan Documents.

“Facility B Reply Date” is defined in Section 2.19(a).

“Facility B Revolver Advance” means an Advance of Facility B but does not include an Advance of a Facility B Term Loan.

“Facility B Revolver Lender” means each of the Lenders that has a Facility B Commitment.

“Facility B Revolver Loan” means, with respect to a Facility B Lender, a revolving credit loan made by such Facility B Lender with respect to Facility B pursuant to Section 2.02 and any conversion or continuation thereof but does not include any Facility B Term Loan.

“Facility B Revolver Maturity Date” means the date upon which the outstanding principal amount of the Facility B Revolver Notes, all accrued but unpaid interest thereon, and all other Facility B Obligations (but not necessarily the Facility B Term Notes) become due and payable, whether as a result of the occurrence of the stated maturity date or the acceleration of maturity pursuant to the terms of any of the Loan Documents.

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“Facility B Revolver Note” means (a) a promissory note in substantially the form of Exhibit E hereto, executed and delivered by the Borrower and payable to the order of the Administrative Agent in the amount of the Aggregate Facility B Commitment, including any amendment, modification, restatement, renewal or replacement of such promissory note, (b) any “Facility B Revolver Note” executed and delivered pursuant to the Original Credit Agreement or the Prior Credit Agreement by the Borrower, payable to the order of a Lender that is a Facility B Lender hereunder, including any amendment, modification, restatement, remainder or replacement of such promissory note (including without limitation a replacement delivered pursuant to clause (c) below), and (c) in the event that any Facility B Revolver Lender requests a Facility B Revolver Note in accordance with this Agreement (including without limitation a replacement of a note described in clause (b) above), a promissory note, satisfactory in form to the Administrative Agent, executed and delivered by the Borrower payable to the order of such Facility B Lender in the amount of its Facility B Commitment, including any amendment, modification, restatement, renewal or replacement of such promissory note.

“Facility B Revolver Pro Rata Share” means, at any time for any Facility B Revolver Lender, the ratio that its Facility B Commitment bears to the Aggregate Facility B Commitment.

“Facility B Term Lender” means each of the Lenders holding an interest in the Facility B Term Loans.

“Facility B Term Loan” means a loan under Facility B which is converted to a term loan pursuant to Section 2.19 or Section 2.20.

“Facility B Term Maturity Date” means May 29, 2008.

“Facility B Term Note” means (a) a promissory note in substantially the form of Exhibit F hereto, executed and delivered by the Borrower payable to the order of the Administrative Agent in the amount of the Aggregate Facility B Commitment, including any amendment, modification, restatement, renewal or replacement of such promissory note, (b) any “Facility B Term Note” executed and delivered pursuant to the Original Credit Agreement or the Prior Credit Agreement by the Borrower payable to the order of a Lender that is a Facility B Lender hereunder, including any amendment, modification, restatement, remainder or replacement of such promissory note (including without limitation a replacement delivered pursuant to clause (c) below), and (c) in the event that any Facility B Term Lender requests a Facility B Term Note in accordance with this Agreement (including without limitation a replacement of a note described in clause (b) above), a promissory note, satisfactory in form to the Administrative Agent, executed and delivered by the Borrower payable to the order of such Facility B Term Lender in the amount of its Facility B Commitment, including any amendment, modification, restatement, renewal or replacement of such promissory note.

“Facility B Term Pro Rata Share” means, at any time for any Facility B Term Lender, the ratio that the outstanding principal balance of its Facility B Term Loans bears to the aggregate principal balance of all Facility B Term Loans.

“Facility B Termination Date” means May 27, 2004, or such later date, if any, to which Facility B Termination Date is extended pursuant to Section 2.19, subject, however, to earlier

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termination in whole of the Aggregate Facility B Commitment pursuant to the terms of this Agreement.

“Facility C” means the term loan facility described in Section 2.03.

“Facility C Advance” means the Advance of Facility C on the Original Closing Date or an Advance of Facility C pursuant to Section 2.18.

“Facility C Increase” is defined in Section 2.18(a).

“Facility C Lender” means each of the Lenders holding an interest in Facility C.

“Facility C Loan” means, with respect to a Facility C Lender, a loan made by such Facility C Lender (or its predecessor in interest) with respect to “Facility C” pursuant to the Original Credit Agreement (to the extent outstanding on the Closing Date) or by a New Facility C Lender pursuant to Section 2.18 and any conversion or continuation of any such Loan.

“Facility C Maturity Date” means the date upon which the outstanding principal amount of the Facility C Notes, all accrued and unpaid interest thereon, and all other Facility C Obligations become due and payable, whether as a result of the occurrence of the stated maturity date or the acceleration of maturity pursuant to the terms of any of the Loan Documents.

“Facility C Note” means (a) the promissory note in substantially the form of Exhibit G to the Original Credit Agreement, executed and delivered by the Borrower payable to the order of the Administrative Agent in the amount of $400,000,000, including any amendment, modification, restatement, renewal or replacement of such promissory note, (b) any Facility C Note executed and delivered by the Borrower to a Facility C Lender pursuant to the Original Credit Agreement or the Prior Credit Agreement including any amendment, restatement, renewal or replacement of such promissory note (including without limitation a replacement delivered pursuant to clause (c) below), and (c) in the event that any Facility C Lender requests a Facility C Note in accordance with this Agreement (including without limitation a replacement of a note described in clause (b) above), a promissory note, satisfactory in form to the Administrative Agent, executed and delivered by the Borrower payable to the order of such Facility C Lender in the amount of its then outstanding Facility C Loans, including any amendment, modification, restatement, renewal or replacement of such promissory note.

“Facility C Obligations” means all unpaid principal of and accrued and unpaid interest on the Facility C Loans, all accrued and unpaid fees with respect to Facility C and all expenses, reimbursements, indemnities and other obligations of the Loan Parties to the Facility C Lenders or to any Facility C Lender, the Administrative Agent or any indemnified party with respect to Facility C arising under the Loan Documents.

“Facility C Pro Rata Share” means, at any time for any Facility C Lender, the ratio that the outstanding principal balance of such Facility C Lender’s Facility C Loan bears to the outstanding principal balance of all Facility C Loans.

“Facility Increase” is defined in Section 2.18(a).

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“Facility Letter of Credit” means (a) each of the Existing Letters of Credit and (b) a Letter of Credit issued by an Issuer pursuant to Section 2.21.

“Facility Letter of Credit Fee” is defined in Section 2.21(f).

“Facility Letter of Credit Fee Rate” means a rate per annum equal to the Applicable Margin with respect to Eurodollar Rate Loans under Facility A in effect from time to time during the term of any Facility Letter of Credit.

“Facility Letter of Credit Obligations” means, as at the time of determination thereof, without duplication, an amount equal to the sum of (a) the aggregate of the amount then available for drawing under each of the Facility Letters of Credit, (b) the face amount of all outstanding drafts on Facility Letters of Credit, which drafts have been honored by the applicable Issuer, (c) the aggregate amount of all Reimbursement Obligations at such time and (d) the face amount of all Facility Letters of Credit requested by the Borrower but not yet issued (unless the request for an unissued Facility Letter of Credit has been denied or revoked).

“Facility Termination Date” means (a) with respect to Facility A, the Facility A Termination Date and (b) with respect to Facility B, the Facility B Termination Date.

“Federal Funds Effective Rate” means, for any day, an interest rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published for such day (or, if such day is not a Business Day, for the immediately preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations at approximately 10:00 a.m. (Chicago time) on such day on such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by the Administrative Agent in its sole discretion.

“Fee Letter” means that certain letter dated April 8, 2003 from BOCM and the Administrative Agent to the Borrower, and accepted by the Borrower on April 9, 2003.

“Finished Lot” means a parcel of Entitled Land which satisfies the requirements for Land Under Development and in which the owner (including any prior owner) thereof has invested 85% or more of the cost to complete the Improvements thereon, and which constitutes a valid, legally subdivided lot within the meanings of the applicable laws of the states, county and/or municipality within which it is located, and other requirements governing the subdivision of land and constitutes a lot reflected on a duly recorded plat, subdivision map or parcel map in compliance with the requirements of all applicable laws and other requirements governing the subdivision of land and approved by the appropriate Governmental Authority.

“Fitch” means Fitch Investors Service, L.P. or any Person succeeding to the securities rating business of such company.

“Floating Rate” means, for any day, a rate per annum equal to the sum of (a) the Alternate Base Rate for such day plus (b) the Applicable Margin for such day Floating Rate Advances with respect to the Facility for which such Floating Rate is determined.

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“Floating Rate Advance” means an Advance which bears interest at the Floating Rate.

“Floating Rate Loan” means a Loan which bears interest at the Floating Rate.

“GAAP” means United States generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as approved by a significant segment of the accounting profession as in effect from time to time, applied on a consistent basis from time to time.

“Governmental Authority” means any foreign governmental authority, the United States of America, any state of the United States of America and any subdivision of any of the foregoing, and any agency, department, commission, board, authority or instrumentality, bureau or court having jurisdiction over the Lender, the Borrower, any Subsidiaries of the Borrower or any of their respective properties.

“Guarantor” means a Subsidiary of the Borrower which has executed a Guaranty prior to the Closing Date and each Subsidiary of the Borrower that executes a Guaranty (including, if applicable, a Supplemental Guaranty) on or after the Closing Date.

“Guaranty” means each of those certain guaranties executed prior to the Closing Date pursuant to the Original Credit Agreement or the Prior Credit Agreement by Subsidiaries of the Borrower, and each of those certain guaranties (including, if applicable, a Supplemental Guaranty) executed on the Closing Date or from time to time after the Closing Date by Subsidiaries of the Borrower, in substantially the form of Exhibit H hereto, in each case in favor of the Administrative Agent, for the benefit of the Holders of Secured Obligations, as any such guaranties may be amended, restated, supplemented or otherwise modified from time to time.

“Hazardous Substances” means any toxic or hazardous wastes, pollutants or substances, including, without limitation, asbestos, PCBs, petroleum products and by-products, substances defined or listed as “hazardous substances” or “toxic substances” or similarly identified in or pursuant to the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. § 9061 et seq., hazardous materials identified in or pursuant to the Hazardous Materials Transportation Act 49 U.S.C. § 1802 et seq., hazardous wastes identified in or pursuant to The Resource Conservation and Recovery Act, 42 U.S.C. § 6901 et seq., any chemical substance or mixture regulated under the Toxic Substance Control Act of 1976, as amended, 15 U.S.C. § 2601 et seq., any “toxic pollutant” under the Clean Water Act, 33 U.S.C. § 466 et seq., as amended, any hazardous air pollutant under the Clean Air Act, 42 U.S.C. § 7401 et seq., and any hazardous or toxic substance or pollutant regulated under any other applicable federal, state or local Environmental Laws.

“Hedging Obligations” of a Person means any and all obligations of such Person, whether absolute or contingent and howsoever and whensoever created, arising, evidenced or acquired (including all renewals, extensions and modifications thereof and substitutions therefor), under (a) any and all agreements, devices or arrangements designed to protect at least one of the parties thereto from the fluctuations of interest rates, commodity prices, exchange rates or forward rates

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applicable to such party’s assets, liabilities or exchange transactions, including, but not limited to, dollar-denominated or cross-currency interest rate exchange agreements, forward currency exchange agreements, interest rate cap or collar protection agreements, forward rate currency or interest rate options, puts and warrants, and (b) any and all cancellations, buy backs, reversals, terminations or assignments of any of the foregoing.

“Holders of Secured Obligations” means the holders of the Secured Obligations from time to time and shall include their respective successors, transferees and assigns.

“Housing Unit” means a residential housing unit owned by a Loan Party that is (or, upon completion of construction thereof, will be) available for sale.

“Housing Unit Closing” means a closing of the sale of a Housing Unit by a Loan Party to a bona fide purchaser for value that is not an Affiliate of a Loan Party.

“Housing Unit Under Contract” means a Housing Unit owned by a Loan Party as to which such Loan Party has a bona fide contract of sale, in a form customarily employed by such Loan Party and reasonably satisfactory to the Administrative Agent, entered into not more than 15 months prior to the date of determination with a Person who is not an Affiliate of a Loan Party, under which contract no defaults then exist; provided, however, that in the case of any Housing Unit the purchase of which is to be financed in whole or in part by a loan insured by the Federal Housing Administration or guaranteed by the Veterans Administration, the minimum down payment shall be the amount (if any) required under the rules of the relevant agency.

“Improvements” means on and off-site development work, including but not limited to filling to grade, main water distribution and sewer collection systems and drainage system installation, paving, and other improvements necessary for the use of residential dwelling units and as required pursuant to development agreements which may have been entered into with Governmental Authorities.

“Indebtedness” of any Person means, without duplication, (a) all liabilities and obligations, contingent or otherwise, of such Person, (i) in respect of borrowed money (whether or not the recourse of the lender is to the whole of the assets of such Person or only to a portion thereof), (ii) evidenced by bonds, notes, debentures or similar instruments, (iii) representing the balance deferred and unpaid of the purchase price of any property or services, except those incurred in the ordinary course of its business that would constitute ordinarily a trade payable to trade creditors (but specifically excluding from such exception the deferred purchase price of Real Estate), (iv) evidenced by bankers’ acceptances, (v) consisting of obligations, whether or not assumed, secured by Liens or payable out of the proceeds or production from property now or hereafter owned or acquired by such Person, (vi) consisting of Capitalized Lease Obligations (including any Capitalized Leases entered into as a part of a sale/leaseback transaction), (vii) consisting of liabilities and obligations under any receivable sales transactions, (viii) consisting of a Letter of Credit, other than a Performance Letter of Credit, or a reimbursement obligation of such Person with respect to any Letter of Credit, (ix) consisting of Hedging Obligations, (x) consisting of Off-Balance Sheet Liabilities or (xi) consisting of Contingent Obligations; and (b) obligations of such Person to purchase Securities or other property arising out of or in connection with the sale of the same or substantially similar securities or property. With respect to the

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Borrower, Indebtedness includes, without limitation of the foregoing, (x) the Loans and (y) the Borrower’s and any Joint Venture Subsidiary’s pro rata shares of the Indebtedness of any Joint Venture (excluding any Indebtedness in which recourse is limited to the Joint Venture, provided that the Borrower’s or Joint Venture Subsidiary’s Investments in such Joint Venture are excluded from Consolidated Tangible Net Worth).

“Intercreditor Agreement” means an Intercreditor Agreement by and among the Borrower, the Administrative Agent, UAMC, UAMC Asset Corp. II and certain lenders to UAMC and UAMC Asset Corp. II, either in substantially the form of Exhibit I to the Original Credit Agreement and delivered pursuant thereto or substantially in the form of Exhibit I hereto, as any such agreement may be amended, modified, supplemented or restated from time to time.

“Interest Coverage Ratio” on any date means the ratio of (a) Consolidated EBITDA for the four fiscal quarters ended on such date to (b) total Consolidated Interest Incurred for such fiscal quarters.

“Interest Period” means a Eurodollar Interest Period.

“Investment” of a Person means any loan, advance (other than commission, travel and similar advances to officers and employees made in the ordinary course of business), extension of credit (other than accounts receivable arising in the ordinary course of business on terms customary in the trade), deposit account or contribution of capital by such Person to any other Person or any investment in, or purchase or other acquisition of, the stock, partnership interests, membership interests, notes, debentures or other securities of any other Person made by such Person.

“Issuance Date” is defined in Section 2.21(c)(i)(B).

“Issuance Notice” is defined in Section 2.21(c)(iii).

“Issuer” means, with respect to each Existing Letter of Credit, the Issuer thereof identified in Schedule II, and with respect to each Facility Letter of Credit issued on or after the Closing Date, Bank One or such other Facility A Lender selected by the Borrower with the approval of the Administrative Agent, to issue such Facility Letter of Credit, provided such other Facility A Lender consents to act in such capacity.

“Joint Lead Arrangers” means Banc One Capital Markets, Inc. and Deutsche Bank Securities, Inc.

“Joint Venture” means a joint venture (whether in the form of a corporation, a partnership, limited liability company or otherwise) (a) to which the Borrower or a Joint Venture Subsidiary is or becomes a party (other than the tenancies in common listed in Schedule III annexed hereto), (b) whether or not Borrower is required to consolidate the joint venture in its financial statements in accordance with GAAP, and (c) in which the Borrower or any Joint Venture Subsidiary has or will have a total investment exceeding $25,000 or which has total assets plus contingent liabilities exceeding $100,000. For the purposes of this definition, the Borrower’s or Joint Venture Subsidiary’s investment in a joint venture shall be deemed to include any Securities of the joint venture owned by the Borrower or any Joint Venture

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Subsidiary, any loans, advances or accounts payable to the Borrower or any Joint Venture Subsidiary from the joint venture, any commitment, arrangement or other agreement by the Borrower or any Joint Venture Subsidiary to provide funds or credit to the joint venture and the Borrower’s or Joint Venture Subsidiary’s share of the undistributed profits of the joint venture.

“Joint Venture Subsidiary” means a Subsidiary of the Borrower which is a partner, shareholder or other equity owner in a Joint Venture which is not a Loan Party.

“Land Under Development” means Entitled Land upon which construction of Improvements has commenced but not been completed and for which: (a) to the extent required, a performance bond, surety or other security has been issued to and in favor of and unconditionally accepted by each local agency and all relevant Governmental Authorities, including any municipal utility district in which the Real Estate is situated with regard to all work to be performed pursuant to each and all of said subdivision improvement agreements or other agreements; (b) all necessary plans have been approved by all relevant Governmental Authorities for the installation of any and all Improvements required to be installed upon such Real Estate; (c) all necessary permits have been issued for the installation of said Improvements; and (d) utility services necessary for construction of Improvements and residential dwelling units and the operation thereon for the purpose intended will be available to such Real Estate upon completion of the Improvements and there exists a binding obligation on the part of each and every utility company to deliver necessary utility services to such Real Estate.

“Lenders” means the lending institutions listed on the signature pages of this Agreement and the respective successors and permitted assigns of such lending institutions.

“Lending Installation” means, with respect to a Lender or the Administrative Agent, any office, branch, subsidiary or affiliate of such Lender or the Administrative Agent.

“Letter of Credit” of a Person means a letter of credit or similar instrument which is issued upon the application of such Person or upon which such Person is an account party or for which such Person is in any way liable.

“Letter of Credit Collateral Account” is defined in Section 2.21(h).

“Letter of Credit Commitment” means, for each Facility A Lender, the obligation of such Facility A Lender to participate in Facility Letters of Credit in an amount not exceeding the lesser of (a) its Facility A Pro Rata Share of the Aggregate Letter of Credit Commitment or (b) its Facility A Pro Rata Share of the Unused Commitment for Facility A.

“Letter of Credit Request” is defined in Section 2.21(c)(i).

“Leverage Ratio” means a fraction (expressed as the decimal equivalent), the numerator of which is the sum of (i) all Obligations, including Facility Letter of Credit Obligations (other than with respect to Performance Letters of Credit), plus (ii) all other Consolidated Indebtedness, less (iii) the lesser of (A) $300,000,000 and (B) unrestricted cash of the Loan Parties in excess of $15,000,000, and the denominator of which is the sum of (x) the Adjusted Consolidated Tangible Net Worth and (y) the lesser of (A) $300,000,000 and (B) 50% of the Subordinated Debt.

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“Lien” means any lien (statutory or other), mortgage (including, without limitation, purchase money mortgages), pledge, hypothecation, assignment, deposit arrangement, encumbrance or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, the interest of a vendor or lessor under any conditional sale, Capitalized Lease or other title retention agreement or any financing lease having substantially the same economic effect as any of the foregoing) and, in the case of Securities, any purchase option, call or similar right of any Person (other than the issuer of such Securities) with respect to such Securities.

“LLP” means each of Lennar Land Partners, a Florida general partnership, and Lennar Land Partners II, a Florida general partnership.

“LLP Partner” means each of Lennar Land Partners Sub, Inc., a Delaware corporation and wholly-owned Subsidiary of the Borrower which holds a 50% interest in Lennar Land Partners, and Lennar Land Partners Sub II, Inc., a Delaware corporation and wholly-owned Subsidiary of the Borrower which holds a 50% interest in Lennar Land Partners II.

“LNR” means LNR Property Corporation, a Delaware corporation, and its successors.

“Loan” means a Facility A Loan, Swing Line Loan, Facility B Revolver Loan, Facility B Term Loan or Facility C Loan, as applicable.

“Loan Documents” means (a) this Agreement, the Facility A Notes, the Swing Line Note, the Facility B Revolver Notes, the Facility B Term Notes, the Facility C Notes, the Guaranties, the Pledge Agreements, and (if and when delivered) the Mortgage Banking Subsidiaries Note Pledge Agreement and (b) any and all other instruments or documents delivered or to be delivered by the Loan Parties pursuant hereto or pursuant to any of the other documents described in clause (a) above, as such documents in clause (a) or (b) may be amended or modified and in effect from time to time.

“Loan Parties” means the Borrower and the Guarantors (including any Subsidiary that executes and delivers a Guaranty after the Closing Date); “Loan Party” means any of the Loan Parties.

“LTV Maintenance Agreement” means a guaranty or other agreement entered into by the Borrower or another Loan Party, for the benefit of the holder of any secured Indebtedness of a Person that is not a Loan Party, to maintain a specified loan-to-value ratio with respect to the Real Estate that secures such Indebtedness. For purposes of determining the amount of Consolidated Indebtedness under this Agreement and for purposes of Section 7.03(e) of this Agreement, the aggregate amount of the Contingent Obligations under all LTV Maintenance Agreements shall equal the amount (if any) by which (a) the sum of the LTV Maintenance Exposure with respect to all LTV Maintenance Agreements for which the LTV Maintenance Exposure is positive exceeds (b) the sum of the LTV Maintenance Exposure with respect to all LTV Maintenance Agreements for which the LTV Maintenance Exposure is negative.

“LTV Maintenance Exposure” means, with respect to any LTV Maintenance Agreement, the amount (whether positive or negative) equal to (a) the amount of the Indebtedness with

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respect to which the LTV Maintenance Agreement is delivered exceeds (b) the product of (i) the book value of the Real Estate securing such Indebtedness (or such lesser value as is provided in or determined under the agreements governing such Indebtedness) and (ii) a percentage equal to the lesser of (A) the loan-to-value ratio (stated as a percentage) that the Borrower or such other Loan Party agrees to maintain under the applicable LTV Maintenance Agreement and (B) sixty percent (60%); provided, however, if the Borrower and other Loan Parties are liable severally but not jointly and severally with one or more other obligors under the LTV Maintenance Agreement, the amount (whether positive or negative) of the Contingent Obligation in respect of such LTV Maintenance Agreement shall be the product of (x) the amount determined as set forth above and (y) the maximum percentage of the aggregate liability under such LTV Maintenance Agreement with respect to which Borrower and any other Loan Parties are liable.

“Material Adverse Effect” means a material adverse effect on (a) the business, properties, assets, condition (financial or otherwise), results of operations, or prospects of (i) the Loan Parties, taken as a whole, or (ii) if so specified, the Borrower or any Guarantor, (b) the ability of any Loan Party to perform any of its obligations under the Loan Documents, or (c) the validity or enforceability of any of the Loan Documents or the rights or remedies of the Administrative Agent or the Lenders thereunder.

“Merger” means the merger of Old U.S. Home into New U.S. Home (then known as Len Acquisition Corporation) on or about the Original Closing Date.

“Moody’s” means Moody’s Investors Service, Inc. or any Person succeeding to the securities rating business of such company.

“Monthly Payment Date” means the first Business Day of each calendar month, commencing in June, 2003.

“Mortgage” means any mortgage, deed of trust or other security deed in Real Estate, or in rights or interests, including leasehold interests, in Real Estate.

“Mortgage Banking Subsidiaries Adjusted Net Worth” means, at any date, the Net Worth of the Mortgage Banking Subsidiaries on a consolidated basis as determined in accordance with GAAP (including in the assets used to determine Net Worth the amount of the Capitalized Mortgage Servicing as of such date), less the amount of all goodwill and other assets that are properly classified as “intangible assets” at such date in accordance with GAAP.

“Mortgage Banking Subsidiaries Note” means the promissory note dated the Prior Closing Date, in the principal amount of $300,000,000, executed by the Mortgage Banking Subsidiaries as joint makers payable to the order of the Borrower and each Guarantor that lends funds to any of the Mortgage Banking Subsidiaries, held by the Administrative Agent pursuant to Section 6.09.

“Mortgage Banking Subsidiaries Note Pledge Agreement” is defined in Section 8.02(b)(i), and includes any amendment, supplement, restatement or other modification of such agreement.

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“Mortgage Banking Subsidiary” means a Subsidiary of the Borrower which is engaged or hereafter engages in the mortgage banking business, including the origination, servicing, packaging and/or selling of mortgages on residential single- and multi-family dwellings and/or commercial property, and in any event shall include AFSI, UAMC, UAMC Asset Corp. II, Universal American Mortgage Corporation of California and Eagle Home Mortgage, Inc.

“Multiemployer Plan” means a Plan maintained pursuant to a collective bargaining agreement or any other arrangement to which the Borrower or any member of the Controlled Group is a party to which more than one employer is obligated to make contributions.

“Net Asset Sale Proceeds” means, with respect to any Asset Sale by any Person, (a) cash received by such Person or any Subsidiary of such Person from such Asset Sale (including cash received as consideration for the assumption or incurrence of liabilities incurred in connection with or in anticipation of such Asset Sale) after (i) provisions for all income or other taxes measured by or resulting from such Asset Sale, (ii) payment of all brokerage commissions and other fees and expenses and commissions related to such Asset Sale provided that, if the same are payable to an Affiliate of a Loan Party, such costs comply with Section 7.12, (iii) repayment of Indebtedness (and any premium or penalty thereon) secured by a Lien on any asset disposed of in such Asset Sale or which is or may be required (by the express terms of the instrument governing such Indebtedness or by applicable law) to be repaid in connection with such Asset Sale (including payments made to obtain or avoid the need for the consent of any holder of such Indebtedness but excluding payments to a Loan Party), and (iv) deduction of appropriate amounts to be provided by such Person or a Subsidiary of such Person after such Asset Sale and (b) cash payments in respect of any other consideration received by such Person or any Subsidiary of such Person from such Asset Sale upon receipt of such cash payments by such Person or such Subsidiary.

“Net Book Value” means, with respect to an asset owned by a Loan Party, the gross investment of such Loan Party in the asset, less all reserves (including loss reserves and reserves for depreciation) attributable to that asset, all determined in accordance with GAAP consistently applied, including, in the case of Unimproved Entitled Land, any unamortized land credits.

“Net Housing Unit Proceeds” means, in connection with the sale of any Housing Unit by a Loan Party, the gross sales price less (a) all bona fide prorations and adjustments to the sales price required to be made pursuant to the terms of the sales contract and (b) the aggregate amount of bona fide closing costs due to any Person, provided that if such closing costs are due to an Affiliate of a Loan Party, such costs comply with Section 7.12.

“Net Worth” means, at any date, with respect to any Person the amount of consolidated stockholders’ equity of such Person and its consolidated Subsidiaries as shown on its balance sheet as of such date in accordance with GAAP.

“New Facility C Lender” means either a Lender or an Eligible Assignee, in each case approved by the Borrower and the Administrative Agent, that agrees to become a Facility C Lender or to increase the amount of its Facility C Loans, in accordance with the provisions of Section 2.18.

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“New Lender” means either a New Revolver Lender or a New Facility C Lender, as applicable under the provisions of Section 2.18.

“New Revolver Lender” means either a Facility A Lender, a Facility B Revolver Lender or an Eligible Assignee, in each case approved by the Borrower and the Administrative Agent, that agrees to become a Facility A Lender and, if applicable under Section 2.18(e), a Facility B Revolver Lender or that agrees to increase its Facility A Commitment and, if applicable under Section 2.18(e), Facility B Commitment, in accordance with the provisions of Section 2.18.

“New U.S. Home” means U.S. Home Corporation (formerly known as Len Acquisition Corporation), a Delaware corporation.

“Non-Consenting Facility A Lender” is defined in Section 2.26.

“Non-Consenting Facility B Lenders” is defined in Section 2.19(a).

“Non-Recourse Indebtedness” means Indebtedness of a Loan Party for which its liability is limited to the Real Estate upon which it grants a Lien to the holder of such Indebtedness as security for such Indebtedness, but only to the extent that the amount of such Indebtedness does not exceed such Loan Party’s original cost of purchase of such Real Estate or the most current appraised value of such Real Estate.

“Notes” means, collectively, the Facility A Notes, the Swing Line Note, the Facility B Revolver Notes, the Facility B Term Notes, and the Facility C Note or Facility C Notes; and “Note” means any one of the Notes.

“Obligations” means all Loans, Facility Letter of Credit Obligations, advances, debts, liabilities, obligations, covenants and duties owing by any Loan Party to the Administrative Agent, any Lender, the Swing Line Bank, the Joint Lead Arrangers, any Affiliate of the Administrative Agent or any Lender, any Issuer or any Person entitled to indemnification by any Loan Party under this Agreement or any other Loan Document, of any kind or nature, present or future, arising under this Agreement or any other Loan Documents, whether or not evidenced by any note, guaranty or other instrument, whether or not for the payment of money, whether arising by reason of an extension of credit, loan, guaranty, indemnification, or in any other manner, whether direct or indirect (including those acquired by assignment), absolute or contingent, due or to become due, now existing or hereafter arising and however acquired. The term includes, without limitation, all Facility A Obligations, Facility B Obligations and Facility C Obligations, all interest, charges, expenses, fees, reasonable attorneys’ fees and disbursements, reasonable paralegals’ fees and any other sum chargeable to any Loan Party under this Agreement or any other Loan Document.

“Off-Balance Sheet Liabilities” of a Person means (a) any repurchase obligation or liability of such Person or any of its Subsidiaries with respect to accounts or notes receivable sold by such Person or any of its Subsidiaries, (b) any liability of such Person or any of its Subsidiaries under any financing lease, any synthetic lease (under which all or a portion of the rent payments made by the lessee are treated, for tax purposes, as payments of interest, notwithstanding that the lease may constitute an operating lease under GAAP) or any other similar lease transaction, or (c) any obligations of such Person or any of its Subsidiaries arising

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with respect to any other transaction which is the functional equivalent of or takes the place of borrowing and which has an actual or implied interest component but which does not constitute a liability on the consolidated balance sheets of such Person and its Subsidiaries.

“Old U.S. Home” means U.S. Home Corporation, a Delaware corporation, which was merged into New U.S. Home (then known as Len Acquisition Corporation) on or about the Original Closing Date.

“Old U.S. Home Debt Issues” means the following debt Securities issued by Old U.S. Home prior to the Merger: (i) the 8.25% Senior Notes due 2004 and (ii) the 8.875% Senior Subordinated Notes due 2009.

“Original Closing Date” means May 3, 2000, being the “Closing Date” under the Original Credit Agreement.

“Original Credit Agreement” means that certain Credit Agreement dated as of May 3, 2000 among the Borrower, certain of the Lenders (and certain other lenders), and the Administrative Agent, which Credit Agreement was amended and restated in its entirety by the Prior Credit Agreement.

“Participants” is defined in Section 12.02.

“PBGC” means the Pension Benefit Guaranty Corporation, or any successor thereto.

“Performance Letter of Credit” means a Letter of Credit issued to a Governmental Authority or a quasi-governmental agency to insure the completion by a Loan Party of a development of land improvements or to insure payment by a Loan Party of escrow accounts.

“Permitted Dispositions” is defined in Section 7.04(a).

“Permitted Hedging Agreement” means an interest rate swap, collar or similar agreement entered into by the Borrower and any Lender or Affiliate of a Lender, pursuant to which the Borrower hedges its actual interest rate risk under this Agreement, in a notional amount not to exceed, in the aggregate, the amount of the Aggregate Commitment at the time the Borrower enters into such agreement. In the event a Lender or any of its Affiliates elects to enter into any Permitted Hedging Agreement with the Borrower, the Hedging Obligations of the Borrower under such Permitted Hedging Agreement shall be Secured Obligations secured by the Collateral.

“Permitted Liens” means (a) Liens existing on the date of this Agreement and described on Schedule IV hereto; (b) Liens imposed by governmental authorities for taxes, assessments or other charges not yet subject to penalty or which are being contested in good faith and by appropriate proceedings, if adequate reserves with respect thereto are maintained on the books of the Borrower in accordance with GAAP; (c) statutory liens of carriers, warehousemen, mechanics, materialmen, landlords, repairmen or other like Liens arising by operation of law in the ordinary course of business provided that (i) the underlying obligations are not overdue for a period of more than 30 days or (ii) such Liens are being contested in good faith and by appropriate proceedings and adequate reserves with respect thereto are maintained on the books

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of the Borrower in accordance with GAAP; (d) Liens securing the performance of bids, trade contracts (other than borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (e) easements, rights-of-way, zoning restrictions, assessment district or similar Liens in connection with municipal financing, and similar restrictions, encumbrances or title defects which, singly or in the aggregate, do not in any case materially detract from the value of the Real Estate subject thereto (as such Real Estate is used by the Borrower or any of its Subsidiaries) or interfere with the ordinary conduct of the business of the Borrower or any of its Subsidiaries; (f) Liens arising by operation of law in connection with judgments, only to the extent, for an amount and for a period not resulting in a default with respect thereto; (g) pledges or deposits made in the ordinary course of business in connection with workers’ compensation, unemployment insurance and other types of social security legislation; (h) Liens securing Indebtedness of a Person existing at the time such Person becomes a Subsidiary or is merged with or into the Borrower or a Subsidiary or Liens securing Indebtedness incurred in connection with an acquisition of Real Estate, provided that (1) such Liens were in existence prior to the date of such acquisition, merger or consolidation, were not incurred in anticipation thereof, and do not extend to any other assets or (2) such Liens are granted to the seller of such Real Estate to secure the purchase price therefor; (i) Liens securing Indebtedness incurred to refinance any Indebtedness that was previously so secured and permitted hereunder (which refinancing Indebtedness may exceed the amount refinanced, provided such refinancing Indebtedness is otherwise permitted under this Agreement) in a manner no more adverse to the Lenders than the terms of the Liens securing such refinanced Indebtedness, provided, however, that, Liens securing refinancing of the Indebtedness held by the REIT Subsidiary (as described in clause (k) below) shall not be permitted; (j) Liens securing the Secured Obligations, which Liens may also secure, equally and ratably, to the extent provided in Section 8.03(a), senior debt Securities of the Borrower; and (k) mortgages, deeds of trust and other similar instruments granted by any Loan Party to the REIT Subsidiary and held by the REIT Subsidiary as security for Indebtedness of such Loan Party to the REIT Subsidiary, provided that (i) the REIT Subsidiary is a Guarantor, (ii) such mortgages, deeds of trust and similar instruments are in a form reasonably approved by Administrative Agent and are not recorded or filed in any real property records or other public or official records and (iii) the REIT Subsidiary executes and delivers to Administrative Agent an agreement reasonably satisfactory to Administrative Agent subordinating to the Obligations, the REIT Subsidiary’s rights, liens and claims against the Borrower and the other Loan Parties, together with certified resolutions, opinions of counsel and other supporting documentation with respect to such subordination reasonably satisfactory to Administrative Agent.

“Person” means any natural person, corporation, firm, enterprise, trust, association, company, partnership, limited liability company, joint venture or other entity or organization, or any government or political subdivision or any agency, department, or instrumentality thereof.

“Plan” means an employee pension benefit plan which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code as to which the Borrower or any member of the Controlled Group may have any liability.

“Pledge Agreement” means each of those certain pledge agreements (i) executed by the Borrower pursuant to the Original Credit Agreement or the Prior Credit Agreement prior to the Closing Date hereunder or executed by the Borrower pursuant hereto on or after the Closing

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Date substantially in the form of Exhibit L-1 hereto (or, in the case of a pledge with respect to the equity interests of any Significant Subsidiary that is not a corporation, a similar form of pledge agreement satisfactory to the Administrative Agent in form and substance), or (ii) executed by a Guarantor pursuant to the Original Credit Agreement or the Prior Credit Agreement prior to the Closing Date hereunder or executed by a Guarantor pursuant hereto on or after the Closing Date substantially in the form of Exhibit L-2 hereto (or, in the case of a pledge with respect to the equity interests of any Significant Subsidiary that is not a corporation, a similar form of pledge agreement satisfactory to the Administrative Agent in form and substance), including in each case any amendment, modification, renewal or restatement thereof.

“Pricing Grid” means the pricing grid attached hereto as Exhibit M.

“Prime Rate” means the rate per annum equal to the prime rate of interest announced by Bank One from time to time as its “prime rate” (it being acknowledged that such announced prime rate may not necessarily be the lowest rate charged by Bank One to any of its customers), changing when and as said prime rate changes.

“Prior Closing Date” means May 24, 2002, being the “Closing Date” under the Prior Credit Agreement.

“Prior Credit Agreement” is defined in the Recitals of this Agreement.

“Project” means a parcel of Real Estate owned by a Loan Party which is to be developed or sold as part of a common scheme.

“Pro Rata Share” means, for each Lender at any time, the ratio that the aggregate amount of such Lender’s Facility A Commitment, Facility B Commitment, the outstanding balance of such Lender’s Facility B Term Loans and the outstanding balance of such Lender’s Facility C Loans bears to the Aggregate Commitment, all as determined at such time.

“Qualified Finished Lots” means, at any date, the sum of (a) the Net Book Value of Finished Lots that are under a bona fide contract for sale by a Loan Party to a Person that is not an Affiliate of a Loan Party and (b) the lesser of (i) the product of (A) the total number of Housing Units with respect to which the Loan Parties entered into such contracts during the period of six consecutive calendar months most recently ended at such date, provided that Housing Units shall include housing units of entities that were acquired and became Loan Parties during the applicable period, multiplied by (B) the average Net Book Value of all Finished Lots as of the end of such six-month period and (ii) an amount equal to 40% of Adjusted Consolidated Tangible Net Worth at such date.

“Quarterly Payment Date” means the first Business Day of each January, April, July and October, commencing in July, 2003.

“Rating Agency” means any one of Fitch, Moody’s or S&P.

“Real Estate” means land, rights in land and interests therein (including, without limitation, leasehold interests), and equipment, structures, improvements, furnishings, fixtures and buildings (including a mobile home of the type usually installed on a developed site) located

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on or used in connection with land, rights in land or interests therein (including leasehold interests), but shall not include Mortgages or interests therein.

“Real Estate Business” means homebuilding, housing construction, home sales, real estate development or construction, a plant/tree nursery for landscaping of Housing Units, and related real estate activities, including the provision of mortgage financing, title insurance and other goods and services to home buyers, home owners and other occupants of homes, including without limitation, cable TV services, home security, home design, broadband communications and other communications services and home office support services.

“Recent Balance Sheet” is defined in Section 4.05.

“Register” is defined in Section 13.07.

“Regulation D” means Regulation D of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor thereto or other regulation or official interpretation of said Board of Governors relating to reserve requirements applicable to member banks of the Federal Reserve System.

“Regulation U” means Regulation U of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor or other regulation or official interpretation of said Board of Governors relating to the extension of credit by banks for the purpose of purchasing or carrying margin stocks applicable to member banks of the Federal Reserve System.

“Reimbursement Obligations” means at any time, the aggregate of the Obligations of the Borrower to the Facility A Lenders, the Issuers and the Administrative Agent in respect of all unreimbursed payments or disbursements made by the Facility A Lenders, the Issuers and the Administrative Agent under or in respect of the Facility Letters of Credit.

“REIT Subsidiary” means a corporation or business trust that the Borrower may hereafter cause to be organized as an indirect Subsidiary of the Borrower and that elects to be treated as a “qualified real estate investment trust” in accordance with Section 856 of the Code, the business purpose of which Subsidiary is to centralize the internal financing of the Borrower’s real estate development and construction activities.

“Replacement Lender” is defined in Section 2.27.

“Reportable Event” means a reportable event as defined in Section 4043 of ERISA and the regulations issued under such section, with respect to a Plan, excluding, however, such events as to which the PBGC by regulation waived the requirement of Section 4043(a) of ERISA that it be notified within 30 days of the occurrence of such event, provided, however, that a failure to meet the minimum funding standard of Section 412 of the Code and of Section 302 of ERISA shall be a Reportable Event regardless of the issuance of any such waiver of the notice requirement in accordance with either Section 4043(a) of ERISA or Section 412(d) of the Code.

“Repurchase Guaranty” means a guaranty by Borrower or any other Loan Party of the obligations of any Mortgage Banking Subsidiary (i) as seller under an agreement for the sale of

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mortgage loans to a special purpose entity in connection with the securitization of such mortgage loans and (ii) as servicer of such mortgage loans following such sale, provided, however, that such obligations shall not include any guaranty of the obligations of any obligor under any mortgage loan.

“Required Lenders” means, subject to the provisions of Section 13.06(c), (a) except as otherwise provided in clause (b) below, Lenders whose Pro Rata Shares, in the aggregate, are greater than 66-2/3%; provided, however, that if all of the Commitments have been terminated pursuant to the terms of this Agreement, “Required Lenders” means Lenders whose aggregate ratable shares (stated as a percentage) of the aggregate outstanding principal balance of all Loans and Facility Letter of Credit Obligations are greater than 66-2/3%, and (b) solely with respect to any amendment, modification or waiver of the provisions of Section 2.06(b)(iii), Lenders whose Facility A Pro Rata Shares, in the aggregate, are greater than 66-2/3% and Lenders whose Facility B Pro Rata Shares, in the aggregate, are greater than 66-2/3% and Lenders whose Facility C Pro Rata Shares, in the aggregate, are greater than 66-2/3%; provided, however, that if all of the Commitments have been terminated pursuant to the terms of this Agreement, “Required Lenders” under this clause (b) means Facility A Lenders whose aggregate ratable shares (stated as a percentage) of the aggregate outstanding principal balance of all Facility A Loans and Facility Letter of Credit Obligations are greater than 66-2/3%, and Facility B Lenders whose aggregate ratable shares (stated as a percentage) of the aggregate outstanding principal balance of all Facility B Loans are greater than 66-2/3% and Facility C Lenders whose aggregate ratable shares (stated as a percentage) of the aggregate outstanding principal balance of all Facility C Loans are greater than 66-2/3%.

“Reserve Requirement” means, with respect to a Eurodollar Interest Period, the maximum aggregate reserve requirement (including all basic, supplemental, marginal and other reserves) which is imposed under Regulation D on Eurocurrency liabilities.

“Revolver Increase” is defined in Section 2.18(a).

“Section” means a numbered section of this Agreement, unless another document is specifically referenced.

“Secured Obligations” means, collectively, (i) the Obligations and (ii) all Hedging Obligations owing under Permitted Hedging Agreements to any Lender or any Affiliate of any Lender.

“Securities” of any Person means equity securities and debt securities and any other instrument commonly understood to be a security issued by that Person.

“Securities Act” is defined in Section 6.04(j).

“Significant Joint Venture” means a Joint Venture of the Borrower which has total assets that exceed an amount equal to 2½% of the total assets of the Borrower and its Subsidiaries on a consolidated basis as of the end of the most recently completed fiscal quarter.

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“Significant Subsidiary” means a Subsidiary of the Borrower which meets any of the following conditions:

(a) such Subsidiary is a direct Subsidiary of the Borrower; or

(b) the total assets of such Subsidiary exceed an amount equal to 2½% of the total assets of the Borrower and its Subsidiaries on a consolidated basis as of the end of the most recently completed fiscal quarter; or

(c) such Subsidiary is a Joint Venture Subsidiary with respect to which a Pledge Agreement is required to be executed and delivered pursuant to Section 7.05 hereof.

“Single Employer Plan” means a Plan maintained by the Borrower or any member of the Controlled Group for employees of the Borrower or any member of the Controlled Group.

“S&P” means Standard & Poor’s Ratings Services, a division of The McGraw Hill Companies, Inc., or any Person succeeding to the securities rating business of such company.

“Subordinated Debt” means any Indebtedness of the Borrower which by its terms is subordinated, in form and substance and in a manner satisfactory to the Administrative Agent, in time and right of payment to the prior payment in full of the Obligations, but which in any event matures not earlier than twelve months after the latest of the Facility A Termination Date, Facility B Termination Date and Facility C Maturity Date.

“Subsidiary” of a Person means (a) any corporation more than 50% of the outstanding securities having ordinary voting power of which shall at the time be owned or controlled, directly or indirectly, by such Person or by one or more of its Subsidiaries or by such Person and one or more of its Subsidiaries, or (b) any partnership, limited liability company, association, joint venture or similar business organization more than 50% of the ownership interests having ordinary voting power of which shall at the time be so owned or controlled.

“Supplementary Guaranty” means a “Supplemental Guaranty” in the form provided for (and as defined in) the Guaranty delivered on the Prior Closing Date or (if applicable) the form of Guaranty attached hereto as Exhibit H.

“Swing Line Bank” means Bank One or any other Facility A Lender as a successor Swing Line Bank.

“Swing Line Commitment’ means the obligation of the Swing Line Bank to make Swing Line Loans up to a maximum of $60,000,000 at any one time outstanding.

“Swing Line Loan” means a Loan made available to the Borrower by the Swing Line Bank pursuant to Section 2.04 hereof.

“Swing Line Note” means the promissory note executed by the Borrower pursuant to the Original Credit Agreement payable to the order of the Swing Line Bank in the amount of the Swing Line Commitment, including any amendment, modification, renewal, restatement or replacement of such note.

“Syndication Agent” means Bankers Trust Company.

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“Term Out Notice” is defined in Section 2.20(a).

“Transferee” is defined in Section 12.03(c).

“Type” means, with respect to any Advance, its nature as a Floating Rate Advance or Eurodollar Rate Advance.

“UAMC” means Universal American Mortgage Company, LLC.

“Unfunded Liabilities” means the amount (if any) by which the present value of all vested nonforfeitable benefits under all Single Employer Plans exceeds the fair market value of all such Plan assets allocable to such benefits, all determined as of the then most recent valuation date for such Plans.

“Unimproved Entitled Land” means Entitled Land upon which no Improvements have been commenced.

“Unmatured Default” means an event, act or condition which but for the lapse of time or the giving of notice, or both, would constitute an Event of Default.

“Unused Commitment” means, at any date, (i) with respect to each Facility A Lender, the amount by which its Facility A Commitment exceeds the sum of the outstanding balance of its Facility A Loans and its Facility A Pro Rata Share of the aggregate amount then available for drawing under the Facility Letters of Credit and (ii) with respect to each Facility B Revolver Lender, the amount by which its Facility B Commitment exceeds the outstanding principal balance of its Facility B Revolver Loans.

“Wholly-Owned Subsidiary” of a Person means (i) any Subsidiary all of the outstanding voting securities of which shall at the time be owned or controlled, directly or indirectly, by such Person or one or more Wholly-Owned Subsidiaries of such Person, or by such Person and one or more Wholly-Owned Subsidiaries of such Person, or (ii) any partnership, association, joint venture or similar business organization 100% of the ownership interests having ordinary voting power of which shall at the time be so owned or controlled.

SECTION 1.02. Computation of Time Periods. For the purposes of this Agreement, in the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including”, the words “to” and “until” each means “to but excluding” and the word “through” means “to and including”.

SECTION 1.03. Accounting Terms.

(a) All accounting terms used and not specifically defined herein shall be construed in accordance with GAAP. All references herein to GAAP shall be deemed to refer to those principles; provided, however, that notwithstanding the requirements imposed by GAAP which require the consolidation of the operations of the Mortgage Banking Subsidiaries with the operations of the Borrower, for the purposes of the calculations set forth in Article VII hereof, the operations of such Subsidiary shall be so included only as specifically provided for herein.

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(b) In the event that the Borrower shall acquire, pursuant to a transaction permitted under this Agreement, all of the equity Securities of a corporation (the “Acquired Company”) which have ordinary voting power for the election of directors of the Acquired Company and, provided that (i) the Borrower shall have furnished to the Administrative Agent, and the Administrative Agent shall have approved (A) consolidated balance sheets and related consolidated statements of earnings, stockholders’ equity and cash flows of the Acquired Company for the most recently concluded fiscal year of the Acquired Company, prepared in accordance with GAAP consistently applied and audited and reported upon by a firm of independent certified public accountants of recognized standing acceptable to the Administrative Agent (such audit to be unqualified) and (B) for any quarters of the next succeeding fiscal year that are concluded as of the date of such Acquisition, a consolidated balance sheet of the Acquired Company as of the end of the most recent quarter, and the related consolidated statement of earnings and cash flows of the Acquired Company for the period from the beginning of the current fiscal year to the end of that quarter, all prepared in accordance with GAAP consistently applied, unaudited but certified to be true and accurate, subject to normal year-end audit adjustments, by the chief financial officer of the Acquired Company and (ii) the Acquired Company shall either become or be merged into a Guarantor hereunder, then, from and after such Acquisition, the Borrower shall include in the determination of Consolidated EBITDA, Consolidated Interest Expense, Consolidated Interest Incurred and Consolidated Net Income, for any applicable period for which such amounts are to be determined pursuant to this Agreement, such Acquired Company as if such Acquired Company had been a Loan Party during such period.

ARTICLE II

THE CREDITS

SECTION 2.01. Facility A Commitment.

(a) Commitment. On and after the Closing Date and prior to the Facility A Termination Date, upon the terms and conditions set forth in this Agreement and in reliance upon the representations and warranties of the Borrower herein set forth, each Facility A Lender severally agrees to make Facility A Advances to the Borrower from time to time in amounts not to exceed in the aggregate at any one time outstanding the amount of its Facility A Commitment, provided that (i) in no event may the aggregate principal amount of all outstanding Facility A Advances exceed the Aggregate Facility A Commitment and (ii) in no event may the sum of the aggregate principal amount of all outstanding Facility A Advances, all outstanding Swing Line Loans and the Facility Letter of Credit Obligations exceed the Aggregate Facility A Commitment. Subject to the terms of this Agreement, the Borrower may borrow, repay and reborrow under Facility A at any time prior to the Facility A Termination Date. The Facility A Commitments to lend hereunder shall expire on the Facility A Termination Date.

(b) Letter of Credit Commitment. On and after the Closing Date and prior to the Facility A Termination Date, each Facility A Lender severally agrees, on the terms and conditions set forth in this Agreement and in reliance upon the representations and warranties of the Borrower herein set forth, to participate in the Existing Letters of Credit and in other Facility Letters of Credit issued pursuant to Section 2.21 for the account of the Borrower; provided that

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in no event may the aggregate amount of all Facility Letter of Credit Obligations exceed the lesser of (A) the Aggregate Letter of Credit Commitment and (B) an amount equal to the Aggregate Facility A Commitment minus the sum of all outstanding Facility A Advances and all outstanding Swing Line Loans.

(c) Advances and Participations Pro Rata. Facility A Advances hereunder shall be made ratably by the several Facility A Lenders in accordance with their respective Facility A Pro Rata Shares. Participations in Facility Letters of Credit hereunder shall be ratable among the several Facility A Lenders in accordance with their respective Facility A Pro Rata Shares.

(d) Maturity. All Facility A Obligations shall be due and payable by the Borrower on the Facility A Termination Date unless such Facility A Obligations shall sooner become due and payable pursuant to Section 9.02 or as otherwise provided in this Agreement.

SECTION 2.02. Facility B Commitment.

(a) Commitments. On and after the Closing Date and prior to the Facility B Termination Date, upon the terms and conditions set forth in this Agreement and in reliance upon the representations and warranties of the Borrower herein set forth, each Facility B Revolver Lender severally agrees to make Facility B Revolver Advances to the Borrower from time to time in amounts not to exceed in the aggregate at any one time outstanding the amount of its Facility B Commitment, provided that in no event may the aggregate principal amount of all outstanding Facility B Revolver Advances exceed the Aggregate Facility B Commitment. Subject to the terms of this Agreement, the Borrower may borrow, repay and reborrow under Facility B at any time prior to the Facility B Termination Date. The Facility B Commitments to lend hereunder shall expire on the Facility B Termination Date.

(b) Advances Pro Rata. Facility B Revolver Advances hereunder shall be made by the several Facility B Revolver Lenders ratably in accordance with their respective Facility B Revolver Pro Rata Shares.

(c) Maturity. All Facility B Obligations shall be due and payable by the Borrower on the Facility B Termination Date except to the extent such Facility B Obligations are converted to Facility B Term Loans pursuant to Section 2.19 or Section 2.20 or shall sooner become due and payable pursuant to Section 9.02 or as otherwise provided in this Agreement.

SECTION 2.03. Facility C Advances.

(a) Advances. On the Original Closing Date, in reliance upon the representations and warranties of the Borrower set forth in the Original Credit Agreement, the Facility C Lenders (or their predecessors in interest) made Facility C Advances to the Borrower in the amounts provided for in the Original Credit Agreement, the outstanding principal balance of which has been reduced to the aggregate amount of $299,000,000 by principal payments made pursuant to the Original Credit Agreement or the Prior Credit Agreement. Facility C Loans that have been or are repaid may not be reborrowed. There shall be no Facility C Advances made hereunder (except to the extent that the making of additional Facility C Loans is approved pursuant to Section 2.18).

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(b) Intentionally Omitted.

(c) Maturity. All Facility C Obligations shall be due and payable by the Borrower on December 15, 2008 unless such Facility C Obligations shall sooner become due and payable pursuant to Section 9.02 or as otherwise provided in this Agreement.

SECTION 2.04. Swing Line Loans.

(a) Swing Line Commitment. In addition to the Advances pursuant to Sections 2.01, 2.02 and 2.03, but subject to the terms and conditions of this Agreement (including but not limited to those limitations set forth in Section 2.01), the Swing Line Bank agrees to make the Swing Line Loans to the Borrower in accordance with this Section 2.04 up to the amount of the Swing Line Commitment. Swing Line Loans shall not be limited by the amount of the Swing Line Bank’s Facility A Commitment but shall be subject to the limitations set forth in Section 2.01. Amounts borrowed under this Section 2.04 may be borrowed, repaid and reborrowed to, but not including, the Facility A Termination Date. All outstanding Swing Line Loans shall bear interest at the Floating Rate.

(b) Swing Line Request. The Borrower may request a Swing Line Loan from the Swing Line Bank on any Business Day before the Facility A Termination Date by giving the Administrative Agent and the Swing Line Bank notice by 1:00 p.m. (Chicago time) on such Borrowing Date specifying the aggregate amount of such Swing Line Loan, which shall be an amount not less than $500,000. The Administrative Agent shall promptly notify each Facility A Lender of such request.

(c) Making of Swing Line Loans. The Swing Line Bank shall, no later than 3:00 p.m. (Chicago time) on such Borrowing Date, make the funds for such Swing Line Loan available to the Borrower at the Administrative Agent’s address, or at such other place as indicated in written money transfer instructions from the Borrower, signed by an Authorized Officer.

(d) Swing Line Note. The Swing Line Loans shall be evidenced by the Swing Line Note and each Swing Line Loan shall be paid in full by the Borrower on or before the earlier of the fifth Business Day after the Borrowing Date for such Swing Line Loan or the Facility A Termination Date.

(e) Repayment of Swing Line Loans. The Borrower may at any time pay, without penalty or premium, all outstanding Swing Line Loans, or, in a minimum amount of $500,000, any portion of the outstanding Swing Line Loans upon notice to the Administrative Agent and the Swing Line Bank. In addition, the Administrative Agent: (i) may at any time in its sole discretion or (ii) shall on the fifth Business Day after the Borrowing Date for such Swing Line Loan, require the Facility A Lenders (including the Swing Line Bank) to make a Facility A Advance at the Floating Rate in an amount up to the amount of Swing Line Loans outstanding on such date for the purpose of repaying Swing Line Loans; provided, however, that the obligation of each Facility A Lender to make any such Advance is subject to the condition that the Swing Line Bank believed in good faith that all conditions under Section 5.02 were satisfied at the time the Swing Line Loan was made. If the Swing Line Bank receives notice from any Facility A

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Lender that a condition under Section 5.02 has not been satisfied, no Swing Line Loan shall be made until (A) such notice is withdrawn by that Facility A Lender or (B) the Required Lenders have waived satisfaction of any such condition. The Facility A Lenders shall deliver the proceeds of such Facility A Advance to the Administrative Agent by 12:00 noon (Chicago time) on the applicable Borrowing Date for application to the Swing Line Bank’s outstanding Swing Line Loans. Subject to the proviso contained in the second sentence of this Section 2.04(e), each Facility A Lender’s obligation to make available its Facility A Pro Rata Share of the Facility A Advance referred to in this Section shall be absolute and unconditional and shall not be affected by any circumstances, including without limitation, (1) any set-off, counterclaim, recoupment, defense or other right which such Facility A Lender may have against the Swing Line Bank, or anyone else, (2) the occurrence or continuance of an Event of Default or Unmatured Default, (3) any adverse change in the condition (financial or otherwise) of the Borrower or (4) any Event whatsoever. If for any reason a Facility A Lender does not make available its Facility A Pro Rata Share of the foregoing Facility A Advance, such Facility A Lender shall be deemed to have unconditionally and irrevocably purchased from the Swing Line Bank, without recourse or warranty, an undivided interest and participation in each Swing Line Loan then being repaid, equal to its Facility A Pro Rata Share of all such Swing Line Loans being repaid, so long as such purchase would not cause such Facility A Lender to exceed its Facility A Commitment. If any portion of any amount paid (or deemed paid) to the Administrative Agent is recovered by or on behalf of the Borrower from the Administrative Agent in bankruptcy or otherwise, the loss of the amount so recovered shall be shared ratably among all Facility A Lenders in accordance with their respective Facility A Pro Rata Shares.

SECTION 2.05. Types of Advances. The Facility A Advances, Facility B Advances and Facility C Advances may be Floating Rate Advances, or Eurodollar Rate Advances, or a combination thereof, selected by the Borrower in accordance with Section 2.09; provided, however, that there shall not be more than five Facility A Advances, five Facility B Advances and five Facility C Advances which are Eurodollar Rate Advances outstanding at any time and (iii) the Borrower may not select a Eurodollar Rate Advance if and for as long as the Facilities have no “Rating” from either Moody’s or S&P.

SECTION 2.06. Principal Payments.

(a) Optional Principal Payments. Subject to and except as otherwise provided in Sections 2.06(g) and 2.06(i), (i) the Borrower may from time to time pay with respect to any Facility, without penalty or premium, all outstanding Floating Rate Advances of such Facility, or, in a minimum aggregate amount of $5,000,000 or any integral multiple of $1,000,000 in excess thereof, any portion of the outstanding Floating Rate Advances of such Facility upon notice to the Administrative Agent not later than 10:00 a.m. (Chicago time) on the date of payment, and (ii) the Borrower may, upon three Business Days’ prior notice to the Administrative Agent, (A) pay any Eurodollar Advance in full on the last day of the Interest Period for such Eurodollar Advance, and (B) prepay any Eurodollar Advance in full prior to the last day of the Interest Period for such Eurodollar Advance.

(b) Asset Sales.

(i) Intentionally Omitted.

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(ii) Asset Sales Following Covenant Violation. At any time that the Borrower shall fail to maintain a Leverage Ratio that is less than or equal to 2.25 or shall fail to maintain an Interest Coverage Ratio that is greater than or equal to 2.0 to 1.0, the Borrower shall cause all Net Asset Sale Proceeds of any Asset Sale by any Loan Party to be paid to the Administrative Agent as a mandatory principal payment of the Obligations to be applied to the Facilities in accordance with the provisions of Section 2.06(b)(iii).

(iii) Application of Net Asset Sale Proceeds. All amounts required to be paid to the Administrative Agent from the Net Asset Sale Proceeds of any Asset Sale provided for in Section 2.06(b)(ii) shall be paid to the Administrative Agent and applied on a pro rata basis among the Facilities based upon the outstanding principal amounts thereof. Amounts to be applied to a Facility shall be paid to each Lender of such Facility in the amount of its Applicable Pro Rata Share thereof, provided, however, that, (A) to the extent that such Applicable Pro Rata Share exceeds the outstanding principal balance of such Facility held by such Lender, such excess shall be applied pro rata to the other Facilities and (B) any payment that a Facility C Lender elects not to accept pursuant to Section 2.06(g) shall be applied pro rata on a pro rata basis to Facility A and Facility B. Amounts applied to the outstanding principal balance of Facility A shall reduce the Aggregate Facility A Commitment by the amount so applied, and amounts applied to the outstanding principal balance of the Facility B Revolver Loans shall reduce the Aggregate Facility B Commitment by the amount so applied. In the event that, upon application of such payments to the Facilities as herein provided, the amount to be applied to Facility A or Facility B exceeds the outstanding principal balance thereof, the amounts to be applied to such Facility shall be limited to the outstanding principal balance of such Facility, but the Aggregate Facility A Commitment or Aggregate Facility B Commitment (as applicable) shall nevertheless be reduced (in addition to any reduction resulting from repayment of such Facilities as herein provided), on a pro rata basis, by the amount of such excess.

(c) Facility C Amortization. The Borrower shall pay to the Administrative Agent for the benefit of the Facility C Lenders, on each Quarterly Payment Date commencing July 1, 2003, as a principal repayment of Facility C, the sum of $1,000,000 (subject to the pro rata reduction of the amount of any such quarterly payment as provided in Section 2.06(e)). The payments provided for in this Section 2.06(c) shall not be applied toward any additional Facility C Loan made by any New Facility C Lender under Section 2.18.

(d) Payments of Mortgage Banking Subsidiaries Note. The Borrower shall prepay the principal of the Notes in the amount, and promptly upon its receipt, of any principal payment made with respect to the Mortgage Banking Subsidiaries Note from and after the date the Administrative Agent is granted a security interest therein pursuant to Section 8.02; provided, however, that if the Borrower does not designate which of the Facilities is to be reduced by such prepayment, the prepayment shall be applied (as applicable) first to any Facility C Obligations,

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then to any outstanding Facility B Obligations and then to any outstanding Facility A Obligations.

(e) Reduction of Quarterly Payments. Any payments or prepayments of the Facility B Term Loans or the Facility C Loans, whether voluntary or otherwise (other than the regularly scheduled quarterly payments) shall reduce, on a pro rata basis, the amount of each quarterly payment thereafter required to be made to any Facility B Term Lender or Facility C Lender that received such payment or prepayment.

(f) Intentionally Omitted.

(g) Rights of Facility C Lender Not to Accept Certain Payments. Upon receipt from the Administrative Agent of notice that the Borrower intends to make or has made an optional partial prepayment of Facility C or any payment of Facility C required to be made pursuant to Section 2.06(b), any Facility C Lender may elect not to accept such payment of Facility C if and only if (i) such prepayment is made on or before November 20, 2003 or (ii) such payment, together with all other payments of Facility C (other than those required to be made under Section 2.06(c)) made after February 28, 2003, exceeds $100,000,000 in the aggregate. In the event a Facility C Lender so rejects a payment, the amount of the payment so rejected shall (except as otherwise expressly provided herein) be applied to the outstanding Loans under Facility A and Facility B on a pro rata basis, based upon the amounts thereof (if any) then outstanding.

(h) Application of Payments to Facility B. Whenever this Agreement provides that any payment is to be applied to Facility B but does not specify that the same shall be applied to the Facility B Revolver Loans or the Facility B Term Loans, such payment shall be allocated among the Facility B Revolver Loans and Facility B Term Loans on a pro rata basis, based upon the amounts thereof (if any) then outstanding.

(i) Funding Indemnification. The provisions of Section 3.04 shall apply to any payment or prepayment provided for in this Section 2.06 or Section 2.18(d).

(j) Application of Payments. Unless this Agreement specifically provides for the application of principal payments to specified Obligations, the Borrower may, as long as no Event of Default has occurred that is continuing, direct the Administrative Agent to apply prepayments of the principal amount of the Obligations against any of the Facilities.

SECTION 2.07. Commitment Fees; Reductions of Commitments.

(a) Commitment Fees. The Borrower agrees to pay (i) to the Administrative Agent for the account of each Facility A Lender a Commitment Fee, at a rate per annum equal to the Applicable Commitment Fee Rate for Facility A, on the daily average of such Facility A Lender’s Unused Commitment for Facility A from the date hereof to and including the Facility A Termination Date, payable in arrears on each Quarterly Payment Date and on the Facility A Termination Date and (ii) to the Administrative Agent for the account of each Facility B Revolver Lender a Commitment Fee, at a rate per annum equal to the Applicable Commitment Fee Rate for Facility B, on the daily average of such Facility B Revolver Lender’s Unused Commitment for Facility B from the date hereof to and including the Facility B Termination

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Date, payable in arrears on each Quarterly Payment Date and on the Facility B Termination Date. All accrued Commitment Fees with respect to Facility A under this Section 2.07 shall be payable on the effective date of any termination of the obligations of the Facility A Lenders to make Facility A Loans hereunder, and all accrued Commitment Fees with respect to Facility B under this Section 2.07 shall be payable to each Facility B Revolver Lender on the effective date of any termination of its obligations to make Facility B Revolver Loans hereunder. The fees payable under this Section 2.07, once paid, shall not be refundable for any reason.

(b) Voluntary Reduction of Commitments. The Borrower may permanently reduce the Aggregate Facility A Commitment in whole, or in part ratably among the Facility A Lenders in the minimum amount of $5,000,000, and, if in excess thereof, in integral multiples of $1,000,000, upon at least three Business Days’ written notice to the Administrative Agent, which notice shall specify the amount of any such reduction, provided, however, that the amount of the Aggregate Facility A Commitment may not be reduced below the sum of (i) the aggregate principal amount of the outstanding Facility A Advances and (ii) the Facility Letter of Credit Obligations. The Borrower may permanently reduce the Aggregate Facility B Commitment in whole, or in part ratably among the Facility B Lenders in the minimum amount of $5,000,000, and, if in excess thereof, in integral multiples of $1,000,000, upon at least three Business Days’ written notice to the Administrative Agent, which notice shall specify the amount of any such reduction, provided, however, that the amount of the Aggregate Facility B Commitment may not be reduced below the aggregate principal amount of the outstanding Facility B Revolver Advances.

SECTION 2.08. Method of Borrowing. Not later than noon (Chicago time) on each Borrowing Date with respect to a Facility, each Lender with respect to such Facility shall make available its Loan, in funds immediately available in Chicago to the Administrative Agent at its address specified pursuant to Section 13.01. The Administrative Agent will make the funds so received from the Lenders available to the Borrower by deposit into an account maintained by the Borrower at Bank One.

SECTION 2.09. Method of Selecting Types and Interest Periods for Advances.

(a) Borrowing Notices. The Borrower shall select the Type of each Advance and, in the case of each Eurodollar Rate Advance, the Interest Period applicable to each Advance from time to time. The Borrower shall give the Administrative Agent irrevocable notice (a “Borrowing Notice”) not later than 10:00 a.m. (Chicago time) on the Borrowing Date for each Floating Rate Advance and prior to 10:00 a.m. (Chicago time) on the date which is two Business Days before the Borrowing Date for each Eurodollar Rate Advance, specifying:

(i) the Borrowing Date, which shall be a Business Day, of such Advance,

(ii) the aggregate amount of such Advance,

(iii) the Type of Advance selected, and

(iv) in the case of each Eurodollar Rate Advance, the Interest Period applicable thereto.

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The Borrower shall be entitled to obtain, on the Closing Date, only one Facility A Advance and only one Facility B Revolver Advance and, in any single Business Day after the Closing Date, only one Facility A Advance and only one Facility B Revolver Advance, any of which Advances may (subject to the provisions of Section 2.05) be comprised in whole or in part of any Eurodollar Rate Advance. Changes in the rate of interest on that portion of any Advance maintained as a Floating Rate Advance will take effect simultaneously with each change in the Floating Rate. Each Eurodollar Rate Advance shall bear interest from and including the first day of the Interest Period applicable thereto to (but not including) the last day of such Interest Period at the interest rate determined as applicable to such Eurodollar Rate Advance. The Borrower shall select Interest Periods with respect to Eurodollar Rate Advances so that it is not necessary to repay a Eurodollar Rate Advance prior to the last day of the applicable Interest Period in order to make any mandatory payment required to be made pursuant to this Agreement or to repay all Facility A Loans in full on the Facility A Maturity Date, to repay all Facility B Revolver Loans in full on the Facility B Termination Date, to repay all Facility B Term Loans in full on the Facility B Term Maturity Date and to repay all Facility C Loans in full on the Facility C Maturity Date.

(b) Borrowing Notices Irrevocable. Each Borrowing Notice shall be irrevocable and binding on the Borrower and, in respect of the borrowing specified in the Borrowing Notice, the Borrower shall indemnify each Lender against any loss or expense incurred by that Lender as a result of any failure to fulfill the applicable conditions set forth in Section 5.02 on or before the proposed Borrowing Date specified in the Borrowing Notice, including, without limitation, any loss (including loss of profit) or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by any Lender to fund the Loan to be made by that Lender as part of that borrowing when that Loan, as a result of that failure, is not made on that date.

SECTION 2.10. Method of Selecting Types and Interest Periods for Conversion and Continuation of Advances.

(a) Right to Convert. The Borrower may elect from time to time, subject to the provisions of Section 2.10(c), to convert all or any part of an Advance of any Type into any other Type or Types of Advances; provided that any conversion of any Eurodollar Rate Advance shall be made on, and only on, the last day of the Interest Period applicable thereto.

(b) Automatic Conversion and Continuation. Floating Rate Advances shall continue as Floating Rate Advances unless and until such Floating Rate Advances are converted into Eurodollar Rate Advances. Eurodollar Rate Advances of any Type shall continue as Eurodollar Rate Advances of such Type until the end of the then applicable Interest Period therefor, at which time such Eurodollar Rate Advance shall be automatically converted into a Floating Rate Advance unless the Borrower shall have given the Administrative Agent notice in accordance with Section 2.10(d), requesting that, at the end of such Interest Period, such Eurodollar Rate Advance either continue as a Eurodollar Rate Advance of such Type for the same or another Interest Period or be converted into an Advance of another Type.

(c) No Conversion in Case of an Event of Default or Unmatured Default. Notwithstanding anything to the contrary contained in Section 2.10(a) or 2.10(b), no Advance may be converted into or continued as a Eurodollar Rate Advance (except with the consent of the

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Required Lenders) when any Event of Default or Unmatured Default has occurred and is continuing.

(d) Conversion/Continuation Notice. The Borrower shall give the Administrative Agent irrevocable notice (a “Conversion/Continuation Notice”) of each conversion of an Advance or continuation of a Eurodollar Rate Advance not later than 10:00 a.m. (Chicago time) on the day of any conversion into a Floating Rate Advance or prior to 10:00 a.m. (Chicago time) on the date which is two Business Days prior to the date of the requested conversion into or continuation of a Eurodollar Rate Advance, specifying:

(i) the requested date (which shall be a Business Day) of such conversion or continuation;

(ii) the amount and Type of the Advance to be converted or continued; and

(iii) the amount and Type(s) of Advance(s) into which such Advance is to be converted or continued and, in the case of a conversion into or continuation of a Eurodollar Rate Advance, the duration of the Interest Period applicable thereto.

SECTION 2.11. Minimum Amount of Each Advance. Each Advance shall be in the minimum amount of $5,000,000 (and in multiples of $1,000,000 if in excess thereof) provided, however, that any Floating Rate Advance may be in the amount of the unused Aggregate Facility A Commitment or Aggregate Facility B Commitment (as applicable).

SECTION 2.12. Rate after Maturity. Any Advance which is not paid at maturity for such Advance, whether by acceleration or otherwise, shall bear interest until paid in full at a rate per annum equal to the Default Rate.

SECTION 2.13. Method of Payment. All payments of principal, interest, and fees hereunder with respect to each Facility shall be made, without setoff, deduction, or counterclaim, in immediately available funds to the Administrative Agent at the Administrative Agent’s address specified pursuant to Article XIII, or at any other Lending Installation of the Administrative Agent specified in writing by the Administrative Agent to the Borrower, by 1:00 p.m. (Chicago time) on the date when due and shall be made ratably by the Administrative Agent among the Lenders of such Facility with respect to their Loans. Each payment delivered to the Administrative Agent for the account of any Lender shall be delivered promptly by the Administrative Agent to such Lender in the same type of funds which the Administrative Agent received at its address specified pursuant to Article XIII or at any Lending Installation specified in a notice received by the Administrative Agent from such Lender. The Administrative Agent is hereby authorized to charge any account of the Borrower maintained with Bank One for each payment of principal, interest and fees as it becomes due hereunder. The Administrative Agent shall endeavor in good faith to provide telephonic notice to Borrower prior to any such charge, but the Administrative Agent shall not be liable to Borrower or any other Person if Administrative Agent fails to provide any such notice. If and to the extent payment owed to any Lender is not made by the Borrower to the Administrative Agent or that Lender, as the case may be, when due hereunder or under the Note held by that Lender, the Borrower further authorizes such Lender to charge from time to time against any or all of the accounts maintained by the

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Borrower with the Lender, its subsidiaries, affiliates or branches any amount so due, subject to the provisions of Article XI.

SECTION 2.14. Notes; Telephonic Notices.

(a) The Facility A Advances shall be evidenced by the Facility A Note payable to the order of the Administrative Agent; the Facility B Revolver Loans shall be evidenced by the Facility B Revolver Note payable to the order of the Administrative Agent; the Facility B Term Loans shall be evidenced by the Facility B Term Note payable to the order of the Administrative Agent; and the Facility C Advances shall be evidenced by the Facility C Note payable to the order of the Administrative Agent. Notwithstanding the foregoing, any Lender may request, by written notice to the Administrative Agent, that any Loans made or to be made by it hereunder each be evidenced by a Note or Notes payable to such Lender, and, in such event, the Borrower shall execute and deliver to the Administrative Agent the applicable Note or Notes payable to the order of such Lender in a form approved by the Administrative Agent and consistent with the terms of this Agreement. Upon the execution and delivery of such Note or Notes, the Loans theretofore or thereafter made by such Lender shall be evidenced by the applicable Note or Notes payable to such Lender and shall no longer be evidenced by the applicable Note or Notes payable to the Administrative Agent. Without limitation of the foregoing, any Facility A Note, Facility B Revolver Note, Facility B Term Note or Facility C Note delivered to and held by a Lender under the Original Credit Agreement or the Prior Credit Agreement and that is in a principal amount that equals or exceeds such Lender’s Facility A Commitment hereunder (in the case of a Facility A Note), such Lender’s Facility B Commitment hereunder (in the case of a Facility B Revolver Note and Facility B Term Note) or such Lender’s Facility C Loans (in the case of a Facility C Note) shall, and the Borrower hereby ratifies and confirms that such Notes shall, continue to evidence the applicable Loans held by such Lender (which Loans shall not be evidenced by the applicable Note or Notes payable to the Administrative Agent). Notwithstanding the provisions of the immediately preceding sentence, a Lender that holds a Note delivered under the Original Credit Agreement or the Prior Credit Agreement may require a replacement Note in accordance with the foregoing provisions of this Section 2.14(a). Payments under all Notes shall be made to the Administrative Agent

(b) The Borrower hereby authorizes the Administrative Agent to extend, convert or continue Advances, effect selections of Types of Advances and to transfer funds based on telephonic notices made by any person or persons the Administrative Agent or any Lender in good faith believes to be an Authorized Officer. All actions taken by the Lenders and the Administrative Agent upon such telephonic notices are hereby approved by the Borrower, and the Lenders and the Administrative Agent shall incur no liability as a result of any such actions. The Borrower agrees to deliver promptly to the Administrative Agent a written confirmation, if such confirmation is requested by the Administrative Agent or any Lender, of each telephonic notice signed by an Authorized Officer. If the written confirmation differs in any material respect from the action taken by the Administrative Agent and the Lenders, the records of the Administrative Agent and the Lenders shall govern absent manifest error.

SECTION 2.15. Interest Payment Dates; Interest and Fee Basis. Interest accrued on each Floating Rate Advance shall be payable on each Monthly Payment Date, commencing with the first such date to occur after the date hereof, on any date on which the Floating Rate Loan is

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prepaid, whether due to acceleration or otherwise, and on the applicable Facility Termination Date. Interest accrued on that portion of the outstanding principal amount of any Floating Rate Advance converted into a Eurodollar Rate Advance on a day other than a Monthly Payment Date shall be payable on the date of conversion. Interest accrued on each Eurodollar Rate Advance shall be payable on the last day of its applicable Interest Period, on any date on which the Eurodollar Rate Advance is prepaid, whether by acceleration or otherwise, and at maturity. Interest accrued on each Eurodollar Rate Advance having an Interest Period longer than three months shall also be payable on the last day of each three-month interval during such Interest Period. Interest on Floating Rate Loans, Commitment Fees and Facility Letter of Credit Fees shall be calculated for actual days elapsed on the basis of a 365-day year; interest on Eurodollar Rate Loans shall be calculated for actual days elapsed on the basis of a 360-day year. Interest shall be payable for the day an Advance is made but not for the day of any payment on the amount paid if payment is received prior to 1:00 p.m. (Chicago time) at the place of payment. If any payment of principal of or interest on an Advance shall become due on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day and, in the case of a principal payment, such extension of time shall be included in computing interest in connection with such payment.

SECTION 2.16. Notification of Advances, Interest Rates, Prepayments and Commitment Reductions. Promptly after receipt thereof, the Administrative Agent will notify each Lender of the contents of each notice of reduction of the Aggregate Facility A Commitment or Aggregate Facility B Commitment received by the Administrative Agent and will notify each Lender of a Facility of the contents of each Borrowing Notice, Conversion/Continuation Notice and repayment notice received by the Administrative Agent hereunder with respect to such Facility. The Administrative Agent will notify each Lender of a Facility of the interest rate applicable to each Eurodollar Rate Advance of such Facility promptly upon determination of such interest rate.

SECTION 2.17. Lending Installations. Each Lender may book its Loans at any Lending Installation selected by such Lender and may change its Lending Installation from time to time. All terms of this Agreement shall apply to any such Lending Installation and the Notes shall be deemed held by each Lender for the benefit of such Lending Installation. Each Lender may, by written or telex notice to the Administrative Agent and the Borrower, designate a Lending Installation through which Loans will be made by it and for whose account Loan payments are to be made.

SECTION 2.18. Increase in Facilities.

(a) Request for Increase. The Borrower may, at any time and from time to time, request, by notice to the Administrative Agent, the Administrative Agent’s approval of either (i) an increase of the Aggregate Facility A Commitment and, if applicable under Section 2.18(e), Aggregate Facility B Commitment (a “Revolver Increase”) or (ii) additional Facility C Loans (a “Facility C Increase”), or both (in each case, a “Facility Increase”) within the limitations hereafter described, which request shall set forth the amount of each such requested Revolver Increase and Facility C Increase. Within twenty (20) days of such request, the Administrative Agent shall advise the Borrower of its approval or disapproval of such request; failure to so advise the Borrower shall constitute disapproval. If the Administrative Agent approves any such

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Facility Increase, then (x) in the case of a Revolver Increase, the Aggregate Facility A Commitment and, if applicable under Section 2.18(e), Aggregate Facility B Commitment may be so increased (up to the amount of such approved Revolver Increase, in the aggregate) by having one or more New Revolver Lenders increase the amount of their then existing Facility A Commitments and, if applicable under Section 2.18(e), Facility B Commitments or become Facility A Lenders and, if applicable under Section 2.18(e), Facility B Lenders and (y) in the case of a Facility C Increase, additional Facility C Loans may be made (up to the amount of such approved Facility C Increase) by one or more New Facility C Lenders, subject to and in accordance with the provisions of this Section 2.18. Any Facility Increase shall be subject to the following limitations and conditions: (i) any increase (in the aggregate) in the Aggregate Facility A Commitment and, if applicable under Section 2.18(e), Aggregate Facility B Commitment, and the amount (in the aggregate) of any new Facility A Commitment and, if applicable under Section 2.18(e), new Facility B Commitment of any New Revolver Lender or the amount (in the aggregate) of any increase in the Facility A Commitment and, if applicable, under Section 2.18(e), Facility B Commitment of any New Revolver Lender, shall not be less than $5,000,000 (and shall be in integral multiples of $1,000,000 if in excess thereof); (ii) any additional Facility C Loans by any New Facility C Lender shall not be less than $5,000,000 (and shall be in integral multiples of $1,000,000 if in excess thereof); (iii) no Facility Increase pursuant to this Section 2.18 shall increase the Aggregate Commitment to an amount in excess of $1,399,000,000 or increase the sum of the Aggregate Facility A Commitment and the Aggregate Facility B Commitment to an amount in excess of $1,100,000,000; (iv) the Borrower and each New Lender shall have executed and delivered a commitment and acceptance (the “Commitment and Acceptance”) substantially in the form of Exhibit O hereto, and the Administrative Agent shall have accepted and executed the same; (v) the Borrower shall have executed and delivered to the Administrative Agent such Note or Notes as the Administrative Agent shall require to reflect such Facility Increase; (vi) the Borrower shall have delivered to the Administrative Agent opinions of counsel (substantially similar to the forms of opinions provided for in Section 5.01 modified to apply to the Facility Increase and each Note and Commitment and Acceptance executed and delivered in connection therewith); (vii) the Guarantors and the pledgors under the Pledge Agreements shall have consented in writing to the Facility Increases and shall have agreed that their Guaranties and Pledge Agreements continue in full force and effect; and (viii) the Borrower and each New Lender shall otherwise have executed and delivered such other instruments and documents as the Administrative Agent shall have reasonably requested in connection with such Facility Increase. The form and substance of the documents required under clauses (iv) through (viii) above shall be fully acceptable to the Administrative Agent. The Administrative Agent shall provide written notice to all of the Lenders hereunder of any Facility Increase.

(b) Loans by New Lenders. (i) Upon the effective date of any increase in the Aggregate Facility A Commitment and, if applicable under Section 2.18(e), Aggregate Facility B Commitment pursuant to the provisions hereof, which effective date shall be mutually agreed upon by the Borrower, each New Revolver Lender and the Administrative Agent, each New Revolver Lender shall make a payment to the Administrative Agent in an amount sufficient, upon the application of such payments by all New Revolver Lenders to the reduction of the outstanding Facility A Advances held by the Facility A Lenders and, if applicable, Facility B Revolver Advances held by the Facility B Revolver Lenders, to cause the principal amount outstanding under the Facility A Loans made by each Facility A Lender (including any New

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Revolver Lender) to be in the amount of its Facility A Pro Rata Share (upon the effective date of such increase) of all outstanding Facility A Loans and, if applicable the principal amount outstanding under the Facility B Revolver Loans made by each Facility B Revolver Lender (including any New Revolver Lender) to be in the amount of its Facility B Revolver Pro Rata Share (upon the effective date of such increase) of all outstanding Facility B Revolver Loans. The Borrower hereby irrevocably authorizes each New Revolver Lender to fund to the Administrative Agent the payment required to be made pursuant to the immediately preceding sentence for application to the reduction of the outstanding Facility A Loans held by the other Facility A Lenders and, if applicable, the Facility B Revolver Loans held by the other Facility B Revolver Lenders hereunder. If, as a result of the repayment of the Facility A Advances or Facility B Revolver Advances provided for in this Section 2.18(b)(i), any payment of a Eurodollar Rate Advance occurs on a day which is not the last day of the applicable Interest Period, the Borrower will pay to the Administrative Agent for the benefit of any of the Facility A Lenders and, if applicable, Facility B Revolver Lenders holding a Eurodollar Rate Loan any loss or cost incurred by such Lender resulting therefrom in accordance with Section 3.04. Upon the effective date of such increase in the Aggregate Facility A Commitment and, if applicable under Section 2.18(e), Aggregate Facility B Commitment, all Facility A Loans outstanding hereunder (including any Facility A Loans made by the New Revolver Lenders on such date) and, if applicable, all Facility B Revolver Loans outstanding hereunder (including any Facility B Revolver Loans made by the New Revolver Lenders on such date) shall be Floating Rate Loans, subject to the Borrower’s right to convert the same to Eurodollar Rate Loans on or after such date in accordance with the provisions of Section 2.10.

(ii) On the effective date of any Facility C Increase, which date shall be mutually agreed upon by the Borrower, each New Facility C Lender and the Administrative Agent, each New Facility C Lender shall make its additional Facility C Loans subject to and in accordance with the provisions of this Agreement relating to the making of Advances after the Closing Date, and all Facility C Loans (including such new Facility C Loans made on such date) shall be (or shall be converted to) Floating Rate Loans, subject to the Borrower’s right to convert the same to Eurodollar Rate Loans on or after such date in accordance with the provisions of Section 2.10. If as a result of the conversion of Facility C Loans to Floating Rate Loans on the date of the making of such additional Facility C Loans, any payment of a Eurodollar Rate Advance occurs on a day which is not the last day of the applicable Interest Period, the Borrower will pay to the Administrative Agent for the benefit of any of the Facility C Lenders holding a Eurodollar Rate Loan any loss or cost incurred by such Facility C Lender resulting therefrom in accordance with Section 3.04.

(c) New Facility A Lenders’ Participation in Facility Letters of Credit. Upon the effective date of any increase in the Aggregate Facility A Commitment and the making of the Facility A Loans by the New Revolver Lenders in accordance with the provisions of Section 2.18(b)(i), each New Revolver Lender shall also be deemed to have irrevocably and unconditionally purchased and received, without recourse or warranty, from the Facility A Lenders party to this Agreement immediately prior to the effective date of such increase, an undivided interest and participation in any Facility Letter of Credit then outstanding, ratably, such that each Facility A Lender (including each New Revolver Lender) holds a participation interest in each such Facility Letter of Credit in proportion to the ratio that such Facility A

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Lender’s Facility A Commitment (upon the effective date of such increase in the Aggregate Facility A Commitment) bears to the Aggregate Facility A Commitment as so increased.

(d) Amortization Payments with Respect to Facility C Increase. Commencing on the first Quarterly Payment Date following the advance of any additional Facility C Loan by any New Facility C Lender as provided in Section 2.18(b)(ii) above and on each Quarterly Payment Date thereafter, the Borrower shall pay to the Administrative Agent, for the benefit of such New Facility C Lender, as a principal repayment of such additional Facility C Loan, a sum equal to one quarter of one percent (1/4%) of the original principal amount of such additional Facility C Loan (subject to the pro rata reduction of the amount of any such quarterly payment as provided in Section 2.06(e)).

(e) Facility B. If on the effective date of any Revolver Increase any Facility B Commitment exists under this Agreement, then (unless otherwise agreed by the Borrower and the Administrative Agent) such Revolver Increase shall be effected by increases in both the Aggregate Facility A Commitment and Aggregate Facility B Commitment, proportionately based on the amounts of the Aggregate Facility A Commitment and Aggregate Facility B Commitment as of such effective date, and the amount, or increase in the amount, of the Facility A Commitment and Facility B Commitment of each New Revolver Lender shall be effected on the same proportionate basis. There shall be no increase on the Aggregate Facility B Commitment under this Section 2.18 except to the extent provided for in this Section 2.18(e).

(f) No Obligation to Increase Commitment. Nothing contained herein shall constitute, or otherwise be deemed to be, a commitment or agreement on the part of the Borrower or the Administrative Agent to give or grant any Lender the right to increase its Commitment hereunder or to make additional Facility C Loans at any time or a commitment or agreement on the part of any Lender to increase its Commitment hereunder at any time or to make any additional Facility C Loans, and no Commitment of a Lender shall be increased without its prior written approval.

SECTION 2.19. Extension of Facility B Termination Date.

(a) Extension Request. The Borrower may request an extension of the Facility B Termination Date by submitting a written request for an extension to the Administrative Agent (a “Facility B Extension Request”) not more than 90 nor less than 60 days prior to the Facility B Termination Date. The new Facility B Termination Date shall be no more than 364 days after the Facility B Termination Date in effect at the time the Facility B Extension Request is received, including the Facility B Termination Date as one of the days in the calculation of the days elapsed. Promptly following receipt of a Facility B Extension Request, the Administrative Agent shall notify each Facility B Revolver Lender of the contents thereof, shall request each Facility B Revolver Lender to approve the Facility B Extension Request, and shall specify the date (which must be at least 30 days after the Facility B Extension Request is delivered to the Facility B Revolver Lenders) as of which the Facility B Revolver Lenders must respond to the Facility B Extension Request (the “Facility B Reply Date”). Each Facility B Revolver Lender approving the Facility B Extension Request shall deliver its written consent no later than the Reply Date. If the written consent of all of the Facility B Revolver Lenders is received by the Administrative Agent on or prior to the Reply Date, the Facility B Termination Date specified in

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the Facility B Extension Request shall (subject to the provisions of Section 2.20(b)) become effective on the existing Facility B Termination Date and the Administrative Agent shall promptly notify the Borrower and each Lender of the new Facility B Termination Date. If Facility B Revolver Lenders whose Facility B Revolver Pro Rata Shares equal or exceed 66-2/3% in the aggregate, but less than 100%, of all Facility B Revolver Pro Rata Shares consent to such extension on or before the Facility B Reply Date, the Borrower may, by notice given to the Administrative Agent within ten days of the Administrative Agent’s notification to the Borrower of the failure of such Facility B Revolver Lenders to consent to such extension, elect to take one of the following actions with respect to all Facility B Revolver Lenders (each a “Non-Consenting Facility B Lender”) that do not consent to such extension: (i) to convert any outstanding Facility B Revolver Loans of the Non-Consenting Facility B Lenders to Facility B Term Loans as provided in Section 2.19(b), (ii) to terminate the Facility B Commitment of the Non-Consenting Facility B Lenders as provided in Section 2.19(c) or (iii) to replace the Non-Consenting Facility B Lenders in accordance with Section 2.19(d) and, to the extent that the Facility B Commitments of the Non-Consenting Facility B Lenders are not entirely replaced, to terminate the Facility B Commitment of such Non-Consenting Facility B Lenders. Any such election made by the Borrower pursuant to clause (i), (ii), or (iii) of the preceding sentence shall be made with respect to all Non-Consenting Facility B Lenders pursuant to such clause. Provided the Borrower gives the Administrative Agent timely notice of such election and, in the case of an election under clause (ii) or clause (iii), pays or causes to be paid to each of the Non-Consenting Facility B Lenders, on or before the Facility B Termination Date, an amount equal to all Facility B Obligations (other than those outstanding under any Facility B Term Notes) of such Non-Consenting Facility B Lender, then (A) the Facility B Termination Date shall be extended with respect to the Facility B Revolver Lenders that consented thereto (subject to the provisions of Section 2.20(b)) and (B) the Aggregate Facility B Commitments shall be reduced by the amount of the Non-Consenting Facility B Lenders’ Facility B Commitments (except such as are replaced in accordance with Section 2.19(d)). Notwithstanding the foregoing, if the consent to such extension of the Facility B Termination Date is not given by Facility B Revolver Lenders whose Facility B Revolver Pro Rata Shares equal or exceed 66-2/3% of all Facility B Revolver Pro Rata Shares or such consent is given but the Borrower shall fail to give timely notice of an election under clauses (i), (ii) or (iii) above or, having given such notice, shall fail to pay or cause to be paid to the Non-Consenting Facility B Lenders, on or before the Facility Termination Date, the amounts required to be paid hereunder, then the Facility B Termination Date shall not be extended, and, on the Facility B Termination Date, all outstanding Facility B Revolver Loans shall convert to Facility B Term Loans and all Facility B Commitments shall terminate. The Borrower may not request more than four (4) extensions of the Facility B Termination Date pursuant to this Section.

(b) Conversion of Non-Consenting Facility B Lenders’ Facility B Revolver Loans. If Facility B Revolver Lenders whose Facility B Revolver Pro Rata Shares equal or exceed 66-2/3% in the aggregate, but less than 100%, of all Facility B Pro Rata Shares consent to a Facility B Extension Request and the Borrower gives the Administrative Agent timely notice of the Borrower’s election to convert, pursuant to clause (i) of Section 2.19(a), the outstanding Facility B Revolver Loans of all Non-Consenting Facility B Lenders to Facility B Term Loans, the Administrative Agent shall so notify all Facility B Revolver Lenders, and, on such Facility B Termination Date, the outstanding Facility B Revolver Loans of all Non-Consenting Facility B

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Lenders shall convert to Facility B Term Loans, and the Facility B Commitments of all Non-Consenting Facility B Lenders shall terminate.

(c) Termination of Non-Consenting Facility B Lenders’ Facility B Commitments. If Facility B Revolver Lenders whose Facility B Revolver Pro Rata Shares equal or exceed 66-2/3% in the aggregate, but less than 100%, of all Facility B Pro Rata Shares consent to a Facility B Extension Request and the Borrower gives the Administrative Agent timely notice of the Borrower’s election to terminate, pursuant to clause (ii) of Section 2.19(a), the Facility B Commitments of all Non-Consenting Facility B Lenders, the Administrative Agent shall so notify all Facility B Revolver Lenders, and on or before such Facility B Termination Date the Borrower shall pay in full the Facility B Obligations (other than those outstanding under any Facility B Term Notes) of all Non-Consenting Facility B Lenders, and the Facility B Commitments of all Non-Consenting Facility B Lenders shall terminate on such Facility B Termination Date.

(d) Replacement of Non-Consenting Facility B Revolver Lenders. If Facility B Revolver Lenders whose Facility B Revolver Pro Rata Shares equal or exceed 66-2/3% in the aggregate, but less than 100%, of all Facility B Pro Rata Shares consent to a Facility B Extension Request and the Borrower gives the Administrative Agent timely notice of the Borrower’s election to replace, pursuant to clause (iii) of Section 2.19(a), the Facility B Commitments of all Non-Consenting Facility B Lenders, the Administrative Agent shall so notify all Facility B Revolver Lenders, and on or before such Facility B Termination Date the Borrower shall replace such Non-Consenting Facility B Lenders in accordance with Section 2.27 or, to the extent that it does not replace such Non-Consenting Facility B Lenders, shall pay in full the Facility B Obligations (other than those outstanding under any Facility B Term Notes) of all Non-Consenting Facility B Lenders. To the extent the Non-Consenting Facility B Lenders are not replaced, their Facility B Commitments shall terminate on such Facility B Termination Date. In no event shall any Lender have any obligation to issue a new or increased Commitment to replace all or any part of a Non-Consenting Facility B Lender’s Facility B Commitment

(e) Facility B Term Loans. Upon the conversion of any Facility B Revolver Loans to Facility B Term Loans as provided in Section 2.19(a) or 2.19(b), such Facility B Term Loans shall be governed by the provisions of Section 2.20(c).

(f) Aggregate Facility B Commitment. The Aggregate Facility B Commitment shall be reduced by the amount of any Facility B Commitments that are terminated pursuant to this Section 2.19.

(g) Term-Out Obligation. The provisions of this Section 2.19 are subject to the provisions of Section 2.20(b).

SECTION 2.20. Facility B Term-Out.

(a) Term-Out Option. Without limitation of the Borrower’s obligations under Section 2.20(b), the Borrower shall have the option to convert the Facility B Revolver Loans outstanding on the Facility B Termination Date (as extended pursuant to Section 2.19) to Facility B Term Loans which shall mature and become due and payable in full on the Facility B Term

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Maturity Date. In order to request such conversion, the Borrower shall give written notice (the “Term-Out Notice”) to the Administrative Agent not less than 30 or more than 90 days prior to the Facility B Termination Date, which notice shall specify the principal amount of the Facility B Revolver Loans (the “Conversion Amount”) which the Borrower desires to convert to Facility B Term Loans, provided, however, that the aggregate amount of the Facility B Revolver Loans that may be converted to Facility B Term Loans shall not be less than $1,000,000. Promptly following its receipt of the Term-Out Notice, the Administrative Agent shall send a copy of the Term-Out Notice to each of the Facility B Revolver Lenders. If the Borrower has given the Term-Out Notice as provided herein, the lesser of (i) the Conversion Amount or (ii) the Facility B Revolver Loans outstanding on the Facility B Termination Date shall automatically convert to Facility B Term Loans, with each Facility B Revolver Lender being deemed to have made its Facility B Revolver Pro Rata Share of such Facility B Term Loans, and the Administrative Agent shall promptly notify each Facility B Revolver Lender of the principal amount thereof.

(b) Term-Out Obligation. Notwithstanding the provisions of Section 2.19, if the Facility B Termination Date is extended pursuant to Section 2.19 with respect to all or, to the extent permitted under Section 2.19, less than all of the Facility B Revolver Lenders but on the Facility B Termination Date (as determined prior to such extension), the Facilities have a rating from S&P of BB- or less or from Moody’s of Ba3 or less, the outstanding principal balance of the Facility B Revolver Loans (including any Facility B Revolver Loans purchased by Replacement Lenders pursuant to Section 2.27) shall automatically convert to Facility B Term Loans on such Facility B Termination Date and the Aggregate Facility B Commitment shall be reduced by the amount of such Facility B Term Loans.

(c) Facility B Term Loans. The principal amount of each Facility B Term Loan shall be repayable in full in equal quarterly installments on each Quarterly Payment Date (subject to reduction of such installments as provided in Section 2.06(e)), commencing with the first such date following the Facility B Termination Date on which the Facility B Revolver Loan is converted to a Facility B Term Loan (whether pursuant to Section 2.19 or this Section 2.20), with the final installment due and payable on the Facility B Term Maturity Date, unless such Facility B Term Loan shall sooner become due and payable pursuant to Section 9.02 or as otherwise provided in this Agreement. Facility B Term Loans shall be either Eurodollar Rate Loans or Floating Rate Loans, with interest accruing and being paid in the same manner as Facility B Revolver Loans, and with the Facility B Term Loans to be designated as, continued as, or converted into Eurodollar Rate Loans in the same manner as Facility B Revolver Loans could be designated as, continued as, or converted into Eurodollar Rate Loans or Floating Rate Loans as provided in Section 2.10. In the event of any conversion of Facility B Revolver Loans to Facility B Term Loans, the Facility B Term Note payable to and held by the Administrative Agent shall thereafter evidence such Facility B Term Loans, except that any Facility B Term Note payable to and held by any Facility B Term Lender shall thereafter evidence the Facility B Term Loans held by such Facility B Term Lender hereunder.

SECTION 2.21. Facility Letters of Credit.

(a) Obligation to Issue. Subject to the terms and conditions of this Agreement and in reliance upon the representations and warranties of the Borrower herein set forth, each Issuer hereby agrees to issue upon the request of and for the account of the Borrower, through such of

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the Issuer’s Lending Installations or Affiliates as the Issuer and the Borrower may jointly agree, one or more Facility Letters of Credit in accordance with this Section 2.21 from time to time during the period commencing on the Closing Date and ending on the fourteenth day prior to the Facility A Termination Date.

(b) Conditions for Issuance. In addition to being subject to the satisfaction of the conditions contained in Section 5.02, the obligation of an Issuer to issue any Facility Letter of Credit is subject to the satisfaction in full of the following conditions:

(i) the aggregate maximum amount then available for drawing under Facility Letters of Credit issued by such Issuer, after giving effect to the Facility Letter of Credit requested hereunder, shall not exceed any limit imposed by law or regulation upon such Issuer;

(ii) after giving effect to the requested issuance of any Facility Letter of Credit, the Facility Letter of Credit Obligations do not exceed the lesser of (A) the Aggregate Letter of Credit Commitment, or (B) an amount equal to the Aggregate Facility A Commitment minus the sum of the outstanding Facility A Advances and all outstanding Swing Line Loans;

(iii) the Facility Letter of Credit shall be a standby Letter of Credit and not a trade Letter of Credit, shall only provide for drawings by sight draft and shall be issued in U.S. Dollars;

(iv) the requested Facility Letter of Credit has an expiration date not later than the earlier of (A) fourteen days prior to the Facility A Termination Date and (B) one year after its Issuance Date; provided, however, that the requested Facility Letter of Credit may provide for automatic renewal periodically beyond the first anniversary of its Issuance Date but not beyond the date provided for in clause (A) above;

(v) the Borrower shall have delivered to such Issuer at such times and in such manner as such Issuer may reasonably prescribe such documents and materials as may be required pursuant to the terms of the proposed Facility Letter of Credit, and the proposed Facility Letter of Credit shall be satisfactory to such Issuer as to form and content; and

(vi) as of the Issuance Date, no order, judgment or decree of any court, arbitrator or governmental authority shall purport by its terms to enjoin or restrain such Issuer from issuing the Facility Letter of Credit and no law, rule or regulation applicable to such Issuer and no request or directive (whether or not having the force of law) from any governmental authority with jurisdiction over the Issuer shall prohibit or request that such Issuer refrain from the issuance of Letters of Credit generally or the issuance of that Facility Letter of Credit (and in any such case, such Issuer shall promptly notify the Administrative Agent and the Borrower of such fact).

(c) Procedure for Issuance.

(i) The Borrower shall give an Issuer and the Administrative Agent at least three Business Days’ prior written notice of any requested issuance of a Facility Letter of

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Credit under this Agreement (a “Letter of Credit Request”). The Letter of Credit Request shall be in a form acceptable to the Administrative Agent, the Issuer and the Borrower and shall specify:

(A) the stated amount of the Facility Letter of Credit requested;

(B) the effective date (which day shall be a Business Day) of issuance of such requested Facility Letter of Credit (the “Issuance Date”);

(C) the date on which such requested Facility Letter of Credit is to expire (which date shall comply with the provisions of Section 2.21(b)(iv));

(D) the name of the Issuer chosen by the Borrower to issue the requested Facility Letter of Credit;

(E) the purpose for which such Facility Letter of Credit is to be issued; and

(F) the Person for whose benefit the requested Facility Letter of Credit is to be issued.

At the time the Letter of Credit Request is made, the Borrower shall also provide the Administrative Agent and the Issuer with a copy of the form (if specified by the beneficiary) of the Facility Letter of Credit it is requesting be issued. Such Letter of Credit Request, to be effective, must be received by such Issuer and the Administrative Agent not later than 2:00 p.m. (Chicago time) on the last Business Day on which a Letter of Credit Request can be given under this Section 2.21(c)(i). Promptly after receipt of any Letter of Credit Request, the Issuer shall confirm with the Administrative Agent (by telephone or in writing) that the Administrative Agent has received a copy of such Letter of Credit Request from the Borrower and, if not, the Issuer shall promptly provide the Administrative Agent with a copy thereof.

(ii) Subject to the terms and conditions of Section 2.21(b) and provided that (A) the applicable conditions set forth in Sections 5.01 and 5.02 hereof have been satisfied and (B) the Issuer shall have received written or telephonic notice from the Administrative Agent stating that the issuance of such Facility Letter of Credit would not violate Section 2.21(b), such Issuer shall, on the Issuance Date, issue a Facility Letter of Credit on behalf of the Borrower in accordance with the Issuer’s usual and customary business practices unless the Issuer has actually received (1) written notice from the Borrower specifically revoking the Letter of Credit Request with respect to such Facility Letter of Credit or (2) written notice from a Facility A Lender, which complies with the provisions of Section 2.21(e)(i).

(iii) Each Issuer shall promptly give the Administrative Agent and the Borrower written notice or telex notice, or telephonic notice confirmed promptly thereafter in writing, of the issuance, amendment, extension of cancellation of a Facility Letter of Credit (the “Issuance Notice”), together with (for the Borrower and the Administrative Agent) a copy of such Facility Letter of Credit (or amendment or extension thereof). Notices and copies of Facility Letters of Credit (or amendments or

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extensions thereof) required to be furnished to the Administrative Agent under this Section 2.21(c)(iii) shall also be delivered to Bank One, NA, Global Trade Financing Unit, 300 South Riverside, Mail Suite IL1-0236, Chicago, IL 60670 (Attention: Catherine Deal). Upon receipt of the Issuance Notice, the Administrative Agent shall notify each Facility A Lender of the issuance, amendment, extension or cancellation of such Facility Letter of Credit, which notice shall identify the Issuance Date, the Issuer, the amount and the expiration date of such Facility Letter of Credit (as amended or extended, if applicable).

(iv) An Issuer shall not extend or amend any Facility Letter of Credit or allow a Facility Letter of Credit to be automatically extended unless the requirements of this Section 2.21(c) are met as though a new Facility Letter of Credit was being requested and issued.

(d) Payment of Reimbursement Obligations; Duties of Issuers

(i) Each Issuer shall promptly notify the Borrower and the Administrative Agent (which shall promptly notify the Facility A Lenders) of any draw under a Facility Letter of Credit and the Borrower shall reimburse such Issuer in accordance with Section 2.21(d)(iii). Any Reimbursement Obligation with respect to any Facility Letter of Credit shall bear interest from the date on which the Issuer honors a drawing under such Facility Letter of Credit until payment in full is received by such Issuer at (A) the Floating Rate until the second succeeding Business Day after such date and (B) the Default Rate thereafter.

(ii) Any action taken or omitted to be taken by an Issuer under or in connection with any Facility Letter of Credit, if taken or omitted in the absence of bad faith, willful misconduct or gross negligence as determined in a final judgment by a court of competent jurisdiction, shall not (A) put that Issuer under any resulting liability to any Lender or (B) assuming that such Issuer has complied with the procedures specified in Section 2.21(c), all conditions to the issuance of a Facility Letter of Credit have been satisfied and any such Lender has not given a notice contemplated by Section 2.21(e)(i) that continues in full force and effect, relieve any such Lender of its obligations hereunder to that Issuer. In determining whether to pay under any Facility Letter of Credit, an Issuer shall have no obligation relative to the Lenders or to the Borrower other than to confirm that any documents required to be delivered under such Facility Letter of Credit have been delivered in compliance and that they comply on their face (including that any draw request has been purportedly executed by an authorized signatory, if and to the extent such a requirement is specified in the related Facility Letter of Credit), with the requirements of such Facility Letter of Credit.

(iii) The Borrower agrees to pay to each Issuer the amount of all Reimbursement Obligations, interest and other amounts payable to such Issuer under or in connection with any Facility Letter of Credit immediately when due (and in any event shall reimburse an Issuer for drawings under a Facility Letter of Credit issued by it no later than two (2) Business Days after payment by that Issuer), irrespective of any claim, set-off, defense or other right which the Borrower or any Subsidiary may have at any

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time against any Issuer or any other Person, under all circumstances, including without limitation, any of the following circumstances:

(A) any lack of validity or enforceability of this Agreement or any of the other Loan Documents;

(B) the existence of any claim, set-off, defense or other right which the Borrower or any Subsidiary may have at any time against a beneficiary named in a Facility Letter of Credit or, if such Facility Letter of Credit is transferable, any transferee of any Facility Letter of Credit (or any Person for whom any such transferee may be acting), the Administrative Agent, the Issuer, any Lender, or any other Person, whether in connection with this Agreement, any Facility Letter of Credit, the transactions contemplated herein or any unrelated transactions (including any underlying transactions between the Borrower or any Subsidiary and the beneficiary named in any Facility Letter of Credit);

(C) any draft, certificate or any other document presented under the Facility Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect (except to the extent any such invalidity or insufficiency is found in a final judgment of a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of such Issuer).

(D) the surrender or impairment of any guaranty or security for the performance or observance of any of the terms of any of the Loan Documents; or

(E) the occurrence of any Event of Default or Unmatured Default.

(iv) As among the Borrower, the Issuers, the Administrative Agent and the Lenders, the Borrower assumes all risks of the acts and omissions of, or misuse of the Facility Letters of Credit by, the respective beneficiaries of the Facility Letters of Credit (except such as are found in a final judgment by a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of an Issuer). In furtherance and not in limitation of the foregoing, the Issuers, the Administrative Agent and the Lenders shall not be responsible (absent gross negligence or willful misconduct in connection therewith, as determined by the final judgment of a court of competent jurisdiction) for (A) the forms, validity, sufficiency, accuracy, genuineness or legal effect of any document submitted by any party in connection with the application for and issuance of any Facility Letter of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (B) the validity or sufficiency of any instrument transferring or assigning or purporting thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; (C) failure of the beneficiary of a Facility Letter of Credit to comply fully with underlying conditions required in order to

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draw upon such Facility Letter of Credit, so long a such beneficiary has presented the omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise; (E) errors in interpretation of technical terms; (F) misapplication by the beneficiary of a Facility Letter of Credit of the proceeds of any drawing under such Facility Letter of Credit; or (G) any consequences arising from causes beyond the control of any Issuer, the Administrative Agent or any Facility A Lender.

(e) Participation.

(i) Upon the Closing Date, each of the Facility A Lenders shall be deemed to have irrevocably and unconditionally purchased and received from the Issuer, without recourse or warranty, an undivided interest and participation equal to its Facility A Pro Rata Share of the Existing Letters of Credit (including, without limitation, all rights and obligations of the Issuer with respect thereto) and any security therefor or guaranty pertaining thereto. Immediately upon issuance by an Issuer of any Facility Letter of Credit in accordance with the procedures set forth in Section 2.21(c) each Facility A Lender shall be deemed to have irrevocably and unconditionally purchased and received from the Issuer, without recourse or warranty, an undivided interest and participation equal to its Facility A Pro Rata Share of such Facility Letter of Credit (including, without limitation, all rights and obligations of the Issuer with respect thereto) and any security therefor or guaranty pertaining thereto, provided, that a Letter of Credit issued by any Issuer shall not be deemed to be a Facility Letter of Credit for purposes of this Agreement if the Administrative Agent and such Issuer shall have received written notice from any Facility A Lender on or before the Business Day prior to the date of its issuance of such Letter of Credit that one or more of the conditions contained in Sections 5.01 and 5.02 is not then satisfied, and in the event an Issuer receives such notice, it shall have no further obligation to issue any Facility Letter of Credit until such notice is withdrawn by that Facility A Lender or the Issuer receives a notice from the Administrative Agent that such condition has been effectively waived in accordance with the provisions of this Agreement.

(ii) In the event that any Issuer makes any payment under any Facility Letter of Credit and the Borrower shall not have repaid such amount to such Issuer pursuant to Section 2.21(d), such Issuer shall promptly notify the Administrative Agent, which shall promptly notify each Facility A Lender, of such failure, and each Facility A Lender shall promptly and unconditionally pay to the Administrative Agent for the account of such Issuer the amount of such Facility A Lender’s Facility A Pro Rata Share of the unreimbursed amount of any such payment. The failure of any Facility A Lender to make available to the Administrative Agent its Facility A Pro Rata Share of the unreimbursed amount of any such payment shall not relieve any other Facility A Lender of its obligation hereunder to make available to the Administrative Agent its Facility A Pro Rata Share of the unreimbursed amount of any payment on the date such payment is to be made, but no Facility A Lender shall be responsible for the failure of any other Facility A Lender to make available to the Administrative Agent its Facility A Pro Rata Share of the unreimbursed amount of any payment on the date such payment is to be made.

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(iii) Whenever an Issuer receives a payment on account of a Reimbursement Obligation, including any interest thereon, it shall promptly pay to the Administrative Agent and the Administrative Agent shall promptly pay to each Facility A Lender which has funded its participating interest therein, in immediately available funds, an amount equal to its Facility A Pro Rata Share thereof.

(iv) Upon the request of the Administrative Agent or any Facility A Lender, an Issuer shall furnish to such Administrative Agent or Facility A Lender copies of any Facility Letter of Credit to which that Issuer is party and such other documentation as may reasonably be requested by the Administrative Agent or Facility A Lender.

(v) The obligations of a Facility A Lender to make payments to the Administrative Agent for the account of an Issuer with respect to a Facility Letter of Credit shall be absolute, unconditional and irrevocable, not subject to any counterclaim, set-off, qualification or exception whatsoever and shall be made in accordance with the terms and conditions of this Agreement under any circumstances.

(vi) In the event any payment by the Borrower received by an Issuer with respect to a Facility Letter of Credit and distributed by the Administrative Agent to the Facility A Lenders on account of their participations is thereafter set aside, avoided or recovered from that Issuer in connection with any such distribution, such Facility A Lender shall, upon demand by that Issuer, contribute such Facility A Lender’s Facility A Pro Rata Share of the amount set aside, avoided or recovered together with interest at the rate required to be paid by that Issuer upon the amount required to be repaid by it.

(f) Compensation for Facility Letters of Credit.

(i) The Borrower shall pay to the Administrative Agent, for the account of the Facility A Lenders, a fee (the “Facility Letter of Credit Fee”) with respect to each Facility Letter of Credit for the period from the Issuance Date thereof (or, in the case of the Existing Letters of Credit, the Closing Date) to and including the final expiration date thereof, in a per annum amount equal to the product, calculated on a daily basis for each day during such period, of (A) the undrawn amount of such Facility Letter of Credit for such day multiplied by (B) the Facility Letter of Credit Fee Rate for such day, less 0.125% per annum. The Facility Letter of Credit Fees shall be due and payable quarterly in arrears not later than five (5) Business Days following Administrative Agent’s delivery to Borrower of the quarterly statement of Facility Letter of Credit Fees and, to the extent any such fees are then due and unpaid, on the Facility A Termination Date. The Administrative Agent shall promptly remit such Facility Letter of Credit Fees, when received by the Administrative Agent, to the Facility A Lenders (including the Issuer) in accordance with their Facility A Pro Rata Shares thereof. The Facility Letter of Credit Fees, once paid, shall not be refundable for any reason.

(ii) The Borrower shall also pay to each Issuer, solely for its own account, as an issuing fee, with respect to each Facility Letter of Credit issued by such Issuer for the period from the Issuance Date thereof (or, in the case of the Existing Letters of Credit, the Closing Date) to and including the final expiration date thereof, in an amount equal to (A)

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the product, calculated on a daily basis for each day during such period, of (x) the undrawn amount of such Facility Letter of Credit for such day multiplied by (y) 0.125% per annum, plus (B) in the case of any Facility Letter of Credit in a stated amount of less than $10,000.00, an additional fee in an amount to be agreed upon by the Borrower and the Issuer. The foregoing fees payable to the Issuer shall also be due and payable quarterly in arrears on the date on which Facility Letter of Credit Fees are payable and, to the extent any such fees are then due and unpaid, on the Facility A Termination Date. The foregoing fees, once paid, shall not be refundable for any reason. Each Issuer shall be entitled to receive its reasonable out-of-pocket costs of issuing and servicing Facility Letters of Credit.

(iii) The Administrative Agent shall, with reasonable promptness following receipt from all Issuers of the reports provided for in Section 2.21(g) for the months of March, June, September and December, respectively, deliver to the Borrower a quarterly statement of the Letter of Credit Fees then due and payable.

(g) Issuer Reporting Requirements. Each Issuer shall, no later than the third (3^rd) Business Day following the last day of each month, provide to the Administrative Agent a schedule of the Facility Letters of Credit issued by it, in form and substance reasonably satisfactory to the Administrative Agent, showing the Issuance Date, account party, original face amount (if any) paid thereunder, expiration date and the reference number of each Facility Letter of Credit outstanding at any time during such month (and whether such Facility Letter of Credit is a Performance Letter of Credit or financial Letter of Credit) and the aggregate amount (if any) payable by the Borrower to such Issuer during the month pursuant to Section 3.02. Copies of such reports shall be provided promptly to each Facility A Lender and the Borrower by the Administrative Agent. The reporting requirements hereunder are in addition to those set forth in Section 2.21(c).

(h) Letter of Credit Collateral Account. From and after the occurrence and during the continuance of an Event of Default, the Borrower hereby agrees that it will, until the later of the Facility A Termination Date or the date on which all Facility LCs have expired and all Obligations have been paid in full, maintain a special collateral account (the “Letter of Credit Collateral Account”) at the Administrative Agent’s office at the address specified pursuant to Article XIII, in the name of the Borrower but under the sole dominion and control of the Administrative Agent, and hereby grants to the Administrative Agent for the benefit of the Facility A Lenders, as security for repayment of the Facility A Obligations, a security interest in and to the Letter of Credit Collateral Account and any funds that may hereafter be on deposit in such account pursuant to Section 9.03.

SECTION 2.22. Non-Receipt of Funds by the Administrative Agent. Unless the Borrower or a Lender, as the case may be, notifies the Administrative Agent prior to the date on which it is scheduled to make payment to the Administrative Agent of (a) in the case of a Lender, the proceeds of a Loan or (b) in the case of the Borrower, a payment of principal, interest or fees to the Administrative Agent for the account of any one or more of the Lenders, that it does not intend to make such payment, the Administrative Agent may assume that such payment has been made. The Administrative Agent may, but shall not be obligated to, make the amount of such payment available to the intended recipient in reliance upon such assumption. If

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such Lender or the Borrower, as the case may be, has not in fact made such payment to the Administrative Agent, the recipient of such payment shall, on demand by the Administrative Agent, repay to the Administrative Agent the amount so made available together with interest thereon in respect of each day during the period commencing on the date such amount was so made available by the Administrative Agent until the date the Administrative Agent recovers such amount at a rate per annum equal to (i) in the case of payment by a Lender, the Federal Funds Effective Rate for such day or (ii) in the case of payment by the Borrower, the interest rate applicable to the relevant Loan.

SECTION 2.23. Withholding Tax Exemption. Each Lender that is not incorporated under the laws of the United States of America or a state thereof (each a “Non-U.S. Lender”) agrees that (if it has not done so prior to the Closing Date) it will, not more than five (5) Business Days after the date of this Agreement, (i) deliver to each of the Borrower and the Administrative Agent two duly completed copies of United States Internal Revenue Service Form W-8BEN or W-8ECI (or a successor form) or, in the case of a Lender claiming exemption from withholding of any United States federal income taxes under Section 871(h) or 881(c) of the Code with respect to payments of “portfolio interest,” a certificate representing that such Lender is not (i) a “bank” for purposes of Section 881(c) of the Code, (ii) a ten-percent shareholder of the Borrower (within the meaning of Section 871(h)(3)(B) of the Code), or (iii) a controlled foreign corporation related to the Borrower (within the meaning of Section 864(d)(4) of the Code), and a Form W-8BEN (or a successor form), in all cases properly completed and duly executed, certifying in either case that such Lender is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes, and (ii) deliver to each of the Borrower and the Administrative Agent a United States Internal Revenue Form W-8 or W-9, as the case may be, and certify that it is entitled to an exemption from United States backup withholding tax. Each Non-U.S. Lender further undertakes to deliver to each of the Borrower and the Administrative Agent (x) renewals or additional copies of such form (or any successor form) on or before the date that such form expires or becomes obsolete, and (y) after the occurrence of any event requiring a change in the most recent forms so delivered by it, such additional forms or amendments thereto as may be reasonably requested by the Borrower or the Administrative Agent. All forms or amendments described in the preceding sentence shall certify that such Lender is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes, unless an event (including without limitation any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Lender from duly completing and delivering any such form or amendment with respect to it and such Lender advises the Borrower and the Administrative Agent that it is not capable of receiving payments without any deduction or withholding of United States federal income tax.

SECTION 2.24. Unconditional Obligation to Make Payment. To the fullest extent permitted by law, the Borrower shall make all payments hereunder, under the Notes and under all of the other Loan Documents regardless of any defense or counterclaim, including any defense or counterclaim based on any law, rule or policy which is now or hereafter promulgated by any governmental authority or regulatory body and which may adversely affect the Borrower’s obligations to make, or the right of the holder of any Note to receive, those payments.

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SECTION 2.25. Compensating Balances. Bank One shall have the right (but no obligation) to enter into a separate agreement with the Borrower which provides for the reduction of the interest rate payable to Bank One hereunder in the event that the Borrower maintains collected balances in non-interest bearing accounts at Bank One, but in no event shall such agreement affect the amounts payable under this Agreement to any other Lender. Similarly, each other Lender shall have the right (but no obligation) to enter into a separate agreement with the Borrower which provides for the rebate to Borrower of a portion of the interest paid to such Lender under this Agreement in the event that the Borrower maintains collected balances in non-interest bearing accounts at such Lender, but in no event shall any such agreement affect the amounts payable under this Agreement to such Lender.

SECTION 2.26. Extension of Facility A Termination Date. Not more than once in any fiscal year of the Borrower, the Borrower may request a one-year extension of the Facility A Termination Date by submitting a written request for an extension to the Administrative Agent (a “Facility A Extension Request”), provided the Facility A Extension Request shall be delivered not later than one year before the Facility A Termination Date and that the requested Facility A Termination Date shall be no more than five (5) years after the date on which the Facility A Extension Request is received. Promptly following receipt of a Facility A Extension Request, the Administrative Agent shall notify each Facility A Lender of the contents thereof, shall request each Facility A Lender to approve the Facility A Extension Request, and shall specify the date (which must be at least 30 days after the Facility A Extension Request is delivered to the Facility A Lenders) as of which the Facility A Lenders must respond to the Facility A Extension Request (the “Facility A Reply Date”). If Facility A Lenders whose Facility A Pro Rata Shares equal or exceed in the aggregate 66-2/3% of all Facility A Pro Rata Shares do not consent in writing to such extension on or before the Facility A Reply Date, the Facility A Extension Request shall be denied. If such written consent is received on or before the Facility A Reply Date from Facility A Lenders whose Facility A Pro Rata Shares equal or exceed in the aggregate 66 2/3% of all Facility A Pro Rata Shares, the Facility A Termination Date shall be extended by one year as requested in such Facility A Extension Request, but such extension shall only apply to the Facility A Lenders that have so consented and shall not apply to any Facility A Lender that has not so consented (each, a “Non-Consenting Facility A Lender”). Except to the extent that a Non-Consenting Facility A Lender is replaced (as provided in Section 2.27 hereof) prior to the Facility A Termination Date (as determined prior to such Facility A Extension Request), then on such date (i) the Facility A Commitment of each such Non-Consenting Facility A Lender shall terminate, (ii) the Aggregate Facility A Commitment shall be reduced by the aggregate amount of such terminated Facility A Commitments and (iii) all Facility A Loans and other Facility A Obligations to each such Non-Consenting Facility A Lender shall be paid in full by the Borrower.

SECTION 2.27. Replacement of Certain Lenders. In the event a Lender (the “Affected Lender”) is a Non-Consenting Facility A Lender under Section 2.26, a Non-Consenting Facility B Lender under Section 2.19(a) or a non-consenting Lender under Section 13.06(b), the Borrower may, upon written notice to such Affected Lender and to the Administrative Agent, require such Affected Lender to assign, and such Affected Lender shall assign, within five Business Days after the date of such notice, to one or more assignees selected by the Borrower and that are Eligible Assignees and otherwise comply with the provisions of Section 12.03 (each, a “Replacement Lender”), all of such Affected Lender’s rights and

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obligations under this Agreement and the other Loan Documents (including without limitation its Commitments and all Loans owing to it) in accordance with Section 12.03; provided, however, that, (i) in the case of a Non-Consenting Facility A Lender, such assignment shall, at the election of the Borrower, be limited to an assignment of its Facility A Commitment and Facility A Loans and (ii) in the case of a Non-Consenting Facility B Lender, such assignment shall, at the election of the Borrower, be limited to an assignment of its Facility B Commitment and Facility B Revolver Loans. With respect to any such assignment, the Affected Lender shall concurrently with such assignment receive payment in full of all amounts due and owing to it hereunder or under any of the other Loan Documents with respect to the Loans and Commitments so assigned, including without limitation the aggregate outstanding principal amount of such Loans owed to such Affected Lender, together with accrued interest thereon through the date of such assignment, amounts payable to such Affected Lender under Article III with respect to such Loans and all fees payable to such Affected Lender hereunder with respect to such Loans and Commitments so assigned. Any assignment to a Replacement Lender pursuant to the provisions of this Section 2.27 shall be in accordance with the provisions of Section 12.03 hereof. In no event shall any Lender have any obligation to issue a new or increased Commitment to replace all or any part of any Commitment of any Non-Consenting Facility A Lender, Non-Consenting Facility B Lender or any non-consenting Lender under Section 13.06(b).

SECTION 2.28. Obligations Under Prior Credit Agreement. (a) If there are any “Facility A Loans” outstanding under the Prior Credit Agreement on the Closing Date, the Borrower shall request that a Facility A Advance be made hereunder on the Closing Date in an amount sufficient to repay in full the “Facility A Loans” outstanding under the Prior Credit Agreement.

(b) If there are any “Facility B Revolver Loans” outstanding under the Prior Credit Agreement on the Closing Date, the Borrower shall request that a Facility B Advance be made hereunder on the Closing Date in an amount sufficient to repay in full the “Facility B Revolver Loans” outstanding under the Prior Credit Agreement.

(c) If the Closing Date is not the last day of an “Interest Period” of each loan (each, a “Repaid Loan”) under the Prior Credit Agreement required to be repaid on the Closing Date under paragraph (a) or (b) above, the Borrower will also pay to the Administrative Agent on the Closing Date all losses and costs incurred by the holder of each such Repaid Loan in accordance with Section 3.04 of the Prior Credit Agreement.

(d) The Borrower hereby agrees to pay the Administrative Agent on the Closing Date, for the benefit of the “Lenders” (other than the Facility C Lenders) party to the Prior Credit Agreement, the amount of all interest (if any) that has accrued to the Closing Date but has not been paid under the Prior Credit Agreement, all “Commitment Fees” that have accrued to the Closing Date but have not been paid under the Prior Credit Agreement and all “Facility Letter of Credit Fees” that have accrued to the Closing Date but have not been paid under the Prior Credit Agreement. Interest and other amounts payable to Facility C Lenders under the Prior Credit Agreement that have accrued to the Closing Date shall be paid to the Facility C Lenders hereunder on the dates on which the same were payable under the Prior Credit Agreement.

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ARTICLE III

CHANGE IN CIRCUMSTANCES

SECTION 3.01. Yield-Protection. If the adoption, on or after the Agreement Date, of any law or any governmental or quasi-governmental rule, regulation, policy, guideline or directive (whether or not having the force of law), or any change, on or after the Agreement Date, in interpretation thereof, or the compliance of any Lender (which term, for purposes of this Article III, shall be deemed to include each Issuer in such capacity) therewith,

(i) subjects any Lender or any applicable Lending Installation to any tax, duty, charge or withholding on or from payments due from the Borrower (excluding federal taxation of the overall net income of any Lender or applicable Lending Installation), or changes the basis of taxation of payments to any Lender in respect of its Loans or other amounts due it hereunder, or

(ii) imposes or increases or deems applicable any reserve, assessment, insurance charge, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender or any applicable Lending Installation (other than reserves and assessments taken into account in determining the interest rate applicable to Eurodollar Rate Advances), or

(iii) imposes any other condition the result of which is to increase the cost to any Lender or any applicable Lending Installation of making, funding or maintaining loans (or letters of credit or participations therein) or reduces any amount receivable by any Lender or any applicable Lending Installation in connection with loans (or letters of credit or participations therein), or requires any Lender or any applicable Lending Installation to make any payment calculated by reference to the amount of loans (or letters of credit or participations therein) held or interest received by it, by an amount deemed material by such Lender,

then, within 15 days of demand by such Lender, the Borrower shall pay such Lender that portion of such increased expense incurred or reduction in an amount received which such Lender determines is attributable to making, funding and maintaining its Loans, its applicable Commitment, the Facility Letters of Credit or any participations therein.

SECTION 3.02. Changes in Capital Adequacy Regulation. If a Lender reasonably determines the amount of capital required or expected to be maintained by such Lender, any Lending Installation of such Lender or any corporation controlling such Lender is increased as a result of a Change, and such increase will have the effect of reducing the rate of return on such Lender’s capital as a consequence of such Lender’s obligations hereunder to a level below that which such Lender or such corporation, as the case may be, could have achieved but for such Change (taking into account such Lender’s or such corporation’s policies, as the case may be, with respect to capital adequacy and any payments made to such Lender pursuant to Section 3.01 which relate to capital adequacy and assuming that such Lender’s capital was fully utilized prior to such Change), then within 15 days of demand by such Lender, the Borrower shall pay to the Administrative Agent, for the account of such Lender, such additional amount or amounts as will

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compensate such Lender for such reduction. If any Lender becomes entitled to claim any additional amounts pursuant to this Section 3.02 it shall promptly notify the Borrower through the Administrative Agent of the event by reason of which it has become so entitled, but in any event within 90 days, after such Lender obtains actual knowledge thereof; provided that if such Lender fails to give such notice within the 90-day period after it obtains actual knowledge of such an event, such Lender shall, with respect to such compensation in respect of any costs resulting from such event, only be entitled to payment for costs incurred from and after the date 90 days prior to the date that such Lender does give such notice. A certificate setting forth in reasonable detail the computation of any additional amount payable pursuant to this Section 3.02, submitted by such Lender to the Borrower through the Administrative Agent, shall be delivered to the Borrower promptly after the initial incurrence of such additional amounts. “Change” means (i) any change after the Agreement Date in the Risk-Based Capital Guidelines or (ii) any adoption of or change in any other law, governmental or quasi-governmental rule, regulation, policy, guideline, interpretation, or directive (whether or not having the force of law) after the date of this Agreement which affects the amount of capital required or expected to be maintained by any Lender or any Lending Installation or any corporation controlling any Lender or any Lending Institution. “Risk-Based Capital Guidelines” means (i) the risk-based capital guidelines in effect in the United States on the date of this Agreement, including transition rules, and (ii) the corresponding capital regulations promulgated by regulatory authorities outside the United States implementing the July 1988 report of the Basle Committee on Banking Regulation and Supervisory Practices entitled “International Convergence of Capital Measurements and Capital Standards,” including transition rules, and any amendments to such regulations adopted prior to the date of this Agreement.

SECTION 3.03. Availability of Types of Advances. If any Lender determines that maintenance of its Eurodollar Rate Loans at a suitable Lending Installation would violate any applicable law, rule, regulation, or directive, whether or not having the force of law, or if the Administrative Agent determines that (i) deposits of a type and maturity appropriate to match fund Eurodollar Rate Advances are not available or (ii) the interest rate applicable to a Type of Advance does not accurately reflect the cost of making or maintaining such Advance, then the Administrative Agent shall suspend the availability of the affected Type of Advance and require any Eurodollar Rate Advances of the affected Type of Advance to be repaid or to be converted (in accordance with the terms of this Agreement) to any Type of Advance which is not affected and is then available under this Agreement.

SECTION 3.04. Funding Indemnification. If any payment of a Eurodollar Rate Advance occurs on a date which is not the last day of the applicable Interest Period, whether because of acceleration, prepayment or otherwise, or a Eurodollar Rate Advance is not made on the date specified by the Borrower for any reason other than default by the Lenders, the Borrower will indemnify each Lender for any loss or cost incurred by it resulting therefrom, including, without limitation, any loss or cost in liquidating or employing deposits acquired to fund or maintain the Eurodollar Rate Advance.

SECTION 3.05. Lender Statements Survival of Indemnity. To the extent reasonably possible, each Lender shall designate an alternate Lending Installation with respect to its Eurodollar Rate Loans to reduce any liability of the Borrower to such Lender under Sections 3.01 and 3.02 or to avoid the unavailability of a Type of Advance under Section 3.03, so long as

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such designation is not disadvantageous to such Lender. Each Lender shall deliver a written statement of such Lender as to the amount due, if any, under Sections 3.01, 3.02 or 3.04. Such written statement shall set forth in reasonable detail the calculations upon which such Lender determined such amount and shall be final, conclusive and binding on the Borrower in the absence of manifest error. Determination of amounts payable under such Sections in connection with a Eurodollar Rate Loan shall be calculated as though each Lender funded its Eurodollar Rate Loan through the purchase of a deposit of the type and maturity corresponding to the deposit used as a reference in determining the Eurodollar Rate applicable to such Loan, whether in fact that is the case or not. Unless otherwise provided herein, the amount specified in the written statement shall be payable on demand after receipt by the Borrower of the written statement. The obligations of the Borrower under Sections 3.01, 3.02 and 3.04 shall survive payment of the Obligations and termination of this Agreement.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES

The Borrower represents and warrants to each of the Lenders that:

SECTION 4.01. Organization, Powers, etc. Each of the Loan Parties (a) is a corporation, limited partnership or limited liability company (as applicable) duly organized or formed, validly existing and in good standing under laws of its state of incorporation or formation, (b) has the power and authority to own or hold under lease the properties it purports to own or hold under lease and to carry on its business as now conducted, (c) is duly qualified or licensed to transact business in every jurisdiction in which such qualification or licensing is necessary to enable it to enforce all of its material contracts and other material rights and to avoid any material penalty or forfeiture.

SECTION 4.02. Authorization and Validity of this Agreement, etc. Each of the Loan Parties has the power and authority to execute and deliver this Agreement, the Notes, the Guaranties and the other Loan Documents to which it is a party and to perform all its obligations hereunder and thereunder. The execution and delivery by the Borrower of this Agreement and the Notes and by each of the Loan Parties of the Guaranties and the other Loan Documents to which it is a party and its performance of its obligations hereunder and thereunder and any and all actions taken by the Loan Parties (a) have been duly authorized by all requisite corporate action or other applicable limited partnership or limited liability company action, (b) will not violate or be in conflict with (i) any provisions of law (including, without limitation, any applicable usury or similar law), (ii) any order, rule, regulation, writ, judgment, injunction, decree or award of any court or other agency of government, or (iii) any provision of its certificate of incorporation or by-laws, certificate of limited partnership or limited partnership agreement, or articles or certificate of formation or operating agreement (as applicable), (c) will not violate, be in conflict with, result in a breach of or constitute (with or without the giving of notice or the passage of time or both) a default under any material indenture, agreement or other instrument to which such Loan Party is a party or by which it or any of its properties or assets is or may be bound (including without limitation any indentures pursuant to which any debt Securities of the Borrower or the Old U.S. Home Debt Issues were issued), and (d) except as otherwise contemplated by this Agreement, will not result in the creation or imposition of any

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lien, charge or encumbrance upon, or any security interest in, any of its properties or assets. Each of this Agreement, the Notes, the Guaranties and the other applicable Loan Documents has been duly executed and delivered by the applicable Loan Parties. The Loan Documents constitute legal, valid and binding obligations of the applicable Loan Parties enforceable against the applicable Loan Parties in accordance with their terms, except as enforceability may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors’ rights generally.

SECTION 4.03. Financial Statements. The Borrower heretofore has provided to the Lenders (i) the consolidated balance sheet of the Borrower and its Subsidiaries as of November 30, 2002, and the related consolidated statements of earnings, stockholders’ equity and cash flows for the 12-month period ended on that date, audited and reported upon by Deloitte & Touche, independent certified public accountants (the “Borrower Audited Financial Statements”), and (ii) the consolidated balance sheet of the Borrower as of February 28, 2003, and the consolidated statements of earnings and cash flows of the Borrower and its Subsidiaries for the three-month period ended on that date, unaudited but certified to be true and accurate (subject to normal year-end audit adjustments) by the President and an Authorized Financial Officer of the Borrower (the “Borrower Unaudited Financial Statements”). Those financial statements and reports (subject, in the case of the Borrower Unaudited Financial Statements, to normal year-end audit adjustments), and the related notes and schedules (if any), (a) were prepared in accordance with GAAP consistently applied throughout the period covered thereby, (b) present fairly the consolidated financial condition of the Borrower and its Subsidiaries as of the date thereof, (c) show all material liabilities, direct or contingent, of the Borrower and its Subsidiaries as of that date (including, without limitation, liabilities for taxes and material commitments), and (d) present fairly the consolidated shareholders’ equity, results of operations and cash flows of the Borrower and its Subsidiaries at the date and for the period covered thereby.

SECTION 4.04. No Material Adverse Effect. Since the date of the Borrower Audited Financial Statements, no event has occurred which has had or could reasonably be expected to have a Material Adverse Effect. There are no material unrealized or expected losses in connection with loans, advances and other commitments of the Loan Parties.

SECTION 4.05. Title to Properties. Schedule III hereto contains a complete and accurate list of all Real Estate owned by the Loan Parties (identifying the Loan Party that is the owner thereof), except those properties (i) acquired or disposed of after November 30, 2002 or (ii) the loss or forfeiture of which individually or in the aggregate would not have a Material Adverse Effect. Each of the Loan Parties has good and marketable fee title, or title insurable by a reputable and nationally recognized title insurance company, to the Real Estate owned by it listed in Schedule III hereto, and to all the other assets owned by it and either reflected on the balance sheet and related notes and schedules most recently delivered by the Borrower to the Lenders (the “Recent Balance Sheet”) or acquired by it after the date of that balance sheet and prior to the date hereof, except (x) for those properties and assets which have been disposed of since the date of the Recent Balance Sheet or which no longer are used or useful in the conduct of its business and (y) that good and marketable fee title, or title insurable by a reputable and nationally recognized title insurance company, to certain of the properties located in Arizona listed in Schedule III is held by the Persons and in the manner described in Schedule III hereto.

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All such Real Estate and other assets owned by the Loan Parties including the properties referred to in clause (y) above, are free and clear of all Mortgages, Liens, charges and other encumbrances (other than Permitted Liens), except (i) in the case of Real Estate, as reflected on title insurance policies insuring the interest of the applicable Loan Party in the Real Estate or in title insurance binders issued with respect to the Real Estate (some of which title insurance binders have expired but were valid at the time of acquisition of the relevant Real Estate), and (ii) as reflected in the Recent Balance Sheet, and none of those Mortgages, Liens, charges or other encumbrances, individually or in the aggregate, prevents or has a Material Adverse Effect upon the use by the Loan Parties of any of their respective properties or assets as currently conducted or as planned for the future.

SECTION 4.06. Litigation. There is no action, suit, proceeding, arbitration, inquiry or investigation (whether or not purportedly on behalf of the Borrower or any of its Subsidiaries) pending or, to the best knowledge of the Borrower, threatened against or affecting the Borrower or any of the Subsidiaries which could reasonably be expected to have a Material Adverse Effect. Neither the Borrower nor any of its Subsidiaries is in default with respect to any final judgment, writ, injunction, decree, rule or regulation of any court or federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, which default would or could have a Material Adverse Effect. Neither the Borrower nor any of the other Loan Parties has any material contingent obligations not provided for or disclosed in the Borrower Audited Financial Statements or Borrower Unaudited Financial Statements or in any financial statements delivered hereafter in accordance with this Agreement.

SECTION 4.07. Payment of Taxes. There have been filed all federal, state and local tax returns with respect to the operations of the Loan Parties which are required to be filed, except where extensions of time to make those filings have been granted by the appropriate taxing authorities and the extensions have not expired. The Loan Parties have paid or caused to be paid to the appropriate taxing authorities all taxes as shown on those returns and on any assessment received by any of them, to the extent that those taxes have become due, except for taxes the failure to pay which do not violate the provisions of Section 6.03 hereof. The Internal Revenue Service has completed an examination of the Borrower’s federal income tax returns for the years ended 1980 through 1998, and the Borrower has paid all additional taxes, assessments, interest and penalties with respect to such years.

SECTION 4.08. Agreements. Neither the Borrower nor any Subsidiary is a party to any agreement or instrument or is subject to any charter or other restriction that could reasonably be expected to have a Material Adverse Effect on it. Neither the Borrower nor any Subsidiary is in material default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any material agreement or instrument to which it is a party, and consummation of the transactions contemplated hereby and in the other Loan Documents will not cause any Loan Party to be in material default thereof.

SECTION 4.09. Foreign Direct Investment Regulations. Neither the making of the Advances nor the repayment thereof nor any other transaction contemplated hereby will involve or constitute a violation by any Loan Party of any provision of the Foreign Direct Investment Regulations of the United States Department of Commerce or of any license, ruling, order, or direction of the Secretary of Commerce thereunder.

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SECTION 4.10. Federal Reserve Regulations.

(a) Regulations U and X. Neither the Borrower nor any other Loan Party is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any margin stock (within the meaning of Regulation U or Regulation X of the Board of Governors of the Federal Reserve System of the United States). Margin stock (as defined in Regulation U) constitutes less than 25% of those assets of the Borrower and its Subsidiaries which are subject to any limitation on sale, pledge, or other restriction hereunder.

(b) Use of Proceeds. No part of the proceeds of any of the Advances will be used to purchase or carry any such margin stock or to extend credit to others for the purpose of purchasing or carrying any such margin stock. If requested by the Lenders, the Borrower shall furnish to the Lenders a statement in conformity with the requirements of Federal Reserve Form U-1 referred to in Regulation U of said Board of Governors. No part of the proceeds of the Advances will be used for any purpose that violates, or which is inconsistent with, the provisions of Regulation X of said Board of Governors.

SECTION 4.11. Consents, etc. Except as set forth on Schedule V hereto, no order, license, consent, approval, authorization of, or registration, declaration, recording or filing (except for the filing of a Current Report on Form 8-K, and a Quarterly Report on Form 10-Q, in each case with the Securities and Exchange Commission) with, or validation of, or exemption by, any governmental or public authority (whether federal, state or local, domestic or foreign) or any subdivision thereof is required in connection with, or as a condition precedent to, the due and valid execution, delivery and performance by any Loan Party of this Agreement, the Notes, the Guaranties or the other Loan Documents, or the legality, validity, binding effect or enforceability of any of the respective terms, provisions or conditions thereof. To the extent that any franchises, licenses, certificates, authorizations, approvals or consents from any federal, state or local (domestic or foreign) government, commission, bureau or agency are required for the acquisition, ownership, operation or maintenance by any Loan Party of properties now owned, operated or maintained by any of them, those franchises, licenses, certificates, authorizations, approvals and consents have been validly granted, are in full force and effect and constitute valid and sufficient authorization therefor.

SECTION 4.12. Compliance with Applicable Laws. The Borrower and its Subsidiaries are in compliance with and conform to all statutes, laws, ordinances, rules, regulations, orders, restrictions and all other legal requirements of all domestic or foreign governments or any instrumentality thereof having jurisdiction over the conduct of their respective businesses or the ownership of their respective properties, the violation of which would have a Material Adverse Effect on it, including, without limitation, regulations of the Board of Governors of the Federal Reserve System, the Federal Interstate Land Sales Full Disclosure Act, the Florida Land Sales Act or any comparable statute in any other applicable jurisdiction. Neither the Borrower nor any Subsidiary has received any notice to the effect that its operations are not in material compliance with any of the requirements of applicable Environmental Laws or any applicable federal, state and local health and safety statutes and regulations or the subject of any federal or state investigation evaluating whether any remedial action is needed to respond to a release of any Hazardous Substances into the environment,

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which non-compliance or remedial action could reasonably be expected to have a Material Adverse Effect.

SECTION 4.13. Relationship of the Loan Parties. The Loan Parties are engaged as an integrated group in the business of owning, developing and selling Real Estate and of providing the required services, credit and other facilities for those integrated operations. The Loan Parties require financing on such a basis that funds can be made available from time to time to such entities, to the extent required for the continued successful operation of their integrated operations. The Advances to be made to the Borrower under this Agreement are for the purpose of financing the integrated operations of the Loan Parties, and the Loan Parties expect to derive benefit, directly or indirectly, from the Advances, both individually and as a member of the integrated group, since the financial success of the operations of the Loan Parties is dependent upon the continued successful performance of the integrated group as a whole.

SECTION 4.14. Subsidiaries; Joint Ventures. Schedule VI hereto contains a complete and accurate list of (a) all Subsidiaries of the Borrower, including, with respect to each Subsidiary, (i) its state of incorporation, (ii) all jurisdictions (if any) in which it is qualified as a foreign corporation, (iii) the number of shares of its Capital Stock outstanding, and (iv) the number and percentage of those shares owned by the Borrower and/or by any other Subsidiary, and (b) each Joint Venture, including, with respect to each such Joint Venture, (i) its jurisdiction of organization, (ii) all other jurisdictions in which it is qualified as a foreign entity and (c) all Persons other than the Borrower that are parties thereto. All the outstanding shares of Capital Stock of each Subsidiary of the Borrower are validly issued, fully paid and nonassessable, except as otherwise provided by state wage claim laws of general applicability. All of the outstanding shares of Capital Stock of each Subsidiary owned by the Borrower or another Subsidiary as specified in Schedule VI are owned free and clear of all Liens, security interests, equity or other beneficial interests, charges and encumbrances of any kind whatsoever, except for Permitted Liens. Neither the Borrower nor any other Loan Party owns of record or beneficially any shares of the Capital Stock or other equity interests of any Person that is not a Guarantor, except (x) the Mortgage Banking Subsidiaries, (y) Joint Ventures in which such Loan Party is permitted to invest pursuant to this Agreement and (z) the Subsidiaries listed in Schedule VII hereto. Pursuant to the Pledge Agreements, the Borrower and its Subsidiaries have pledged to the collateral trustee referred to in Section 8.03(a), and such collateral trustee has a perfected first priority security interest in, all of the Capital Stock or other equity interests in each Significant Subsidiary.

SECTION 4.15. ERISA. Neither the Borrower nor any other Loan Party is executing or delivering any of the Loan Documents or entering into any of the transactions contemplated hereby, directly or indirectly, in connection with any arrangement or understanding in any respect involving any “employee benefit plan” with respect to which the Borrower or any other Loan Party is a “party in interest” within the meaning of the Employee Retirement Income Security Act of 1974, or a “disqualified person”, within the meaning of the Internal Revenue Code 1986, as amended. No Unfunded Liabilities exist with respect to any Single Employer Plans. Each Plan complies in all material respects with all applicable requirements of law and regulations, no Reportable Event has occurred with respect to any Plan, neither the Borrower nor any other Loan Party nor any other members of the Controlled Group has withdrawn from any Plan or initiated steps to do so, and no steps have been taken to reorganize or terminate any Plan.

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SECTION 4.16. Investment Company Act. Neither the Borrower nor any Subsidiary of the Borrower is an “investment company” or a company “controlled” by an “investment company” within the meaning of the Investment Company Act of 1940, as amended.

SECTION 4.17. Public Utility Holding Company Act. Neither the Borrower nor any Subsidiary of the Borrower is a “holding company” or a “subsidiary company” of a “holding company”, or an “affiliate” of a “holding company” or of a “subsidiary company” of a “holding company”, within the meaning of the Public Utility Holding Company Act of 1935, as amended.

SECTION 4.18. Subordinated Debt. The Obligations constitute senior indebtedness which is entitled to the benefits of the subordination provisions of all outstanding Subordinated Debt, which outstanding Subordinated Debt as of the Closing Date is identified in Schedule VIII.

SECTION 4.19. Post-Retirement Benefits. The present value of the expected cost of post-retirement medical and insurance benefits payable by the Borrower and its Subsidiaries to its employees and former employees, as estimated by the Borrower in accordance with procedures and assumptions deemed reasonable by the Administrative Agent, does not exceed $5,000,000.

SECTION 4.20. Insurance. The certificate signed by an Authorized Financial Officer of the Borrower, that attests to the existence and adequacy of, and summarizes, the property, casualty, and liability insurance programs carried by the Loan Parties and that has been furnished by the Borrower to the Administrative Agent and the Lenders, is complete and accurate. This summary includes the insurer’s or insurers’ name(s), policy number(s), expiration date(s), amount(s) of coverage, type(s) of coverage, exclusion(s), and deductibles. This summary also includes similar information, and describes any reserves, relating to any self-insurance program that is in effect.

SECTION 4.21. Environmental Representations. To the best of the Borrower’s knowledge and belief, no Hazardous Substances in material violation of any Environmental Laws are present upon any of the Real Estate owned by the Borrower or any Subsidiary or any Real Estate which is encumbered by any Mortgage held by the Borrower or any Subsidiary, and neither the Borrower nor any Subsidiary has received any notice to the effect that any of the Real Estate owned by the Borrower or any Subsidiary or any of their respective operations are not in compliance with any of the requirements of applicable Environmental Laws or are the subject of any federal or state investigation evaluating whether any remedial action is needed to respond to a release of any Hazardous Substance into the environment which non-compliance or remedial action could be reasonably expected to have a Material Adverse Effect.

SECTION 4.22. Intentionally Omitted.

SECTION 4.23. Minimum Adjusted Consolidated Tangible Net Worth. On the Agreement Date, Adjusted Consolidated Tangible Net Worth is in excess of $1,231,630,000.

SECTION 4.24. Intentionally Omitted.

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SECTION 4.25. No Misrepresentation. No representation or warranty by any Loan Party contained herein or made hereunder and no certificate, schedule, exhibit, report or other document provided or to be provided by any Loan Party in connection with the transactions contemplated hereby or thereby (including, without limitation, the negotiation of and compliance with the Loan Documents) contains or will contain a misstatement of a material fact or omit to state a material fact required to be stated therein in order to make the statements contained therein, in the light of the circumstances under which made, not misleading.

ARTICLE V

CONDITIONS PRECEDENT; TERMINATION

SECTION 5.01. Conditions of Effectiveness. This Agreement shall become effective when the Administrative Agent shall have received counterparts of this Agreement executed by the Borrower, all Facility A Lenders, all Facility B Lenders and Lenders (including such Facility A Lenders and Facility B Lenders) that in the aggregate constitute “Required Lenders” under the Prior Credit Agreement; provided, however, that the Lenders shall not be required to make any Advance hereunder nor shall the Issuer be required to issue any Facility Letter of Credit hereunder, unless and until (i) the Administrative Agent shall have received the fees provided to be paid pursuant to the Fee Letter and (ii) the Administrative Agent shall have received each of the following items (with all documents required below, except as otherwise specified, to be dated the Closing Date, which date shall be the same for all such documents, and each of such documents to be in form and substance satisfactory to the Administrative Agent, to be fully and properly executed by all parties thereto, and (except for the Notes) to be in sufficient copies for each Lender), and the conditions specified below shall have been satisfied:

(a) A Facility A Note payable to the order of the Administrative Agent and a Facility A Note payable to the order of each Facility A Lender that shall have requested a Facility A Note in accordance with this Agreement; a Facility B Revolver Note and a Facility B Term Note payable to the order of the Administrative Agent and a Facility B Revolver Note and Facility B Term Note payable to the order of each of the Facility B Lenders that shall have requested such Notes in accordance with this Agreement; and a Facility C Note payable to the order of the Administrative Agent and a Facility C Note payable to the order of each of the Facility C Lenders that shall have requested a Facility C Note in accordance with this Agreement.

(b) From each Subsidiary of the Borrower (except for the Mortgage Banking Subsidiaries and the Subsidiaries listed in Schedule VII hereto), a Guaranty executed and delivered as of the Closing Date or, if such Subsidiary has heretofore executed and delivered a Guaranty pursuant to the Original Credit Agreement or the Prior Credit Agreement, a written instrument executed by such Guarantor ratifying such Guaranties.

(c) From the Borrower and each of the Guarantors that owns Capital Stock or other equity interests in any Significant Subsidiary and such other Subsidiaries as may be required pursuant to Section 8.01(a)(ii), Pledge Agreements executed and delivered as of the Closing Date or, to the extent such Pledge Agreements have heretofore been executed and delivered pursuant to the Original Credit Agreement or the Prior Credit Agreement, a written instrument executed by the Borrower and such Subsidiaries ratifying such Pledge Agreements, which Pledge

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Agreements pledge (in each case) the Capital Stock of such Subsidiaries, together with such stock certificates and other documents provided to be delivered pursuant to the Pledge Agreements and the Collateral Trust Agreement provided for in Section 8.03(a) (except to the extent previously delivered pursuant to the Original Credit Agreement or the Prior Credit Agreement).

(d) The favorable written opinions addressed to the Lenders, and in form and substance satisfactory to the Administrative Agent, from (i) Bilzin Sumberg Baena Price & Axelrod, LLP (counsel to the Borrower), with respect to (A) Borrower and (B) any other Loan Parties (other than those (if any) that are Subsidiaries of New U.S. Home) that are incorporated or formed under Florida, Delaware or New York law and that deliver a Guaranty or Pledge Agreement on the Closing Date, which opinion shall be substantially in the form delivered pursuant to the Prior Credit Agreement but which shall be limited to this Agreement and the Notes, Guaranties and Pledge Agreements delivered on the Closing Date hereunder and (ii) (if applicable) from Steven Lane (Executive Director-Legal, of New U.S. Home) substantially in the form delivered pursuant to the Prior Credit Agreement, but only with respect to the Subsidiaries of New U.S. Home (if any) that deliver Guaranties or Pledge Agreements on the Closing Date hereunder. The Borrower hereby instructs such counsel to prepare their opinions and deliver such opinions to the Lenders for the benefit of the Lenders, and such opinions shall contain a statement to such effect.

(e) The following supporting documents with respect to each Loan Party (except as otherwise provided below): (i) a copy of its certificate or articles of incorporation or formation or certificate of limited partnership (as applicable) certified as of a date reasonably close to the Closing Date to be a true and accurate copy by the Secretary of State of its state of incorporation or formation (except as otherwise provided below); (ii) a certificate of that Secretary of State, dated as of a date reasonably close to the Closing Date, as to its existence and (if available) good standing (except as otherwise provided below); (iii) a certificate of the Secretary of State of each jurisdiction, other than its state of incorporation, in which it does business, as to its qualification as a foreign corporation; (iv) a copy of its by-laws, partnership agreement or operating agreement (as applicable), certified by its secretary or assistant secretary, general partner, manager or other appropriate Person (as applicable) to be a true and accurate copy of its by-laws, partnership agreement or operating agreement (as applicable) in effect on the Closing Date (except as otherwise provided below); (v) a certificate of its secretary or assistant secretary, general partner, manager or other appropriate Person (as applicable), as to the incumbency and signatures of its officers or other Persons who have executed any documents on behalf of such Loan Party in connection with the transactions contemplated by this Agreement; (vi) a copy of resolutions of its Board of Directors, certified by its secretary or assistant secretary to be a true and accurate copy of resolutions duly adopted by such Board of Directors, or other appropriate resolutions or consents of, its partners or members certified by its general partner or manager (as applicable) to be true and correct copies thereof duly adopted, approved or otherwise delivered by its partners or members (to the extent necessary and applicable), each of which is certified to be in full force and effect on the Closing Date, authorizing the execution and delivery by it of this Agreement and any Notes, Guaranties and other Loan Documents delivered on the Closing Date to which it is a party and the performance by it of all its obligations thereunder; and (vii) such additional supporting documents and other information with respect to its operations and affairs as the Administrative Agent may reasonably request; provided, however, that, with

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respect to Loan Parties (other than the Borrower) that have delivered a Guaranty or Pledge Agreement prior to, and not on, the Closing Date, the items identified in this subparagraph (e) shall not be required to be delivered to the extent that the Borrower delivers to the Administrative Agent a certificate certifying that the items referred to under clauses (i), (iv), (v) and (vi) above (as applicable) delivered to the Administrative Agent on the Original Closing Date or the Prior Closing Date with respect to such Loan Parties have not been modified or amended since the date o which they were so delivered.

(f) Certificates signed by a duly authorized officer of the Borrower stating that: (i) the representations and warranties of the Borrower contained in Article IV hereof are correct and accurate on and as of the Closing Date as though made on and as of the Closing Date and (ii) no event has occurred and is continuing which constitutes an Event of Default or Unmatured Default hereunder.

(g) A certificate signed by an Authorized Financial Officer of the Borrower showing in reasonable detail the calculations used to determine the Leverage Ratio for the Pricing Grid.

(h) The certified financial statements provided for in Section 6.04(b) and Section 6.04(c) hereof for the quarter ending February 28, 2003.

(i) The report provided for in Section 6.04(g) hereof for the month ending March 31, 2003.

(j) The certified report provided for in Section 6.04(l) hereof for the quarter ending February 28, 2003.

(k) Such other documents as the Administrative Agent or its counsel may reasonably request.

SECTION 5.02. Conditions Precedent to All Advances and Facility Letters of Credit.

(a) No Lender shall be required to make any Advance (but excluding any other Advance that, after giving effect thereto and to the application of the proceeds thereof, does not increase the aggregate amount of outstanding Advances under the applicable Facility) and no Issuer shall be required to issue any Facility Letter of Credit, unless on the applicable Borrowing Date or Issuance Date:

(i) the Administrative Agent shall have received notice of Borrower’s request for the Advance as provided in Section 2.09(a) or Letter of Credit Request as provided in Section 2.21(a) and such other approvals, opinions or documents as the Administrative Agent may reasonably request;

(ii) the representations and warranties of the Borrower contained in Article IV hereof are true and correct as of such Borrowing Date or Issuance Date; provided, however, that for the purposes hereof, (A) from and after the date of delivery by the Borrower pursuant to Section 6.04(a) of the consolidated financial statements for the year ended November 30, 2003, the references in Section 4.03 to “Borrower Audited Financial

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Statements” shall be deemed to be references to the annual audited financial statements most recently delivered by the Borrower pursuant to Section 6.04(a) as of the date of the request for a Advance or Letter of Credit Request and (B) from and after that date of delivery by the Borrower pursuant to Section 6.04(b) of its consolidated financial statements for the quarter ending May 31, 2003, the references in Section 4.03 to “Borrower Unaudited Financial Statements” shall be deemed to be references to the quarterly unaudited financial statements most recently delivered by the Borrower pursuant to Section 6.04(b) as of the date of that request for an Advance or Letter of Credit Request;

(iii) All legal matters incident to the making of such Advance shall be satisfactory to the Lenders and their counsel;

(iv) There exists no Event of Default or Unmatured Default; and

(v) The making of the Advance or issuance of the Facility Letter of Credit will not result in any Event of Default or Unmatured Default.

(b) Each Borrowing Notice with respect to each such Advance and each Letter of Credit Request shall constitute a representation and warranty by the Borrower that all of the conditions contained in this Section 5.02 have been satisfied.

ARTICLE VI

AFFIRMATIVE COVENANTS

The Borrower covenants and agrees that from the date hereof until payment in full of all the Obligations, termination of all Facility Letters of Credit and termination of all Commitments, unless the Required Lenders otherwise shall consent in writing as provided in Section 13.06 hereof, the Borrower will, and will cause each of its Subsidiaries to:

SECTION 6.01. Existence, Properties, etc. Do or cause to be done all things or proceed with due diligence with any actions or courses of action which may be necessary to preserve and keep in full force and effect its existence under the laws of their respective states of incorporation or formation and all qualifications or licenses in jurisdictions in which such qualification or licensing is required for the conduct of its business or in which the Lenders shall request such qualification; provided, however, that nothing herein shall be deemed to prohibit (a) a Loan Party from (i) merging into or consolidating with any other Loan Party or any other Subsidiary of the Borrower; provided the Borrower is the surviving entity in the case of a merger involving the Borrower and the Loan Party is the surviving entity in the case of a merger involving a Loan Party and a Subsidiary that is not a Loan Party, and (ii) declaring and paying dividends in complete liquidation or (b) a Subsidiary that is not a Loan Party from merging into or consolidating with any other Subsidiary that is not a Loan Party. The Borrower will, and will cause each Subsidiary to, carry on and conduct its business in substantially the same manner and in substantially the same fields of enterprise as it is presently conducted and maintain all requisite authority to conduct its business in each jurisdiction in which its business is conducted.

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The primary business of the Borrower and its Subsidiaries shall at all times be the acquisition, development and sale of real estate assets.

SECTION 6.02. Notice. Give prompt written notice to the Administrative Agent of (a) any proceeding instituted by or against the Borrower or any of its Subsidiaries in any federal or state court or before any commission or other regulatory body, federal, state or local, or any such proceedings threatened against the Borrower or any Subsidiary in writing by any federal, state or other governmental agency, which, if adversely determined, could reasonably be expected to have a Material Adverse Effect on the any Loan Party, and (b) any other Event which could reasonably be expected to lead to or result in a Material Adverse Effect on any Loan Party, or which, with or without the giving of notice or the passage of time or both, would constitute an Event of Default or a default under any material agreement other than this Agreement to which any Loan Party is a party or by which any of its properties or assets is or may be bound.

SECTION 6.03. Payments of Debts, Taxes, etc. Pay all its debts and perform all its obligations promptly and in accordance with the respective terms thereof, and pay and discharge or cause to be paid and discharged promptly all taxes, assessments and governmental charges or levies imposed upon any Loan Party or upon any of their respective incomes or receipts or upon any of their respective properties before the same shall become in default or past due, as well as all lawful claims for labor, materials and supplies or otherwise which, if unpaid, might result in the imposition of a Lien or charge upon such properties or any part thereof; provided, however, that it shall not constitute a violation of the provisions of this Section 6.03 if any Loan Party shall fail to perform any such obligation or to pay any such debt (except for obligations for money borrowed), tax, assessment, governmental charge or levy or claim for labor, materials or supplies which is being contested in good faith, by proper proceedings diligently pursued, and as to which adequate reserves have been provided.

SECTION 6.04. Accounts and Reports. Maintain a standard system of accounting established and administered in accordance with GAAP, and provide to the Lenders the following:

(a) as soon as available and in any event within 120 days after the end of each fiscal year of the Borrower (commencing with the fiscal year ending November 30, 2003), a consolidated balance sheet of the Borrower and its Subsidiaries as of the end of that fiscal year and the related consolidated statements of earnings, stockholders’ equity and cash flows for that fiscal year, all with accompanying notes and schedules, prepared in accordance with GAAP consistently applied and audited and reported upon by Deloitte & Touche or another firm of independent certified public accountants of similar recognized standing selected by the Borrower and acceptable to the Administrative Agent (such audit report shall be unqualified except for qualifications relating to changes in GAAP and required or approved by the Borrower’s independent certified public accountants);

(b) as soon as available and in any event within 60 days after the end of each of the first three quarters, and within 120 days after the end of the fourth quarter, of each fiscal year of the Borrower (commencing with the quarter ending May 31, 2003), a consolidated balance sheet of the Borrower and its Subsidiaries as of the end of that quarter, and the related consolidated

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statement of earnings and cash flows of the Borrower and its Subsidiaries for the period from the beginning of the fiscal year to the end of that quarter, all prepared in accordance with GAAP consistently applied, unaudited but certified to be true and accurate, subject to normal year-end audit adjustments, by an Authorized Financial Officer of the Borrower;

(c) within 60 days after the end of each of the first three quarters, and within 120 days after the end of the fourth quarter, of each fiscal year of the Borrower (commencing with the quarter ending May 31, 2003), (i) a consolidating balance sheet of the Loan Parties (in a form acceptable to the Administrative Agent) as of the end of that quarter and the related consolidating statement of earnings of the Loan Parties (in a form acceptable to the Administrative Agent) for the period from the beginning of the fiscal year to the end of that quarter, and (ii) a consolidating balance sheet of the Mortgage Banking Subsidiaries (in a form acceptable to the Administrative Agent) as of the end of that quarter and the related consolidating statement of earnings of the Mortgage Banking Subsidiaries (in a form acceptable to the Administrative Agent) for the period from the beginning of the fiscal year to the end of that quarter, all prepared in accordance with GAAP consistently applied, unaudited but certified to be true and accurate, subject to normal year-end audit adjustments, by an Authorized Financial Officer of the Borrower;

(d) intentionally omitted;

(e) intentionally omitted;

(f) concurrently with the delivery of the financial statements described in subsection (a) above, a letter signed by that firm of independent certified public accountants to the effect that, during the course of their examination, nothing came to their attention which caused them to believe that any Event of Default or Unmatured Default has occurred, or if such Event of Default or Unmatured Default has occurred, specifying the facts with respect thereto; and concurrently with the delivery of the financial statements described in subsections (b) and (c) above, a certificate signed by the President or Executive Vice President and an Authorized Financial Officer of the Borrower to the effect that having read this Agreement, and based upon an examination which they deemed sufficient to enable them to make an informed statement, there does not exist any Event of Default or Unmatured Default, or if such Event of Default or Unmatured Default has occurred, specifying the facts with respect thereto;

(g) within 30 days after the end of each calendar month (commencing with the month ending April 30, 2003), a report, in reasonable detail and in form and substance satisfactory to the Administrative Agent, setting forth, as of the end of the month, with respect to each Project owned by the Loan Parties, (i) the number of Housing Unit Closings, (ii) the number of Housing Units either completed or under construction, specifying the number thereof that are Completed Housing Units, (iii) the number of Housing Units Under Contract;

(h) within 120 days after the end of each fiscal year of the Borrower (commencing with the fiscal year ending November 30, 2003), a schedule of all Real Estate owned by the Loan Parties in the form of Schedule III annexed hereto or as otherwise required by Administrative Agent, which schedule, in addition to providing all the categories of information specified in Schedule III, shall specify those properties the interest and carrying charges attributable to which

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are being deducted, for financial reporting purposes, for the fiscal year in which they are paid and shall contain all such other information as Administrative Agent shall require;

(i) within 90 days after the beginning of each fiscal year of the Borrower, a projection, in reasonable detail and in form and substance satisfactory to the Administrative Agent, on a quarterly basis, of the cash flow and of the earnings of the Borrower and its Subsidiaries for that fiscal year and for the immediately succeeding fiscal year;

(j) promptly upon becoming available, copies of all financial statements, reports, notices and proxy statements sent by the Borrower to its stockholders, and of all regular and periodic reports and other material (including copies of all registration statements and reports under the Securities Act of 1933, as amended (the “Securities Act”), and the Securities Exchange Act of 1934, as amended) filed by the Borrower with any securities exchange or any governmental authority or commission, except material filed with governmental authorities or commissions relating to the development of Real Estate in the ordinary course of the business of the Loan Parties and which does not relate to or disclose any Material Adverse Effect;

(k) as soon as available and in any event within 90 days after the end of each of the first three quarters, and within 120 days after the end of the fourth quarter, of each fiscal year of each Joint Venture, a balance sheet of that Joint Venture as of the end of that quarter and a statement of earnings of that Joint Venture for the period from the beginning of the fiscal year to the end of that quarter, prepared in accordance with GAAP consistently applied, unaudited but certified to be true and accurate, subject (in the case of the financial statements delivered for the first three quarter of each fiscal year) to normal year-end adjustments, by an Authorized Financial Officer of the Borrower;

(l) within 60 days after the end of each of the first three quarters, and within 90 days after the end of each fiscal year of the Borrower (commencing with the quarter ending February 28, 2003 and fiscal year ending November 30, 2003), a report which shall include the information and calculations provided for in Exhibit P attached hereto and such other condition in reasonable detail and be in form and substance satisfactory to the Administrative Agent, with calculations indicating that the Borrower is in compliance, as of the last day of such quarterly or annual period, as the case may be, with the provisions of Articles VII and VIII of this Agreement. Without limiting the generality of the foregoing, the Borrower shall provide to the Lenders (i) a report calculating the Borrowing Base in form and substance satisfactory to Administrative Agent, in which report the Borrower shall include a report of all accounts receivable from the sales of Housing Units included in the Borrowing Base, showing all such receivables which remain uncollected on the tenth (10th) day after the end of the quarter or fiscal year, as the case may be, provided, however, that the Borrower may, and upon request from the Administrative Agent shall, also deliver such report as of the end of any calendar month, and, (ii) a report containing the calculations necessary to indicate that the Borrower is in compliance with the provisions of Sections 6.09 and 7.14, including a certification of the outstanding principal amount of all loans and advances made by any Loan Party to each of the applicable Mortgage Banking Subsidiaries, as the case may be, and that all such loans and advances are duly evidenced by the Mortgage Banking Subsidiaries Note in the possession of Administrative Agent. The reports furnished pursuant to this subsection (l) shall be certified to be true and correct by an Authorized Financial Officer of the Borrower and shall also contain a

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representation and warranty by the Borrower that it is in full compliance with the provisions of Article VII of this Agreement;

(m) within 60 days after the end of each of the first three quarters, and within 90 days after the end of each fiscal year of the Borrower (commencing with the quarter ending May 31, 2003 and fiscal year ending November 30, 2003), a report, in reasonable detail and in form and substance satisfactory to the Administrative Agent, with calculations indicating whether the Borrower, as of the last day of such quarterly or annual period, as the case may be, is in compliance with the provisions of Section 7.02(c);

(n) if requested by Administrative agent, within 270 days after the close of each fiscal year a statement of the Unfunded Liabilities of each Single Employer Plan, certified as correct by an actuary enrolled under ERISA, but the foregoing statement shall be required only if any Single Employer Plan shall exist;

(o) as soon as possible and in any event within 10 days after the Borrower knows that any Reportable Event has occurred with respect to any Plan, a statement, signed by an Authorized Financial Officer of the Borrower, describing said Reportable Event and the action which the Borrower proposes to take with respect thereto;

(p) as soon as possible and in any event within 10 days after receipt thereof by the Borrower or any of its Subsidiaries, a copy of (i) any notice or claim to the effect that the Borrower or any of its Subsidiaries is or may be liable to any Person as a result of the release by the Borrower, any of its Subsidiaries, or any other Person of any Hazardous Substance into the environment, and (ii) any notice alleging any violation of any Environmental law or any federal, state or local health or safety law or regulation by the Borrower or any of its Subsidiaries, which, in either case, could reasonably be expected to have a Material Adverse Effect;

(q) promptly upon the request of the Administrative Agent or any Lender, an accurate legal description with respect to any Real Estate included in the calculation of the Borrowing Base;

(r) not more than 90 days after the making of any investment in any Significant Joint Venture or within thirty (30) days following the Administrative Agent’s request in the case of any other Joint Venture, copies of each proposed shareholders’ agreement, certificate or articles of incorporation, partnership agreement, joint venture agreement or similar organizational instrument or agreement, relating to the formation of each Joint Venture, and each material restatement, modification, amendment or supplement thereto;

(s) concurrently with the quarterly financial statements described in subsection (b) above following the end of any quarter in which each new Subsidiary that is to become a Guarantor under Section 6.07 hereof was formed, the Borrower shall deliver to the Administrative Agent (i) a revised copy of Schedule VI to this Agreement, adding thereto the information with respect to such new Subsidiary required by Section 4.14 hereof; (ii) a Supplemental Guaranty, substantially in the form provided for in the Guaranty, executed by a duly authorized officer of such new Subsidiary; (iii) if such Subsidiary is a Significant Subsidiary, a Pledge Agreement (or amendment to a previously delivered Pledge Agreement in

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form satisfactory to the Administrative Agent) executed by a duly authorized officer of the Borrower or of such Guarantor that owns the Capital Stock or other equity interests in such Significant Subsidiary, together with such stock certificates and other documents provided to be delivered under the Pledge Agreement; (iv) a copy of the certificate of incorporation or other organizational document of such new Subsidiary, certified by the secretary of state or other official of the state or other jurisdiction of its incorporation; (v) a copy of the bylaws of such new Subsidiary, certified by the secretary or other appropriate officer or partner of such Subsidiary; and (vi) if requested by the Administrative Agent, an opinion of the Borrower’s counsel in the form provided for in Section 5.01(d), modified to apply to the foregoing documents delivered hereunder;

(t) concurrently with the quarterly financial statements described in subsection (b) above following the end of any quarter as of which any Subsidiary, the Capital Stock or other equity interests in which have not been pledged pursuant to a Pledge Agreement, becomes a Significant Subsidiary, the Borrower shall deliver to the Administrative Agent (i) a Pledge Agreement (or amendment to a previously delivered Pledge Agreement in form satisfactory to the Administrative Agent) executed by a duly authorized officer of the Borrower or of such Guarantor that owns the Capital Stock or other equity interests in such Significant Subsidiary, together with such stock certificates and other documents provided to be delivered under the Pledge Agreement; and (ii) if requested by the Administrative Agent, an opinion of the Borrower’s counsel in the form provided for in Section 5.01(d), modified to apply to the foregoing documents delivered hereunder; and

(u) such supplements to the aforementioned documents and additional information (including, but not limited to, leasing, occupancy and non-financial information) and reports as the Administrative Agent or any Lender may from time to time reasonably require.

SECTION 6.05. Access to Premises and Records. At all reasonable times and as often as any Lender may reasonably request, permit authorized representatives and agents (including accountants) designated by that Lender to (a) have access to the premises of the Borrower and each Subsidiary and to their respective corporate books and financial records, and all other records relating to their respective operations and procedures, (b) make copies of or excerpts from those books and records and (c) upon reasonable notice to the Borrower, discuss the respective affairs, finances and operations of the Borrower and its Subsidiaries with, and to be advised as to the same by, their respective officers and directors.

SECTION 6.06. Maintenance of Properties and Insurance. Maintain all its properties and assets in good working order and condition and make all necessary repairs, renewals and replacements thereof so that its business carried on in connection therewith may be properly conducted at all times; and maintain or require to be maintained (a) adequate insurance, by financially sound and reputable insurers, on all properties of the Loan Parties which are of character usually insured by Persons engaged in the same or a similar business (including, without limitation, all Real Estate encumbered by Mortgages securing mortgage loans made by any Loan Party, to the extent normally required by prudent mortgagees, and all Real Estate which is subject of an Equity Investment by any Loan Party, to the extent normally carried by prudent builder-developers) against loss or damage resulting from fire, defects in title or other risks insured against by extended coverage and of the kind customarily insured against by those

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Persons, (b) adequate public liability insurance against tort claims which may be incurred by any Loan Party, and (c) such other insurance as may be required by law. Upon the request of the Administrative Agent, the Borrower will furnish to the Lenders full information as to the insurance carried. Notwithstanding the foregoing provisions of this Section 6.06, the Borrower shall be permitted to self-insure against all property and casualty risks associated with its construction of dwelling units up to a maximum aggregate construction exposure for any Project not to exceed at any time 10% of Adjusted Consolidated Tangible Net Worth.

SECTION 6.07. Financing: New Investing. Give the Administrative Agent (a) advance written notice of the establishment of any new Significant Joint Venture or the formation of any new Significant Subsidiary, which such new Significant Subsidiary shall become a Guarantor, by and effective upon compliance with the provisions of Section 6.04(s), unless (i) such Subsidiary is a Joint Venture Subsidiary, (ii) the terms of the agreement creating such Joint Venture prohibit the joint venturers thereof from being or becoming liable for any Indebtedness other than Indebtedness of the Joint Venture and (iii) all of the issued and outstanding equity Securities of such Subsidiary are pledged to the Lenders pursuant to Section 7.05 hereof, and (b) written notice of the formation of any new Subsidiary which is not a Significant Subsidiary given not later than ninety (90) days after such formation, which new Subsidiary shall become a Guarantor by and effective upon compliance with the provisions of Section 6.04(s), unless (x) such Subsidiary is a Joint Venture Subsidiary, (y) the terms of the agreement creating such Joint Venture prohibit the joint venturers thereof from being or becoming liable for any Indebtedness other than Indebtedness of the Joint Venture and (z) all of the issued and outstanding equity Securities of such Subsidiary are pledged to the Lenders pursuant to Section 7.05 hereof; provided, however, that (A) nothing in this Section 6.07 shall be deemed to authorize the Borrower or any of its Subsidiaries to enter into any such transaction if the same would violate any of the limitations set forth in Article VII hereof, (B) such Subsidiary shall not be required to deliver a Guaranty if applicable laws or regulations (such as, by way of example, laws regulating insurance companies or providers of cable services) prohibit such Subsidiary from delivering a Guaranty and (C) a Subsidiary that is not a Wholly-Owned Subsidiary shall not be required to deliver a Guaranty.

SECTION 6.08. Compliance with Applicable Laws. Promptly and fully comply with, conform to and obey all present and future laws, ordinances, rules, regulations, orders, writs, judgments, injunctions, decrees, awards and all other legal requirements applicable to the Borrower, its Subsidiaries and their respective properties, including, without limitation, Regulation Z of the Board of Governors of the Federal Reserve System, the Federal Interstate Land Sales Full Disclosure Act, ERISA, the Florida Land Sales Act or any similar statute in any applicable jurisdiction, the violation of which would have a Material Adverse Effect on any Loan Party.

SECTION 6.09. Advances to the Mortgage Banking Subsidiaries. Cause the Mortgage Banking Subsidiaries to execute and deliver the Mortgage Banking Subsidiaries Note in order to evidence all loans and advances that now exist or are hereafter made by any Loan Party to any of the Mortgage Banking Subsidiaries, respectively; deposit the original Mortgage Banking Subsidiaries Note with Administrative Agent; and obtain, prior to or contemporaneously with the execution of this Agreement, written acknowledgments from each Mortgage Banking Subsidiary that the aggregate of all loans and advances hereafter made by any

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applicable Loan Party to such Mortgage Banking Subsidiary shall be evidenced and governed by the Mortgage Banking Subsidiaries Note held by Administrative Agent. At all times the principal amount of the Mortgage Banking Subsidiaries Note held by Administrative Agent must equal or exceed the aggregate principal amount of all loans and advances made by any Loan Party to Mortgage Banking Subsidiaries, and upon the request of Administrative Agent (but no more frequently than monthly), the Borrower shall obtain and deliver to the Administrative Agent specific written acknowledgments from each of the Mortgage Banking Subsidiaries to the effect that loans and advances theretofore made by any applicable Loan Party to the Mortgage Banking Subsidiaries are evidenced by the Mortgage Banking Subsidiaries Note. In the event that after the Agreement Date any Loan Party organizes or acquires any Mortgage Banking Subsidiary, such Mortgage Banking Subsidiary shall, upon such organization or acquisition, join in and become a maker of a replacement Mortgage Banking Subsidiaries Note, such new Mortgage Banking Subsidiaries Note shall be deposited with the Administrative Agent pursuant to this Section 6.09, and all references in this Agreement to Mortgage Banking Subsidiaries shall thereafter be deemed references to all such Mortgage Banking Subsidiaries.

SECTION 6.10. Use of Proceeds. Use the proceeds of the Advances for working capital and general corporate purposes and to finance Acquisitions consummated with the prior approval of the Board of Directors or a majority of the shareholders of the Person to be acquired.

SECTION 6.11. REIT Subsidiary. If and when the REIT Subsidiary is established and for as long as it remains a financing entity, it shall at all times maintain its status as a qualified real estate investment trust in accordance with Section 856 of the Code.

ARTICLE VII

NEGATIVE COVENANTS

The Borrower covenants and agrees that from the date hereof until payment in full of all the Obligations, termination of all Facility Letters of Credit and termination of the Commitments, unless the Required Lenders otherwise shall consent in writing as provided in Section 13.06 hereof, the Borrower will not, either directly or indirectly:

SECTION 7.01. Minimum Adjusted Consolidated Tangible Net Worth. Permit Adjusted Consolidated Tangible Net Worth at any time to be less than the sum of (a) $1,231,630,000, plus (b) an amount equal to the amount (if any) by which (i) 50% of the cumulative amount of positive Consolidated Net Income of the Loan Parties for each fiscal quarter of the Borrower ending after the Prior Closing Date for which the Loan Parties, taken as a whole, had Consolidated Net Income exceeds (ii) the aggregate amount paid by the Borrower after the Prior Closing Date to purchase or redeem its equity Securities, plus (c) an amount equal to 50% of the aggregate amount of the increase in Adjusted Consolidated Tangible Net Worth resulting from the issuance of equity Securities of the Borrower after the Prior Closing Date. For purposes of this Section 7.01, the term “Consolidated Net Income,” when used in respect of any period, shall not include any loss for such period.

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SECTION 7.02. Limitation on Indebtedness.

(a) Borrowing Base Limitation. At any time at which the Facilities do not have a rating of BBB- or higher from S&P or Baa3 or higher from Moody’s, permit the aggregate outstanding amount of the sum of all Borrowing Base Debt to exceed the Borrowing Base at such time (the “Borrowing Base Limitation”).

(b) Maximum Leverage Ratio. At any time, permit the Leverage Ratio to exceed 2.25.

(c) Minimum Interest Coverage Ratio. At any time, permit the Interest Coverage Ratio to be less than 2.00 to 1.00.

SECTION 7.03. Guaranties. Make or suffer to exist any Contingent Obligation (including, without limitation, any Contingent Obligation with respect to the obligations of a Subsidiary or Joint Venture but excluding any Repurchase Guaranty) or otherwise assume, guarantee or in any way become contingently liable or responsible for obligations of any other Person, whether by agreement to purchase those obligations of any other Person, or by agreement for the furnishing of funds through the purchase of goods, supplies or services (whether by way of stock purchase, capital contribution, advance or loan) for the purpose of paying or discharging the obligations of any other Person, except for: (a) guaranties of obligations of the Loan Parties issued in the ordinary course of business; (b) the endorsement of negotiable instruments in the ordinary course of business; (c) guaranties of performance and completion and performance and completion bonds issued in connection with the construction of Real Estate developments owned by a Loan Party; (d) the Guaranties; or (e) guaranties (including without limitation LTV Maintenance Agreements) of liabilities incurred by Joint Ventures to which the Borrower or a Joint Venture Subsidiary is a party, provided that all such guaranties outstanding at any one time, do not exceed 25% of the Adjusted Consolidated Tangible Net Worth. For purposes of the foregoing clause (e) the outstanding amount of any LTV Maintenance Agreement shall be determined as provided in the definition of LTV Maintenance Agreement. None of the foregoing clauses, however, shall be deemed to permit (i) any Loan Party to guaranty any obligations of any one or more of the Mortgage Banking Subsidiaries (other than a Repurchase Guaranty) or any Subsidiary identified in Schedule VII if any such guaranty would cause a violation of Section 7.02 or any obligations of LNR or (ii) the Borrower to guaranty any obligations under any of the Old U.S. Home Debt Issues.

SECTION 7.04. Sale of Assets; Acquisitions; Merger.

(a) Except for the transactions described in Schedule X (the “Permitted Dispositions”), do either of the following: (i) sell any single asset with a book value of $50,000,000 or more for a sales price which is less than 60% of the book value of that asset, or (ii) sell any single asset with a book value of $20,000,000 or more unless such sale is in the ordinary course of business; provided, however, that in no event shall the aggregate sales price of all assets sold or disposed of by the Loan Parties, other than those sold in the ordinary course of business, exceed $50,000,000 in any single calendar year.

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(b) Do any of the following:

(i) sell, assign, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of the assets (whether now owned or hereafter acquired) of the Borrower and the Subsidiaries (on a consolidated basis) except for the sale of inventory in the ordinary course of business;

(ii) merge into or consolidate with any other Person or permit any other Person to merge into or consolidate with it;

(iii) dissolve, liquidate or wind up its business by operation of law or otherwise; or

(iv) distribute to the stockholders of the Borrower any Securities of any Subsidiary;

provided, however, that any Subsidiary or any other Person may merge into or consolidate with or may dissolve and liquidate into a Loan Party and any Subsidiary that is not a Loan Party may merge into or consolidate with or may dissolve and liquidate into another Subsidiary that is not a Loan Party, if (and only if), (1) in the case of a merger or consolidation involving a Loan Party, the Loan Party is the surviving Person, (2) in the case of a merger or consolidation involving the Borrower, the Borrower is the surviving Person, (3) the character of the business of the Borrower and the Subsidiaries on a consolidated basis will not be materially changed by such occurrence, and (4) such occurrence shall not constitute or give rise to an Event of Default or Unmatured Default or a default in respect of any of the covenants contained in any agreement to which the Borrower or any such Subsidiary is a party or by which its property may be bound.

(c) Acquire another Person unless (i) the primary business of such Person is the Real Estate Business and (ii) the majority of shareholders (or other equity interest holders), the board of directors or other governing body of such Person approves such Acquisition.

Nothing contained in this Section 7.04, however, shall restrict any sale of assets among the Borrower and the Guarantors which is in compliance with all other provisions of this Agreement.

SECTION 7.05. Investments. Purchase or otherwise acquire, hold or invest in the Securities (whether Capital Stock or instruments evidencing debt) of, make loans or advances to, enter into any arrangements for the purpose of providing funds or credit to, or make any Equity Investment in, any Person which is not a Loan Party on the Closing Date or a Subsidiary which becomes a Guarantor upon the making of the investment, except for: (i) (A) Investments in or loans or advances to Joint Ventures to which the Borrower or a Subsidiary is a party; and (B) Investments in or loans or advances to the Mortgage Banking Subsidiaries and the Subsidiaries listed in Schedule VII, provided that (1) the aggregate of all such Investments, loans and advances outstanding at any time in this clause (i) does not exceed 30% of Adjusted Consolidated Tangible Net Worth through November 29, 2003 and 25% of Adjusted Consolidated Tangible Net Worth from and after November 30, 2003 and (2) with respect to Investments in, or loans and advances to each Joint Venture Subsidiary which is not a Loan Party, all of the issued and outstanding equity Securities of such Joint Venture Subsidiary shall have been pledged to the Administrative Agent pursuant to the terms and provisions of a Pledge

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Agreement and such pledge shall not be prohibited by, or result in a breach or violation of, any agreement, indenture or other instrument to which the Borrower or any Subsidiary is a party or is bound, and (ii) (A) purchases of direct obligations of the government of the United States of America or any agency thereof, or obligations unconditionally guaranteed by the United States of America; (B) certificates of deposit of any bank, organized or licensed to conduct a banking business under the laws of the United States or any state thereof having capital, surplus and undivided profits of not less than $100,000,000; (C) Investments in commercial paper which, at the time of acquisition by the Borrower or a Subsidiary, is accorded an “A” or equivalent rating by any of the Rating Agencies or any other nationally recognized credit rating agency of similar standing; (D) investments in publicly traded, readily marketable securities traded on a recognized national exchange or over-the-counter; (E) loans or advances by the Borrower or a Guarantor to, or Securities or Indebtedness of, a real estate or homebuilding company to be acquired by the Borrower for the purpose of obtaining control of specific homebuilding assets of that homebuilding company, provided, however, that such loans, advances or Indebtedness are secured by Mortgages on land, homes under construction and/or homes inventory of such real estate or homebuilding company; and (F) loans by the REIT Subsidiary to other Loan Parties.

SECTION 7.06. Disposition; Encumbrance or Issuance of Certain Stock. Sell, transfer or otherwise dispose of, or pledge, grant a security interest, equity interest or other beneficial interest in or otherwise encumber any of the outstanding shares of Capital Stock of any Mortgage Banking Subsidiary, or permit any Mortgage Banking Subsidiary to sell, issue or otherwise transfer any shares of its Capital Stock to any Person other than a Loan Party.

SECTION 7.07. Subordinated Debt. Directly or indirectly make any payment of principal or interest with respect to any Subordinated Debt prior to the date the same is due, or amend or modify the terms of any Subordinated Debt except for extensions of the due date thereof, or directly or indirectly redeem, retire, defease, purchase or otherwise acquire any Subordinated Debt.

SECTION 7.08. Housing Units. Permit the total number of Housing Units owned by the Loan Parties, including Housing Units under construction, but excluding model Housing Units and Housing Units Under Contract, at any time to exceed 35% of the total number of Housing Unit Closings during the immediately preceding 12-month period, provided that Housing Unit Closings shall include closings of the sale of housing units by entities that were acquired, and became Loan Parties, during the applicable period.

SECTION 7.09. Construction in Progress. Cause, suffer or permit to exist any Mortgage, security interest or other encumbrance (other than Liens described in clause (k) of the definition of “Permitted Liens”) to secure Indebtedness on any Housing Unit or other building or structure (including, without limitation, any asset reported as “Construction in Progress” in the financial statements of the Borrower) that is under construction on any land owned or leased by any Loan Party; provided, however, that the Borrower may cause, suffer or permit to exist purchase money Mortgages having an aggregate outstanding principal balance not exceeding $25,000,000 at any time on assets so reported as “Construction in Progress.”

SECTION 7.10. No Margin Stock. Use any of the proceeds of the Advances to purchase or carry any “margin stock” (as defined in Regulation U).

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SECTION 7.11. Mortgage Banking Subsidiaries’ Capital Ratio. Permit the ratio of the combined total Indebtedness of the Mortgage Banking Subsidiaries to the Mortgage Banking Subsidiaries Adjusted Net Worth to exceed, at any time, eight (8) to one (1).

SECTION 7.12. Transactions with Affiliates. Enter into any transaction (including, without limitation, the purchase or sale of any property or service) with, or make any payment or transfer to, any Affiliate, except in the ordinary course of business and pursuant to the reasonable requirements of the Borrower’s or a Subsidiary’s business and upon fair and reasonable terms no less favorable to the Borrower or such Subsidiary than the Borrower or such Subsidiary would obtain in a comparable arms’-length transaction.

SECTION 7.13. Restrictions on Advances to Mortgage Banking Subsidiaries. Subject to Section 7.05, (a) permit any loan or advance to be made by a Loan Party to a Mortgage Banking Subsidiary, except for loans and advances from a Loan Party to the Mortgage Banking Subsidiaries which are made under, and evidenced by, the Mortgage Banking Subsidiaries Note that is in the possession of Administrative Agent and for which the Borrower shall have obtained a written acknowledgment from each Mortgage Banking Subsidiary that the same are evidenced and governed by the Mortgage Banking Subsidiaries Note; (b) permit the aggregate amount of all loans and advances made by the Loan Parties to any Mortgage Banking Subsidiary outstanding at any time to exceed the sum of (i) the net carrying value of all mortgage loans held by such Mortgage Banking Subsidiary, less the aggregate principal amount of all promissory notes payable by such Mortgage Banking Subsidiary to banks or other lenders, and less the aggregate principal amount of all mortgage loans held for sale by such Mortgage Banking Subsidiaries which are pledged, assigned or otherwise encumbered, to the extent that said aggregate amount exceeds the aggregate principal amount of notes payable by such Mortgage Banking Subsidiary to banks or other lenders, and (ii) 1.5% of the principal amount of all mortgages serviced by such Mortgage Banking Subsidiary, less any loans or other financing to such Mortgage Banking Subsidiary associated with the servicing portfolio (exclusive of those amounts deducted in the calculation required under clause (i) above) if, and to the extent that, the servicing rights with respect to such mortgages are not subject to any Lien; (c) assign, transfer, pledge, hypothecate or encumber in any way the Mortgage Banking Subsidiaries Note, any interest therein or any sums due or to become due thereunder; (d) modify, amend, extend or in any way change the terms of the Mortgage Banking Subsidiaries Note; (e) make any principal advances to any Mortgage Banking Subsidiary, under the Mortgage Banking Subsidiaries Note or otherwise, at any time after the Administrative Agent has been granted a security interest in the Mortgage Banking Subsidiaries Note pursuant to Section 8.02 except to the extent of any principal prepayments under the Mortgage Banking Subsidiaries Note in excess of the mandatory principal payments required thereunder; or (f) permit a Mortgage Banking Subsidiary to enter into any agreement or agreements which (i) in any way restrict the payment of dividends by such Mortgage Banking Subsidiary or (ii) individually, or in the aggregate, impose any restriction on the repayment of any indebtedness of a Mortgage Banking Subsidiary to any Person (including, without limitation, the indebtedness payable under the Mortgage Banking Subsidiaries Note) other than a restriction on the payment of the last $5,000,000 of principal indebtedness of UAMC (i.e., such permitted restriction shall be applicable only after the aggregate principal amount of indebtedness owed by UAMC to any Person shall be less than or equal to $5,000,000).

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SECTION 7.14. Mortgage Banking Subsidiaries Adjusted Net Worth. Permit the Mortgage Banking Subsidiaries Adjusted Net Worth at any time to be less than $30,000,000.

SECTION 7.15. Investments in Land. At any time, permit the (a) sum of (i) the Loan Parties’ investments in unimproved land plus (ii) the amount by which the Loan Parties’ investments in improved land exceeds Qualified Finished Lots, plus (iii) the Loan Parties’ investments in and advances to LLP to exceed (b) the sum of (i) Adjusted Consolidated Tangible Net Worth plus (ii) the lesser of (A) $300,000,000 and (B) 50% of Subordinated Debt.

SECTION 7.16. Liens and Encumbrances.

(a) Negative Pledge. Grant or suffer or permit to exist any Liens on any of its rights, properties or assets other than Permitted Liens.

(b) No Agreement for Negative Pledge. Agree with any third party not to create, assume or suffer to exist any Lien securing the Obligations on or of any of its property, real or personal, whether now owned or hereafter acquired.

ARTICLE VIII

COLLATERAL

SECTION 8.01. Pledge Agreement.

(a) Pledges Securing Secured Obligations.

(i) Subject to the provisions of Section 8.03(a), the Secured Obligations shall at all times be secured by a first priority pledge of and security interest in all Capital Stock of or other equity interests in each of the Significant Subsidiaries in favor of the Administrative Agent for the ratable benefit of the Lenders. If and to the extent that any Subsidiary of the Borrower that is not a Significant Subsidiary thereafter becomes a Significant Subsidiary, the Borrower shall cause the Capital Stock or other equity interests in such Subsidiary to be pledged pursuant to a Pledge Agreement.

(ii) In the event that at any time, whether on or after the Closing Date, the assets of all Subsidiaries with respect to which Pledge Agreements pledging the Capital Stock or other equity interests therein have been delivered as Collateral hereunder which have not theretofore been released, constitute, in the aggregate, an amount that is less than 90% of all assets of the Borrower and its Subsidiaries on a consolidated basis determined as of the last day of the most recent fiscal quarter of the Borrower (the “90% Test”), the Borrower shall cause to be pledged, pursuant to Pledge Agreements (or amendments to previously executed Pledge Agreements satisfactory to the Administrative Agent), the Capital Stock or other equity interests in such additional Subsidiaries as may be required to satisfy the 90% Test. The specific Subsidiaries with respect to which such pledges shall be required shall be as mutually agreed upon by the Borrower and the Administrative Agent, provided, however, that in the absence of such agreement, the Subsidiary or Subsidiaries having the greatest amount of assets (and with respect to which the pledge of such Capital Stock or equity interests would not be

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prohibited by applicable laws or regulations) shall be pledged to the extent necessary to satisfy the 90% Test. For purposes of this Section 8.01(a)(ii), the assets of a Subsidiary shall exclude its interests (if any) in any other Subsidiary. Notwithstanding anything to the contrary contained herein, all of the Capital Stock of Strategic Technologies, Inc. shall be pledged pursuant to a Pledge Agreement.

(b) Intentionally Omitted.

(c) Release of Certain Pledges. In the event that any Subsidiary with respect to which a Pledge Agreement pledging the Capital Stock or other equity interests therein has been delivered ceases to be a Significant Subsidiary (as determined as of the last day of two consecutive fiscal quarters of the Borrower), the Administrative Agent shall, upon written request from the Borrower, cause the pledge with respect to such Subsidiary to be released, provided, however, that no such release shall be required if, as a result thereof, the 90% Test provided for in Section 8.01(a)(ii) would not be satisfied.

SECTION 8.02. Mortgage Banking Subsidiaries Note.

(a) Pledge. Subject to the provisions of Section 8.03, upon the request of the Administrative Agent (which may not be made without the prior written consent from the Required Lenders and which shall be made upon the written request of the Required Lenders), the Borrower shall grant, and shall cause any Guarantor that is a payee under the Mortgage Banking Subsidiaries Note to grant, the Administrative Agent on behalf of the Lenders as security for the payment in full of all the Secured Obligations, a first lien and security interest in the Mortgage Banking Subsidiaries Note. Notwithstanding anything to the contrary provided in this Agreement, the Borrower agrees that the Mortgage Banking Subsidiaries Note Pledge Agreement shall require all principal payments payable under the Mortgage Banking Subsidiaries Note to be made directly to the Administrative Agent and applied to the principal outstanding under the Notes as required under Section 2.06(d).

(b) Collateral Documentation. If and when the Borrower is required to grant the Administrative Agent a security interest in the Mortgage Banking Subsidiaries Note pursuant to Section 8.02(a), the Borrower shall deliver to the Administrative Agent:

(i) a pledge and security agreement (the “Mortgage Banking Subsidiaries Note Pledge Agreement”), in form and substance satisfactory to the Administrative Agent, duly executed by the Borrower and each Guarantor that is a payee under the Mortgage Banking Subsidiaries Note, granting the Administrative Agent on behalf of the Lenders, a first lien on, and security interest in, the Mortgage Banking Subsidiaries Note;

(ii) an endorsement or allonge to the Mortgage Banking Subsidiaries Note, in form and substance satisfactory to the Administrative Agent, duly executed by the Borrower and each Guarantor that is a payee under the Mortgage Banking Subsidiaries Note, transferring the Mortgage Banking Subsidiaries Note to the Administrative Agent on behalf of the Lenders; and

(iii) a written acknowledgment duly executed by the Borrower and each Guarantor that is a payee under the Mortgage Banking Subsidiaries Note, that the

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Administrative Agent holds the Mortgage Banking Subsidiaries Note as Collateral for the Secured Obligations.

All the foregoing documents shall be delivered to the Administrative Agent on or before the date that the Borrower is required to grant the Administrative Agent the security interest in the Mortgage Banking Subsidiaries Note. All of the documentation and other items required under this Section 8.02 must be fully satisfactory, both in form and substance, to the Administrative Agent. In addition to the foregoing, at the request of the Administrative Agent, the Borrower shall, and shall cause each Guarantor that is a payee under the Mortgage Banking Subsidiaries Note to, execute and deliver to the Administrative Agent such assignments, pledges, financing statements and other documents, and cause to be done such further acts, all as the Administrative Agent from time to time may deem necessary or appropriate to evidence, confirm, perfect or protect any security interest required to be granted to the Administrative Agent hereunder.

SECTION 8.03. Collateral Trusts.

(a) Notwithstanding the foregoing provisions of this Article VIII, in the event that, and for as long as, the terms of the Existing Borrower Public Debt require that the holder of such Existing Borrower Public Debt shall have an equal and ratable Lien in any of the Collateral, the Liens upon such Collateral provided to be granted to the Administrative Agent hereunder shall instead be granted to a collateral trustee reasonably satisfactory to the Administrative Agent under the terms of an agreement (“Collateral Trust Agreement”) either in the form heretofore delivered pursuant to the Original Credit Agreement or substantially in the form of Exhibit T hereto, and providing for such Collateral to be for the equal and ratable benefit of the trustee of the Existing Borrower Public Debt (for the benefit of the holders of the Existing Borrower Public Debt) and the Administrative Agent (for the benefit of the Holders of Secured Obligations). The fees and expenses of such collateral trustee shall be borne by the Borrower.

(b) Intentionally Omitted.

ARTICLE IX

EVENTS OF DEFAULT

SECTION 9.01. Events of Default. The occurrence of any one or more of the following Events shall constitute an “Event of Default”:

(a) any representation or warranty made or deemed made by or on behalf of any Loan Party to the Lenders, the Issuer, the Swing Line Bank or the Administrative Agent under or in connection with this Agreement or any Loan Document shall be false or misleading in any material respect when made;

(b) any report, certificate, financial statement or other document or instrument furnished in connection with this Agreement or the Loans hereunder shall be false or misleading in any material respect when furnished;

(c) default shall be made in the payment of (i) the principal of any of the Notes when and as due and payable, or (ii) the interest on any of the Notes, any fees or any other sums due

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pursuant to Article II, which default continues for five days after the same becomes due and payable;

(d) default shall be made with respect to any Indebtedness or Contingent Obligations of any Loan Party (other than the Indebtedness evidenced by the Notes, Non-Recourse Indebtedness and Indebtedness of a Loan Party to another Loan Party), beyond any applicable period of grace, or default shall be made with respect to the performance of any other obligation or incurred in connection with any such Indebtedness or liabilities beyond any applicable period of grace, or default shall be made with respect to any other liability of $5,000,000 or more, if the effect of any such default is to accelerate the maturity of such Indebtedness or liability or to cause any other liability to become due prior to its stated maturity, or any such Indebtedness or liability shall not be paid when due and such default shall not have been remedied or cured by such Loan Party or waived by the obligor;

(e) default shall be made in the due observance or performance of any of the provisions of Article VII or Article VIII or any other covenant, agreement or condition on the part of any Loan Party to be performed under or in connection with this Agreement or any Loan Document, and such default shall have continued for a period of thirty (30) days after the occurrence thereof;

(f) any Loan Party shall (i) petition or apply for, seek, consent to, or acquiesce in, the appointment of a receiver, trustee, examiner, custodian, liquidator or similar official of such Loan Party or any of its properties or assets, (ii) be unable, or admit in writing its inability, to pay its debts as they mature, (iii) make a general assignment for the benefit of or a composition with its creditors, (iv) have an order for relief entered with respect to it under the Federal bankruptcy laws as now or hereafter in effect, (v) institute any proceeding seeking an order for relief under the Federal bankruptcy laws as now or hereafter in effect, or file a petition or an answer seeking dissolution, winding up, liquidation or reorganization or an arrangement with creditors or a composition of its debts or to take advantage of any bankruptcy, reorganization, insolvency, readjustment of debts, dissolution or liquidation law or statute or other statute or law for the relief of debtors, or file any answer admitting the material allegations of a petition filed against it in any proceeding under such law, or fail to file an answer or other pleading denying the material allegations of any such proceeding filed against it, or if corporate or other action shall be taken by such Loan Party for the purpose of effecting any of the foregoing, or (vi) fail to contest in good faith any appointment or proceeding described in Section 9.01(g);

(g) an order, judgment, or decree shall be entered without the application, approval, or consent of any Loan Party by any court of competent jurisdiction appointing a receiver, trustee or liquidator of any Loan Party or a proceeding described in Section 9.01(f) shall be instituted against the any Loan Party, and such appointment shall continue undischarged or such proceeding continues undismissed or unstayed for any period of 45 days;

(h) final judgment for the payment of money in excess of an aggregate of $5,000,000 shall be rendered against the any Loan Party and the same shall remain undischarged or not appealed for a period of 30 days during which execution shall not be effectively stayed;

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(i) there shall occur any Event or Events which, individually or in the aggregate, shall be deemed by the Required Lenders to have had a Material Adverse Effect;

(j) any Loan Party shall be the subject of any proceeding or investigation pertaining to the release by any Loan Party, any of its Subsidiaries or any other Person of any Hazardous Substance into the environment, or any violation of any Environmental Law or any federal, state or local health or safety law or regulation, which, in either case, could reasonably be expected to have a Material Adverse Effect; or

(k) there shall occur any Change in Control of the Borrower.

SECTION 9.02. Remedies.

(a) Acceleration. If any Event of Default described in Section 9.01(f) or (g) occurs with respect to the Borrower, the obligations of the Lenders to make Loans, the Swing Line Bank to make Swing Line Loans and the Issuer to issue Facility Letters of Credit hereunder shall automatically terminate and the Obligations (including all Facility Letter of Credit Obligations) shall immediately become due and payable without any election or action on the part of the Administrative Agent or any Lender. If any other Event of Default occurs and is continuing, the Administrative Agent may, and upon written direction of the Required Lenders shall, terminate or suspend the obligations of the Lenders to make Loans, the Swing Line Bank to make Swing Line Loans and the Issuer to issue Facility Letters of Credit hereunder, or declare the Obligations (including all Facility Letter of Credit Obligations) to be due and payable, or both, whereupon the Obligations (including all Facility Letter of Credit Obligations) shall become immediately due and payable, without presentment, demand, protest or notice of any kind, all of which the Borrower hereby expressly waives

(b) Recission of Acceleration. If, within 30 days after acceleration of the maturity of the Obligations or termination of the obligations of the Lenders to make Loans hereunder as a result of any Event of Default (other than any Event of Default as described in Section 9.01 (f) or (g) with respect to the Borrower and before any judgment or decree for the payment of the Obligations due shall have been obtained or entered, the Required Lenders (in their sole discretion) shall so direct, the Administrative Agent shall, by notice to the Borrower, rescind and annul such acceleration and/or termination.

SECTION 9.03. Application of Payments.

(a) Subject to the provisions of Section 11.02 and any provisions of this Agreement specifically providing for payments to be applied to a particular Facility, the Administrative Agent shall, unless otherwise specified at the direction of the Required Lenders which direction shall be consistent with the last sentence of this Section 9.03, apply all payments and prepayments in respect of any Obligations and all proceeds of the Collateral (except as hereinafter provided) in the following order:

(i) first, to pay interest on and then principal of any portion of the Loans which the Administrative Agent may have advanced on behalf of any Lender for which the Administrative Agent has not then been reimbursed by such Lender or the Borrower;

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(ii) second, to pay Obligations in respect of any fees, expenses, reimbursements or indemnities then due to the Administrative Agent;

(iii) third, to pay Obligations in respect of any fees, expenses, reimbursements or indemnities then due to the Lenders and the Issuer(s);

(iv) fourth, to pay interest due in respect of Swing Line Loans;

(v) fifth, to pay interest due in respect of Loans (other than Swing Line Loans) and Facility Letter of Credit Obligations;

(vi) sixth, to the ratable payment or prepayment of principal outstanding on Swing Line Loans;

(vii) seventh, to the ratable payment or prepayment of principal outstanding on Loans (other than Swing Line Loans), Reimbursement Obligations, and Hedging Obligations under Permitted Hedging Agreements;

(viii) eighth, to the Letter of Credit Collateral Account in an amount equal to the outstanding Facility Letter of Credit Obligations to the extent required under Section 2.21(h); and

(ix) ninth, to the ratable payment of all other Obligations.

Unless otherwise designated (which designation shall only be applicable prior to the occurrence of an Event of Default) by the Borrower, all principal payments in respect of Loans (other than Swing Line Loans) under a Facility shall be applied first, to repay outstanding Floating Rate Loans under such Facility and then to repay outstanding Eurodollar Rate Loans under such Facility, with those that have earlier expiring Interest Period being repaid prior to those that have later expiring Interest Periods. The order of priority set forth in this Section 9.03(a) and the related provisions of this Agreement are set forth solely to determine the rights and priorities of the Administrative Agent, the Lenders, the Swing Line Bank and the Issuer(s) as among themselves. The order of priority set forth in clauses (i) through (ix) of this Section 9.03(a) may at any time and from time to time be changed by the Required Lenders without necessity of notice to or consent of or approval by the Borrower or any other Person; provided, that the order of priority set forth in clauses (i) and (ii) may be changed only with the prior written consent of the Administrative Agent and the order of priority of payments in respect of Swing Line Loans may be changed only with the prior written consent of the Swing Line Bank.

(b) Intentionally Omitted.

ARTICLE X

THE ADMINISTRATIVE AGENT

SECTION 10.01. Appointment. Bank One, NA is hereby appointed Administrative Agent hereunder and under each other Loan Document and, subject to the provisions of Section 10.14 below, each of the Lenders irrevocably authorizes the Administrative Agent to act as the

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Administrative Agent of such Lender. The Administrative Agent agrees to act as such upon the express conditions contained in this Article X. The Administrative Agent shall not have a fiduciary relationship in respect of any Lender by reason of this Agreement. Deutsche Bank Trust Company Americas is hereby appointed to act as Syndication Agent hereunder. Bank of America, N.A., Credit Lyonnais New York Branch,. Wachovia Bank, N.A. and Comerica Bank are hereby appointed as Documentation Agents hereunder. SunTrust Bank, Guaranty Bank, Citicorp North America, Inc. and The Royal Bank of Scotland are hereby appointed as Managing Agents hereunder. Except for rights of consent or approval given to the Syndication Agent under this Agreement, neither the Syndication Agent, nor the Documentation Agents nor the Managing Agents shall have any right, power, obligation, liability, responsibility or duty under this Agreement in such capacity.

SECTION 10.02. Powers. The Administrative Agent shall have and may exercise such powers under the Loan Documents as are specifically delegated to the Administrative Agent by the terms of each thereof, together with such powers as are reasonably incidental thereto. The Administrative Agent shall have no implied duties to the Lenders, or any obligation to the Lenders to take any action thereunder except any action specifically provided by the Loan Documents to be taken by the Administrative Agent.

SECTION 10.03. General Immunity. Neither the Administrative Agent nor any of its directors, officers, agents or employees shall be liable to the Borrower, the Lenders or any Lender for any action taken or omitted to be taken by it or them hereunder or under any other Loan Document or in connection herewith or therewith except for its or their own gross negligence or willful misconduct.

SECTION 10.04. No Responsibility for Loans, Recitals, Etc. Neither the Administrative Agent nor any of its directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into, or verify (a) any statement, warranty or representation made in connection with any Loan Document or any borrowing hereunder; (b) the performance or observance of any of the covenants or agreements of any obligor under any Loan Document; (c) the satisfaction of any condition specified in Article V, except receipt of items required to be delivered to the Administrative Agent; or (d) the validity, effectiveness or genuineness (except its own due execution thereof) of any Loan Document or any other instrument or writing furnished in connection therewith. Further, the Administrative Agent assumes no obligation to any other Lender as to the collectibility of any Loans made by any Lender to the Borrower. Each Lender expressly acknowledges that the Administrative Agent has not made any representations or warranties to it on or prior to the date hereof and that no act by the Administrative Agent hereafter taken shall be deemed to constitute any representation or warranty by the Administrative Agent to any other Lender. Each Lender acknowledges that it has taken and will take such action and make such investigation as it deems necessary to inform itself as to the affairs and creditworthiness of the Borrower.

SECTION 10.05. Employment of Agents and Counsel. The Administrative Agent may execute any of its duties as Administrative Agent hereunder and under any other Loan Document by or through employees, agents, and attorneys-in-fact and shall not be answerable to the Lenders, except as to money or securities received by it or its authorized agents, for the default or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care.

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The Administrative Agent shall be entitled to advice of counsel concerning all matters pertaining to the agency hereby created and its duties hereunder and under any other Loan Document.

SECTION 10.06. Reliance on Documents; Counsel. The Administrative Agent shall not be under a duty to examine into or pass upon the validity, effectiveness, genuineness or value of this Agreement, the Notes, the Guaranties and other Loan Documents or any other document furnished pursuant hereto or thereto or in connection herewith, and the Administrative Agent shall be entitled to assume that the same are valid, effective and genuine and what they purport to be. The Administrative Agent shall be entitled to rely upon any Note, notice, consent, certificate, affidavit, letter, telegram, statement, paper or document reasonably believed by it to be genuine and correct and to have been signed or sent by the proper person or persons, and, in respect to legal matters, upon the opinion of counsel selected by the Administrative Agent, which counsel may be employees of the Administrative Agent. The Administrative Agent shall not be liable for any action taken or suffered in good faith by it based on or in accordance with any of the foregoing.

SECTION 10.07. No Waiver of Rights. With respect to its Commitments, the Loans (including the Swing Loans) made by it and the Notes issued to it, the Administrative Agent shall have the same rights and powers hereunder and under any other Loan Document as any Lender or Issuer and may exercise the same as though it was not the Administrative Agent, and the term “Lender” or “Lenders” shall, unless the context otherwise indicates, include the Administrative Agent in its individual capacity. The Administrative Agent may accept deposits from, lend money to and issue letters of credit for the account of, and generally engage in any kind of business with the Borrower or its Affiliates (including, without limitation, trust, debt, equity and other transactions) in addition to the transactions contemplated by this Agreement or any other Loan Document; it being expressly understood and agreed that neither the Administrative Agent nor any other Lender shall be deemed by the execution hereof to have waived any rights under any loan or other agreement with the Borrower or any of its Affiliates relating to any other business or loans to the Borrower or any of its Affiliates which are not a part of the Commitments under this Agreement.

SECTION 10.08. Knowledge of Event of Default. It is expressly understood and agreed that the Administrative Agent shall be entitled to assume that no Event of Default or Unmatured Default has occurred and is continuing, unless the officers of the Administrative Agent active on the Borrower’s account have actual knowledge of such occurrence or have been notified by a Lender that such Lender considers that an Event of Default or Unmatured Default has occurred and is continuing and specifying the nature thereof.

SECTION 10.09. Administrative Agent’s Reimbursement and Indemnification. The Lenders agree to reimburse and indemnify the Administrative Agent ratably in accordance with their respective Pro Rata Shares (a) for any amounts not reimbursed by the Borrower for which the Administrative Agent is entitled to reimbursement by the Borrower under the Loan Documents, (b) for any other expenses incurred by the Administrative Agent on behalf of the Lenders, in connection with the preparation, execution, delivery, administration and enforcement of the Loan Documents and (c) for any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever which may be imposed on, incurred by or asserted against the Administrative Agent in any way

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relating to or arising out of the Loan Documents or any other document delivered in connection therewith or the transactions contemplated thereby, or the enforcement of any of the terms thereof or of any such other documents, provided that no Lender shall be liable for any of the foregoing to the extent they arise from the gross negligence or willful misconduct of the Administrative Agent.

SECTION 10.10. Notices to the Borrower. In each instance that a notice is required, pursuant to the terms hereof, to be given by one or more of the Lenders to the Borrower or any Subsidiary, the Lenders desiring that such notice be given shall so advise the Administrative Agent (which advice, if given by telephone, shall be promptly confirmed by telex or letter to the Administrative Agent at its address listed in the signature pages hereto), which shall transmit such notice to the Borrower or such Subsidiary promptly after its having been so advised by the appropriate number of Lenders; provided, however, that subject to the provisions of Section 10.15 hereof, if the Administrative Agent shall fail to transmit such notice within a reasonable period of time after its having been so advised by the appropriate number of Lenders, the Lenders desiring that such notice be given may transmit such notice directly to the Borrower or such Subsidiary. In any event notices to the Borrower or any Subsidiary shall be sent to the address of the Borrower provided for in this Agreement.

SECTION 10.11. Action on Instructions of Lenders. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder and under any other Loan Document in accordance with written instructions signed by the Required Lenders, or all of the Lenders, as the case may be, and such instructions and any action taken or failure to act pursuant thereto shall be binding on all of the Lenders and on all holders of Notes and on all Holders of Secured Obligations. Except where an action or inaction is expressly required under this Agreement, the Administrative Agent shall be fully justified in failing or refusing to take any action hereunder and under any other Loan Documents unless it shall first be indemnified to its satisfaction by the Lenders in accordance with their respective Pro Rata Shares, against any and all liability, cost and expense that it may incur by reason of taking or continuing to take any such action.

SECTION 10.12. Lender Credit Decision. Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender and based on the financial statements prepared by the Borrower and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and the other Loan Documents. Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and the other Loan Documents.

SECTION 10.13. Collateral.

(a) Each Lender authorizes the Administrative Agent to enter into each of the Loan Documents to which it is a party and to take all action contemplated by such Loan Documents and to enter into the Intercreditor Agreement and to take all action contemplated by the Intercreditor Agreement. Each Lender agrees that no Holder of Secured Obligations, other than

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the Administrative Agent acting on behalf of all Holders of Secured Obligations, shall have the right individually to seek to realize upon the security granted by any Loan Document, it being understood and agreed that such rights and remedies may be exercised solely by the Administrative Agent for the benefit of the Holders of Secured Obligations, upon the terms of the Loan Documents.

(b) In the event that any Collateral is pledged by any Person as collateral security for the Obligations, the Administrative Agent is hereby authorized to execute and deliver on behalf of the Holders of Secured Obligations any Loan Documents necessary or appropriate to grant and perfect a Lien on such Collateral in favor of the Administrative Agent on behalf of the Holders of Secured Obligations.

(c) The Lenders hereby authorize the Administrative Agent, at its option and in its discretion, to release any Lien granted to or held by the Administrative Agent upon any Collateral (i) upon termination of the Commitments and payment and satisfaction of all of the Obligations or the transactions contemplated hereby; (ii) as permitted by, but only in accordance with, the terms of the applicable Loan Document; or (iii) if approved, authorized or ratified in writing by the Required Lenders, unless such release is required to be approved by all of the Lenders hereunder. Upon request by the Administrative Agent at any time, the Lenders will confirm in writing the Administrative Agent’s authority to release particular types or items of Collateral pursuant to this Section 10.13(c).

(d) Upon any sale or transfer of assets constituting Collateral which is expressly permitted pursuant to the terms of any Loan Documents, or consented to in writing by the Required Lenders, and upon at least ten (10) Business Days’ prior written request by the Borrower, the Administrative Agent shall (and is hereby irrevocably authorized by the Lenders to) execute such documents as may be necessary to evidence the release of the Liens granted to the Administrative Agent for the benefit of the Holders of Secured Obligations, upon the Collateral that was sold or transferred; provided, however, that (i) the Administrative Agent shall not be required to execute any such document on terms which, in the Administrative Agent’s opinion, would expose the Administrative Agent to liability or create any obligation or entail any consequence other than the release of such Liens without recourse or warranty, and (ii) such release shall not in any manner discharge, affect or impair the Secured Obligations or any Liens upon (or obligations of the Borrower or any other Loan Party) in respect of) all interests retained by the Borrower or any other Loan Party, including (without limitation) the proceeds of the sale, all of which shall continue to constitute part of the Collateral. Notwithstanding the foregoing, each of the Lenders hereby acknowledges and agrees that upon the consummation of any Permitted Disposition, the Administrative Agent, for itself and on behalf of the Lenders, shall release from its Guaranty any Loan Party whose stock is sold in such Permitted Disposition, and shall release such stock from the applicable Pledge Agreement. No release of Collateral shall affect the obligations of the Borrower under Section 2.06(b).

SECTION 10.14. Resignation or Removal of the Administrative Agent. If, at any time, Lenders holding Notes having aggregate outstanding principal balances equal to at least 75% of the then outstanding amount of the Aggregate Commitment (excluding from such computation the Administrative Agent and its Notes) shall deem it advisable, those Lenders may submit to the Administrative Agent notification by certified mail, return receipt requested of its

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removal as Administrative Agent under this Agreement, which removal shall be effective as of the date of receipt of such notice by the Administrative Agent. If, at any time, the Administrative Agent shall deem it advisable, in its sole discretion, it may submit to each of the Lenders written notification, by certified mail, return receipt requested, of its resignation as Administrative Agent under this Agreement, which resignation shall be effective as of 60 days after the date of such notice. In the event of any such removal or resignation, the Required Lenders may appoint a successor to the Administrative Agent. In the event the Administrative Agent shall have resigned and/or have been removed and so long as no successor shall have been appointed, the Borrower shall make all payments due each Lender hereunder directly to that Lender and all powers specifically delegated to the Administrative Agent by the terms hereof may be exercised by the Required Lenders. Upon the removal or resignation of the Administrative Agent, the retiring Administrative Agent shall be discharged from its duties and obligations hereunder and under the other Loan Documents. After the removal or resignation of the Administrative Agent, the provisions of this Article X shall continue in effect for its benefit in respect of any actions taken or omitted to be taken while it was acting as the Administrative Agent hereunder and under the other Loan Documents.

SECTION 10.15. Benefits of Article X. None of the provisions of this Article X shall inure to the benefit of the Borrower or of any Person other than Administrative Agent and each of the Lenders and their respective successors and permitted assigns. Accordingly, neither the Borrower nor any Person other than Administrative Agent and the Lenders (and their respective successors and permitted assigns) shall be entitled to rely upon, or to raise as a defense, the failure of the Administrative Agent or any Lenders to comply with the provisions of this Article X.

ARTICLE XI

SETOFF; RATABLE PAYMENTS

SECTION 11.01. Set-off. In addition to, and without limitation of, any rights of the Lenders under applicable law, if any Loan Party becomes insolvent, however evidenced, or any Event of Default or Unmatured Default occurs, any indebtedness from any Lender to any Loan Party (including all account balances, whether provisional or final and whether or not collected or available) may be offset and applied toward the payment of the Obligations owing to such Lender, whether or not the Obligations, or any part hereof, shall then be due. Each Lender agrees promptly to notify the Borrower after any such set-off and application made by such Lender; provided, however, that the failure to give such notice shall not affect the validity of any such set-off and application. The rights of each Lender under this Section 11.01 are in addition to any other rights and remedies which that Lender may have under this Agreement or otherwise.

SECTION 11.02. Ratable Payments. If any Lender, whether by setoff or otherwise, has payment made to it upon any of its Loans (other than payments received pursuant to Sections 3.01, 3.02 or 3.04) in a greater proportion than that received by any other Lender with respect to the Loans (other than payments with respect to a Facility that are received ratably by the Lenders of such Facility in accordance with the provisions of this Agreement), such Lender agrees, promptly upon demand, to purchase a portion of such Loans held by the other Lenders so that after such purchase each Lender will hold its Applicable Pro Rata Share of all Loans. If any

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Lender, whether in connection with setoff or amounts which might be subject to setoff or otherwise, receives collateral or other protection for its Obligations or such amounts which may be subject to setoff, such Lender agrees, promptly upon demand, to take such action necessary such that all Lenders share in the benefits of such collateral ratably in accordance with their respective Pro Rata Shares. In case any such payment is disturbed by legal process, or otherwise, appropriate further adjustments shall be made.

ARTICLE XII

BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS

SECTION 12.01. Successors and Permitted Assigns. The terms and provisions of the Loan Documents shall be binding upon and inure to the benefit of the Borrower and the Lenders and their respective successors and permitted assigns, except that (a) the Borrower shall not have the right to assign its rights or obligations under the Loan Documents and (b) except as otherwise provided in the next succeeding sentence, any assignment by any Lender must be made in compliance with Section 12.03. Nothing in this Agreement shall prevent or prohibit any Lender from pledging its Loans and Notes hereunder to a Federal Reserve Bank in support of borrowings made by such Lender from such Federal Reserve Bank and, with the consent of the Administrative Agent, any Lender which is a fund may pledge all or any portion of its Loans and Notes to its trustee in support of its obligations to its trustee.

SECTION 12.02. Participations.

(a) Permitted Participants; Effect. Any Lender may, in the ordinary course of its business and in accordance with applicable law, at any time sell to one or more banks or other entities (“Participants”) participating interests in any Loan owing to such Lender, any Note held by such Lender, any Commitment of such Lender or any other interest of such Lender under the Loan Documents. In the event of any such sale by a Lender of participating interests to a Participant, such Lender’s obligations under the Loan Documents shall remain unchanged, such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, such Lender shall remain the holder of any such Note for all purposes under the Loan Documents, all amounts payable by the Borrower under this Agreement shall be determined as if such Lender had not sold such participating interests, and the Borrower and the Administrative Agent shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under the Loan Documents.

(b) Voting Rights. Each Lender shall retain the sole right to approve, without the consent of any Participant, any amendment, modification or waiver of any provision of the Loan Documents other than any amendment, modification or waiver with respect to any Loan, Facility Letter of Credit Obligations or Commitment in which such Participant has an interest which forgives principal, interest or fees or reduces the interest rate or fees payable with respect to any such Loan, Facility Letter of Credit Obligations or Commitment, postpones any date fixed for any regularly-scheduled payment of principal of, or interest or fees on, any such Loan or Commitment, releases any Guarantor of any such Loan, Facility Letter of Credit Obligations or releases any substantial portion of Collateral, if any, securing any such Loan or Facility Letter of Credit Obligations.

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(c) Benefit of Setoff. The Borrower agrees that each Participant shall be deemed to have the right of setoff provided in Section 11.01 in respect of its participating interest in amounts owing under the Loan Documents to the same extent as if the amount of its participating interest were owing directly to it as a Lender under the Loan Documents, provided that each Lender shall retain the right of setoff provided in Section 11.01 with respect to the amount of participating interests sold to each Participant. The Lenders agree to share with each Participant, and each Participant, by exercising the right of setoff provided in Section 11.01, agrees to share with each Lender, any amount received pursuant to the exercise of its right of setoff, such amounts to be shared in accordance with Section 11.02 as if each Participant were a Lender.

SECTION 12.03. Assignments.

(a) Permitted Assignments. Any Lender (or any Lender together with one or more other Lenders) may (x) assign all or a portion of its Commitments (and related outstanding Obligations) (including, without limitation, Facility C Loans) (i) to one or more other Lenders or to such assigning Lender’s parent company and/or any Affiliate of such Lender which is at least 50% owned by such Lender or its parent company or (ii) in the case of any Lender that is a fund that invests in bank loans, any other fund that invests in bank loans and is managed by the same investment advisor or such Lender or by an Affiliate of such investment advisor or (y) assign all or, if less than all, a portion equal to at least $5,000,000 in the aggregate for the assigning Lender or Lenders of such Commitments (and related outstanding Obligations) to one or more Eligible Assignees (treating, solely for purposes of the foregoing $5,000,000 minimum limitation but not for any other purpose, including the fee payable to the Administrative Agent as hereinafter provided, (A) any fund that invests in bank loans and (B) any other fund that invests in bank loans and is managed by the same investment advisor as such fund or by an Affiliate of such investment advisor, as a single Eligible Assignee), each of which assignees shall become a party to this Agreement as a Lender by execution of an assignment and assumption agreement (“Assignment and Assumption Agreement”) substantially in form of Exhibit V (appropriately completed), provided that (i) at such time Schedule I shall be deemed modified to reflect the Commitments and/or outstanding Loans, as the case may be) of such new Lender or the existing Lenders, (ii) upon surrender of the relevant Notes, new Notes will be issued by the Borrower to such new Lender and to the assigning Lender upon the request of such new Lender or assigning Lender (but the Borrower shall not be obligated to pay the Administrative Agent’s or any Lender’s costs and expenses with respect to the issuance of such Note or Notes unless the assignment is made pursuant to Section 2.27), (iii) the consent of the Administrative Agent shall be required in connection with any assignment (which consent shall not be unreasonably withheld), (iv) unless an Event of Default has occurred and is continuing, the consent of the Borrower shall be required in connection with any assignment of Commitments to an assignee pursuant to clause (y) above (which consent shall not be unreasonably withheld), and (v) the Administrative Agent shall receive at the time of each such assignment the payment of a non-refundable assignment fee of $3,500 payable by the assignor or assignee (as agreed to by them) and, provided further, that such transfer or assignment will not be effective until recorded by the Administrative Agent on the Register pursuant to Section 13.07. To the extent of any assignment pursuant to this Section 12.03, the assigning Lender shall be relieved of its obligations hereunder with respect to its assigned Commitments.

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(b) Tax Requirements. At the time of each assignment pursuant to this Section 12.03 to a Person which is not already a Lender hereunder and which is not a United States person (as such term is defined in Section 7701(a)(3) of the Code) for U.S. federal income tax purposes, the respective assignee shall provide to the Borrower and the Administrative Agent, the appropriate Internal Revenue Service Forms described in Section 2.23.

(c) Dissemination of Information. The Borrower authorizes each Lender to disclose to any Participant or any other Person acquiring an interest in the Loan Documents by operation of law (each a “Transferee”) and any prospective Transferee any and all information in such Lender’s possession concerning the creditworthiness of the Borrower and its Subsidiaries.

ARTICLE XIII

MISCELLANEOUS

SECTION 13.01. Notice.

(a) Except as otherwise permitted by Section 2.14(b) with respect to borrowing notices, all notices and other communications provided to any party hereto under this Agreement or any other Loan Document shall be in writing or by telex or by facsimile and addressed or delivered to such party at its address set forth below its signature hereto or at such other address as may be designated by such party in a notice to the other parties. Any notice, if mailed and properly addressed with postage prepaid, shall be deemed given when received (or when delivery is refused); any notice, if transmitted by telex or facsimile, shall be deemed given when transmitted (answerback confirmed in the case of telexes and facsimile confirmation in the case of a facsimile).

(b) The Borrower, the Administrative Agent and any Lender may each change the address for service of notice upon it by a notice in writing to the other parties hereto.

SECTION 13.02. Survival of Representations. All covenants, agreements, representations and warranties made herein and in the certificates delivered pursuant hereto shall survive the making by the Lenders of any Loans herein contemplated and the execution and delivery to the Lenders of the Notes evidencing the Commitments, and shall continue in full force and effect until all of the Obligations have been paid in full, all Facility Letters of Credit have been terminated and all of the Commitments have been terminated.

SECTION 13.03. Expenses. The Borrower shall pay (a) all expenses, including attorneys’ fees and disbursements (which attorneys may be employees of the Administrative Agent or any Lender), incurred by the Administrative Agent and any Lender in connection with the administration of this Agreement and the other Loan Documents, any amendments, modifications or waivers with respect to any of the provisions thereof and the enforcement and protection of the rights of the Lenders and the Administrative Agent under this Agreement or any of the other Loan Documents, including all recording and filing fees, documentary stamp, intangibles and similar taxes, title insurance premiums, appraisal fees and other costs and disbursements incurred in connection with the taking of collateral and the perfection and preservation of the Lenders’ security therein, and (b) the reasonable fees and the disbursements

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of Administrative Agent’s attorneys (which attorneys may be employees of the Administrative Agent) in connection with the preparation, negotiation, execution, delivery and review of this Agreement, the Notes and the other Loan Documents (whether or not the transactions contemplated by this Agreement shall be consummated) and the closing of the transactions contemplated hereby.

SECTION 13.04. Indemnification of the Lenders and the Administrative Agent. The Borrower shall indemnify and hold harmless the Administrative Agent and each Lender, and their respective directors, officers and employees against all losses, claims, damages, penalties, judgments, liabilities and expenses (including, without limitation, all expenses of litigation or preparation therefor whether or not the Administrative Agent or any Lender is a party thereto) which any of them may pay or incur arising out of or relating to, directly or indirectly, this Agreement, the other Loan Documents, the transactions contemplated hereby or the direct or indirect application or proposed application of the proceeds of any Loan hereunder; provided, however, that in no event shall the Administrative Agent or a Lender have the right to be indemnified hereunder for its own gross negligence or willful misconduct nor shall the Administrative Agent be indemnified against any liabilities which arise as a result of any claims made or actions, suits or proceedings commenced or maintained against any Lender (including the Administrative Agent, in its capacity as such) (i) by that Lender’s shareholders or any governmental regulatory body or authority asserting that such Lender or any of its directors, officers, employees or agents violated any banking or securities law or regulation or any duty to its own shareholders, customers (excluding the Borrower) or creditors in any manner whatsoever in entering into or performing any of its obligations contemplated by this Agreement or (ii) by any other Lender. The obligations of the Borrower under this Section shall survive the termination of this Agreement.

SECTION 13.05. Maximum Interest Rate. It is the intention of the Lenders and the Borrower that the interest (as defined under applicable law) on the Indebtedness evidenced by the Notes which may be charged to, or collected or received from the Borrower shall not exceed the maximum rate permissible under applicable law. Accordingly, anything herein or in any of the Notes to the contrary notwithstanding, should any interest (as so defined) be charged to, or collected or received from the Borrower by the Lenders pursuant hereto or thereto in excess of the maximum legal rate, then the excess payment shall be applied to the Obligations with respect to which such excess payment applies or, if such excess payment applies to all Obligations, then pro rata among the Facility A Obligations, the Facility B Obligations and Facility C Obligations, and any portion of the excess payment remaining after payment in full thereof shall be returned by the Lenders to the Borrower.

SECTION 13.06. Modification of Agreement.

(a) Neither this Agreement nor any Note or Guaranty nor any terms hereof or thereof may be changed, waived, discharged or terminated unless such change, waiver, discharge or termination is in writing signed by the Borrower (or other applicable Loan Party to such Loan Document) and the Required Lenders, provided that no such change, waiver, discharge or termination shall, without the consent of each Lender (with Obligations being directly affected in the case of the following clause (i)): (i) extend the final scheduled maturity of any Loan or Note or any portion thereof or extend the stated maturity of any Facility Letter of Credit beyond the

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Facility A Maturity Date, or reduce the rate or extend the time of payment of interest or fees thereon, or reduce the principal amount thereof (except to the extent repaid in cash), (ii) amend, modify or waive any provision of Article XI or this Section 13.06, (iii) reduce the percentage specified in the definition of the Required Lenders or change the definitions of Applicable Pro Rata Share, Facility A Pro Rata Share, Facility B Revolver Pro Rata Share, Facility B Term Pro Rata Share or Facility C Pro Rata Share, (iv) consent to the assignment or transfer by the Borrower of any of its rights and obligations under this Agreement, (v) other than pursuant to a transaction permitted by the terms of this Agreement, release all or substantially all of the Collateral, or (vi) other than pursuant to a transaction permitted by the terms of this Agreement, release any Guarantor from its obligations under its Guaranty; provided, further, that no such change, waiver, discharge or termination shall (A) increase any Commitment of any Lender over the amount thereof then in effect (it being understood that waivers or modifications of conditions precedent, covenants, any Unmatured Default or Event of Default or of a mandatory reduction to the Aggregate Facility A Commitment or Aggregate Facility B Commitment or of a mandatory prepayment shall not constitute an increase of the Commitment of any Lender, and that an increase in the available portion of any Commitment of any Lender shall not constitute an increase in the Commitment of such Lender), without the consent of such Lender, (B) without the consent of each Issuer affected thereby, amend, modify or waive any provision of Section 2.21 or alter its rights or obligations with respect to Facility Letters of Credit, (C) without the consent of the Swing Line Bank, amend, modify or waive any provision relating to the rights or obligations of the Swing Line Bank or with respect to the Swing Line Loans (including, without limitation, the obligations of the Lenders to make Advances in repayment of Swing Line Loans) or (D) without the consent of the Administrative Agent, amend, modify or waive any provision of Article X or any other provision relating to the rights or obligations of the Administrative Agent; provided, however, that in any case the Required Banks may waive, in whole or in part, any such prepayment, repayment or Commitment reduction, so long as the application of any such prepayment, repayment or Commitment reduction which is still required to be made is not altered.

(b) If, in connection with any proposed change, waiver, discharge or termination of or to any of the provisions of this Agreement or other Loan Documents as contemplated in clauses (i) through (vi), inclusive, of the first proviso to Section 13.06(a), the consent of the Required Lenders is obtained but the consent of one or more of such other Lenders whose consent is required is not obtained, then the Borrower shall have the right, so long as all non-consenting Lenders whose individual consent is required are treated as described in either clauses (i) or (ii) below, either (i) to replace each such non-consenting Lender with one or more Replacement Lenders pursuant to Section 2.27 so long as at the time of such replacement, each such Replacement Lender consents to the proposed change, waiver, discharge or termination or (ii) to terminate each such non-consenting Lender’s Commitments and repay in full its outstanding Loans, provided that, unless the Commitments that are terminated, and Loans that are repaid, pursuant to the preceding clause (ii) are immediately replaced in full at such time through the addition of new Lenders or the increase of the Commitments and/or outstanding Loans of existing Lenders (who in each case must specifically consent thereto in writing), then in the case of any action pursuant to preceding clause (ii) the Required Lenders (determined before giving effect to the proposed action) shall specifically consent thereto and, provided further, that in any event the Borrower shall not have the right to replace a Lender, terminate its Commitments or

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repay its Loans solely as a result of the exercise of such Lender’s rights (and the withholding of any required consent by such Lender) pursuant to the second proviso to Section 13.06(a).

(c) Anything in this Agreement to the contrary notwithstanding, if at a time when the conditions precedent set forth in Article V hereof to any Loan are, in the opinion of the Required Lenders, satisfied, any Lender (a “Defaulting Lender”) shall fail to fulfill its obligations to make such Loan and such failure continues for at least two Business Days then, for so long as such failure shall continue, such Defaulting Lender shall (unless the Required Lenders, determined as if such Defaulting Lender were not a “Lender” hereunder, shall otherwise consent in writing) be deemed for all purposes relating to changes, waivers, discharges and termination under this Agreement (including, without limitation, under Section 13.06(a)) to have no Loans or Commitments, shall not be treated as a “Lender” hereunder when performing the computation of Required Lenders, and shall have no rights under the first proviso of Section 13.06(a); provided that any action taken by the other Lenders with respect to the matters referred to in clauses (i) through (iv), inclusive, of the first proviso of Section 13.06(a) shall not be effective as against such Defaulting Lender.

SECTION 13.07. Register. The Agent shall maintain a register (the “Register”), acting for this purpose (but only for this purpose) as the agent of the Borrower, on which Agent will record the Commitments from time to time of each of the Lenders, the Loans made by each of the Lenders and each repayment in respect of the principal amount of the Loans of each Lender. Failure to make any such recordation, or any error in such recordation, shall not affect the Borrower’s obligations in respect of such Loans. With respect to any Lender, the transfer of the Commitments of such Lender and the rights to the principal of, and interest on, any Loan made pursuant to such Commitment shall not be effective until such transfer is recorded on the Register maintained by the Administrative Agent with respect to ownership of such Commitments and Loans, and prior to such recordation all amounts owing to the transferor with respect to such Commitments and Loans shall remain owing to the transferor. The registration of assignment or transfer of all or part of any Commitments and Loans shall be recorded by the Administrative Agent on the Register only upon the acceptance by the Administrative Agent of a properly executed and delivered Assignment and Assumption Agreement pursuant to Section 12.03. Coincident with the delivery of such an Assignment and Assumption Agreement to the Administrative Agent for acceptance and registration of assignment or transfer of all or part of a Loan, or as soon thereafter as practicable, the assigning or transferor Lender shall surrender the applicable Note evidencing such Loan, and thereupon the Borrower shall, promptly upon request by the Administrative Agent, issue one or more new Notes in the same aggregate principal amount to the assigning or transferor Lender and/or the new Lender.

SECTION 13.08. Preservation of Rights. No notice to or demand of the Borrower in any case shall entitle the Borrower to any other or further notice or demand in the same or similar circumstances. No delay or omission of the Lenders or the Administrative Agent to exercise any right under the Loan Documents shall impair such right or be construed to be a waiver of any Event of Default or an acquiescence therein, and the making of a Loan notwithstanding the existence of an Event of Default or Unmatured Default, or the inability of the Borrower to satisfy the conditions precedent to such Loan shall not constitute any waiver or acquiescence. Any single or partial exercise of any such right shall not preclude other or further exercise thereof or the exercise of any other right, and no waiver, amendment or other variation

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of the terms, conditions or provisions of the Loan Documents whatsoever shall be valid unless in writing signed by the Lenders required pursuant to Section 13.06, and then only to the extent in such writing specifically set forth. All remedies contained in the Loan Documents or by law afforded shall be cumulative and all shall be available to the Administrative Agent and the Lenders until the Obligations have been paid in full and all Facility Letters of Credit have terminated and all Commitments have terminated.

SECTION 13.09. Several Obligations of Lenders. The respective obligations of the Lenders hereunder are several and not joint, and no Lender shall be the partner or agent of any other (except to the extent to which the Administrative Agent is authorized to act as such). The failure of any Lender to perform any of its obligations hereunder shall not relieve any other Lender from any of its obligations hereunder. This Agreement shall not be construed so as to confer any right or benefit upon any Person other than the parties to this Agreement and their respective successors and assigns.

SECTION 13.10. Severability. If any one or more of the provisions contained in this Agreement or the Notes is held invalid, illegal or unenforceable in any respect, the validity, legality or enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby.

SECTION 13.11. Counterparts. This Agreement may be executed in two or more counterparts, each of which may be executed by one or more of the parties hereto, but all of which, when taken together, shall constitute a single agreement binding on all the parties hereto.

SECTION 13.12. Right to Terminate Certain Commitments. In the event that the Borrower at any time (a) requests the extension of the Facility B Termination Date and obtains all requisite consents to such extension provided for in this Agreement, except for those of one or more Facility B Lenders, and (b) desires to exercise any right provided for in this Agreement to terminate a Commitment of any such non-consenting Lender, then, notwithstanding anything to the contrary contained in this Agreement, the Borrower may elect to terminate either all of such non-consenting Lender’s Commitments or only the Facility B Commitment of such non-consenting Lender. Nothing herein contained shall limit the rights of the Borrower to terminate any Commitments otherwise provided for in this Agreement.

SECTION 13.13. Loss, etc., Notes. Upon receipt by the Borrower of reasonably satisfactory evidence of the loss, theft, destruction or mutilation of any of the Notes, upon reimbursement to the Borrower of all reasonable expenses incidental thereto and upon surrender and cancellation of the relevant Note, if mutilated, the Borrower shall make and deliver in lieu of that Note (the “Prior Note”) a new Note of like tenor, except that no reference need be made in the new Note to any installment or installments of principal, if any, previously due and paid upon the Prior Note. Any Note made and delivered in accordance with the provisions of this Section shall be dated as of the date to which interest has been paid on the unpaid principal amount of the Prior Note.

SECTION 13.14. Governmental Regulation. Anything contained in this Agreement to the contrary notwithstanding, no Lender shall be obligated to extend credit to the Borrower in violation of any limitation or prohibition provided by any applicable statute or regulation.

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SECTION 13.15. Taxes. Any taxes (excluding federal, state or local income taxes on the overall net income of any Lender) or other similar assessments or charges payable or ruled payable by any governmental authority in respect of the Loan Documents shall be paid by the Borrower, together with interest and penalties, if any.

SECTION 13.16. Headings. Section headings in the Loan Documents are for convenience of reference only, and shall not govern the interpretation of any of the provisions of the Loan Documents.

SECTION 13.17. Entire Agreement. This Agreement sets forth the entire agreement of the parties hereto with respect to the subject matter hereof, provided, however, that the fees payable by Borrower are set forth in the Fee Letter.

SECTION 13.18. CHOICE OF LAW. THE LOAN DOCUMENTS (OTHER THAN THOSE CONTAINING A CONTRARY EXPRESS CHOICE OF LAW PROVISION) SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF NEW YORK BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS.

SECTION 13.19. CONSENT TO JURISDICTION. THE BORROWER HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR NEW YORK STATE COURT SITTING IN NEW YORK CITY IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENTS AND THE BORROWER HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE ADMINISTRATIVE AGENT OR ANY LENDER TO BRING PROCEEDINGS AGAINST THE BORROWER IN THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY THE BORROWER AGAINST THE ADMINISTRATIVE AGENT OR ANY LENDER OR ANY AFFILIATE OF THE ADMINISTRATIVE AGENT OR ANY LENDER INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT SHALL BE BROUGHT ONLY IN A COURT IN NEW YORK, NEW YORK.

SECTION 13.20. WAIVER OF JURY TRIAL. THE BORROWER, THE ADMINISTRATIVE AGENT AND EACH LENDER HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT OR THE RELATIONSHIP ESTABLISHED THEREUNDER.

[Signatures appear on following pages]

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IN WITNESS WHEREOF, the Borrower and the Lenders have caused this Agreement to be duly executed as of the date first above written.

Borrower:
LENNAR CORPORATION
By:	/s/    Waynewright E. Malcolm
Address: Lennar Corporation 700 Northwest 107th Avenue Miami, Florida 33172 Attention: Bruce Gross, Chief Financial Officer Fax No.: (305) 227-7115

with copies to:

Lennar Corporation

700 Northwest 107th Avenue

Miami, Florida 33172

Attention: David McCain, General Counsel

Fax No.: (305) 229-6650

and

Bilzin Sumberg Baena Price & Axelrod LLP

200 South Biscayne Boulevard

Suite 2500

Miami, FL 33131-2336

Attention: Brian Bilzin

Fax No.: (305) 374-7593

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Lenders:
BANK ONE, NA,
As Lender, Administrative Agent, Issuer and Swing Line Bank
By:	/s/    Patt Schiewitz
Name:	Patt Schiewitz
Its:	Managing Director

Address:

Bank One, NA

1 Bank One Plaza

14th Floor, Mail Suite IL1-0315

Chicago, Illinois 60670-0151

Attention: F. Patt Schiewitz

Fax No.: (312) 732-5939

with a copy to:

Bank One, NA

1 Bank One Plaza, Mail Suite 0801

Chicago, Illinois 60670-0801

Attention: Law Department

Fax No.: (312) 732-5144

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EX-10.16

Exhibit 10(p)

Execution Copy

PARENT COMPANY GUARANTY

THIS PARENT COMPANY GUARANTY (this “Guaranty”) is made as of January 27, 2004 by Lennar Corporation, a Delaware corporation, and LNR Property Corporation, a Delaware corporation (collectively, the “Guarantors”) in favor of the Administrative Agent, for the benefit of the Lenders under the Credit Agreement referred to below.

WITNESSETH:

WHEREAS, LandSource Communities Development LLC, a Delaware limited liability company, and NWHL Investment LLC, a Delaware liability company (collectively, “Borrowers”) and Bank One, NA, having its principal office in Chicago, Illinois, as Administrative Agent (the “Administrative Agent”), and certain other Lenders from time to time party thereto have entered into a certain Credit Agreement of even date herewith (as same may be amended, modified, supplemented or restated from time to time, the “Credit Agreement”), providing, subject to the terms and conditions thereof, for extensions of credit to be made by the Lenders to the Borrowers;

WHEREAS, it is a condition precedent to the execution of the Credit Agreement by the Administrative Agent and the Lenders that each of the Guarantors execute and deliver this Guaranty whereby each of the Guarantors shall guarantee, or otherwise agree to pay and perform, certain liabilities and obligations as herein provided; and

WHEREAS, each of the Guarantors owns (directly or indirectly) 50% of the Equity Interests in each of the Borrowers, and in order to induce the Lenders and the Administrative Agent to enter into the Credit Agreement, and because each Guarantor has determined that executing this Guaranty is in its interest and to its financial benefit, each of the Guarantors is willing to execute and deliver this Guaranty;

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

SECTION 1. Defined Terms.

(a) “Trigger Event” means any one or more of the following: (i) there shall occur any willful or fraudulent misrepresentation by any of the Loan Parties under the Credit Agreement or any other Loan Document; (ii) any of the Loan Parties shall commit any fraudulent or unlawful act in respect of the Loans or other Obligations; (iii) either of the Borrowers shall pay any dividend or make any distribution that is not a Permitted Distribution and such dividend or distribution is not repaid to the applicable Borrower within thirty (30) days after notice from the Administrative Agent; or (iv) there shall occur any misappropriation of funds by any of the Loan Parties, including without limitation the application of any Property Award or other proceeds of Collateral in a manner not permitted under the Loan Documents.

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(b) “Guaranteed Obligations” is defined in Section 3 below.

(c) Other capitalized terms used herein but not defined herein shall have the meaning set forth in the Credit Agreement.

SECTION 2. Representations and Warranties. Each of the Guarantors represents and warrants (which representations and warranties shall be deemed to have been renewed upon each Credit Extension Date under the Credit Agreement) that:

(a) It is a corporation duly incorporated, validly existing, and in good standing under the laws of the jurisdiction of its incorporation; has the power and authority to own its assets and to transact the business in which it is now engaged or proposed to be engaged in; and is duly qualified and in good standing under the laws of each other jurisdiction in which such qualification is required.

(b) The execution, delivery and performance by it of this Guaranty have been duly authorized by all necessary corporate action, and do not and will not (1) require any consent or approval of its stockholders or (except such consents as have been obtained as of the date hereof); (2) contravene its charter or bylaws; (3) violate, any provision of any law, rule, regulation (including, without limitation, Regulations U and X of the Board of Governors of the Federal Reserve System), order, writ, judgment, injunction, decree, determination, or award presently in effect having applicability to it; (4) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other material agreement, lease, or instrument to which it is a party or by which it or its properties may be bound or affected; (5) result in, or require, the creation or imposition of any Lien, upon or with respect to any of the properties now owned or hereafter acquired by it; and (6) cause it to be in default, in any material respect, under any such law, rule, regulation, order, writ, judgment, injunction, decree, determination, or award or any such indenture, agreement, lease or instrument.

(c) This Guaranty is its legal, valid, and binding obligation, enforceable against it, in accordance with its respective terms, except to the extent that such enforcement may be limited by applicable bankruptcy, insolvency, and other similar laws affecting creditors’ rights generally.

SECTION 3. The Guaranty.

(a) Each of the Guarantors hereby absolutely and unconditionally guarantees, jointly and severally, as primary obligor and not as surety, upon the occurrence of a Trigger Event, the full and punctual payment (whether at stated maturity, upon acceleration or early termination or otherwise, and at all times thereafter) and performance of the Obligations, including without limitation any such Obligations incurred or accrued during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, whether or not allowed or allowable in such proceeding being referred to. Upon the occurrence of a Trigger Event and the failure by the Borrowers to pay punctually any such amount, each of the Guarantors, jointly and severally, agrees that it shall forthwith on demand pay to the Administrative Agent for the benefit of the Lenders, the amount not so paid at the place and in the manner specified in the Credit Agreement, any Note or any other Loan Document, as the case may be.

(b) Without limitation of any of the other provisions of this Section 3, each of the Guarantors hereby absolutely and unconditionally guarantees, jointly and severally, as primary

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obligor and not as surety, upon demand by the Administrative Agent, the principal repayment of the Obligations provided for in Section 2.04(d)(ii) of the Credit Agreement, which payment shall be due and payable by the Guarantor, notwithstanding whether allowed or allowable during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding.

(c) Without limitation of any of the other provisions of this Section 3, each of the Guarantors does hereby further guarantee and agree to pay, upon demand, any and all actual loss, cost, damage or expenses incurred by the Administrative Agent, any Lender or LC Issuer or any Indemnitee as a direct or indirect result of (i) any breach of any material representation or warranty of either of the Borrowers or any of their respective Subsidiaries in the Credit Agreement or any of the Loan Documents; or (ii) any breach or default of any of the Loan Parties of any representation, warranty, covenant, indemnity or other provision of the Credit Agreement or other Loan Documents relating to Contaminants, the Release thereof, or Environmental, Health or Safety Requirements of Law, including without limitation Sections 4.21, 6.11, 6.12 and 13.04(a)(ii) of the Credit Agreement. The provisions of this Section 3(c) shall survive repayment of the Obligations subject to the limitations set forth in Section 13.04(d) of the Credit Agreement, which limitation shall also apply to this paragraph 3(c).

(d) The obligations that the Guarantors guarantee or otherwise agree to pay or perform under this Section 3 are herein referred to as the “Guaranteed Obligations.”

(e) This Guaranty is a guaranty of payment and not of collection. Each of the Guarantors waives any right to require the Lender to sue the Borrowers, any other guarantor, or any other Person obligated for all or any part of the Guaranteed Obligations or other Obligations, or otherwise to enforce its payment against any collateral securing all or any part of the Guaranteed Obligations.

SECTION 4. Guaranty Unconditional. The obligations of each of the Guarantors hereunder shall be unconditional and absolute and, without limiting the generality of the foregoing, shall not be released, discharged or otherwise affected by:

(i) any extension, renewal, settlement, compromise, waiver or release in respect of any of the Guaranteed Obligations or other Obligations, by operation of law or otherwise, or any obligation of any other guarantor of any of the Guaranteed Obligations or other Obligations, or any default, failure or delay, willful or otherwise, in the payment or performance of the Guaranteed Obligations or other Obligations;

(ii) any modification or amendment of or supplement to the Credit Agreement, any Note or any other Loan Document;

(iii) any release, nonperfection or invalidity of any direct or indirect security for any obligation of the Borrowers or any other Loan Party under the Credit Agreement, any Note, any other Loan Document or any obligations of any other guarantor of any of the Guaranteed Obligations or other Obligations, or any action or failure to act by the Administrative Agent, any Lender or any

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Affiliate of any Lender with respect to any Collateral securing all or any part of the Guaranteed Obligations or other Obligations;

(iv) any change in the corporate existence, structure or ownership of either of the Borrowers or any other guarantor of any of the Guaranteed Obligations or other Obligations, or any insolvency, bankruptcy, reorganization or other similar proceeding affecting either of the Borrowers, or any other guarantor of the Guaranteed Obligations or other Obligations, or its assets or any resulting release or discharge of any obligation of either of the Borrowers or any other guarantor of any of the Guaranteed Obligations or other Obligations;

(v) the existence of any claim, setoff or other rights which the Guarantors may have at any time against either of the Borrowers, any other guarantor of any of the Guaranteed Obligations or other Obligations, the Administrative Agent, any Lender or any other Person, whether in connection herewith or any unrelated transactions;

(vi) any invalidity or unenforceability relating to or against either of the Borrowers, or any other guarantor of any of the Guaranteed Obligations or other Obligations, for any reason related to the Credit Agreement, any Note, any other Loan Document or any provision of applicable law or regulation purporting to prohibit the payment by either of the Borrowers, or any other guarantor of the Guaranteed Obligations or other Obligations, of the principal of or interest on any Note or any other amount payable by either of the Borrowers under the Credit Agreement, any Note or any other Loan Document; or

(vii) any other act or omission to act or delay of any kind by either of the Borrowers, any other guarantor of the Guaranteed Obligations or other Obligations, the Administrative Agent, any Lender or any other Person or any other circumstance whatsoever which might, but for the provisions of this paragraph, constitute a legal or equitable discharge of any Guarantor’s obligations hereunder.

SECTION 5. Discharge Only Upon Payment In Full: Reinstatement In Certain Circumstances. Each of the Guarantor’s obligations hereunder shall remain in full force and effect until all Guaranteed Obligations (including any that survive repayment of the Loans) shall have been indefeasibly paid in full and the Facility LCs and Commitments under the Credit Agreement shall have terminated or expired. If at any time any payment of the principal of or interest on any Note or any other amount payable by the Borrowers or any other party under the Credit Agreement, any Note or any other Loan Document is rescinded or must be otherwise restored or returned upon the insolvency, bankruptcy or reorganization of either of the Borrowers or otherwise, each of the Guarantor’s obligations hereunder with respect to such payment shall be reinstated as though such payment had been due but not made at such time.

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SECTION 6. Waivers. To the fullest extent permitted by applicable law, each of the Guarantors waives any defense based on or arising out of any defense of the Borrowers or the unenforceability of all or any part of the Guaranteed Obligations or other Obligations from any cause, or the cessation from any cause of the liability of either of the Borrowers, other than the indefeasible payment in full in cash of the Guaranteed Obligations or other Obligations. Without limiting the generality of the foregoing, each of the Guarantors irrevocably waives acceptance hereof, presentment, demand, protest and, to the fullest extent permitted by law, any notice not provided for herein, as well as any requirement that at any time any action be taken by any person against either of the Borrowers, any other guarantor of any of the Guaranteed Obligations or other Obligations, or any other Person. The Administrative Agent or the Lenders may, at its or their election, foreclose on any Collateral by one or more judicial or nonjudicial sales, accept an assignment of any such Collateral in lieu of foreclosure or otherwise act or fail to act with respect to any Collateral securing all or a part of the Guaranteed Obligations or other Obligations, compromise or adjust any part of the Guaranteed Obligations or other Obligations, make any other accommodation with the Borrowers, any other guarantor or any other Person liable on any part of the Guaranteed Obligations or other Obligations or exercise any other right or remedy available against the Borrowers, any other guarantor or any other Person liable on any of the Guaranteed Obligations or other Obligations without affecting or impairing in any way the liability of the Guarantors under this Guaranty except to the extent the Guaranteed Obligations or other Obligations have been fully and indefeasibly paid in cash. To the fullest extent permitted by applicable, law, each of the Guarantors waives any defense arising out of any such election even though that election may operate, pursuant to applicable law, to impair or extinguish any right of reimbursement or subrogation or other right or remedy of the Guarantors against the Borrowers, any other guarantor or any other Person liable on any of the Guaranteed Obligations or other Obligations, as the case may be, or any Collateral. Notwithstanding the provisions of Section 15, the Guarantors acknowledge that, in the event and only to the extent that this Guaranty shall be construed under California law, the rights and defenses being waived by Guarantors include, but are not limited to, any rights or defenses based upon Section 580a, 580b, 580d or 726 of the California Code of Civil Procedure. Without limiting the generality of the foregoing or any other provision hereof, the Guarantors further expressly subordinate to the extent permitted by law, but only for as long as any obligations remain outstanding under the Loan Documents, any and all rights and defenses, including without limitation any rights of subrogation, reimbursement, indemnification and contribution, which might otherwise be available to the Guarantors under California Civil Code Sections 2787 to 2855, inclusive, 2899 and 3433, or under California Code of Civil Procedure Sections 580a, 580b, 580d and 726, or any of such sections.

SECTION 7. Subordination; Subrogation. Each of the Guarantors hereby subordinates to the Obligations all indebtedness or other liabilities of the Borrowers or of any of their respective Subsidiaries or of any other guarantor of the Guaranteed Obligations or other Obligations to such Guarantor. Each of the Guarantors hereby further agrees not to assert any right, claim or cause of action, including, without limitation, a claim for subrogation, reimbursement, indemnification or otherwise, against either of the Borrowers arising out of or by reason of this Guaranty or the obligations hereunder, including, without limitation, the payment or securing or purchasing of any of the Guaranteed Obligations or other Obligations by any of the Guarantors, unless and until the Guaranteed Obligations or other Obligations are indefeasibly paid in full and all Facility LCs and Commitments have terminated or expired.

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SECTION 8. Stay of Acceleration. If acceleration of the time for payment of any of the Guaranteed Obligations is stayed upon the insolvency, bankruptcy or reorganization of either of the Borrowers, all such amounts otherwise subject to acceleration under the terms of the Credit Agreement, any Note or any other Loan Document shall (to the extent the same constitute Guaranteed Obligations) nonetheless be payable by each of the Guarantors hereunder forthwith on demand by the Administrative Agent made at the request of the Required Lenders.

SECTION 9. Notices. All notices, requests, demands and other communications to any party hereunder shall be given or made in accordance with the provisions of Section 13.01 of the Credit Agreement. The notice address for Administrative Agent shall be as provided in the Credit Agreement, and the notice address for the Guarantors shall be as set forth below their signatures. Any party may change its notice address by notice to the other parties.

SECTION 10. No Waivers. No failure or delay by the Administrative Agent or any Lenders in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies provided in this Guaranty, the Credit Agreement, any Note or the other Loan Documents shall be cumulative and not exclusive of any rights or remedies provided by law.

SECTION 11. No Duty to Advise. Each of the Guarantors assumes all responsibility for being and keeping itself informed of the Borrowers’ financial condition and assets, and of all other circumstances bearing upon the risk of nonpayment of the Guaranteed Obligations or other Obligations and the nature, scope and extent of the risks that each of the Guarantors assumes and incurs under this Guaranty, and agrees that neither the Administrative Agent nor any Lender has any duty to advise any of the Guarantors of information known to it regarding those circumstances or risks.

SECTION 12. Successors and Assigns. This Guaranty is for the benefit of the Administrative Agent and the Lenders and their respective successors and permitted assigns and in the event of an assignment of any amounts payable under the Credit Agreement, any Note or any other Loan Documents, the rights hereunder, to the extent applicable to the indebtedness so assigned, shall be transferred with such indebtedness. This Guaranty shall be binding upon each of the Guarantors and their respective successors and permitted assigns.

SECTION 13. Changes in Writing. Neither this Guaranty nor any provision hereof may be changed, waived, discharged or terminated orally, but only in writing signed by each of the Guarantors and the Administrative Agent with the consent of the Required Lenders or, to the extent required under Section 13.06 of the Credit Agreement, all Lenders.

SECTION 14. Costs of Enforcement. Each of the Guarantors agrees to pay all costs and expenses including, without limitation, all court costs and attorneys’ reasonable fees and expenses paid or incurred by the Administrative Agent or any Lender or any Affiliate of any Lender in endeavoring to collect all or any part of the Guaranteed Obligations from, or in prosecuting any action against, the Borrower, the Guarantors or any other guarantor of all or any part of the Guaranteed Obligations, unless it is determined in a final non-appealable judgment by a court of competent jurisdiction that such Administrative Agent, Lender or Affiliate of a Lender was not entitled to any of the relief sought by it.

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SECTION 15. GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL. THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS, INCLUDING SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK, BUT OTHERWISE WITHOUT REGARD TO CONFLICTS OF LAW PROVISIONS, OF THE STATE OF NEW YORK, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS. EACH OF THE GUARANTORS HEREBY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT SITTING IN CHICAGO, ILLINOIS OR IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK, NEW YORK, ANY NEW YORK STATE COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK, NEW YORK, OR ANY ILLINOIS STATE COURT SITTING IN CHICAGO, ILLINOIS AND FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS GUARANTY (INCLUDING, WITHOUT LIMITATION, ANY OF THE OTHER LOAN DOCUMENTS) OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH OF THE GUARANTORS IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH ANY OF THEM MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH OF THE GUARANTORS, AND THE ADMINISTRATIVE AGENT AND THE LENDERS ACCEPTING THIS GUARANTY, HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS GUARANTY OR THE TRANSACTIONS CONTEMPLATED HEREBY.

SECTION 16. Taxes, etc. All payments required to be made by any of the Guarantors hereunder shall be made without setoff or counterclaim and free and clear of and without deduction or withholding for or on account of, any present or future taxes, levies, imposts, duties or other charges of whatsoever nature imposed by any government or any political or taxing authority thereof (excluding federal taxation of the overall income of any Lender), provided, however, that if any of the Guarantors is required by law to make such deduction or withholding, such Guarantor shall forthwith (i) pay to the Administrative Agent or any Lender, as applicable, such additional amount as results in the net amount received by the Administrative Agent or any Lender, as applicable, equaling the full amount which would have been received by the Administrative Agent or any Lender, as applicable, had no such deduction or withholding been made, (ii) pay the full amount deducted to the relevant authority in accordance with applicable law, and (iii) furnish to the Administrative Agent or any Lender, as applicable, certified copies of official receipts evidencing payment of such withholding taxes within 30 days after such payment is made; provided that to the extent the Administrative Agent or any Lender is able to, and does, credit the withheld sum against taxes that would otherwise be owed, the Administrative Agent or the Lender, as the case may be, will return to the applicable Guarantor the sum actually paid by it as required by clause (i).

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IN WITNESS WHEREOF, each of the Guarantors has caused this Guaranty to be duly executed, under seal, by its authorized officer as of the day and year first above written.

LENNAR CORPORATION
By:	/s/    Waynewright E. Malcolm
Name	Waynewright E. Malcolm
Title	Vice President
Address
Lennar Corporation 700 N.W. 107th Avenue Miami, FL 33172 Attention: Waynewright Malcolm, Vice President Telecopy No.: (305) 227-7115
with a copy to:
Lennar Homes of California, Inc., a California corporation 24800 Chrisanta Mission Viejo, CA 92691 Attention: Jonathan M. Jaffe, Vice President Telecopy No.: (949) 598-8500
LNR PROPERTY CORPORATION
By:	/s/    Shelly Rubin
Name	Shelly Rubin
Title	Vice President
Address
LNR Property Corporation 1601 Washington Avenue, Suite 800 Miami Beach, FL 33139 Attention: Shelly Rubin, Vice President - Finance Telecopy No.: (305) 695-5559
with a copy to:
LNR Property Corporation 1601 Washington Avenue, Suite 800 Miami Beach, FL 33139 Attention: Zena Dickstein, Secretary Telecopy No.: (305) 695-5719

8

EX-10.17

Exhibit 10(q)

LOAN AGREEMENT

By and Among:

UAMC CAPITAL, LLC

As Borrower,

ATLANTIC ASSET SECURITIZATION CORP.

As an Issuer,

JUPITER SECURITIZATION CORPORATION

As an Issuer and a Seasonal Issuer,

CREDIT LYONNAIS NEW YORK BRANCH

As the Administrative Agent,

as a Bank and as a Managing Agent,

BANK ONE, NA (MAIN OFFICE CHICAGO)

As a Bank, a Seasonal Bank and as a Managing Agent,

and

UNIVERSAL AMERICAN MORTGAGE COMPANY, LLC

As the Servicer

Dated as of May 23, 2003

TABLE OF CONTENTS

		Page
ARTICLE I	GENERAL TERMS	2
1.1.	Certain Definitions	2
1.2.	Other Definitional Provisions	32
ARTICLE II	AMOUNT AND TERMS OF COMMITMENT	33
2.1.	Maximum Facility Amount	33
2.2.	Promissory Notes	34
2.3.	Notice and Manner of Obtaining Borrowings	34
2.4.	Fees	37
2.5.	Prepayments	37
2.6.	Business Days	37
2.7.	Payment Procedures	38
2.8.	The Reserve Account	41
2.9.	Interest Allocations	43
2.10.	Interest Rates	43
2.11.	Quotation of Rates	43
2.12.	Default Rate	43
2.13.	Interest Recapture	44
2.14.	Interest Calculations	44
2.15.	Interest Period	44
2.16.	Additional Costs	45
2.17.	Additional Interest on Advances Bearing a Eurodollar Rate	47
2.18.	Consequential Loss	47
2.19.	Replacement Banks	47
2.20.	Seasonal Facility Amount	48
ARTICLE III	COLLATERAL	49
3.1.	Collateral	49
3.2.	Delivery of Collateral to Collateral Agent	49
3.3.	Redemption of Mortgage Collateral	51
3.4.	Correction of Mortgage Notes	54
3.5.	Collateral Reporting	55
3.6.	Hedge and Commitment Reports	55
3.7.	Investor Concentration Reporting	55
3.8.	Servicer Monthly Reporting	55
3.9.	[Reserved]	55
3.10.	[Reserved]	55
ARTICLE IV	CONDITIONS PRECEDENT	56
4.1.	Initial Borrowing	56
4.2.	All Borrowings	58
ARTICLE V	REPRESENTATIONS AND WARRANTIES	59
5.1.	Representations of the Borrower and the Servicer	59

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5.2.	Additional Representations of the Borrower	62
5.3.	Additional Representations and Warranties of the Servicer	64
5.4.	Survival of Representations	65
ARTICLE VI	AFFIRMATIVE COVENANTS	65
6.1.	Financial Statements and Reports	65
6.2.	Taxes and Other Liens	67
6.3.	Maintenance	67
6.4.	Further Assurances	67
6.5.	Compliance with Laws	67
6.6.	Insurance	67
6.7.	Accounts and Records	68
6.8.	Right of Inspection; Audit	68
6.9.	Notice of Certain Events	69
6.10.	Performance of Certain Obligations	69
6.11.	Use of Proceeds; Margin Stock	69
6.12.	Notice of Default	70
6.13.	Compliance with Transaction Documents	70
6.14.	Compliance with Material Agreements	70
6.15.	Operations and Properties	70
6.16.	Performance Guarantor Credit Rating	70
6.17.	Take-Out Commitments	70
6.18.	Collateral Proceeds	71
6.19.	Environmental Compliance	71
6.20.	Closing Instructions	71
6.21.	Special Affirmative Covenants Concerning Collateral	71
6.22.	Entity Separateness	71
6.23.	Approved Investor Concentration Limits	72
6.24.	MERS Designated Mortgage Loans	73
ARTICLE VII	NEGATIVE COVENANTS	73
7.1.	Limitations on Mergers and Acquisitions	73
7.2.	Fiscal Year	74
7.3.	Business	74
7.4.	Use of Proceeds	74
7.5.	Actions with Respect to Collateral	74
7.6.	Liens	75
7.7.	Employee Benefit Plans	75
7.8.	Change of Principal Office	75
7.9.	No Commercial, A&D, Etc. Loans	75
7.10.	Maximum Leverage	75
7.11.	Indebtedness	75
7.12.	Deposits to Collection Account	75
7.13.	Transaction Documents	75
7.14.	Distributions, Etc.	76
7.15.	Charter	76
7.16.	Default Ratio	76
7.17.	Excess Spread	76

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ARTICLE VIII	EVENTS OF DEFAULT	76
8.1.	Nature of Event	76
8.2.	Default Remedies	81
8.3.	Paydowns	82
8.4.	Waivers of Notice, Etc.	82
ARTICLE IX	THE ADMINISTRATIVE AGENT	82
9.1.	Authorization	82
9.2.	Reliance by Agent	83
9.3.	Agent and Affiliates	83
9.4.	Lender Decision	83
9.5.	Rights of the Administrative Agent	84
9.6.	Indemnification of Administrative Agent	84
9.7.	UCC Filings	84
ARTICLE X	INDEMNIFICATION	84
10.1.	Indemnities by the Borrower	84
ARTICLE XI	ADMINISTRATION AND COLLECTION OF MORTGAGE LOANS	85
11.1.	Designation of Servicer	85
11.2.	Duties of Servicer	85
11.3.	Certain Rights of the Administrative Agent	86
11.4.	Rights and Remedies	86
11.5.	Indemnities by the Servicer	87
ARTICLE XII	THE MANAGING AGENTS	88
12.1.	Authorization	88
12.2.	Reliance by Agent	88
12.3.	Agent and Affiliates	88
12.4.	Notices	89
12.5.	Lender Decision	89
ARTICLE XIII	THE MERS AGENT	89
13.1.	Authorization	89
13.2.	Reliance by Agent	89
13.3.	Agent and Affiliates	90
13.4.	Rights of the MERS Agent	90
13.5.	Indemnification of MERS Agent	90
ARTICLE XIV	MISCELLANEOUS	90
14.1.	Notices	90
14.2.	Amendments, Etc.	94
14.3.	Invalidity	95
14.4.	Restrictions on Informal Amendments	95
14.5.	Cumulative Rights	95
14.6.	Construction; Governing Law	95
14.7.	Interest	95

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14.8.	Right of Offset	96
14.9.	Successors and Assigns	96
14.10.	Survival of Termination	98
14.11.	Exhibits	98
14.12.	Titles of Articles, Sections and Subsections	98
14.13.	Counterparts	98
14.14.	No Proceedings	98
14.15.	Confidentiality	98
14.16.	No Recourse Against Directors, Officers, Etc.	99
14.17.	Waiver of Jury Trial	99
14.18.	Consent to Jurisdiction; Waiver of Immunities	100
14.19.	Costs, Expenses and Taxes	100
14.20.	Entire Agreement	101
14.21.	Excess Funds	101

SCHEDULES AND EXHIBITS

Schedule I	Bank Commitments Percentages, Seasonal Bank Commitment and Seasonal Percentage
Schedule II	Approved Investors - §§ 3.7 and 6.23
Schedule III	Litigation - §5.1(g)(i)
Exhibit A	Form of Assignment and Acceptance - §1.1
Exhibit B	Form of Subordination Agreement - §1.1
Exhibit C	Form of Borrowing Request - §1.1
Exhibit D	Form of Collateral Agency Agreement - §1.1
Exhibit D-1	Definitions - §1.1
Exhibit D-2	Form of Security Agreement - §3.1(a)
Exhibit D-3	Form of Collection Account Control Agreement - §3.1(b)
Exhibit D-4	Form of Assignment - §3.2(a)
Exhibit D-5	Form of Transfer Request - § 3.4(a)
Exhibit D-5A	Form of Shipping Request - §3.4(b)
Exhibit D-6(a)	Form of Bailee and Security Agreement Letter - § 3.4(b)(i)
Exhibit D-6(b)	Form of Bailee and Security Agreement Letter for Pool Custodian § 3.4(b)(i)

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Exhibit D-7	Form of Trust Receipt and Security Agreement - §3.5
Exhibit D-8	Form of Collateral Agent Daily Report - §3.8(a)
Exhibit D-9	[Reserved]
Exhibit D-10	UCC Financing Statements - §3.1(c)
Exhibit D-11	Form of Collection Account Release Notice - § 3.4(c)
Exhibit D-12	Form of Lost Note Affidavit - § 4.2(b)
Exhibit D-13	Form of Hedge and Commitment Report - § 3.12
Exhibit E-1	Form of Promissory Note of CL New York Group - § 2.2
Exhibit E-2	Form of Promissory Note of Bank One Group - § 2.2
Exhibit E-3	Form of Promissory Note of Bank One, as a Seasonal Bank, and Jupiter, as a Seasonal Issuer - § 2.2
Exhibit F	Form of Servicer Monthly Report - § 3.8
Exhibit G-1	Form of Servicer Performance Guaranty - § 4.1(d)
Exhibit G-2	Form of Originator Performance Guaranty - § 4.1(d)
Exhibit H-1	Form of Servicer’s Quarterly Officer’s Certificate - § 6.1(e)
Exhibit H-2	Form of Borrower’s Quarterly Officer’s Certificate - § 6.1(e)
Exhibit H-3	Form of Performance Guarantor’s Quarterly Officer’s Certificate - §§ 4.1(t) and 4.2(h)
Exhibit I-1	Form of Corporate and Limited Liability Company Opinion
Exhibit I-2	Form of Security Interest Opinion
Exhibit J	Form of Bankruptcy Opinion
Exhibit K	[Reserved]
Exhibit L	Form of Investor Concentration Report - § 3.7
Exhibit M	[Reserved]
Exhibit N	Form of Reserve Account Control Agreement - § 1.1
Exhibit O	Each of the Originator’s Credit and Collection Policy - § 1.1
Exhibit P	Form of Electronic Tracking Agreement - § 1.1

v

LOAN AGREEMENT

Dated as of May 23, 2003

THIS LOAN AGREEMENT (this “Agreement”), among

UAMC CAPITAL, LLC, a Delaware limited liability company (hereinafter, together with its successors and assigns, the “Borrower”), as the Borrower,

ATLANTIC ASSET SECURITIZATION CORP., a Delaware corporation, (hereinafter, together with its successors and assigns, “Atlantic”), as an Issuer,

JUPITER SECURITIZATION CORPORATION, a Delaware corporation (hereinafter, together with its successors and assigns, “Jupiter”), as an Issuer and a Seasonal Issuer,

CREDIT LYONNAIS NEW YORK BRANCH (“CL New York”), as a Bank, as the Administrative Agent and as a Managing Agent,

BANK ONE, NA (MAIN OFFICE CHICAGO), a national bank (hereinafter, together with its successors and assigns, “Bank One”), as a Bank, a Seasonal Bank and as a Managing Agent, and

UNIVERSAL AMERICAN MORTGAGE COMPANY, LLC, as the Servicer, a Florida limited liability company (hereinafter, together with its successors and assigns, the “Servicer”).

RECITALS

1. Capitalized terms used in these Recitals and not defined in the preamble above have the meanings set forth in Article I.

2. The Originators are engaged in the business of originating, acquiring, investing in, marketing and selling, for their own account, mortgage loans that are made either to finance the purchase of one- to four-family homes or to refinance loans secured by such properties.

3. The Borrower has purchased, and may continue to purchase, Eligible Mortgage Loans from the Originators, as determined from time to time by the Borrower and the Originators.

4. In order to finance such purchases, the Borrower has requested that the Lenders provide the Borrower with credit in the form of revolving loans on the terms and conditions set forth herein.

5. The Issuers may, in their sole discretion, and the Banks shall, in each case subject to the terms and conditions contained in this Agreement, make Advances to the Borrower secured by a lien on, and security interest in, the Mortgage Loans and certain other Collateral.

6. The Lenders have appointed the Administrative Agent as their agent to perform certain administrative duties for the Lenders including, among other things, the administration of

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the funding of the transactions hereunder and the making of certain determinations hereunder and in connection herewith.

AGREEMENTS

In consideration of the recitals and the representations, warranties, conditions, covenants and agreements made in this Agreement, the sufficiency of which are acknowledged by all parties hereto, the Borrower, the Lenders, the Servicer, the Managing Agents and the Administrative Agent, intending to be legally bound, hereby establish a warehouse line of credit in the amount of the Maximum Facility Amount and a seasonal warehouse line of credit in the amount of the Seasonal Facility Amount. Accordingly, the Borrower, the Lenders, the Administrative Agent, the Managing Agents and the Servicer covenant and agree as follows:

ARTICLE I

GENERAL TERMS

1.1. Certain Definitions. As used in this Agreement, the following terms have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined):

“ABR Allocation” is defined in Section 2.9.

“Accepted Servicing Standards” means the same manner in which the Servicer services and administers similar mortgage loans for its own portfolio, giving due consideration to customary and usual standards of practice of mortgage lenders and loan servicers administering similar mortgage loans but without regard to any relationship that the Servicer or any Affiliate of the Servicer may have with the related Obligor, or the Servicer’s right to receive compensation for its services hereunder.

“Administrative Agent” means CL New York, in its capacity as administrative agent for the Lenders, or any successor administrative agent.

“Administrative Agent’s Account” means, the special account (account number 01-88485-3701-00-001, ABA No. 026008073) of CL New York maintained at the office of Credit Lyonnais New York Branch at 1301 Avenue of the Americas, New York, New York.

“Advance” means with respect to any Lender any amount disbursed by such Lender to the Borrower pursuant to Section 2.1, or Section 2.20 (or any conversion or continuation thereof).

“Advance Rate” means (i) with respect to a Conforming Loan or a Jumbo Loan (other than a Super Jumbo Loan), ninety-eight percent (98%) and (ii) with respect to a Super Jumbo Loan, ninety-five percent (95%).

2

“Affected Party” means each Lender, the Administrative Agent, each Managing Agent, any bank party to a Liquidity Agreement and any permitted assignee or participant of any such bank, and any holding company of an Affected Party.

“Affiliate” of any Person means (a) any other Person that, directly or indirectly, controls, is controlled by, or is under common control with, such Person, or (b) any other Person who is a director, officer or employee (i) of such Person, or (ii) of any Person described in the preceding clause (a). For purposes of this definition, the term “control” (and the terms “controlled by” and “under common control with”), as used with respect to any Person, shall mean the possession or ownership, directly or indirectly, of the power either (x) to direct or cause the direction of the management and policies of such Person, whether by contract or otherwise, or (y) vote 10% or more of the securities having ordinary power in the election of directors of such Person.

“Agent” means each of the Administrative Agent and the Managing Agents.

“Agreement” means this Loan Agreement, dated as of the date hereof, by and among the Borrower, Atlantic, Jupiter, CL New York, Bank One and the Servicer (as may be amended, restated or modified from time to time).

“Alternate Base Rate” means:

(a) for the CL New York Group, on any date, a fluctuating rate of interest per annum equal to the higher of:

(i) the rate of interest most recently announced by CL New York as its base rate (which is not necessarily the lowest rate charged to any customer), changing when and as said prime rate changes; and

(ii) the Federal Funds Rate (as defined below) most recently determined by the Administrative Agent plus 1.0% per annum; and

(b) for the Bank One Group, on any date, a fluctuating rate of interest per annum equal to the higher of:

(i) a rate per annum equal to the prime rate of interest announced from time to time by Bank One or its parent (which is not necessarily the lowest rate charged to any customer), changing when and as said prime rate changes; and

(ii) the Federal Funds Rate (as defined below) most recently determined by Bank One plus 1.0% per annum.

For purposes of this definition, “Federal Funds Rate” means, for any period, a fluctuating interest rate per annum equal (for each day during such period) to (i) the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day, for the immediately preceding Business Day) by the Federal

3

Reserve Bank of New York; or (ii) if such rate is not so published for any day that is a Business Day, the average of the quotations for such day on such transactions received by the Administrative Agent from three federal funds brokers of recognized standing selected by it. The Alternate Base Rate is not necessarily intended to be the lowest rate of interest determined by CL New York in connection with extensions of credit.

“Approved Investor” means:

(a) Fannie Mae, Freddie Mac or Ginnie Mae, or

(b) any Person with short-term ratings of at least A-1, P-1 and F1 from S&P, Moody’s and Fitch, respectively, or long-term unsecured debt ratings (or in the case of a bank without such ratings that is the principal subsidiary of a bank holding company, the rating of the bank holding company) of at least AA, Aa2 and AA from S&P, Moody’s and Fitch, respectively, or

(c) all other Persons as may be approved by the Managing Agents, which approvals may be subject to certain concentration limits but may not be unreasonably withheld or delayed;

provided that (i) if an Approved Investor has a short-term rating or a long-term unsecured debt rating at the time such Person first becomes an “Approved Investor” and such Person’s short-term ratings or long-term unsecured debt ratings are subsequently downgraded or withdrawn, such Person shall cease to be an “Approved Investor”; provided, further, that with respect to any Take-Out Commitments issued by such Person prior to the date of such downgrade or withdrawal, such Person shall cease to be an “Approved Investor” 60 days following such downgrade or withdrawal; and (ii) if an Approved Investor does not have a short-term rating or a long-term unsecured debt rating, such Person shall cease to be an “Approved Investor” upon prior written notice from either Managing Agent if such Managing Agent has good faith concerns about the future performance of such Person; provided, further, that with respect to any Take-Out Commitments issued by such Person prior to such notice, such Person shall cease to be an “Approved Investor” 60 days following such notice.

As of the date of this Agreement, Schedule II hereto sets forth the Approved Investors pursuant to the preceding clauses (b) and (c) (and any applicable concentration limits). Schedule II shall be updated from time to time as Approved Investors are added or deleted or concentration limits are changed pursuant to the preceding clauses (b) and (c).

“Assignment” is defined in the Collateral Agency Agreement.

“Assignment and Acceptance” means an assignment and acceptance agreement entered into by a Bank, an Eligible Assignee and the Administrative Agent, pursuant to which such Eligible Assignee may become a party to this Agreement, in substantially the form of Exhibit A hereto.

“Atlantic” has the meaning set forth in the preamble to this Agreement.

4

“Atlantic Program Agent” means CL New York, in its capacity as the collateral agent pursuant to a security agreement made by Atlantic for the benefit of certain creditors of Atlantic, and any successor to CL New York in such capacity.

“Availability” means, at the time determined, the Maximum Facility Amount minus the Principal Debt owed to the Lenders (other than the Seasonal Lenders).

“Available Collateral Value” means, at the time determined, the excess of the Collateral Value of all Eligible Mortgage Collateral over the Principal Debt.

“Bailee and Security Agreement Letter” is defined in Section 3.4(b)(i) of the Collateral Agency Agreement.

“Bank” means each of CL New York, Bank One and each respective Eligible Assignee that shall become a party to this Agreement pursuant to an Assignment and Acceptance. Unless otherwise noted, references to “Banks” shall include the Seasonal Banks.

“Bank Commitment” means (a) with respect to CL New York, and Bank One, in its capacity as a Bank but not as a Seasonal Bank, the amount set forth on Schedule I hereto, and (b) with respect to a Bank that has entered into an Assignment and Acceptance, the amount set forth therein as such Bank’s Bank Commitment, in each case as such amount may be reduced by each Assignment and Acceptance entered into between such Bank and an Eligible Assignee, and as may be further reduced (or terminated) pursuant to the next sentence. Any reduction (or termination) of the Maximum Facility Amount pursuant to the terms of this Agreement shall (unless otherwise agreed by all the Banks) reduce ratably (or terminate) each Bank’s Bank Commitment. At no time shall the aggregate Bank Commitments of all Banks exceed the Maximum Facility Amount.

“Bank Commitment Percentage” means, for any Bank, as of any date, the amount obtained by dividing such Bank’s Bank Commitment on such date by the aggregate Bank Commitments of all Banks on such date. As of the date of this Agreement, the Bank Commitment Percentage for each Bank is as set forth on Schedule I hereto.

“Bank One” has the meaning as set forth in the preamble to this Agreement

“Bank One Group” means Jupiter, Bank One and each other Group Bank of Jupiter.

“Bank One Managing Agent Fee Letter” means the letter agreement pertaining to fees among the Borrower and Bank One, as a Managing Agent, as the same may be amended, restated, supplemented or otherwise modified from time to time.

“Bank Spread” means the margin set forth in the CL New York Fee Letter or the Bank One Managing Agent Fee Letter, as applicable.

5

“Base Rate Advance” means an Advance that bears interest at a rate per annum determined on the basis of the Alternate Base Rate.

“Borrower” has the meaning specified in the preamble of this Agreement.

“Borrowing” means a borrowing of Advances consisting of Advances having the same Interest Period made hereunder by each of the Lenders on the same Business Day.

“Borrowing Date” means the date, identified by the Borrower in the relevant Borrowing Request, as the date on which a Borrowing is to be made.

“Borrowing Request” means a request, in the form of Exhibit C to this Agreement, for a Borrowing pursuant to Article II. As of the date of each such Borrowing Request pursuant to Article II, the Borrower shall automatically be deemed to have made the following representations and warranties:

(1) The Borrower represents and warrants for the benefit of the Lenders and the Administrative Agent that:

(i) The Borrower is entitled to receive the Requested Borrowing under the terms and conditions of this Agreement (and pursuant to the Assignment, if any, executed in connection herewith, the Borrower grants to the Administrative Agent a security interest in the Collateral described in such Assignment);

(ii) (a) if the Borrowing requested hereunder is not a Special Borrowing, all Principal Mortgage Documents required under Section 3.2(b) of this Agreement and which relate to the Mortgage Loans identified on Schedule I to the Assignment, if any, executed in connection herewith have been delivered to the Collateral Agent, and (b) if the Borrowing requested hereunder is a Special Borrowing, either (1) all such documents which relate to Schedule II to the Assignment shall be delivered to the Collateral Agent within 9 Business Days after the Borrowing Date set forth in the Borrowing Request, as required under Section 2.3(c) of this Agreement, or (2) the Principal Debt that has been borrowed against such Mortgage Loans shall be repaid in full as and to the extent required under Section 2.3(d) of this Agreement;

(iii) all Mortgage Loans, Principal Mortgage Documents and Other Mortgage Documents in which the Administrative Agent is granted a security interest pursuant to the Assignment, if any, in connection herewith, comply in all material respects with the applicable requirements set forth in this Agreement and the Security Agreement;

(iv) at all times relevant to this Agreement, total Collateral Value attributable to the types or categories of Collateral referred to in the definition of subparagraphs (a) through (g) of Collateral Value has not, and does not now, exceed the limitations established in such definition;

(v) no Default or Event of Default has occurred or is continuing; and

6

(vi) no change or event which constitutes a Material Adverse Effect as to the Borrower has occurred.

(2) The representations and warranties of the Borrower contained in this Agreement and those contained in each other Transaction Document to which the Borrower is a party are true and correct in all material respects on and as of the date of each Borrowing Request (other than those representations and warranties that, by their express terms, are limited to the effective date of the document or agreement in which they are initially made).

(3) All of the conditions applicable to the Requested Borrowing pursuant to Section 4.2 of this Agreement are and will be satisfied immediately before and after giving effect to the Requested Borrowing.

“Business Day” means (a) a day on which (i) commercial banks in New York City, New York, Miami, Florida, and Chicago, Illinois are not authorized or required to be closed and (ii) commercial banks in the State in which the Collateral Agent has its principal office are not authorized or required to be closed, and (b) if this definition of “Business Day” is utilized in connection with a Eurodollar Advance, a day on which dealings in United States dollars are carried out in the London interbank market.

“Charter” means the Borrower’s articles of organization, as amended through the date of this Agreement.

“CL New York” has the meaning set forth in the preamble of this Agreement and its successors and assigns.

“CL New York Fee Letter” means the letter agreement pertaining to fees among the Borrower and CL New York, as a Managing Agent and as the Administrative Agent, as the same may be amended, restated, supplemented or otherwise modified from time to time.

“CL New York Group” means Atlantic, CL New York, and each other Group Bank of Atlantic.

“Closing Protection Rights” means any rights of the Originators or the Borrower to or under (i) a letter issued by a title insurance company to any of the Originators assuming liability for certain acts or failure to act on behalf of a named closing escrow agent, approved attorney or similar Person in connection with the closing of a Mortgage Loan transaction, (ii) a bond, insurance or trust fund established to protect a mortgage lender against a loss or damage resulting from certain acts or failure to act of a closing escrow agent, approved attorney, title insurance company or similar Person, or (iii) any other right or claim that any of the Originators or the Borrower may have against any Person for any loss or damage resulting from such Person’s acts or failure to act in connection with the closing of a Mortgage Loan and the delivery of the related Mortgage Loan Collateral to the Collateral Agent, any of the Originators or to the Borrower.

“Code” means the Internal Revenue Code of 1986, as amended from time to time.

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“Collateral” means Property that is subject to a Lien for the benefit of the holders of the Obligations.

“Collateral Agency Agreement” means the Collateral Agency Agreement, dated as of the date hereof, among the Borrower, the Collateral Agent and the Administrative Agent, substantially in the form of Exhibit D hereto, as amended, supplemented, restated or otherwise modified from time to time.

“Collateral Agent” means Residential Funding Corporation, and its successors and assigns.

“Collateral Agent Daily Report” is defined in Section 3.8(a) of the Collateral Agency Agreement.

“Collateral Deficiency” means, at any time, the amount by which the Principal Debt exceeds the lesser of (a) the Collateral Value of all Eligible Mortgage Collateral and (b) if the Collateral Agent holds no Eligible Mortgage Collateral, zero.

“Collateral Proceeds” means all amounts received by the Borrower, the Servicer, the Administrative Agent, the Lenders, the Collateral Agent or any other Person, in respect of the Collateral, whether in respect of principal, interest, fees or other amounts, including, without limitation, (i) all amounts received pursuant to Take-Out Commitments, and (ii) with respect to any Mortgage Loan, all funds that are received from or on behalf of the related Obligors in payment of any amounts owed (including, without limitation, purchase prices, finance charges, escrow payments, interest and all other charges) in respect of such Mortgage Loan, or applied to such amounts owed by such Obligors (including, without limitation, insurance payments that Borrower or Servicer applies in the ordinary course of its business to amounts owed in respect of such Mortgage Loan and net proceeds of sale or other disposition of Property of the Obligor or any other party directly or indirectly liable for payment of such Mortgage Loan and available to be applied thereon).

“Collateral Report” is defined in Section 6.1(f).

“Collateral Value” means

(A) with respect to each Eligible Mortgage Loan and at all times, an amount equal to the Advance Rate for such Eligible Mortgage Loan times the least of:

(1) the lesser of the original principal amount of such Eligible Mortgage Loan or the acquisition price paid by the related Originator on the closing and funding of such Eligible Mortgage Loan;

(2) for each Eligible Mortgage Loan, as of any date of determination, the lesser of

(a) if, as of the second Business Day of the week of such determination, the Eligible Mortgage Loan was hedged but with respect to which

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there was no loan-specific Take-Out Commitment, a ratable amount determined by multiplying (i) the weighted average purchase price (expressed as a percentage of par) that Approved Investors are obligated to pay, pursuant to Take-Out Commitments (other than any loan-specific Take-Out Commitments), for all Eligible Mortgage Loans, as shown on the Hedge and Commitment Report provided on the first Business Day of the week in which such Mortgage Loan was assigned to the Administrative Agent, times (ii) the original principal amount of such Eligible Mortgage Loan, or

(b) if, as of the second Business Day of the week of such determination, there was a loan-specific Take-Out Commitment attributable to such Eligible Mortgage Loan, the purchase price to be paid by the Approved Investor for such Mortgage Loan, including any servicing release premium; and

(3) while a Default or Event of Default is continuing, or upon request of either of the Managing Agents at any other time, the Market Value of such Eligible Mortgage Loan; and

(B) with respect to the Collection Account, the balance of collected funds therein which is not subject to any Lien in favor of any Person other than the Lien in favor of the Administrative Agent for the benefit of the holders of the Obligations;

provided, however, that

(a) at any time, the portion of total Collateral Value that may be attributable to Jumbo Loans shall not exceed twenty percent (20%) of the Maximum Facility Amount or, during the Seasonal Period, twenty percent (20%) of the Combined Facility Amount;

(b) at any time, the portion of total Collateral Value that may be attributable to Super Jumbo Loans shall not exceed ten percent (10%) of the Maximum Facility Amount or, during the Seasonal Period, ten percent (10%) of the Combined Facility Amount;

(c) at any time, the portion of total Collateral Value that may be attributable to Mortgage Loans for which the Mortgage Notes have been withdrawn for correction pursuant to Section 3.4 shall not exceed $5,000,000 as determined in accordance with said Section 3.4;

(d) [Reserved];

(e) at any time, the portion of total Collateral Value that may be attributable to Mortgage Loans that have been Eligible Mortgage Loans owned by the Borrower for more than 120 days shall be zero (for purposes of this subparagraph (e), the Collateral Agent may assume that the date on which the Borrower acquired such Eligible Mortgage Loan is the date on which such Eligible Mortgage Loans are assigned to the Administrative Agent under this Agreement);

(f) a Mortgage Loan that ceases to be an Eligible Mortgage Loan shall have a Collateral Value of zero; and

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(g) at any time, (A) except the first five and last five Business Days of any month, the portion of total Collateral Value that may be attributable to Special Mortgage Loans shall not exceed thirty-five percent (35%) of the Maximum Facility Amount or, during the Seasonal Period, thirty-five percent (35%) of the Combined Facility Amount, and (B) during the first five and last five Business Days of any month, the portion of total Collateral Value that may be attributable to Special Mortgage Loans shall not exceed fifty percent (50%) of the Maximum Facility Amount or, during the Seasonal Period, fifty percent (50%) of the Combined Facility Amount.

“Collection Account” means the account established pursuant to Section 2.7(b) to be used for (i) the deposit of proceeds from the sale of Mortgage Loans; and (ii) the payment of the Obligations, it being understood that such account is controlled by the Administrative Agent pursuant to the Collection Account Control Agreement and the Administrative Agent has the authority to direct the transfer of all funds in the Collection Account.

“Collection Account Bank” means, initially, Bank One, NA and, at any time, the institution then holding the Collection Account in accordance with the terms of the Collection Account Control Agreement.

“Collection Account Control Agreement” means the Collection Account Control Agreement, dated as of the date hereof, among the Borrower, the Servicer, the Administrative Agent and the Collection Account Bank, substantially in the form of Exhibit D-3 hereto, as amended, modified or supplemented from time to time.

“Collection Account Release Notice” is defined in Section 3.3(a).

“Collection Period” means each calendar month, beginning on the first day of each month and including the last day of the month.

“Collections” means, with respect to any Mortgage Asset, all cash collections (other than in respect of escrows for taxes and insurance premiums payable under the related Mortgage Loan) and other cash proceeds of such Mortgage Asset.

“Combined Facility Amount” means the Maximum Facility Amount plus the Seasonal Facility Amount.

“Commercial Paper Notes” means short-term promissory notes issued or to be issued by the Issuers to fund or maintain their Advances or investments in other financial assets.

“Commercial Paper Rate” for any Interest Period for the related Advance means:

(a) with respect to the portion of such Advance funded by Atlantic, a rate per annum equal to the sum of:

(i) the rate or, if more than one rate, the weighted average of the rates, determined by converting to an interest-bearing equivalent rate per annum the

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discount rate (or rates) at which Commercial Paper Notes having a term equal to such Interest Period and to be issued to fund or to maintain such Advance by Atlantic (including, without limitation, Principal Debt and accrued and unpaid interest), may be sold by any placement agent or commercial paper dealer selected by the Managing Agent for Atlantic, as agreed between each such agent or dealer and the Managing Agent for Atlantic, plus

(ii) the commissions and charges charged by such placement agent or commercial paper dealer with respect to such Commercial Paper Notes expressed as a percentage of such face amount and converted to an interest-bearing equivalent rate per annum, plus

(iii) the Conduit Spread; or

(b) with respect to the portion of any Advance funded by Jupiter for any Interest Period, the per annum rate that reflects:

(i) the rate (or, if more than one rate, the weighted average of the rates) at which Commercial Paper Notes having a term equal to such Interest Period (or portion thereof) may be sold by any placement agent or commercial paper dealer selected by Jupiter, as agreed between each such agent or dealer and Jupiter, provided, however, that if the rate (or rates) as agreed between any such agent or dealer and Jupiter is a discount rate (or rates), the “Commercial Paper Rate” for such Interest Period (or portion thereof) shall be the rate (or if more than one rate, the weighted average of the rates) resulting from Jupiter’s converting such discount rate (or rates) to an interest-bearing equivalent rate per annum, plus

(ii) accrued commissions in respect of placement agents and commercial paper dealers and issuing and paying agent fees incurred, in respect of such Commercial Paper Notes, minus

(iii) any payment received on such date net of expenses in respect of Consequential Losses related to the prepayment of any purchased interest of Jupiter pursuant to the terms of any receivable purchase facilities funded substantially with such Commercial Paper Notes, plus

(iv) the Conduit Spread; or

(c) such other rate as Atlantic or Jupiter and the Borrower shall agree to in writing.

“Conduit Spread” means the margin set forth in the CL New York Fee Letter or the Bank One Managing Agent Fee Letter, as applicable.

“Conforming Loan” means (i) a Mortgage Loan that complies with all applicable requirements for purchase under a Fannie Mae, Freddie Mac or similar Governmental Authority standard form of conventional mortgage loan purchase contract, then in effect,

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or (ii) an FHA Loan or a VA Loan. The term Conforming Loan shall not include subprime loans.

“Consequential Loss” means any loss or expense that any Affected Party may reasonably incur in respect of a Borrowing as a consequence of (a) any failure or refusal of Borrower (for any reasons whatsoever other than a default by the Administrative Agent, any Lender or any Affected Party) to take such Borrowing after Borrower shall have requested it under this Agreement, (b) any prepayment or payment of such Borrowing that is a Eurodollar Advance or CP Advance on a day other than the last day of the Interest Period applicable to such Borrowing, (c) any prepayment of any Borrowing that is not made in compliance with the provisions of Section 2.5(a); provided, that so long as an Event of Default shall not have occurred, the Borrower shall not be responsible for any Consequential Loss resulting from changes in the Settlement Date made by the Administrative Agent, as described in the proviso contained in the definition of “Settlement Date,” or (d) Borrower’s failure to make a prepayment after giving notice under Section 2.5(a) that a prepayment will be made.

“CP Allocation” is defined in Section 2.9.

“Debt” means (a) all indebtedness or other obligations of a Person that, in accordance with GAAP consistently applied, would be included in determining total liabilities as shown on the liabilities side of a balance sheet of the Person on the date of determination, plus (b) all indebtedness or other obligations of the Person for borrowed money or for the deferred purchase price of property or services. For purposes of calculating a Person’s Debt, deferred taxes arising from capitalized excess servicing fees and capitalized servicing, rights may be excluded from a Person’s indebtedness. For purposes of calculating Borrower’s Debt, letters of credit outstanding on the date hereof naming Lennar Corporation and its subsidiaries as beneficiary shall, to the extent otherwise included, be excluded.

“Debtor Laws” means all applicable liquidation, conservatorship, bankruptcy, fraudulent transfer or conveyance, moratorium, arrangement, receivership, insolvency, reorganization or similar laws from time to time in effect affecting the rights of creditors generally.

“Default” means any condition or event that, with the giving of notice or lapse of time or both and unless cured or waived, would constitute an Event of Default.

“Default Rate” means a per annum rate of interest equal from day to day to the lesser of (a) the sum of the Alternate Base Rate plus two percent and (b) the Maximum Rate.

“Default Ratio” means as of the end of any Collection Period, the ratio of (i) the principal amount of all Mortgage Loans that were Defaulted Mortgage Loans at such time, to (ii) the aggregate principal amount of all Mortgage Loans at such time.

“Defaulted Mortgage Loan” means a Mortgage Asset under which any payment has not been made by the date that is one day prior to an immediately subsequent

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payment due date, or has taken any action, or suffered any event of the type described in Section 8.1(f), 8.1(g) or 8.1(h) or is in foreclosure.

“Deferred Income” means the amount of income that any of the Originators or Borrower has deferred, for accounting purposes, pending the sale of Mortgage Loans, in accordance with Statement of Financial Accounting Standards Number 91 (“SFAS 91”) and Statement of Financial Accounting Standards Number 122 (“SFAS 122”), each as currently published by the Financial Accounting Standards Board.

“Drawdown Termination Date” means the earliest to occur of:

(a) May 22, 2004, unless extended pursuant to Section 2.1(b), or

(b) the date on which the Maximum Facility Amount is terminated by the Borrower pursuant to Section 2.1(d), and

(c) the date, on or after the occurrence of an Event of Default, determined pursuant to Section 8.1.

“Effective Date” means May 23, 2003.

“Electronic Agent” means MERSCORP, Inc., a Delaware corporation.

“Electronic Tracking Agreement” means the Electronic Tracking Agreement, dated as of the date hereof, among the Borrower, the Servicer, the Electronic Agent, MERS and Bank One, as MERS Agent, substantially in the form attached as Exhibit P hereto.

“Eligible Assignee” means (i) CL New York or any of its Affiliates, or Bank One or any of its Affiliates, (ii) any Person managed by CL New York or any of its Affiliates, or Bank One or any of its Affiliates, respectively, or (iii) any financial or other institution.

“Eligible Institution” means any depository institution, organized under the laws of the United States or any state, having capital and surplus in excess of $200,000,000, the deposits of which are insured to the full extent permitted by law by the Federal Deposit Insurance Corporation and that is subject to supervision and examination by federal or state banking authorities; provided that such institution also must have a rating of A or higher with respect to long-term deposit obligations from Moody’s, A2 or higher with respect to long-term deposit obligations from S&P and A or higher with respect to long-term deposit obligations from Fitch. If such depository institution publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published.

“Eligible Mortgage Collateral” means Eligible Mortgage Loans and the Collection Account.

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“Eligible Mortgage Loan” means a Mortgage Loan:

(a) that (i) is a closed and funded Mortgage Loan, (ii) has a maximum term to maturity of 30 years and the proceeds of which were used either to finance a portion of the purchase price of a Property encumbered by the related Mortgage or to refinance a loan secured by such Property, (iii) is secured by a perfected first-priority Lien on residential real Property consisting of land and a one-to-four family dwelling thereon which is completed and ready for owner occupancy, including townhouses and condominiums and (iv) was underwritten according to the applicable Originator’s Credit and Collection Policy;

(b) that is a Conforming Loan or a Jumbo Loan;

(c) in which the Administrative Agent has been granted and continues to hold a perfected (other than actual delivery of the Mortgage Note to the Collateral Agent for Special Borrowings) first-priority, security interest for the benefit of the holders of the Obligations;

(d) for which the Mortgage Note is endorsed (without recourse) in blank and each of such Mortgage Loan and the related Mortgage Note is a legal, valid and binding obligation of the Obligor thereof;

(e) for which, other than in respect of Special Mortgage Loans, the Principal Mortgage Documents have been received by the Collateral Agent as of the date that the original principal amount of the Mortgage Loan was first reported in the Collateral Agent Daily Report for such business day, and are in form and substance acceptable to the Collateral Agent;

(f) that is either eligible for delivery or designated for delivery under a Take-Out Commitment from an Approved Investor; provided that no more than 45 days have lapsed since the date on which any documentation relating to such Mortgage Loan was shipped to the related Approved Investor;

(g) that, simultaneously with the pledge thereof under the Collateral Agency Agreement, together with the related Mortgage Loan Collateral, is owned beneficially by Borrower free and clear of any Lien of any other Person other than the Administrative Agent for the benefit of the holders of the Obligations;

(h) that, together with the related Mortgage Loan Collateral, does not contravene any Governmental Requirements applicable thereto (including, without limitation, the Real Estate Settlement Procedures Act of 1974, as amended, and all laws, rules and regulations relating to usury, truth-in-lending, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices, privacy and other applicable federal, state and local consumer protection laws) and with respect to which no party to the related Mortgage Loan Collateral is in violation of any Governmental Requirements (or procedure prescribed thereby) if such violation would impair the collectability of such Mortgage Loan or the saleability of such Mortgage Loan under the applicable Take-Out Commitment;

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(i) that, (i) is not an Uncovered Mortgage Loan; (ii) is not a Defaulted Mortgage Loan; (iii) has not previously been sold to an Approved Investor or any of the Originators and repurchased by Borrower; (iv) is a Mortgage Loan with respect to which the Principal Mortgage Documents relating to such Mortgage Loan were delivered to the Collateral Agent within the time frame set forth in Section 2.3(c); provided, however, that, upon delivery of such Principal Mortgage Documents to the Collateral Agent, such Mortgage Loans may subsequently qualify as Eligible Mortgage Loans to support Borrowings subsequent to such delivery; or (v) has an original principal balance not in excess of $1,000,000.00;

(j) that if the Mortgage Loan Collateral has been withdrawn for correction pursuant to Section 3.4 such Mortgage Loan Collateral has been returned to the Collateral Agent within 14 calendar days after withdrawal as required by Section 3.4;

(k) that is denominated and payable in U.S. dollars in the United States and the Obligor of which is a natural person who is a U.S. citizen or resident alien or a corporation or other legal entity organized under the laws of the United States or any State thereof or the District of Columbia;

(l) that is not subject to any right of rescission, setoff, counterclaim or other dispute whatsoever;

(m) that was acquired by the Borrower from any of the Originators within 60 days after its Mortgage Origination Date;

(n) that is covered by the types and amounts of insurance required by Section 6.6(b);

(o) that is not underwritten on a “no-income - no asset” verification basis or in a manner such that the Obligor credit information contained in the related Mortgage Loan application was not corroborated by credit underwriting standards generally acceptable within the mortgage underwriting business;

(p) with respect to which all representations and warranties made by the related Originator in the Repurchase Agreement are true and correct in all material respects and with respect to which all loan level covenants made in the Repurchase Agreement have been complied with; and

(q) that is subjected to the following “Quality Control” measures by personnel of any of the Originators before the Mortgage Note is funded by such Originator:

(i) for those Mortgage Loans not originated by any of the Originators, is underwritten by any of the Originators prior to funding thereof and after performance of all underwriting procedures, is submitted to any of the Originators for closing where it is reviewed for thoroughness and compliance (including truth-in-lending, good faith estimates and other disclosures) and a verbal verification of employment and in-file credit report are obtained; and

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(ii) with respect to which, all Mortgage Loan Collateral is prepared or delivered by any of the Originators and submitted to the closing agent at the time of funding the related Mortgage Loans;

(r) that is not, at the then present time, a Special Mortgage Loan financed as a “wet loan” pursuant to a credit agreement other than this Agreement;

For the purpose of this definition of “Eligible Mortgage Loan”:

(x) A Mortgage Loan is “eligible for delivery” under a Take-Out Commitment if (i) it is eligible to be transferred to a Governmental Authority or, with respect to Jumbo Loans, to another Approved Investor, (ii) the underwriting criteria utilized and the Mortgage Loan Collateral either match, or are in respect of interest rates (which rates must bear a relationship to prevailing current market rates of interest for loans with similar maturities), term, product type and delivery period representative of the terms for purchase that are specified in a Take-Out Commitment, and (iii) the aggregate outstanding principal of all such Mortgage Loans is not more than the aggregate Take-Out Commitments’ unutilized amount (i.e. taking in account all such Mortgage Loans already allocated to the aggregate Take-Out Commitments for purposes of determining Eligible Mortgage Loans whether or not already delivered by the Borrower to the Collateral Agent).

(y) A Mortgage Loan is “designated for delivery” under a Take-Out Commitment if (i) it is designated to be transferred to any entity other than a Governmental Authority and (ii) the underwriting criteria utilized in approving such Mortgage Loan conform to the underwriting criteria, and the terms of repayment (including interest rate and “term to maturity”) and other terms and conditions of the Mortgage Loan Collateral match the specifications of that specific Take-Out Commitment that designates that particular Mortgage Loan for purchase.

“Employee Plan” means an employee pension benefit plan covered by Title IV of ERISA and established or maintained by any of the Originators.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time.

“ERISA Affiliate” means any corporation, trade or business that is, along with the Performance Guarantor, a member of a controlled group of corporations or a controlled group of trades or businesses, as described in Sections 414(b), (c), (m) and (o) of the Code, or Section 4001 of ERISA.

“Eurocurrency Liabilities” has the meaning assigned to that term in Regulation D of the Federal Reserve Board, as in effect from time to time.

“Eurodollar Advance” means an Advance that bears interest at a rate per annum determined on the basis of the Eurodollar Rate.

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“Eurodollar Rate” means, for any Interest Period for any Eurodollar Advance, for each Lender, an interest rate per annum (expressed as a decimal and rounded upwards, if necessary, to the nearest one hundredth of a percentage point) equal to the offered rate per annum for deposits in U.S. Dollars in a principal amount of not less than $10,000,000 for such Interest Period as of 11:00 A.M., London time, two Business Days before (and for value on) the first day of such Interest Period, that appears on the display designated as “Page 3750” on the Telerate Service (or such other page as may replace “Page 3750” on that service for the purpose of displaying London interbank offered rates of major banks); provided, that if such rate is not available on any date when the Eurodollar Rate is to be determined, then an interest rate per annum determined by the Administrative Agent equal to the rate at which it would offer deposits in United States dollars to prime banks in the London interbank market for a period equal to such Interest Period and in a principal amount of not less than $10,000,000 at or about 11:00 A.M. (London time) on the second Business Day before (and for value on) the first day of such Interest Period.

“Eurodollar Reserve Percentage” means, with respect to any Bank and for any Interest Period for such Bank’s Eurodollar Advance, the reserve percentage applicable during such Interest Period (or, if more than one such percentage shall be so applicable, the daily average of such percentages for those days in such Interest Period during which any such percentage shall be so applicable) under regulations issued from time to time by the Federal Reserve Board (or any successor) for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve requirement) for such Bank with respect to liabilities or assets consisting of or including Eurocurrency Liabilities having a term equal to such Interest Period.

“Event of Default” is defined in Section 8.1.

“Excess Spread” means, as of the last day of each Collection Period, an amount equal to the Portfolio Yield for such Collection Period minus the weighted average applicable interest rate on the Advances at such time minus the weighted average Conduit Spread (to the extent not included in the interest rate for Advances) and/or Bank Spread (to the extent not included in the interest rate for Advances), as applicable during such Collection Period, minus the Servicing Fee for such Collection Period determined in accordance with clause (a) of the definition of Portfolio Yield.

“Facility” means the borrowing facility provided by the Lenders as described in Section 2.1 of this Agreement. The Facility does not include the Seasonal Facility.

“Fannie Mae” means the government sponsored enterprise formerly known as the Federal National Mortgage Association, or any successor thereto.

“Federal Reserve Board” means the Board of Governors of the Federal Reserve System, or any successor thereto.

“Fee Letter” means the CL New York Fee Letter or the Bank One Managing Agent Fee Letter.

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“FHA” means the Federal Housing Administration, or any successor thereto.

“FHA Loan” means a Mortgage Loan, the ultimate payment of which is partially or completely insured by the FHA or with respect to which there is a current, binding and enforceable commitment for such insurance issued by the FHA.

“Financial Officer” means with respect to the Servicer, any of the Originators or the Borrower, the chief financial officer, treasurer or a vice president having the knowledge and authority necessary to prepare and deliver the financial statements and reports required pursuant to Sections 6.1(b) and Section 3.8 and (ii) with respect to the Performance Guarantor, the chief financial officer, the vice president treasurer or the senior vice president finance.

“Fitch” means Fitch, Inc., and any successor thereto.

“Freddie Mac” means the Federal Home Loan Mortgage Corporation, or any successor thereto.

“GAAP” means generally accepted accounting principles as in effect in the United States from time to time.

“Ginnie Mae” means the Government National Mortgage Association, or any successor thereto.

“Governmental Authority” means any nation or government, any agency, department, state or other political subdivision thereof, or any instrumentality thereof, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. Governmental Authority shall include, without limitation, each of Freddie Mac, Fannie Mae, FHA, HUD, VA and Ginnie Mae.

“Governmental Requirement” means any law, statute, code, ordinance, order, rule, regulation, judgment, decree, injunction, franchise, permit, certificate, license, authorization or other requirement (including, without limitation, any of the foregoing that relate to energy regulations and occupational, safety and health standards or controls and any hazardous materials laws) of any Governmental Authority that has jurisdiction over the Originators, the Servicer, the Collateral Agent or the Borrower or any of their respective Properties.

“Group” means the CL New York Group and the Bank One Group.

“Group Bank” means (1) with respect to Atlantic, CL New York, each Bank that has entered into an Assignment and Acceptance with CL New York, and each assignee (directly or indirectly) of any such Bank, which assignee has entered into an Assignment and Acceptance; and (2) with respect to Jupiter, Bank One, each Bank that has entered into an Assignment and Acceptance with Bank One and each assignee (directly or indirectly) of any such Bank, which assignee has entered into an Assignment and Acceptance.

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“Group Bank Commitment Percentage” means, the sum of all of the Bank Commitment Percentages of all of the Banks in a Group.

“Hedge and Commitment Report” means a report prepared by the Servicer and pursuant to Section 3.6 hereof, showing, as of the close of business on the previous Business Day, all Take-Out Commitments, (either in the form of loan-specific Take-Out Commitments or forward purchase commitments obtained to hedge Mortgage Loans) that have been assigned to the Administrative Agent, for the benefit of holders of the Obligations, and the following information with respect to such Take-Out Commitments: (i) trade counterparty, (ii) trade amount, (iii) coupon, (iv) price, (v) type of security, (vi) date of trade, and (vii) such other information as the Administrative Agent may reasonably request, in the form of Exhibit D-13; provided, however, that any loan-specific Take-Out Commitments may be reflected and delivered to the Collateral Agent on an electronic loan commitment file as in the form of Schedule I to Exhibit D-13.

“HUD” means the Department of Housing and Urban Development, or any successor thereto.

“Indebtedness” means, for any Person, without duplication, and at any time, (a) all obligations required by GAAP to be classified on such Person’s balance sheet as liabilities, (b) obligations secured (or for which the holder of the obligations has an existing contingent or other right to be so secured) by any Lien existing on property owned or acquired by such Person, (c) obligations that have been (or under GAAP should be) capitalized for financial reporting purposes, and (d) all guaranties, endorsements, and other contingent obligations with respect to obligations of others.

“Indemnified Amounts” is defined in Section 10.1.

“Indemnified Party” is defined in Section 10.1.

“Interest Period” is defined in Section 2.15.

“Issuer” means any of Atlantic, Jupiter and the Seasonal Issuer and their successors and assigns. Unless otherwise indicated, references to “Issuer” shall include the Seasonal Issuer.

“Issuer Facility Amount” means (a) with respect to Atlantic on an aggregate basis, $100,000,000 and (b) with respect to Jupiter on an aggregate basis, $50,000,000. Any reduction (or termination) of the Maximum Facility Amount pursuant to the terms of this Agreement shall reduce ratably (or terminate) the Issuer Facility Amount of each Issuer.

“Jumbo Loan” means a Mortgage Loan (other than a Conforming Loan) that (1) is underwritten by an Approved Investor (other than Fannie Mae, Freddie Mac or Ginnie Mae), (2) matches all applicable requirements for purchase under the requirements of a Take-Out Commitment issued for the purchase of such Mortgage Loan, and (3) differs from a Conforming Loan solely because the principal amount of such Mortgage Loan exceeds the limit set for Conforming Loans by Fannie Mae or Freddie Mac from time to time. The term Jumbo Loan includes Super Jumbo Loans.

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“Jupiter” has the meaning set forth in the preamble of this Agreement.

“Lenders” means, collectively, the Issuers and the Banks, including the Seasonal Issuer and the Seasonal Bank.

“Lennar Corporation” means Lennar Corporation, a Delaware corporation, and its successors and assigns.

“Lien” means any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (whether statutory, consensual or otherwise), or other security arrangement of any kind (including, without limitation, any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of any financing statement under the uniform commercial code or comparable law of any jurisdiction in respect of any of the foregoing).

“Liquidity Agreement” means, with respect to an Issuer, a liquidity loan agreement, liquidity asset purchase agreement or similar agreement entered into by the related Group Banks and providing for the making of loans to such Issuer, or the purchase of Advances (or interests therein) from such Issuer, to support the Issuer’s payment obligations under its Commercial Paper Notes.

“Majority Banks” means, at any time, Banks, including Banks that have become party to this Agreement pursuant to an Assignment and Acceptance, having outstanding Advances equal to more than 67% of the aggregate outstanding Advances held by Banks or, if no Advance is then outstanding from any Bank, Banks having more than 67% of the total of the Bank Commitments and the Seasonal Bank Commitments, collectively.

“Majority Group Banks” means, as to any Group Banks included in the related Group having outstanding Bank Commitments equal to more than 50% of the aggregate outstanding Bank Commitments of the Banks in such Group.

“Managing Agent” means, with respect to Atlantic, CL New York or any successor managing agent designated by such party; and, with respect to Jupiter, Bank One or any successor managing agent designated by such party.

“Managing Agent’s Account” means, (a) with respect to CL New York, the special account (account number 01-25680-001-00-001, ABA No. 026008073 of CL New York maintained at Credit Lyonnais New York Branch, 1301 Avenue of the Americas, New York, New York, and (b) with respect to Bank One, the special account (account number 5948118, ABA No. 071000013) of Jupiter maintained at Bank One, NA (Main Office Chicago), One Bank One Plaza, Chicago, Illinois 60670.

“Market Value” means at the time determined, for any Mortgage Loan (a) the market value of such Mortgage Loan determined by the Servicer based upon the then most recent posted net yield for 30-day mandatory future delivery furnished by Fannie Mae, Freddie Mac, Ginnie Mae or another entity deemed most appropriate by the Servicer and published and distributed by Telerate Mortgage Services, or, if such posted

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net yield is not available from Telerate Mortgage Services, such posted net yield obtained directly from Fannie Mae, Freddie Mac, Ginnie Mae or another entity deemed most appropriate by the Servicer, or (b) if the posted rate is not available, the value determined by the Servicer in good faith; provided that, if (x) the Administrative Agent and/or the Managing Agents shall have obtained a different market valuation (an “Additional Determination”) as of any determination date (which Additional Determination may be from any Managing Agent or any Affiliate thereof) and (y) the amount of the Additional Determination as of such determination date is more than 0.50% less than the amount of the aggregate Market Values determined by the Servicer on such determination date, then, the amount of the Additional Determination shall be used as the Market Value for purposes of clause (A)(3) of the definition of “Collateral Value.” The Borrower shall be solely responsible for the costs incurred with respect to such Additional Determinations. The Administrative Agent shall notify the Servicer of the variance between the Servicer’s determination of the Market Value and the Additional Determinations and the source(s) used by the Administrative Agent and/or the Managing Agents to determine the Additional Determinations. Following such notice and prior to the next determination date, either (i) the Servicer and the Administrative Agent will determine a mutually acceptable, reasonable, alternative valuation for the Market Value of such Mortgage Loan or (ii) the Servicer shall use an amount equal to the Additional Determination as the Market Value of such Mortgage Loan for subsequent determination dates until clause (i) is satisfied.

“Material Adverse Effect” means, with respect to any Person, any material adverse effect on (i) the validity or enforceability of this Agreement, the Notes or any other Transaction Document, (ii) the business, operations, total Property or financial condition of such Person, (iii) the Collateral taken as a whole, (iv) the enforceability or priority of the Lien in favor of the Administrative Agent on any significant portion of the Collateral, or (v) the ability of such Person to fulfill its obligations under this Agreement, the Notes or any other Transaction Document.

“Maximum Facility Amount” means $150,000,000, as such amount may be reduced pursuant to Section 2.1(c) of this Loan Agreement.

“Maximum Rate” means the maximum non-usurious rate of interest that, under applicable law, each of the Lenders is permitted to contract for, charge, take, reserve, or receive on the Obligations.

“MERS” means Mortgage Electronic Registration Systems, Inc., a Delaware corporation.

“MERS Agent” means Bank One, as agent for the Lenders under the Electronic Tracking Agreement.

“MERS Designated Mortgage Loan” means a Mortgage Loan registered to or by the related Originator on the MERS electronic mortgage registration system.

“Moody’s” means Moody’s Investors Service, Inc., and any successor thereto.

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“Mortgage” means a mortgage or deed of trust or other security instrument creating a Lien on real property, on a standard form as approved by Fannie Mae, Freddie Mac or Ginnie Mae or such other form as any of the Originators determine is satisfactory for any Approved Investor unless otherwise directed by the Administrative Agent and communicated to the Collateral Agent.

“Mortgage Assets” means, collectively:

(a) any and all Mortgage Loans in which the Administrative Agent, as secured party, for the benefit of the holders of the Obligations, is granted a security interest pursuant to any Assignment or other document (whether or not the Principal Mortgage Documents related thereto are delivered) heretofore or hereafter from time to time executed by the Borrower;

(b) any and all instruments, documents and other property of every kind or description, of or in the name of the Borrower, now or hereafter for any reason or purpose whatsoever, in the possession or control of, or in transit to, the Collateral Agent;

(c) any and all general intangibles and Mortgage Loan Collateral that relate in any way to the Mortgage Assets;

(d) any and all Take-Out Commitments identified on Hedge and Commitment Reports from time to time prepared by the Servicer on behalf of any of the Originators and the Borrower;

(e) any and all contract rights, chattel paper, certificated securities, uncertificated securities, financial assets, securities accounts or investment property which constitute proceeds of the Mortgage Assets;

(f) this Agreement, the Performance Guaranties and the Subordination Agreement, including all moneys due or to become due thereunder, claims of the Borrower arising out of or for breach or default thereunder, and the right of the Borrower to compel performance and otherwise exercise all remedies thereunder; and

(g) any and all proceeds of any of the foregoing.

“Mortgage Loan” means a loan evidenced by a Mortgage Note and secured by a Mortgage, the beneficial interest of which has been acquired by the Borrower from any of the Originators by purchase pursuant to the Repurchase Agreement (with the record owner thereof being such Originator or, in the case of a MERS Designated Mortgage Loan, MERS as nominee for such Originator, and its successors and assigns).

“Mortgage Loan Collateral” means all Mortgage Notes and related Principal Mortgage Documents, Other Mortgage Documents, and other Collateral.

“Mortgage Note” means a promissory note, on a standard form approved by Fannie Mae, Freddie Mac or Ginnie Mae or such other form as the Originators determine

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is satisfactory for any Approved Investor unless otherwise directed by the Administrative Agent and communicated to the Collateral Agent.

“Mortgage Origination Date” means, with respect to each Mortgage Loan, the date of the Mortgage Note.

“Multiemployer Plan” means a multiemployer plan defined in Sections 3(37) or 4001(a)(3) of ERISA or Section 414(f) of the Code to which Borrower or any ERISA Affiliate is making or has made (or is accruing or has accrued an obligation to make) contributions.

“Net Worth” means the excess of a Person’s (and the Person’s subsidiaries, on a consolidated basis) total assets over total liabilities as of the date of determination, each determined in accordance with GAAP applied in a manner consistent with such Person’s audited financial statements plus that portion of Subordinated Debt (as defined below) not due within one year of the date of such audited financial statements. For purposes of calculating any Person’s Net Worth, advances or loans to shareholders, directors, officers, members, managers, employees or Affiliates (but not including advances to Lennar Corporation or Lennar Financial Services, LLC), investments in Affiliates, assets pledged to secure any liabilities not including in the Debt of the Person, intangible assets, Specified Servicing Contracts (as defined below), those other assets that would be deemed by HUD to be non-acceptable in calculating adjusted net worth in accordance with its requirements in effect as of that date, as those requirements appear “Consolidated Audit Guide for Audits of HUD Programs”, and other assets the Administrative Agent deems unacceptable in its sole discretion shall be excluded. For purposes of this definition (i) ”Subordinated Debt” means all indebtedness of a Person for borrowed money that is effectively subordinated in right of payment to all other present and future obligations on terms acceptable to the Majority Banks, and (ii) ”Specified Servicing Contracts” means servicing contracts under which a Person must repurchase or indemnify the holder of the mortgage loans as a result of defaults on the mortgage loans at any time during the term of such mortgage loan (but excluding recourse for breaches of normal representations, warranties and other provisions) if the aggregate principal amounts of the mortgage loans serviced pursuant to such servicing contracts would exceed $250,000,000.

“Non-Conforming Loan” means a Jumbo Loan.

“Note” means each or any of the promissory notes executed by the Borrower, substantially in the form of Exhibit E hereto, together with all renewals, extensions, and replacements for any such note.

“Obligations” means any and all present and future indebtedness, obligations, and liabilities of the Borrower to any of the Lenders, the Collateral Agent, the Managing Agents, each Affected Party, each Indemnified Party and the Administrative Agent, and all renewals, rearrangements and extensions thereof, or any part thereof, arising pursuant to this Agreement or any other Transaction Document, and all interest accrued thereon, and attorneys’ fees and other costs incurred in the drafting, negotiation, enforcement or

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collection thereof, regardless of whether such indebtedness, obligations, and liabilities are direct, indirect, fixed, contingent, joint, several or joint and several.

“Obligor” means (i) with respect to each Mortgage Note included in the Collateral, the obligor on such Mortgage Note and (ii) with respect to any other agreement included in the Collateral, any person from whom any of the Originators or the Borrower is entitled to performance.

“Originator Performance Guaranty” means the Originator Performance Guaranty, in the form attached hereto as Exhibit G-2, made by the Performance Guarantor in favor of the Originators, and assigned to the Administrative Agent for the benefit of the Lenders.

“Originators” means, together, Universal American Mortgage Company, LLC, a Florida limited liability company and Universal American Mortgage Company of California, a California corporation, and their successors and assigns.

“Originator’s Credit and Collection Policy” means with respect to each Originator the Originator’s Credit and Collection Policy, attached hereto as Exhibit O.

“Other Company” means the Performance Guarantor and all of its Subsidiaries except the Borrower.

“Other Mortgage Documents” is defined in Section 3.2(c).

“PBGC” means the Pension Benefit Guaranty Corporation or any successor thereto.

“Performance Guarantor” means Lennar Corporation, a Delaware corporation, and its successors and assigns.

“Performance Guarantor Quarterly Certificate” means the form of certificate attached hereto as Exhibit H-3.

“Performance Guaranty” means, collectively, the Servicer Performance Guaranty, in the form attached hereto as Exhibit G-1, made by the Performance Guarantor in favor of the Administrative Agent for the benefit of the Lenders, and the Originator Performance Guaranty, in the form attached hereto as Exhibit G-2, made by the Performance Guarantor in favor of the Borrower and assigned to the Administrative Agent for the benefit of the Lenders.

“Permitted Investments” means book-entry securities, negotiable instruments or securities represented by instruments in bearer or registered form that evidence any of the following:

(a) direct obligations of, and obligations fully guaranteed by, the United States of America or any agency or instrumentality of the United States of America, the

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obligations of which are backed by the full faith and credit of the United States of America;

(b) (i) demand and time deposits in, certificates of deposits of, bankers’ acceptances issued by, or federal funds sold by, any depository institution or trust company incorporated under the laws of the United States of America, any State thereof or the District of Columbia or any foreign depository institution with a branch or agency licensed under the laws of the United States of America or any State, subject to supervision and examination by Federal and/or State banking authorities and having a rating of P-1 by Moody’s, a rating of at least A-1 by S&P and a rating of at least F1 by Fitch at the time of such investment or contractual commitment providing for such investment or otherwise approved in writing by each Rating Agency or (ii) any other demand or time deposit or certificate of deposit that is fully insured by the Federal Deposit Insurance Corporation;

(c) repurchase obligations with respect to (i) any security described in clause (a) above or (ii) any other security issued or guaranteed by an agency or instrumentality of the United States of America, in either case entered into with a depository institution or trust company (acting as principal) described in clause (b)(i) above;

(d) short-term securities bearing interest or sold at a discount issued by any corporation incorporated under the laws of the United States of America or any State, the short-term unsecured obligations of which have a rating of at least P-1 by Moody’s, a rating of at least A-1 by S&P and a rating of at least F1 by Fitch at the time of such investment; provided, however, that securities issued by any particular corporation will not be Permitted Investments to the extent that investment therein will cause the then outstanding principal amount of securities issued by such corporation and held in the Reserve Account to exceed 10% of amounts held in the Reserve Account;

(e) commercial paper having a rating of at least P-1 by Moody’s, a rating of at least A-1 by S&P and a rating of least F1 by Fitch at the time of such investment or pledge as security;

(f) money market funds whose investments consist solely of one of the foregoing; or

(g) any other investments approved in writing by each Rating Agency.

“Person” means any individual, corporation (including a business trust), limited liability company, partnership, joint venture, association, joint stock company, trust, unincorporated organization, Governmental Authority, or any other form of entity.

“Portfolio Yield” means, with respect to any Collection Period, the percentage equivalent to the amount computed as of the last day of such Collection Period by multiplying (i) 12 by (ii) (a) the aggregate amount of interest accrued (whether or not paid) with respect to all Eligible Mortgage Loans included in the Collateral during such Collection Period divided by (b) the daily average outstanding principal amount of all Eligible Mortgage Loans included in the Collateral during such Collection Period.

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“Principal Debt” means, at the time determined, the unpaid principal balance of all Advances under this Agreement.

“Principal Mortgage Documents” is defined in Section 3.2(b).

“Program Documents” means, in the case of the Issuers, each Liquidity Agreement relating to this Agreement and the other documents executed and delivered in connection therewith, as each may be amended, supplemented or otherwise modified from time to time.

“Property” means any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible.

“Rating Agency” means S&P, Moody’s and Fitch.

“Regulation T, U, X and Z,” respectively, mean Regulation T, U, X and Z promulgated by the Federal Reserve Board as in effect from time to time, or any successor regulations thereto.

“Regulatory Change” means, relative to any Affected Party:

(a) any change in (or the adoption, implementation, change in the phase-in or commencement of effectiveness of) any:

(i) United States federal or state law or foreign law applicable to such Affected Party;

(ii) regulation, guideline, interpretation, directive, requirement or request, including without limitation the interpretation, administration or application thereof, (whether or not having the force of law) applicable to such Affected Party of (A) any court, government authority charged with the interpretation or administration of any law referred to in clause (a)(i) or (B) any accounting board or fiscal, monetary or other authority having jurisdiction over such Affected Party, including any authority in clause (A) and (B) that is also responsible for the establishment and interpretation of national or international accounting principles, in each case whether foreign or domestic (whether or not having the force of law); or

(iii) GAAP or regulatory accounting principles applicable to such Affected Party and affecting the application to such Affected Party of any law, regulation, interpretation, directive, requirement or request referred to in clause (a)(i) or (a)(ii) above;

(b) any change in the application to such Affected Party of any existing law, regulation, interpretation, directive, requirement, request or accounting principles referred to in clause (a)(i), (a)(ii) or (a)(iii) above; or

(c) the issuance, publication or release of any regulation, interpretation, directive, requirement or request of a type described in clause (a)(ii) above to the effect

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that the obligations of any Bank under the applicable Liquidity Agreement are not entitled to be included in the zero percent category of off-balance sheet assets for purposes of any risk-weighted capital guidelines applicable to such Bank or any related Affected Party.

For the avoidance of doubt, any interpretation of Accounting Research Bulletin No. 51 by the Financial Accounting Standards Board or any other change in national or international generally accepted principles of accounting (whether foreign or domestic) that would require the consolidation of some or all of the assets and liabilities of any Lender, including the assets and liabilities that are the subject of this Agreement and/or other Transaction Documents, with those of any Affected Person (other than such Lender), shall constitute a change in the interpretation, application or administration of a law, regulation, guideline, interpretation, directive, requirement or request subject to clauses (a), (b) and (c), whether or not such interpretation has been announced as of the date hereof.

“Repurchase Agreement” means the Master Repurchase Agreement and the Addendum to the Master Repurchase Agreement incorporated therein, each dated as of the date of this Agreement between the Originators, as sellers, and the Borrower, as purchaser, as the same may be amended, modified or restated from time to time.

“Required Ratings” means a rating of BB or higher by S&P, a rating of Ba2 or higher by Moody’s and a rating of BB or higher by Fitch.

“Required Reserve Account Amount” means (i) on any date that is not part of the Seasonal Period, 0.50% of the Maximum Facility Amount on such date, or (ii) on any date during the Seasonal Period, 0.50% of the Combined Facility Amount.

“Requirement of Law” as to any Person means the articles of incorporation and by-laws, articles of organization and limited liability company agreement or other organizational or governing documents of such Person, and any law, statute, code, ordinance, order, rule, regulation, judgment, decree, injunction, franchise, permit, certificate, license, authorization or other determination, direction or requirement (including, without limitation, any of the foregoing that relate to energy regulations and occupational, safety and health standards or controls and any hazardous materials laws) of any Governmental Authority, in each case applicable to or binding upon such Person or any of its Property or to which such Person or any of its Property is subject.

“Reserve Account” is defined in Section 2.8, it being understood that such account is assigned to the Administrative Agent pursuant to the Reserve Account Control Agreement and the Administrative Agent has the authority to direct the transfer of all funds in the Reserve Account.

“Reserve Account Bank” means the institution then holding the Reserve Account pursuant to Section 2.8.

“Reserve Account Control Agreement” means the Reserve Account Control Agreement, dated as of even date herewith, between the Borrower, the Servicer, the

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Administrative Agent and the Reserve Account Bank, substantially in the form attached hereto as Exhibit N, as amended, modified, supplemented or replaced.

“S&P” means Standard & Poor’s Rating Services, a Division of The McGraw-Hill Companies, Inc., and any successor thereto.

“Seasonal Advance” is defined in Section 2.20 of this Agreement.

“Seasonal Availability” means at the time determined, the Seasonal Facility Amount minus the Principal Debt owed to the Seasonal Lenders.

“Seasonal Bank” means, initially, Bank One, in its capacity as a bank under the Seasonal Facility, and its successors or assigns.

“Seasonal Bank Commitment” means (a) with respect to Bank One, the amount set forth on Schedule I hereto, and (b) with respect to a Seasonal Bank that has entered into an Assignment and Acceptance, or otherwise becomes a party hereto, the amount set forth therein as such Seasonal Bank’s Seasonal Bank Commitment, in each case as such amount may be reduced by each Assignment and Acceptance entered into between such Seasonal Bank and an Eligible Assignee, and as may be further reduced (or terminated) pursuant to the next sentence. Any reduction (or termination) of the Seasonal Facility Amount pursuant to the terms of this Agreement shall (unless otherwise agreed by all of the Seasonal Banks) reduce ratably (or terminate) each Seasonal Bank’s Seasonal Bank Commitment. At no time shall the aggregate Seasonal Bank Commitments of all Seasonal Banks exceed the Seasonal Facility Amount.

“Seasonal Bank Commitment Percentage” means, for any Seasonal Bank, as of any date, the amount obtained by dividing such Seasonal Bank’s Seasonal Bank Commitment on such date by the aggregate Seasonal Bank Commitments of all Seasonal Banks on such date. As of the date of this Agreement, the Seasonal Bank Commitment Percentage for each Seasonal Bank is as set forth on Schedule II hereto.

“Seasonal Borrowing” as defined in Section 2.20 of this Agreement.

“Seasonal Drawdown Termination Date” means the earliest to occur of (a) the Seasonal Facility Termination Date and (b) for each Seasonal Period, the last day of such Seasonal Period.

“Seasonal Facility” means the borrowing facility provided by the Seasonal Lenders as described in Section 2.20 of this Agreement.

“Seasonal Facility Amount” means $100,000,000, as such amount may be reduced pursuant to Section 2.20(c) of this Agreement.

“Seasonal Facility Termination Date” means the earliest to occur of:

(a) May 22, 2004, unless extended pursuant to Section 2.20(b);

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(b) the date on which the Seasonal Facility Amount is terminated by the Borrower pursuant to Section 2.20(c);

(c) the date, on or after the occurrence of an Event of Default, determined pursuant to Section 8.1; and

(d) the Drawdown Termination Date.

“Seasonal Issuer” means Jupiter, in its capacity as an issuer under the Seasonal Facility, and its successors or assigns.

“Seasonal Lenders” means the Seasonal Issuer and the Seasonal Bank.

“Seasonal Period” means the relevant period consisting of (a) the last five (5) days of February through the first twenty-five (25) days of March, (b) the last five (5) days of May through the first twenty-five (25) days of June, (c) the last five (5) days of August through the first twenty-five (25) days of September, or (d) the last five (5) days of November through the first twenty-five (25) days of December; provided that a Seasonal Period will occur only if the Borrower, at the Borrower’s option, notifies the Administrative Agent, the Collateral Agent, the Managing Agent of the Seasonal Lenders, and the Seasonal Lenders five (5) days (or such shorter period as the Seasonal Lenders may agree to, in their sole and absolute discretion) in advance of such Seasonal Period that the Borrower will use the Seasonal Facility during such Seasonal Period.

“Security Agreement” is defined in the Collateral Agency Agreement.

“Security Instruments” means (a) the Collateral Agency Agreement, (b) the Security Agreement, (c) the Collection Account Control Agreement, (d) the Reserve Account Control Agreement, and (e) such other executed documents as are or may be necessary to grant to the Administrative Agent a perfected first, prior and continuing security interest in and to the Collateral and any and all other agreements or instruments now or hereafter executed and delivered by or on behalf of the Borrower in connection with, or as security for the payment or performance of, all or any of the Obligations, as amended, modified or supplemented.

“Servicer” means at any time the Person then authorized pursuant to Section 11.1 to administer and collect Mortgage Loans on behalf of the Lenders. The initial Servicer shall be Universal American Mortgage Company, LLC, a Florida limited liability company.

“Servicer Default” means (a) any Event of Default, to the extent relating to the Servicer, arising under Sections 8.1(a), (b), (c), (d), (e), (f), (g), (h), (i), (j), (k), (l), (m), (n), (o), (u), (v) or, (w) in each case, without giving effect to any provisions in such sections that make such sections applicable only so long as the Servicer is one of the Originators, (b) if the Servicer is one of the Originators, the Performance Guarantor shall cease to own, directly or indirectly, at least 90% of all of the membership interests in the Servicer, or (c) if the Servicer is one of the Originators, the Servicer’s Net Worth shall be less than $75,000,000.

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“Servicer Fee” is defined in Section 2.4(b).

“Servicer Monthly Report” is defined in Section 3.8.

“Servicer Performance Guaranty” means the Servicer Performance Guaranty, in the form attached hereto as Exhibit G-1, made by the Performance Guarantor in favor of the Administrative Agent for the benefit of the Lenders.

“Settlement Date” means the 10th day of each calendar month, commencing June 10, 2003 or, if such day is not a Business Day, the next succeeding Business Day, provided, however, the Administrative Agent may, with the consent of the Managing Agents, by notice to the Borrower and the Servicer, select other days to be Settlement Dates (including days occurring more frequently than once per month).

“Shipping Request” means the shipping request presented by the Borrower to the Collateral Agent substantially in the form attached as Exhibit D-5A (as amended, modified or supplemented from time to time as agreed to by the Administrative Agent, the Borrower and the Collateral Agent).

“Shortfall Amount” means, with respect to the last day of any Interest Period or any Settlement Date, the excess, if any, of (a) all amounts due pursuant to (i) Section 2.7(c)(iii)(B) or Section 2.7(c)(iv)(C) on the last day of such Interest Period occurring prior to, on or after the Drawdown Termination Date, as applicable, (ii) Section 2.7(c)(iii)(A), (C), (D), or (H) on any such Settlement Date occurring prior to the Drawdown Termination Date or (iii) Section 2.7(c)(iv)(A), (B), (D), (E), or (G) on any such Settlement Date occurring on or after the Drawdown Termination Date, over (b) the sum of the collections then held by the Servicer for the Lenders and the Administrative Agent pursuant to Section 2.7(c)(ii) plus collected funds then on deposit in the Collection Account.

“Sixty-Day Default Ratio” means as of the end of any Collection Period, the ratio of (i) the principal amount of all Mortgage Loans with respect to which the Obligor is 60 or more days in payment default or has taken any action, or suffered any event of the type described in Section 8.1(f), (g) or (h) or is in foreclosure at such time, to (ii) the aggregate principal amount of all Mortgage Loans at such time.

“Special Borrowing” is defined in Section 2.3(c).

“Special Indemnified Amounts” is defined in Section 11.5.

“Special Indemnified Party” is defined in Section 11.5.

“Special Mortgage Loans” is defined in Section 2.3(c). For purposes of clarification, a Special Mortgage Loan shall not include any Mortgage Loan under this Agreement or a mortgage loan financed under any other credit agreement with respect to which the Principal Mortgage Documents have been shipped to an Approved Investor or any other take-out investor.

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“Subordination Agreement” means the agreement, substantially in the form attached as Exhibit B hereto, executed by the Performance Guarantor and certain of its Affiliates in favor of the Borrower and the Administrative Agent for the benefit of the holders of the Obligations.

“Subsidiary” means, with respect to any Person, any corporation or other entity of which securities having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by such Person, or one or more of its Subsidiaries, or by such Person and one or more of its Subsidiaries.

“Super Jumbo Loan” means a Jumbo Loan having an original principal balance equal to or in excess of $650,000 but less than $1,000,000.

“Take-Out Commitment” means a current, valid, binding, enforceable, written commitment (either in the form of a loan-specific or a forward purchase commitment), issued by an Approved Investor, to purchase one or more Mortgage Loans from one of the Originators prior to the date that is 120 days from the date that such Mortgage Loan first becomes Eligible Mortgage Collateral and at a specified price and in amounts, form and substance satisfactory to the Managing Agents, which commitment is not subject to any term or condition (i) that is not customary in commitments of like nature or (ii) that, in the reasonably anticipated course of events, cannot be fully complied with prior to the expiration thereof, which commitment has been assigned to the Borrower (partial assignments being permitted so long as the amount assigned (together with all other Take-Out Commitments) fully covers the amount of the Eligible Mortgage Collateral) and in which a perfected and first-priority security interest has been granted by the Borrower to the Administrative Agent; provided, that upon receipt of the actual written confirmation (each a “Trade Confirmation”) of such trade duly executed by one of the Originators and the trade counterparty and promptly upon request of the Administrative Agent, such Originator must provide such trade confirmation to the Administrative Agent. The Administrative Agent, on behalf of the Lenders shall have the right, without notice, to review such Trade Confirmation at the office of, and with the officers of, any of the Originators during normal business hours.

“Transaction Document” means any of this Agreement, the Notes, the Security Instruments, the Collateral Agency Agreement, the Repurchase Agreement, the CL New York Fee Letter, the Bank One Managing Agent Fee Letter, the Subordination Agreement, the Servicer Performance Guaranty, the Originator Performance Guaranty and any and all other agreements or instruments now or hereafter executed and delivered by or on behalf of the Borrower in connection with, or as security for the payment or performance of any or all of the Obligations, as any of such documents may be renewed, amended, restated or supplemented from time to time.

“Transfer Request” is defined in Section 3.3(a).

“UAMC Capital, LLC” has the meaning set forth in the preamble to this Agreement.

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“UCC” means the Uniform Commercial Code as adopted in the applicable state, as the same may hereafter be amended.

“Uncovered Mortgage Loan” means a Mortgage Loan that would be an Eligible Mortgage Loan but for the expiration, forfeiture, termination, or cancellation of, or default under, the relevant Take-Out Commitment.

“Unidentified Payments” is defined in Section 3.3(a).

“VA” means the Department of Veterans Affairs, or any successor thereto.

“VA Loan” means a Mortgage Loan, the payment of which is partially or completely guaranteed by the VA under the Servicemen’s Readjustment Act of 1944, as amended, or Chapter 37 of Title 38 of the United States Code or with respect to which there is a current binding and enforceable commitment for such a guaranty issued by the VA.

1.2. Other Definitional Provisions.

(a) Unless otherwise specified therein, all terms defined in this Agreement have the above-defined meanings when used in the Notes or any other Transaction Document, certificate, report or other document made or delivered pursuant hereto.

(b) The words “hereof,” “herein,” “hereunder” and similar terms when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and article, section, subsection, schedule and exhibit references herein are references to articles, sections, subsections, schedules and exhibits to this Agreement unless otherwise specified.

(c) As used herein, in the Notes or in any other Transaction Document, certificate, report or other document made or delivered pursuant hereto, accounting terms relating to any Person and not specifically defined in this Agreement or therein shall have the respective meanings given to them under GAAP.

(d) All accounting and financial terms used — and compliance with each financial covenant — in the Transaction Documents shall be determined under GAAP; however, unless the Administrative Agent has agreed (in writing) to the contrary, the determinations concerning the financial covenants found in Sections 7.1 and 7.10 and the Net Worth of the Servicer (so long as the Servicer is one of the Originators), including determinations of Deferred Income under SFAS 91 and SFAS 122, shall be made under GAAP, and SFAS 91 and SFAS 122, as in effect on the date of this Agreement. All accounting principles shall be applied on a consistent basis so that the accounting principles in a current period are comparable in all material respects to those applied during the preceding comparable period.

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ARTICLE II

AMOUNT AND TERMS OF COMMITMENT

2.1. Maximum Facility Amount.

(a) Subject to the terms of this Agreement and so long as (i) the total Principal Debt related to the Facility does not exceed the Maximum Facility Amount, (ii) the Principal Debt owed to the Lenders other than the Seasonal Lenders never exceed the total Collateral Value of all Eligible Mortgage Collateral, (iii) no Borrowing ever exceeds the Availability, and (iv) Borrowings are only made on Business Days before the Drawdown Termination Date, each Issuer may, each in its sole discretion, make an Advance ratably in accordance with the Bank Commitment of its Group Bank, and if an Issuer does not make such Advance, its Group Banks shall, ratably in accordance with their Bank Commitments, make such Advance, to the Borrower from time to time in such amounts as may be requested by the Borrower pursuant to Section 2.3, so long as (A) each Borrowing is the least of (x) the Availability, and (y) the Available Collateral Value as of such date, and (B) such Borrowing is at least $15,000,000 and in integral multiples of $10,000 in excess thereof. Within the limits of the Maximum Facility Amount, the Borrower may borrow, prepay (whether pursuant to Section 2.5 or Section 3.3(a) of this Agreement or otherwise), and reborrow under this Section 2.1.

(b) The Borrower may request an extension of the Drawdown Termination Date to a date occurring up to 364 days after the then Drawdown Termination Date, by written request to the Lenders, the Managing Agents and the Administrative Agent given 60 days prior to the then Drawdown Termination Date. If the Lenders, the Managing Agents and the Administrative Agent shall in their sole discretion consent to such extension not less than 30 days prior to the then Drawdown Termination Date, then the date set forth in clause (a) of the definition of Drawdown Termination Date shall be extended to the requested date (occurring up to 364 days after the then Drawdown Termination Date). If the Lenders in the Bank One Group decline to consent to an extension requested pursuant to this Section 2.1, but the Lenders in the CL New York Group nevertheless desire to consent to the extension or confirmation, then the extension shall be granted, and at the option of the Managing Agent of the CL New York Group, either (a) the Maximum Facility Amount shall be reduced by the Bank Commitments of the Banks in the Bank One Group on what would have been the Drawdown Termination Date but for the extension, or (b) the Managing Agent of the CL New York Group shall find a replacement for the Bank One Group. If the Lenders in the CL New York Group decline to consent to the extension, but the Lenders in the Bank One Group nevertheless desire to consent to the extension, then the extension shall be granted, and CL New York shall cease to be the Administrative Agent and Bank One shall become the Administrative Agent hereunder, and, at the option of the Managing Agent of the Bank One Group, either (a) the Maximum Facility Amount shall be reduced by the Bank Commitments of the Banks in the CL New York Group on what would have been the Drawdown Termination Date but for the extension, or (b) the Managing Agent of the Bank One Group shall find a replacement for the CL New York Group. To the extent that a Group Bank declines to extend the Drawdown Termination Date, the Obligations of such Group Bank will be repaid pursuant to Section 2.7(c)(iii) hereof. Any extension of the Drawdown Termination Date may be accompanied by such additional fees as the parties shall mutually agree. Any failure of any party to respond to the Borrower’s request

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for an extension shall be deemed a denial of such request by such party. The Lenders, Managing Agents and the Administrative Agent agree to use commercially reasonable efforts to respond to any request by the Borrower for an extension; provided that under no circumstances shall the Lenders, the Managing Agents or the Administrative Agent have any liability to the Borrower for any failure to respond and a failure to respond shall not be deemed to be a consent to any request.

(c) The Borrower may, upon at least thirty (30) days prior irrevocable notice to the Managing Agents and the Administrative Agent, but no more than once every three months, reduce the Maximum Facility Amount; provided, however, that each partial reduction shall be in the aggregate amount of $10,000,000 and in integral multiples of $1,000,000 in excess thereof; provided further, however that no such reduction shall reduce the Maximum Facility Amount below the greater of (i) the total Principal Debt owed to the Lenders (other than the Seasonal Lenders) and (ii) $100,000,000. Any partial reduction in the Maximum Facility Amount will reduce the Bank Commitment of each Bank Group ratably.

(d) The Borrower may, upon at least thirty (30) days’ prior irrevocable notice to the Administrative Agent, the Managing Agents and the Collateral Agent, and payment in full of all Obligations, terminate the Bank Commitments and reduce the Maximum Facility Amount to zero.

2.2. Promissory Notes. The Advances made by each of the Lenders related to each Group pursuant to this Article II shall be evidenced by separate Notes (i) each substantially in the form set forth in Exhibit E-1 (in the case of Lenders in the CL New York Group) or Exhibit E-2 (in the case of Lenders in the Bank One Group) hereto, each in the maximum principal amount of such Group’s related Issuer Facility Amount, or (ii) substantially in the form set forth in Exhibit E-3 (in the case of the Seasonal Lenders) hereto in the Seasonal Facility Amount. Each Managing Agent on behalf of the Lenders in its Group shall record in its records the date and amount of each Advance to the Borrower and each repayment thereof. The information so recorded shall be rebuttable presumptive evidence of the accuracy thereof. The failure to so record, in the absence of manifest error, any such information or any error in so recording any such information shall not, however, limit or otherwise affect the obligations of the Borrower hereunder or under the Notes to pay the principal of all Advances, together with interest accruing thereon.

2.3. Notice and Manner of Obtaining Borrowings.

(a) Borrowings.

(i) The Borrower shall give the Administrative Agent and each Managing Agent notice of each request for a Borrowing (including a Seasonal Borrowing), pursuant to a Borrowing Request, and in accordance with the provisions of Section 4.2 hereof. On the Borrowing Date specified in the Borrowing Request and subject to all other terms and conditions of this Agreement, each Issuer may, in its sole discretion, make available to its Managing Agent at the office of its Managing Agent set forth in Section 13.1, in immediately available funds, its pro rata share of the Borrowing. On the Borrowing Date specified in the Borrowing Request and subject to all other terms

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and conditions of this Agreement, with respect to each requested Seasonal Borrowing, the Seasonal Issuer may, in its sole discretion, make available to its Managing Agent at the office of its Managing Agent set forth in Section 13.1, in immediately available funds, its pro rata share of the Borrowing.

(ii) In the event that an Issuer shall elect not to fund an Advance (including a Seasonal Borrowing) requested by the Borrower, each Group Bank or Seasonal Bank of such Issuer agrees that it shall, on the Borrowing Date specified in the Borrowing Request and subject to all other terms and conditions of this Agreement, make available to its Managing Agent at the office of its Managing Agent set forth in Section 13.1, in immediately available funds, an amount equal to the product of (x) such Bank’s Bank Commitment Percentage or Seasonal Bank’s Bank Commitment Percentage, multiplied by (y) the portion of such Borrowing that such Issuer or Seasonal Issuer has elected not to fund.

(iii) After each Managing Agent’s receipt of funds pursuant to the preceding paragraph (i) or (ii) and upon fulfillment of the applicable conditions set forth in Article IV, each Managing Agent will make such funds available to the Borrower a like amount of immediately available funds. So long as the Borrower is otherwise entitled to make a specific Borrowing, Borrowing Requests that are received by each Managing Agent by 3:00 p.m. (eastern time) on a Business Day will be funded on the date that is two Business Days following receipt of the Borrowing Request.

(iv) Notwithstanding the foregoing, a Bank or Seasonal Bank shall not be obligated to make Advances under this Section 2.3 at any time to the extent that the principal amount of all Advances made by such Bank or Seasonal Bank would exceed such Bank’s Bank Commitment or Seasonal Bank’s Seasonal Bank Commitment less the outstanding and unpaid principal amount of any loans or purchases made by such Bank or Seasonal Bank under a Liquidity Agreement. Each Bank’s or Seasonal Bank’s obligation shall be several, such that the failure of any Bank or Seasonal Bank to make available to the Borrower any funds in connection with any Borrowing shall not relieve any other Group Bank of its obligation, if any, hereunder to make funds available on the date of such Borrowing, but no Group Bank shall be responsible for the failure of any other Group Bank to make funds available in connection with any Borrowing.

(b) Type of Loan.

(i) Each Advance by an Issuer shall initially be funded by the issuance of Commercial Paper Notes by such Issuer.

(ii) Each Advance by a Bank shall be either a Base Rate Advance or a Eurodollar Advance, as determined pursuant to Section 2.15(b).

(c) Special Borrowings. The Borrower may from time to time request that certain Borrowings be funded prior to the delivery to the Collateral Agent of the corresponding Principal Mortgage Documents (individually, a “Special Borrowing”; collectively, “Special Borrowings”). Advances in respect of Special Borrowings shall be made in accordance with

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Section 2.3(a), subject to the terms and conditions of this Agreement, including, without limitation, the following additional terms and conditions:

(i) Pursuant to an Assignment, the Borrower shall grant to the Administrative Agent for the benefit of the holders of the Obligations, from the Borrowing Date of each Special Borrowing, a perfected, first-priority security interest in the Mortgage Loans identified in Schedule II to said Assignment (such Mortgage Loans being sometimes called “Special Mortgage Loans”);

(ii) The Assignment delivered by the Borrower to the Collateral Agent in connection with any Special Mortgage Loan shall describe the Mortgage Note or Mortgage Notes to be delivered to the Collateral Agent in connection therewith by the loan number assigned by one of the Originators, original principal amount, the amount funded (minus discount points paid to such Originator) by one of the Originators, Obligor’s name and interest rate;

(iii) Within nine (9) Business Days after the date that each Assignment is delivered (and inclusion of the related Special Mortgage Loan within the computation of Collateral Value as reported on the Collateral Agent Daily Report), to Collateral Agent, the Borrower shall deliver to the Collateral Agent the Principal Mortgage Documents pertaining to any Special Mortgage Loan identified on Schedule II of such Assignment; and

(iv) The Borrower shall not request any Special Borrowing, and no Special Borrowing shall be made, in respect of any Mortgage Loan that is closed with an escrow agent other than the relevant title insurance company, unless at the time of such request, the Borrower is entitled to the benefit of Closing Protection Rights (it being understood that pursuant to the Security Agreement, the Administrative Agent has a security interest in all Closing Protection Rights).

Each request by the Borrower for a Special Borrowing shall be automatically deemed to constitute a representation and warranty by the Borrower to the effect that immediately before and after giving effect to such Borrowing, the terms and conditions specified in the foregoing clauses (i) through (iv) and specified in Section 4.2 are and shall be satisfied in full as of the related Borrowing Date.

(d) Failure to Deliver Principal Mortgage Documents. The failure to deliver Principal Mortgage Documents by the ninth Business Day, as required by subparagraph (iii) of Section 2.3(c) and elsewhere in this Agreement, shall not be treated as a Default or an Event of Default so long as each Managing Agent is satisfied that each such failure, when considered in the light of past and other contemporaneous failures, does not have a Material Adverse Effect; however, (i) if any such Principal Mortgage Documents related to such Special Mortgage Loans are not so delivered on a timely basis, the Borrower shall make a mandatory prepayment or shall deliver additional Mortgage Assets so that after giving effect thereto, the Collateral Value of Eligible Mortgage Collateral (excluding such Special Mortgage Loans) shall equal or exceed the Principal Debt, and (ii) the Special Mortgage Loan shall not be an Eligible Mortgage Loan and

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shall have a Collateral Value of zero until such Principal Mortgage Documents shall have been delivered to the Collateral Agent in connection with a subsequent Borrowing.

The Borrower diligently shall pursue delivery to the Collateral Agent of all Principal Mortgage Documents pertaining to any Special Borrowings.

2.4. Fees.

(a) The Borrower shall pay to the Administrative Agent and each Managing Agent (for itself and the Lenders for which it acts) the fees set forth in the related Fee Letters, such fees to be payable pursuant to Section 2.7(c).

(b) The Borrower shall pay to the Servicer a fee (the “Servicer Fee”) of 0.5% per annum on the aggregate outstanding principal balance of the Eligible Mortgage Loans from the date hereof until the Principal Debt is paid in full, payable monthly in arrears on each Settlement Date. The Servicer Fee shall be payable only from Collections pursuant to, and subject to the priority of payments set forth in, Section 2.7(c).

2.5. Prepayments.

(a) Optional Prepayments. The Borrower may, at any time and from time to time with five (5) Business Days’ notice to the Administrative Agent and each Managing Agent, prepay the Advances in whole or in part, in the aggregate amount of $1,000,000 and in integral multiples of $100,000 in excess thereof, without premium or penalty; provided, that the Borrower may not prepay any Advance bearing interest at the Commercial Paper Rate on any day other than the last day of the Interest Period with respect thereto. Notwithstanding the foregoing, any prepayment made hereunder shall be accompanied by accrued interest on the principal amount being prepaid. After giving notice that a prepayment will be made, the Borrower shall be liable to each Affected Party for any Consequential Loss resulting from such prepayment or the failure to make a prepayment designated in any such notice.

(b) Mandatory Prepayments. The Borrower shall, within one (1) Business Day, make a mandatory prepayment on the Principal Debt owed to the Lenders if, at any time, and to the extent that, (i) the Principal Debt owed to the Lenders other than the Seasonal Lenders exceeds the Maximum Facility Amount, (ii) the Principal Debt owed to the Seasonal Lenders exceeds the Seasonal Facility Amount or (iii) the Principal Debt exceeds the total Collateral Value of all Eligible Mortgage Collateral. The Borrower shall be liable for any Consequential Loss resulting from any such prepayment.

2.6. Business Days. If the date for any payment under this Agreement falls on a day that is not a Business Day, then for all purposes of the Notes and this Agreement the same shall be deemed to have fallen on either (a) the next following Business Day, and such extension of time shall in such case be included in the computation of payments of interest and fees or (b) if the next following Business Day is in another calendar month and payment is being made with respect to a Eurodollar Advance, then on the immediately previous Business Day.

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2.7. Payment Procedures.

(a) In General. Subject to the provisions of this Section 2.7, all payments on the Principal Debt and interest and fees under the Notes and this Agreement shall be made by the Borrower (or the Collateral Agent or the Servicer on behalf of the Borrower) to the related Managing Agent for the account of the Lenders represented by such Managing Agent. All such payments shall be made before 1:00 p.m. (eastern time) on the respective due dates in federal or other funds immediately available by that time of day and at each Managing Agent’s Account. Funds received after 1:00 p.m. (eastern time) shall be treated for all purposes as having been received by a Managing Agent on the Business Day next following the date of receipt of such funds from the Borrower. All payments made by the Borrower under this Agreement and the Notes shall be without setoff, deduction or counterclaim and the Borrower agrees to pay on demand any present or future stamp or documentary taxes or any other taxes, levies, imposts, duties, charges or fees which arise from payment made hereunder or under the Notes or from the execution or delivery or otherwise with respect to this Agreement or the Notes.

(b) The Borrower shall establish and maintain an account (the “Collection Account”) with the Collection Account Bank. The Collection Account shall be a fully segregated trust account, unless the Collection Account Bank shall be an Eligible Institution having short-term debt ratings from S&P, Moody’s and Fitch no lower than A-1/P-1/F1, in which case the account need not be a trust account. The Collection Account shall be under the control of the Administrative Agent pursuant to the Collection Account Control Agreement, and the Borrower shall have no right to withdraw any amount from, the Collection Account until the Obligations are indefeasibly paid in full. The Servicer shall have no right to access the Collection Account except as otherwise contemplated in Section 2.7(c).

(c) Collections.

(i) The Servicer shall administer Collections in accordance with the provisions of this Section 2.7. Approved Investors shall be instructed to pay proceeds from the sale of Mortgage Loans into the Collection Account, and such amounts may be released in accordance with the procedures set forth in Section 3.3 hereof.

(ii) The Servicer acknowledges that Collections and/or other Collateral Proceeds received by it with respect to any Mortgage Asset belong to the Borrower and have been pledged to the Administrative Agent, on behalf of the Lenders. From such Collections and/or other Collateral Proceeds, the Servicer, on behalf of the Borrower, shall deposit amounts necessary to make payments on the following Settlement Date (or end of the related Interest Period) pursuant to Section 2.7(c)(iii) or (iv), as applicable, into the Collection Account no later than such Settlement Date or at the end of such Interest Period, or, on or after the Drawdown Termination Date or upon the occurrence and during the continuation of an Event of Default, within one Business Day after receipt by the Servicer. Until deposited into the Collection Account, the Servicer may commingle Collections and other Collateral Proceeds with its own funds and use such funds for its own business purposes.

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(iii) Prior to the Drawdown Termination Date, the Servicer shall withdraw funds from the Collection Account (to the extent of collected funds therein) and shall make payments from the Collection Account at the following times and in the following order of priority:

(A) To the extent not previously paid, on each Settlement Date, the Servicer shall deposit an amount equal to the costs, fees and expenses then due and payable to the Collateral Agent to an account designated by the Collateral Agent.

(B) On the last day of each Interest Period for any Advance that bears interest at the Commercial Paper Rate or any Eurodollar Advance, the Servicer shall deposit an amount equal to accrued interest on such Advance, which amount shall be paid to the applicable Managing Agent’s Account for the related Lenders. On each Settlement Date, the Servicer shall deposit an amount equal to accrued interest on each Advance that bears interest at the Alternate Base Rate to the applicable Managing Agent’s Account.

(C) To the extent not previously paid, on each Settlement Date, an amount equal to the fees, costs and expenses then due and payable, on a pro rata basis, to (i) Bank One, as a Managing Agent under the Bank One Managing Agent Fee Letter shall be paid to Bank One’s Managing Agent’s Account and (ii) to the Administrative Agent and CL New York, as a Managing Agent, under the CL New York Fee Letter to the CL New York’s Managing Agent’s Account.

(D) On each Settlement Date on which the Required Reserve Account Amount exceeds the amount then on deposit in the Reserve Account, the Servicer shall deposit an amount equal to such excess to the Reserve Account.

(E) On each Settlement Date, if the Seasonal Drawdown Termination Date shall have occurred and be continuing, an amount equal to the unpaid Principal Debt payable to the Seasonal Lenders shall be paid to the Managing Agent’s Accounts related to the Seasonal Lenders until the Principal Debt owing to the Seasonal Lenders is reduced to zero; provided that, if the application of such amounts to the reduction of the Principal Debt owed to the Seasonal Lenders would cause a Default or an Event of Default to occur or there would otherwise be a Default or Event of Default in existence, then, instead of such application, Collections shall be paid to each Managing Agent’s Account pro rata in proportion to the outstanding Principal Debt (including Seasonal Advances) owing to the Lenders in each Group.

(F) On each Settlement Date, if the Group Banks in any Group have not consented to an extension of the Drawdown Termination Date, but the Group Banks in the other Group have so consented and such non-extending Lenders have not assigned their respective Advances and Bank Commitments to one or more other Lenders in accordance with Section 2.1(b) and Section 13.9, the

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Servicer shall deposit an amount equal to the unpaid balance of all Principal Debt owing to the non-extending Lenders to the related Managing Agent’s Account.

(G) To the extent not previously paid, on each Settlement Date, the Servicer shall deposit any amounts, other than those listed in clauses (A), (B) and (C) above and other than principal on the Advances, that are then due and payable and of which the Servicer has received prior written notice, including without limitation additional costs under Section 2.16, any additional interest under Section 2.17, Consequential Losses under Section 2.18, indemnities under Section 10.1 and costs, expenses and taxes under Section 13.19, to the applicable Managing Agent’s Account.

(H) On each Settlement Date, the Servicer shall withdraw from the Collection Account for its own account an amount equal to accrued Servicing Fee then due and payable.

(iv) On the Drawdown Termination Date and thereafter, the Administrative Agent shall make payments from the Collection Account (to the extent of collected funds therein) at the following times and in the following order of priority:

(A) On each Settlement Date, if the Servicer is not one of the Originators or an Affiliate of one of the Originators, an amount equal to accrued Servicing Fee then due and payable shall be paid to the Servicer.

(B) To the extent not previously paid, on each Settlement Date, an amount equal to the costs, fees and expenses then due and payable to the Collateral Agent shall be paid to an account designated by the Collateral Agent.

(C) On the last day of each Interest Period for any Advance that bears interest at the Commercial Paper Rate or for any Eurodollar Advance, an amount equal to accrued interest on each such Advance shall be paid to the applicable Managing Agent’s Account. On each Settlement Date, an amount equal to accrued interest on Advances that bear interest at the Alternate Base Rate shall be paid to the applicable Managing Agent’s Account.

(D) On each Settlement Date, an amount equal to the unpaid principal balance of all Advances made by Lenders shall be paid to the applicable Managing Agent’s Account.

(E) To the extent not previously paid, on each Settlement Date, an amount equal to the fees, costs and expenses then due and payable, on a pro rata basis, (i) to Bank One as a Managing Agent, under the Bank One Managing Agent Fee Letter shall be paid to Bank One’s Managing Agent’s Account and (ii) to the Administrative Agent and CL New York, as a Managing Agent, under the CL New York Fee Letter shall be paid to the CL New York’s Managing Agent’s Account.

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(F) To the extent not previously paid, on each Settlement Date, any amounts of the type described in Section 2.7(c)(iii)(G) are then due and payable and any other unpaid Obligations shall be paid to the applicable Managing Agent’s Account.

(G) On the Settlement Date on which all Obligations are paid in full, if the Servicer is one of the Originators or an Affiliate of one of the Originators, an amount equal to accrued Servicing Fee then due and payable shall be paid to the Servicer.

(v) Upon receipt of funds deposited into its Managing Agent’s Account, each Managing Agent shall distribute such funds to the Lenders in its Group or to itself for application to the Obligations in accordance with the order of priority set forth in Section 2.7(c)(iii) or (iv), as applicable.

(d) Interest Payments. Interest on each Advance that bears interest at the Commercial Paper Rate and interest on each Eurodollar Advance shall be due and payable on the last day of the Interest Period applicable to such Advance. Interest on each Advance that bears interest at a rate based on the Alternate Base Rate shall be due and payable in arrears on each Settlement Date, on the Drawdown Termination Date and, thereafter, on demand.

(e) Payments from Collection Account. To effect payments (including prepayments) hereunder, the Borrower may use collected funds (if any) then held on deposit in the Collection Account.

2.8. The Reserve Account.

(a) Establishment. An account (the “Reserve Account”) shall be established with the Reserve Account Bank. The Borrower, the Servicer, the Administrative Agent and the Reserve Account Bank have entered into the Reserve Account Control Agreement. The Reserve Account is and shall be under the control of the Administrative Agent, and the Borrower has and shall have no right to withdraw any amount from, the Reserve Account until the Obligations are indefeasibly paid in full.

(b) Taxation. The taxpayer identification number associated with the Reserve Account shall be that of the Borrower, and the Borrower will report for federal, state and local income tax purposes the income, if any, earned on funds in the Reserve Account.

(c) New Reserve Account. The Reserve Account Bank shall be an Eligible Institution. In the event the Reserve Account Bank ceases to be an Eligible Institution, the Borrower shall, within ten days after learning thereof, establish a new Reserve Account (and transfer any balance and investments then in the Reserve Account to such new Reserve Account) at another Eligible Institution, which new Reserve Account shall be subject to a replacement Reserve Account Control Agreement.

(d) Statements for Reserve Account. On a monthly basis, the Servicer shall cause the Reserve Account Bank to provide the Borrower, the Servicer and the Managing Agents with a written statement with respect to the preceding calendar month regarding the Reserve

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Account in a form customary for statements provided by the Reserve Account Bank for other accounts held by it, which statement shall include, at a minimum, the amount on deposit in the Reserve Account, and the dates and amounts of all deposits, withdrawals and investment earnings with respect to the Reserve Account.

(e) Payments from Reserve Account.

(i) On the Business Day preceding the last day of each Interest Period and each Settlement Date, the Servicer will determine whether any Shortfall Amount will arise with respect to such Interest Period or Settlement Date and will give the Administrative Agent notice of the amount thereof by noon New York City time. By 1:00 p.m. New York City time on the Business Day prior to the last day of each Interest Period and each Settlement Date on which the amount of the Shortfall Amount is greater than zero, the Servicer shall notify the Reserve Account Bank requesting payment thereof. To the extent funds are available in the Reserve Account, the Servicer shall cause the Reserve Account Bank to pay the amount requested to the applicable Managing Agent’s Account, as specified by the Administrative Agent, by 1:00 p.m. New York City time on the last day of such Interest Period or on such Settlement Date.

(ii) On each Settlement Date prior to the Drawdown Termination Date on which the funds on deposit in the Reserve Account exceed the Required Reserve Account Amount (after giving effect to any payments pursuant to Section 2.8(e)(i)), the Servicer may withdraw and pay to the Borrower any such excess from the Reserve Account.

(f) Payments to Reserve Account. On the date hereof, the Borrower shall remit to the Reserve Account immediately available funds so that the amount on deposit in the Reserve Account equals the Required Reserve Account Amount. Additional payments shall be deposited to the Reserve Account from time to time pursuant to Section 2.7(c)(iii)(D).

(g) Pledge. To secure the payment and performance of the Obligations, the Borrower hereby pledges and assigns to the Administrative Agent for the benefit of the Lenders, and hereby grants to the Administrative Agent for the benefit of the Lenders, a security interest in, all of the Borrower’s right, title and interest in and to the Reserve Account, including, without limitation, all funds on deposit therein, all investments arising out of such funds, all interest and any other income arising therefrom, all claims thereunder or in connection therewith, and all cash, instruments, securities, rights and other property at any time and from time to time received, receivable or otherwise distributed in respect of such account, such funds or such investments, and all money at any time in the possession or under the control of, or in transit to such account, or any bailee, nominee, agent or custodian of the Reserve Account Bank, and all proceeds and products of any of the foregoing. Except as provided in the preceding sentence, the Borrower may not assign, transfer or otherwise convey its rights under this Agreement to receive any amounts from the Reserve Account.

(h) Termination of Reserve Account. On the date following the Drawdown Termination Date on which all Obligations have been paid in full, all funds then on deposit in the Reserve Account shall be paid to the Borrower, and the Reserve Account shall be closed.

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2.9. Interest Allocations.

Each Managing Agent shall, from time to time and in its sole discretion, determine whether interest in respect of the Advances then outstanding and owing to the Lenders in the related Group, or any portion thereof, shall be calculated by reference to the Commercial Paper Rate (such portion of the Principal Debt being herein called a “CP Allocation”), the Eurodollar Rate or the Alternate Base Rate (such portion of the Principal Debt as shall be calculated based on the Alternate Base Rate or the Eurodollar Rate collectively, being herein called an “ABR Allocation”; provided, however, that each Advance made by a Bank hereunder shall be allocated to the ABR Allocation. Each Managing Agent shall provide the Borrower with reasonably prompt notice of the allocations made by it pursuant to this Section 2.9. In making its allocation decision pursuant to the foregoing sentence, each Managing Agent shall use reasonable efforts, taking into account market conditions, to accommodate the Borrower’s preferences; provided, however, that the Managing Agents shall have the ultimate authority to make all such decisions. Following designation by each Managing Agent of any Advance, or any portion thereof, as being a CP Allocation, the Borrower may, at all times that such designation remains in effect, consult with such Managing Agent as to the number and length of Interest Periods relating to such CP Allocation. In selecting such Interest Periods, each Managing Agent shall use reasonable efforts, taking into account market conditions, to accommodate the Borrower’s preferences; provided, however, that each Managing Agent shall have the ultimate authority to make all such selections.

2.10. Interest Rates.

Except where specifically otherwise provided, each CP Allocation shall bear interest for the related Interest Period at a rate per annum equal to the Commercial Paper Rate applicable to such Interest Period, and each ABR Allocation shall bear interest at either the Eurodollar Rate plus the Bank Spread, or the Alternate Base Rate; provided, however, that in no event shall the rate of interest with respect to any Advance or portion thereof exceed the Maximum Rate. Each change in the Alternate Base Rate and Maximum Rate, subject to the terms of this Agreement, will become effective, without notice to the Borrower or any other Person, upon the effective date of such change.

2.11. Quotation of Rates.

It is hereby acknowledged that an officer or other individual appropriately designated by an officer previously identified to a Managing Agent in a certificate of incumbency or other appropriately designated officer of the Borrower may call such Managing Agent from time to time in order to receive an indication of the rates then in effect, but such indicated rates shall neither be binding upon such Managing Agent nor the Lenders nor affect the rate of interest which thereafter is actually in effect.

2.12. Default Rate.

So long as any Event of Default exists, all Obligations shall bear interest at the Default Rate until paid, regardless of whether such payment is made before or after entry of a judgment.

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2.13. Interest Recapture.

If the designated rate applicable to any Borrowing exceeds the Maximum Rate, the rate of interest on such Borrowing shall be limited to the Maximum Rate, but any subsequent reductions in such designated rate shall not reduce the rate of interest thereon below the Maximum Rate until the total amount of interest accrued thereon equals the amount of interest that would have accrued thereon if such designated rate had at all times been in effect. If at maturity (stated or by acceleration), or at final payment of the Notes, the total amount of interest paid or accrued is less than the amount of interest that would have accrued if such designated rates had at all times been in effect, then, at such time and to the extent permitted by applicable Governmental Requirements, the Borrower shall pay an amount equal to the difference between (a) the lesser of the amount of interest that would have accrued if such designated rates had at all times been in effect and the amount of interest that would have accrued if the Maximum Rate had at all times been in effect, and (b) the amount of interest actually paid or accrued on the Notes.

2.14. Interest Calculations.

All computations of interest and any other fees hereunder shall be made on the basis of a year of 360 days for the actual number of days (including the first day but excluding the last day) elapsed; provided, however, that any calculations of interest based on the rate set forth in clause (i)(a) and (ii)(a) of the definition of Alternate Base Rate shall be made on the basis of a year of 365/366 days for the actual number of days (including the first day but excluding the last day) elapsed. All such determinations and calculations by the Administrative Agent and the Managing Agents shall be conclusive and binding absent manifest error.

2.15. Interest Period.

(a) “Interest Period” means with respect to any Advance included in the CP Allocation, each period (i) commencing on, and including, the date that such Advance was initially designated by the related Managing Agent as comprising a part of the CP Allocation hereunder, or the last day of the immediately preceding Interest Period for such Advance (whichever is latest); and (ii) ending on, but excluding, the date that falls such number of days (not to exceed 30 days) thereafter as such Managing Agent shall select; provided, however, that no more than ten Interest Periods (five per Issuer) shall be in effect at any one time with respect to Advances included in the CP Allocation provided, however, that no Interest Period with respect to the Seasonal Facility shall extend beyond the end of a Seasonal Period.

(b) “Interest Period” means with respect to any Advance included in the ABR Allocation, a period of one month (provided that if such Interest Period begins on a date for which there is no corresponding date in the month in which such Interest Period is scheduled to end, the last day of such Interest Period shall be the last Business Day of the month in which such Interest Period is scheduled to end), which Advance shall be a Eurodollar Advance, unless:

(i) on or prior to the first day of such Interest Period the Lender with respect to such Advance shall have notified the Administrative Agent that the introduction of or any change in or in the interpretation of any law or regulation makes it

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unlawful, or any central bank or other governmental authority asserts that it is unlawful, for such Lender to fund such Advance at the Eurodollar Rate (and such Lender shall not have subsequently notified the Administrative Agent and Managing Agents that such circumstances no longer exist), or

(ii) the Borrower shall have requested a Base Rate Advance or an Interest Period shorter than one month, or

(iii) the Administrative Agent and Managing Agents do not receive notice, by 12:00 noon (New York City time) on the third Business Day preceding the first day of such Interest Period, that the related Advance will not be funded by issuance of Commercial Paper Notes, or

(iv) the principal amount of such Advance is less than $500,000, or

(v) an Event of Default shall have occurred and be continuing, or

(vi) the Eurodollar Rate determined pursuant hereto does not accurately reflect the cost of funds to the Issuer or the Banks (as conclusively determined by the Agent) during such Interest Period, or

(vii) adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for the relevant Interest Period,

in which case (if any of the foregoing events occurs) such Advance shall be a Base Rate Advance.

(c) Notwithstanding any provision in this Agreement to the contrary, (x) any Interest Period that would otherwise end on a day that is not a Business Day shall be extended to the next succeeding Business Day (provided, however, if interest in respect of such Interest Period is computed by reference to the Eurodollar Rate, and such Interest Period would otherwise end on a day that is not a Business Day, and there is no subsequent Business Day in the same calendar month as such day, such Interest Period shall end on the immediately preceding Business Day); (y) any Interest Period that commences before the Drawdown Termination Date and would otherwise end after the Drawdown Termination Date shall end on the Drawdown Termination Date; and (z) the duration of each Interest Period that commences on or after the Drawdown Termination Date shall be of such duration as shall be selected by the applicable Managing Agents and communicated by notice to the Borrower.

2.16. Additional Costs.

(a) If any Regulatory Change occurring after the date hereof:

(i) shall subject an Affected Party to any tax, duty or other charge with respect to any Advance to or funded by it, or any obligations or right to make Advances hereunder or to provide funding therefor, or shall change the basis of taxation of payments to the Affected Party of any amounts in respect of a Lender’s principal or interest owed to or funded by it or any other amounts due under this Agreement in respect

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of any Advance funded by it or its obligations or rights, if any, to make Advances or to provide funding therefor (except for changes in the rate of tax on the overall net income of such Affected Party imposed by the United States of America, by the jurisdiction in which such Affected Party’s principal executive office is located and, if such Affected Party’s principal executive office is not in the United States of America, by the jurisdiction where such Affected Party’s principal office in the United States is located); or

(ii) shall impose, modify or deem applicable any reserve (other than reserve requirements referred to in Section 2.17), special deposit or similar requirement against assets of any Affected Party, deposits or obligations with or for the account of any Affected Party or with or for the account of any affiliate (or entity deemed by the Federal Reserve Board to be an affiliate) of any Affected Party, or credit extended by any Affected Party; or

(iii) shall change the amount of capital maintained or required or requested or directed to be maintained by any Affected Party; or

(iv) shall change the rates for, or the manner in which the Federal Deposit Insurance Corporation (or any successor thereto) assesses deposit insurance premiums or similar charges; or

(v) shall impose any other condition affecting any Advance funded by any Affected Party, or its obligations or rights, if any, to make Advances or to provide funding therefor; and the result of any of the foregoing is or would be:

(x) to increase the cost to or impose a cost on (I) an Affected Party funding or making or maintaining any Advances or any liquidity loan to an Issuer or any commitment of such Affected Party with respect to any of the foregoing, or (II) the Administrative Agent for continuing its, or the Borrower’s, relationship with the Lenders,

(y) to reduce the amount of any sum received or receivable by an Affected Party under this Agreement or any Note, or under the Liquidity Agreement with respect thereto, or

(z) in the sole determination of such Affected Party, to reduce the rate of return on the capital of an Affected Party as a consequence of its obligations hereunder or arising in connection herewith to a level below that which such Affected Party could otherwise have achieved,

then within thirty days after demand by such Affected Party (which demand shall be accompanied by a statement setting forth the basis of such demand), the Borrower shall pay directly to such Affected Party such additional amount or amounts as will compensate such Affected Party for such additional or increased cost or such reduction.

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(b) Each Affected Party will promptly notify the Borrower, the applicable Managing Agent and the Administrative Agent of any event of which it has knowledge that will entitle such Affected Party to compensation pursuant to this Section 2.16; provided, however, no failure to give or delay in giving such notification shall adversely affect the rights of any Affected Party to such compensation.

(c) In determining any amount provided for or referred to in this Section 2.16, an Affected Party may use any averaging and attribution methods that it (in its sole discretion) shall deem applicable. Any Affected Party when making a claim under this Section 2.16 shall submit to the Borrower a statement as to such increased cost or reduced return (including calculation thereof), which Statement shall, in the absence of manifest error, be conclusive and binding upon the Borrower.

2.17. Additional Interest on Advances Bearing a Eurodollar Rate.

The Borrower shall pay to any Affected Party, so long as such Affected Party shall be required under regulations of the Federal Reserve Board to maintain reserves with respect to liabilities or assets consisting of or including Eurocurrency Liabilities, additional interest on the unpaid principal of each Advance or portion thereof made or funded (including fundings to an Issuer for the purpose of maintaining an Advance) by such Affected Party during each Interest Period in respect of which interest is computed by reference to the Eurodollar Rate, for such Interest Period, at a rate per annum equal at all times during such Interest Period to the remainder obtained by subtracting (i) the Eurodollar Rate for such Interest Period from (ii) the rate obtained by dividing such Eurodollar Rate referred to in clause (i) above by that percentage equal to 100% minus the Eurodollar Rate Reserve Percentage of such Affected Party for such Interest Period, payable on each date on which interest is payable on such Advance. Such additional interest shall be determined by such Affected Party and notice thereof given to the Borrower (with a copy to the Administrative Agent and the applicable Managing Agent) within 30 days after any interest payment is made with respect to which such additional interest is requested. A certificate as to such additional interest submitted to the Borrower, the Administrative Agent and the applicable Managing Agent by such Affected Party shall be conclusive and binding for all purposes, absent manifest error.

2.18. Consequential Loss.

The Borrower and the Servicer shall indemnify each Affected Party against, and shall pay to the Administrative Agent for such Affected Party within ten days after request therefor, any Consequential Loss of any Affected Party. When any Affected Party requests that the Borrower or the Servicer pay any Consequential Loss, it shall deliver to the Borrower, the Servicer, the Administrative Agent and the applicable Managing Agent a certificate setting forth the basis for imposing such Consequential Loss and the calculation of such amount thereof, which calculation shall be conclusive and binding absent manifest error.

2.19. Replacement Banks.

Upon the election of any Affected Party to request reimbursement by the Borrower for increased costs under Sections 2.16 or 2.17, the Borrower may, upon prior written

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notice to the Administrative Agent, the applicable Managing Agent and such Affected Party, seek a replacement Bank to whom such additional costs shall not apply (a “Replacement Bank”) and, upon a Bank’s breach of its obligation hereunder to make an Advance, the Borrower may seek a Replacement Bank for such Bank. Any Replacement Bank shall be satisfactory to the applicable Managing Agent. Notwithstanding the foregoing, the Borrower may not seek a replacement for a Bank that is also a Managing Agent unless the related Issuer is also terminated as a party to this Agreement and all of its outstanding Advances are repaid in full. Each Affected Party agrees that, should it be identified for replacement pursuant to this Section 2.19, upon payment in full of all amounts due and owing to such Affected Party hereunder and under the other Transaction Documents, it will promptly execute and deliver all documents and instruments reasonably required by the Borrower to assign such Affected Party’s portion of the Advances to the applicable Replacement Bank. Any such replacement shall not relieve the Borrower of its obligation to reimburse the Affected Party for any such increased costs incurred through the date of such replacement.

2.20. Seasonal Facility Amount.

(a) On the terms and conditions set forth herein, the Seasonal Issuer may, in its sole discretion, make an Advance (a “Seasonal Advance” or “Seasonal Borrowing”), and if the Seasonal Issuer does not make such Advance, the Seasonal Bank shall make such Advance to the Borrower from time to time in such amounts as may be requested by the Borrower pursuant to Section 2.3, so long as

(i) the Seasonal Facility Amount is greater than the Principal Debt owed to the Seasonal Lenders;

(ii) each Borrowing is in an amount of at least $5,000,000 and in integral multiples of $10,000 in excess thereof;

(iii) each such Advance is made during a Seasonal Period and prior to the Seasonal Facility Termination Date; and

(iv) the Availability under the Facility at the time of such Seasonal Advance is equal to zero.

(b) The Borrower may request an extension of the Seasonal Facility Termination Date to a date occurring up to 364 days after the then Seasonal Facility Termination Date, by written request to the Seasonal Lenders and the Managing Agent for the Seasonal Lenders, given 60 days prior to the then Seasonal Facility Termination Date. If the Seasonal Lenders and the Managing Agent for the Seasonal Lenders shall in their sole discretion consent to such extension not less than 30 days prior to the then Seasonal Facility Termination Date, then the date set forth in clause (a) of the definition of Seasonal Facility Termination Date shall be extended to the requested date (occurring up to 364 days after the then Seasonal Facility Termination Date). Any extension of the Seasonal Facility Termination Date may be accompanied by such additional fees as the parties shall mutually agree. Any failure of any party to respond to the Borrower’s request for an extension shall be deemed a denial of such request by such party.

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(c) The Borrower may, upon at least thirty (30) days’ written notice to the Administrative Agent, the Collateral Agent and the Seasonal Lenders, terminate the Seasonal Facility in whole or reduce in part the Seasonal Facility Amount; provided, that each reduction of the Seasonal Facility Amount shall (i) be effective on the next occurring Settlement Date, (ii) be in the amount of at least $5,000,000 and in integral multiples of $1,000,000 in excess thereof and (iii) not reduce the Seasonal Facility Amount below the Principal Debt owed to the Seasonal Lenders.

ARTICLE III

COLLATERAL

3.1. Collateral. To secure the payment of the Obligations, the Borrower has executed and delivered to the Administrative Agent and the Collateral Agent, as applicable:

(a) the Security Agreement,

(b) the Collection Account Control Agreement,

(c) Reserve Account Control Agreement, and

(d) the UCC Financing Statements;

all as more fully provided for in the Collateral Agency Agreement. The Borrower further agrees to execute all documents and instruments, and perform all other acts deemed necessary by the Administrative Agent or any Managing Agent to create and perfect, and maintain the security interests and collateral assignments in favor of the Administrative Agent or the Collateral Agent for the benefit of the holders of the Obligations, as perfected first priority security interests. Any security interest or collateral assignments granted to the Administrative Agent or the Collateral Agent under any Transaction Document is for the benefit of the holders of the Obligations, whether or not reference is made to such holders.

3.2. Delivery of Collateral to Collateral Agent.

(a) Periodically, the Borrower may deliver Mortgage Loan Collateral to the Collateral Agent to hold as bailee for the Administrative Agent. Each delivery by the Borrower (i) shall be made in association with an Assignment (in the form attached as Exhibit D-4 to the Collateral Agency Agreement), or (ii) shall be in the form of an electronic transmission which shall include a schedule substantially in the form illustrated on Schedules I and I to Exhibit D-4 to the Collateral Agency Agreement and a specific code indicating that such electronic transmission is being delivered in connection with this Agreement. If the Borrower elects (ii) above, the Borrower shall be deemed to have made all of the representations, covenants and warranties set forth in the Assignment attached as Exhibit D-4 to the Collateral Agency Agreement contemporaneously with such electronic transmission.

(b) Each Assignment delivered (or deemed to be delivered) to the Collateral Agent shall be accompanied by a completed Schedule I and Schedule II using the forms of such schedules as prescribed in the Collateral Agency Agreement and, with respect to each Mortgage

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Loan described in Schedule I to each Assignment, shall deliver or cause to be delivered the following items (collectively, the “Principal Mortgage Documents”):

(i) the original of each Mortgage Note, endorsed in blank (without recourse) and all intervening endorsements thereto;

(ii) in the case of each Mortgage Loan that is not a MERS Designated Mortgage Loan, an original executed assignment in blank for each Mortgage Note and the Mortgage securing such Mortgage Note, in recordable form executed by one of the Originators (and if the related Mortgage Loan is a MERS Designated Mortgage Loan, this document shall not be required to be delivered to the Collateral Agent); and

(iii) a certified copy of the executed Mortgage related to such Mortgage Note;

(c) The Servicer shall hold in trust for the Administrative Agent for the benefit of the holders of the Obligations, with respect to each Mortgage Loan included in the Collateral,

(i) the original filed Mortgage relating to such Mortgage Loan, provided, however, that, until an original Mortgage is received from the public official charged with its filing and recordation, a copy, certified by the closing agent to be a true and correct copy of the original sent to be filed and recorded, may be used by the Borrower to satisfy this requirement; however, the Borrower shall thereafter pursue, with reasonable diligence, receipt of the filed and recorded original Mortgage and, if received, shall deliver such original to the Servicer;

(ii) other than with respect to a HUD repossessed Property that is sold to a consumer, a mortgagee’s policy of title insurance (or binding unexpired commitment to issue such insurance if the policy has not yet been delivered to the Servicer) insuring the Borrower’s perfected, first-priority Lien created by the Mortgage securing such Mortgage Loan (subject to such title exceptions that conform to the related Take-Out Commitments) in a policy amount not less than the principal amount of such Mortgage Loan;

(iii) the original hazard insurance policy, appropriately endorsed to provide that all insurance proceeds will be paid to any of the Originators or any of the assigns of such Originator, referred to in Section 6.6(b) hereof which relate to such Mortgage Loan, or other evidence of insurance reasonably acceptable to the Administrative Agent;

(iv) the form of current appraisal of the Property described in the Mortgage, prepared by a state licensed appraiser, that complies with all applicable Governmental Requirements, including all Governmental Requirements that are applicable to the Lenders or any other Affected Party; provided, however, that no appraisal shall be required for Mortgage Loans (x) financing HUD repossessed Property that is sold to a consumer, financed with an FHA loan, fully insurable and in accordance with FHA guidelines, but for which an appraisal is not required, and (y) representing so

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called VA Rate Reduction or FHA Streamline refinances, insurable in accordance with VA and FHA guidelines, but for which an appraisal is not required; and

(v) all other original documents (collectively, the “Other Mortgage Documents”).

Upon request of the Administrative Agent or any Managing Agent, the Borrower shall immediately deliver, or shall cause to be delivered, all such items to the Collateral Agent as bailee for the Administrative Agent or such other party as may be designated in such notice.

(d) Whenever a Mortgage Loan becomes subject to a loan-specific Take-Out Commitment, Servicer shall reflect such Take-Out Commitment on the Hedge and Commitment Report next delivered by the Servicer, and the Borrower shall deliver to the Administrative Agent copies of the related master agreement or commitment with the related Approved Investor, with any confidential economic terms redacted (unless a copy of such agreement or commitment has been delivered previously).

(e) The Servicer shall provide the Collateral Agent and the Administrative Agent with full access to all Other Mortgage Documents held in trust for the Administrative Agent at all times.

(f) With respect to each Assignment that is received or deemed received by the Collateral Agent, the Collateral Agent shall review the schedules to such Assignment and make a written report to the Borrower and the Administrative Agent, all as more fully provided in the Collateral Agency Agreement.

3.3. Redemption of Mortgage Collateral.

(a) Generally. Subject to the limitations contained in this Section 3.3, in connection with a sale or other transfer contemplated by clause (a) or (b) or otherwise, and so long as no Default or Event of Default is continuing, the Borrower or the Servicer (on behalf of the Borrower) may request releases of the Administrative Agent’s security interest in all or any part of the Collateral (including releases from the Collection Account) at any time, and from time to time and such requests shall be automatically granted; provided that no such request shall be granted unless, in addition to the satisfaction of the other conditions contained in this Section 3.3,

(i) (immediately after giving effect to any requested release) the total Collateral Value of all Eligible Mortgage Collateral shall equal or exceed the Principal Debt, or

(ii) (A) the Borrower makes a principal payment on account of the Principal Debt in an amount, such that after giving effect to such payment or delivery, the total Collateral Value of all Eligible Mortgage Collateral will equal or exceed the Principal Debt, or (B) the Borrower delivers to the Collateral Agent as bailee for the Administrative Agent substitute Eligible Mortgage Collateral with a Collateral Value, such that after giving effect to such payment or delivery, the total Collateral Value of all Eligible Mortgage Collateral will equal or exceed the Principal Debt.

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Each request for a release of any portion of the Collateral shall be addressed to the Collateral Agent and shall be substantially in either the form illustrated in Exhibit D-5 to the Collateral Agency Agreement (or such other form as may be reasonably acceptable to or required by the Administrative Agent, from time to time), or the form of an electronic transmission which shall include a schedule substantially in the form illustrated on Schedule I to Exhibit D-5 to the Collateral Agency Agreement (or such other form as may be reasonably acceptable to or required by the Administrative Agent, from time to time) and a specific code indicating that such electronic transmission is being delivered in connection with this Agreement (a “Transfer Request”). Each request for a release of any portion of the Collateral from the Collection Account shall be addressed to the Administrative Agent and shall be substantially in the form illustrated in Exhibit D-11 to the Collateral Agency Agreement (or such other form as may be reasonably acceptable to or required by the Administrative Agent, from time to time) (a “Collection Account Release Notice”). Neither the Borrower nor the Servicer will request a release of any portion of the Collateral from the Collection Account in the amount of any payments (“Unidentified Payments”) that have been deposited into the Collection Account, to the extent that the Servicer has not identified the Mortgage Loan to which any such payment relates such that the Lenders’ security interest could be released. If the Borrower or the Servicer elects to deliver a Transfer Request by electronic transmission the Borrower or the Servicer shall be deemed to have made all of the representations, covenants and warranties set forth in the Transfer Request attached as Exhibit D-5 to the Collateral Agency Agreement contemporaneously with such electronic transmission.

(b) Redemption Pursuant to Sale. So long as no Default or Event of Default is continuing, the Borrower or the Servicer (on behalf of the Borrower) may from time to time submit a Shipping Request that would permit a sale of Mortgage Loan Collateral to, or the pooling of Mortgage Loan Collateral for, an Approved Investor, pursuant to a Take-Out Commitment. Upon the receipt by the Collateral Agent of a Shipping Request from the Borrower identifying Collateral to be delivered to an Approved Investor, and so long as no Default or Event of Default shall be in existence or would be caused thereby:

(i) The Collateral Agent shall deliver to the Approved Investor, or its loan servicing provider or custodian, under the Collateral Agent’s “Bailee and Security Agreement Letter” substantially in the form provided for in the Collateral Agency Agreement, as appropriate, the items of Mortgage Loan Collateral being sold that are held by the Collateral Agent as bailee for the Administrative Agent pursuant to Section 3.2 hereof, with the release of the security interest in favor of the Administrative Agent for the benefit of the holders of the Obligations in such items being conditioned upon timely payment to the Collection Account of the amount described in Section 3.3(b)(iii) or delivery of additional Eligible Mortgage Collateral;

(ii) The Servicer shall, as agent for the Administrative Agent, deliver to such Approved Investor, or such Approved Investor’s loan servicing provider or custodian, pursuant to procedures provided for in the Collateral Agency Agreement, the items held by the Servicer pursuant to Section 3.2(c) that are related to the Mortgage Loan Collateral to be transferred on the condition that such Approved Investor or its loan servicing provider or custodian shall hold or control such Other Mortgage Documents as bailee for the Administrative Agent (for the benefit of the holders of the Obligations)

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until the Approved Investor has either paid the full purchase price for such Mortgage Loan Collateral to the Collateral Agent, as required by the relevant Take-Out Commitment;

(iii) Within forty-five (45) days after the delivery by the Collateral Agent to such Approved Investor or its loan servicing provider or custodian of the items of Mortgage Loan Collateral described in Section 3.3(b)(i), the Borrower shall make a payment, or shall cause a payment to be made, to the Collection Account for distribution to the Administrative Agent for the account of the Lenders in an amount equal to at least the full purchase price for such Mortgage Loan Collateral; and

(iv) With respect to each Shipping Request that is received by the Collateral Agent by 10:00 a.m. (eastern time), or such later time as permitted by the Collateral Agent, on a Business Day, the Collateral Agent shall use due diligence and efforts to review such Shipping Request and prepare the Mortgage Loan files identified in each Shipping Request, for shipment prior to the close of business on such day; provided, however, that for each shipment of 100 or more Mortgage Loans, the Collateral Agent shall receive the Shipping Request by 10:00 a.m. (eastern time) or such later time as permitted by the Collateral Agent, on the Business Day prior to the shipment date.

(c) Transfers. So long as no Default or Event of Default is continuing, the Borrower shall, at any time, be permitted to transfer Mortgage Loans to either Originator by means of its daily electronic transmissions to the Collateral Agent, together with delivery of a Transfer Request delivered to the Collateral Agent, identifying each Mortgage Loan being transferred. The Collateral Agent’s sole responsibility with respect to any such transfers shall be to correctly reflect such transfers on its computer system and books and records and to indicate, on its Collateral Agent’s Daily Report on the next Business Day, that such transfers have been effected. However, neither the Borrower nor the Servicer on its behalf shall request transfers if (A) total Principal Debt will exceed the total Collateral Value of Eligible Mortgage Collateral immediately after giving effect to a requested transfer, or (B) the Collateral Agent shall have received written notice from the Administrative Agent that a Default or Event of Default has occurred.

(d) Continuation of Lien. Unless released in writing by the Administrative Agent as herein provided, the security interest in favor of the Administrative Agent for the benefit of the holders of the Obligations, in all Mortgage Loan Collateral transmitted pursuant to Section 3.3(b) shall continue in effect until such time as payment in full of the amount described in Section 3.3(b)(iii) shall have been received.

(e) Application of Proceeds; No Duty. Neither the Administrative Agent nor the Lenders shall be under any duty at any time to credit Borrower for any amount due from any Approved Investor in respect of any purchase of any Mortgage Collateral contemplated under Section 3.3(b) above, until such amount has actually been received in immediately available funds and deposited to the Collection Account. Neither the Collateral Agent, nor the Lenders, nor the Administrative Agent shall be under any duty at any time to collect any amounts or otherwise enforce any obligations due from any Approved Investor in respect of any such purchase.

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(f) Mandatory Redemption of Mortgage Collateral. Notwithstanding any provision herein to the contrary, if at any time a Collateral Deficiency exists, the Borrower shall, as promptly as possible and in any event within one Business Day, make a payment to the Collection Account (or make payment directly to the Administrative Agent) or pledge, assign and deliver additional or substitute Eligible Mortgage Collateral to the Administrative Agent for the benefit of the holders of the Obligations, so that, immediately after giving effect to such payment or pledge and assignment, total Collateral Value of Eligible Mortgage Collateral shall be equal or greater than the Principal Debt.

(g) Representation in Connection with Releases, Sales and Transfers. The Borrower represents and warrants that each request for any release or transfer pursuant to Section 3.3(a) or Section 3.3(b) shall automatically constitute a representation and warranty to the effect that immediately before and after giving effect to such release or Transfer Request, the Collateral Value of Eligible Mortgage Collateral shall equal or exceed the Principal Debt.

(h) Limitation on Releases. Notwithstanding any provision to the contrary, the Servicer shall not request a release of any Collateral unless payment of the purchase price by the Approved Investor or any of the Originators shall have been made in immediately available funds to the Collection Account; provided, however, that the foregoing shall not apply if there is no Default or Event of Default, and, immediately before and after giving effect to such release (and any related substitutions), the total Collateral Value of Eligible Mortgage Collateral shall equal or exceed the Principal Debt.

3.4. Correction of Mortgage Notes. The Servicer may from time to time request, in writing, that the Collateral Agent deliver a Mortgage Note that constitutes Mortgage Loan Collateral so that such Mortgage Note may be replaced by a corrected Mortgage Note. Upon receipt by the Collateral Agent of such a request from the Servicer, and so long as no Default or Event of Default shall be in existence, the Collateral Agent shall deliver to the Servicer, under the Collateral Agent’s “Trust Receipt and Security Agreement Letter,” in the form provided for in the Collateral Agency Agreement, or such other form as may be approved by the Administrative Agent, the Mortgage Note to be corrected, such delivery to be conditioned upon the receipt within fourteen (14) calendar days by the Collateral Agent of a corrected Mortgage Note; provided, that

(i) at no time shall Mortgage Notes having an aggregate Collateral Value in excess of $5,000,000 (the Collateral Value assigned to each such Mortgage Notes shall be determined utilizing as the principal amount of such Mortgage Note the lesser of the uncorrected face value of such Mortgage Note and the correct face value of such Mortgage Note known to the Borrower or the Servicer; provided, however, that if correct face value of such Mortgage Note is not communicated or known to the Collateral Agent, the Collateral Agent may use the uncorrected face value of such Mortgage Note in determining the Collateral Value) be so delivered for replacement with corrected Mortgage Notes under the Collateral Agency Agreement;

(ii) until such time as a corrected Mortgage Note shall have been delivered to the Collateral Agent, the Collateral Value attributed to each Mortgage Note delivered to the Servicer to be corrected in accordance with this Section 3.4 shall be the

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lesser of the uncorrected face value of such Mortgage Note and the corrected face value of such Mortgage Note known to the Borrower and communicated by the Borrower to the Collateral Agent; provided, however, that if correct face value of such Mortgage Note is not communicated or known to the Collateral Agent, the Collateral Agent may use the uncorrected face value of such Mortgage Note in determining the Collateral Value; and

(iii) notwithstanding the preceding clause (ii), unless the corrected Mortgage Note is endorsed in blank (without recourse) and re-delivered to the Collateral Agent within 14 calendar days of the delivery by the Collateral Agent of the Mortgage Note to be corrected, the Collateral Value attributed to both the Mortgage Note to be delivered and the corrected Mortgage Note shall be zero beginning on the 15^th calendar day; provided, however, that the Collateral Value attributable to the corrected Mortgage Note will be reinstated promptly upon the subsequent delivery thereof to the Collateral Agent.

3.5. Collateral Reporting. Pursuant to the Collateral Agency Agreement in no event later than 10:00 a.m. (eastern time) on each Business Day, the Collateral Agent shall furnish to the Borrower, the Servicer and each Managing Agent by facsimile (a hard copy of which shall not subsequently be mailed, sent or delivered to either Managing Agent, unless so requested by such Managing Agent) a duly completed Collateral Agent Daily Report in the form of Exhibit D-8 to the Collateral Agency Agreement.

3.6. Hedge and Commitment Reports. No later than 3:00 p.m. (eastern time), on the first Business Day of each week, and, if any changes would be reflected since the last Hedge and Commitment Report, on each other Business Day, the Servicer shall furnish the Borrower and the Administrative Agent a Hedge and Commitment Report, in the form of Exhibit D-13.

3.7. Investor Concentration Reporting. No later than 11:00 a.m. (eastern time) on the first Business Day of each week, the Servicer shall provide a written report, in the form of Exhibit L, to the Managing Agents demonstrating that the concentrations specified in Section 6.23 were not exceeded during the prior calendar week and confirming the ratings set forth on Schedule II.

3.8. Servicer Monthly Reporting. No later than 11:00 a.m. (eastern time) on the 4th Business Day of each month, the Servicer shall furnish the Borrower and the Managing Agents (by facsimile or electronic transmission (a hard copy of which shall not subsequently be mailed, sent or delivered to the Managing Agent, unless so requested by a Managing Agent) a report executed by a Financial Officer of the Servicer, in the form of Exhibit F hereto (“Servicer Monthly Report”) which shall provide as of the last day of the previous month (or of the date of such request) (i) a computation of the Default Ratio and Sixty-Day Default Ratio, (ii) an aging of Mortgage Loans owned by the Borrower that are financed by the Lenders and constitute Collateral hereunder, and (iii) the other information provided for therein.

3.9. [Reserved].

3.10. [Reserved].

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ARTICLE IV

CONDITIONS PRECEDENT

4.1. Initial Borrowing. The effectiveness of this Agreement and the making of any Advances hereunder shall not occur until the later of May 23, 2003, or satisfaction of the conditions precedent specified in Section 4.2 hereof and delivery to the Administrative Agent of the following (each of the following documents being duly executed and delivered and in form and substance satisfactory to the Managing Agents and the Administrative Agent, and, with the exception of the Notes and the UCC statement(s), each in a sufficient number of originals that each Managing Agent may have an executed original of each document):

(a) an executed counterpart of this Agreement;

(b) the Notes;

(c) the Collateral Agency Agreement, the Security Agreement, the Collection Account Control Agreement, the Reserve Account Control Agreement and such other Security Instruments as may be requested by the Administrative Agent;

(d) the Servicer Performance Guaranty, substantially in the form of Exhibit G-1 hereto and the Originator Performance Guaranty, substantially in the form of Exhibit G-2 hereto;

(e) the Repurchase Agreement;

(f) the Subordination Agreement;

(g) a certificate of the Secretary or Assistant Secretary of each of the Borrower, each Originator and the Performance Guarantor certifying as to (i) resolutions of each Borrower’s, each Originator’s and the Performance Guarantor’s board of directors or managers, as applicable, authorizing the execution, delivery, and performance by each of them of the Transaction Documents to which they are a party and identifying the officers or the members, as applicable, of the Borrower, the Originators and the Performance Guarantor who are authorized to sign such Transaction Documents, (ii) specimen signatures of the officers or the members, as applicable, so authorized, (iii) the certificate of incorporation or organization, and (iv) bylaws or the limited liability company agreement, as applicable;

(h) a favorable written opinion from counsel to the Borrower, the Originators and the Performance Guarantor on entity matters in a form acceptable to the Managing Agents;

(i) a favorable written opinion from counsel to the Borrower and the Originators on security interest matters in a form acceptable to the Managing Agents;

(j) a favorable written opinion from counsel to the Originators as to true sale and non-consolidation matters in a form acceptable to the Managing Agents;

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(k) a certificate from each of (i) the Secretary of State of the State of California, (ii) the Secretary of State of the State of Delaware and/or (iii) the Secretary of the State of Florida, and (iv) an officer or member, as applicable, of the Borrower, the Performance Guarantor and each of the Originators with respect to every state in which the Borrower, the Performance Guarantor or such Originator is organized or conducts business, as to the good standing of the Borrower, the Performance Guarantor and/or each of the Originators, as applicable, in each state or states for which each certificate is made;

(l) the Fee Letters;

(m) evidence of the payment of fees due at closing, as provided in the Fee Letters;

(n) a letter agreement between the Borrower and the Collateral Agent establishing fees for collateral agency, custodial and administrative services, and a mutually agreeable schedule for payment of such fees shall have been executed by the Borrower and the Collateral Agent and shall have been approved by the Administrative Agent;

(o) acknowledgment copies of proper Financing Statements (Form UCC1), filed on or prior to the date of the initial Advance, naming (i) each Originator as the Seller, the Borrower as the secured party/purchaser and the Administrative Agent as the assignee, and (ii) the Borrower as the debtor and the Administrative Agent on behalf of the holders of the Obligations as the secured party, or other, similar instruments or documents, as may be necessary or, in the opinion of the Administrative Agent, desirable under the UCC or any comparable law of all appropriate jurisdictions to perfect the ownership and security interests in the Collateral contemplated by the Repurchase Agreement and this Agreement;

(p) a search report provided in writing to the Administrative Agent by Bilzin Sumberg Baena Price & Axelrod, LLP, listing all effective financing statements that name the Borrower or any of the Originators as debtor and that are filed in the jurisdictions in which filings were made pursuant to subsection (o) above and in such other jurisdictions as the Administrative Agent shall request, together with copies of such financing statements (none of which shall cover any Mortgage Loans or interests therein or proceeds thereof);

(q) evidence of the initial deposit to the Reserve Account in the amount of 0.5% of the Maximum Facility Amount;

(r) such other documents as the Administrative Agent may reasonably request at any time at or prior to the Borrowing Date of the initial Borrowing hereunder;

(s) such other documents as either Managing Agent may request at any time at or prior to the Borrowing Date of the initial Borrowing hereunder; and

(t) the Performance Guarantor Quarterly Certificate, substantially in the form of Exhibit H-3.

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4.2. All Borrowings. Each Advance (including, without limitation, the initial Advance) pursuant to this Agreement is subject to the following further conditions precedent:

(a) (i) prior to 3:00 p.m. (eastern time) on two Business Days before the designated Borrowing Date, the Administrative Agent, each Managing Agent and the Collateral Agent shall have received a Borrowing Request (together with any related Assignment) duly executed and delivered by the Borrower; and (ii) the Administrative Agent and each Managing Agent shall have received on the proposed date of funding, a Collateral Agent Daily Report, pursuant to Section 3.8 of the Collateral Agency Agreement, verifying that after giving effect to the requested Advance, the Collateral Value of all Eligible Mortgage Collateral shall exceed the Principal Debt;

(b) all Collateral in which the Borrower has granted a security interest to the Administrative Agent for the benefit of the holders of the Obligations, with the exception of Special Mortgage Loans pursuant to Section 2.3(c), shall have been physically delivered to the possession of the Collateral Agent, to the extent that such possession is necessary or appropriate for the purpose of creating a first priority perfected Lien of the Administrative Agent for the benefit of the holders of the Obligations in such Collateral;

(c) the representations and warranties of the Borrower, the Originators and (so long as the Servicer and one of the Originators is the same entity) the Servicer contained in this Agreement, any Assignment or Borrowing Request, or any Security Instrument or other Transaction Document (other than those representations and warranties that, by their express terms, are limited to the effective date of the document or agreement in which they are initially made) shall be true and correct in all respects on and as of the date of such Advance;

(d) no Default or Event of Default or Servicer Default shall have occurred and be continuing, or would result from such Advance, and no change or event that constitutes a Material Adverse Effect shall have occurred and be continuing as of the date of such Advance;

(e) the Collection Account shall be established and in existence and free from any Lien other than pursuant to the Collection Account Control Agreement;

(f) delivery of a sufficient number of originals such that the Administrative Agent may have an executed original thereof, of such other documents, including such other documents as may be necessary or desirable to perfect or maintain the priority of any Lien granted or intended to be granted hereunder, as any Managing Agent may request; and

(g) the Drawdown Termination Date shall not have occurred; and

(h) the most recently due Performance Guarantor Quarterly Certificate, substantially in the form of Exhibit H-3, shall have been delivered previously to the Managing Agents.

Each Borrowing Request shall be automatically deemed to constitute a representation and warranty by the Borrower on the Borrowing Date set forth therein to the effect that all of the conditions of this Section 4.2 are satisfied as of such Borrowing Date; provided that it is understood and agreed that only the Managing Agents can determine whether conditions are “satisfactory” to the Managing Agents.

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ARTICLE V

REPRESENTATIONS AND WARRANTIES

5.1. Representations of the Borrower and the Servicer. The Borrower and the Servicer each represents and warrants, as to itself, as follows:

(a) Organization and Good Standing. It (i) is a limited liability company duly organized and existing in good standing under the laws of the jurisdiction of its organization, (ii) is duly qualified to do business and in good standing in all jurisdictions in which its failure to be so qualified could have a Material Adverse Effect, (iii) has the requisite entity power and authority to own its properties and assets and to transact the business in which it is engaged and is or will be qualified in those states wherein it proposes to transact business in the future and (iv) is in compliance with all Requirements of Law. Universal American Mortgage Company, LLC is organized in Florida and in no other jurisdiction, and Universal American Mortgage Company of California is incorporated in California and in no other jurisdiction. The Borrower is organized in Delaware and in no other jurisdiction.

(b) Authorization and Power. It has the requisite entity power and authority to execute, deliver and perform this Agreement and the other Transaction Documents to which it is a party; it is duly authorized to and has taken all requisite entity action necessary to authorize it to, execute, deliver and perform this Agreement and the other Transaction Documents to which it is a party and is and will continue to be duly authorized to perform this Agreement and such other Transaction Documents.

(c) No Conflicts or Consents. Neither the execution and delivery by it of this Agreement or the other Transaction Documents to which it is a party, nor the consummation of any of the transactions herein or therein contemplated, nor compliance with the terms and provisions hereof or with the terms and provisions thereof, will (i) contravene or conflict with any Requirement of Law to which it is subject, or any indenture, mortgage, deed of trust, or other agreement or instrument to which it is a party or by which it may be bound, or to which its Property may be subject, or (ii) result in the creation or imposition of any Lien, other than the Liens of the Security Instruments, on the Property of the Borrower.

(d) Enforceable Obligations. This Agreement and the other Transaction Documents to which it is a party have been duly and validly executed by it and are its legal, valid and binding obligations, enforceable in accordance with their respective terms, except as limited by Debtor Laws.

(e) Full Disclosure. There is no fact known to it that it has not disclosed to the Managing Agents that could have a Material Adverse Effect. Neither its financial statements nor any Borrowing Request, officer’s certificate or statement delivered by it to the Managing Agents in connection with this Agreement, contains or will contain any untrue or inaccurate statement of material fact or omits or will omit to state a material fact necessary to make such information not misleading.

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(f) No Default. It is not in default under any loan agreement, mortgage, security agreement or other agreement or obligation to which it is a party or by which any of its Property is bound, if such default would also be a Default or an Event of Default (or, with notice or passage of time would become a Default or Event of Default) under either of subparagraphs (e) or (i) of Section 8.1 of this Agreement.

(g) Litigation.

(i) Except as set forth on Schedule III, there are no actions, suits or proceedings, including arbitrations and administrative actions, at law or in equity, either by or before any Governmental Authority, now pending or, to its knowledge, threatened by or against it or any of its Subsidiaries, and pertaining to any Governmental Requirement affecting its Property or rights or any of its Subsidiaries.

(ii) Neither it nor any of its Subsidiaries is in default with respect to any Governmental Requirements.

(iii) The Servicer is not liable on any judgment, order or decree (or any series of judgments, orders, or decrees) that could reasonably be expected to have a Material Adverse Effect and that has not been paid, stayed or dismissed within 30 days and the Borrower is not liable on any judgment, order or decree (or any series of judgments, orders, or decrees).

(h) Taxes. All tax returns required to be filed by it in any jurisdiction have been filed, except where extensions of time to make those filings have been granted by the appropriate taxing authorities and the extensions have not expired, and all taxes, assessments, fees and other governmental charges upon it or upon any of its properties, income or franchises have been paid prior to the time that such taxes could give rise to a Lien thereon, unless protested in good faith by appropriate proceedings and with respect to which reserves in conformity with GAAP have been established on its books. There is no proposed tax assessment against it that would have a Material Adverse Effect.

(i) Indebtedness. If the Servicer is one of the Originators, the Servicer is in compliance with the maximum leverage test set forth in Section 7.10.

(j) Permits, Patents, Trademarks, Etc.

(i) It has all permits and licenses necessary for the operation of its business.

(ii) It owns or possesses (or is licensed or otherwise has the necessary right to use) all patents, trademarks, service marks, trade names and copyrights, technology, know-how and processes, and all rights with respect to the foregoing, which are necessary for the operation of its business, without any conflict with the rights of others. The consummation of the transactions contemplated hereby will not alter or impair any of such rights of it.

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(k) Status Under Certain Federal Statutes. It is not (i) a “holding company”, or a “subsidiary company” of a “holding company” or an “affiliate” of a “holding company,” or of a “subsidiary company” of a “holding company,” as such terms are defined in the Public Utility Holding Company Act of 1935, as amended, (ii) a “public utility,” as such term is defined in the Federal Power Act, as amended, (iii) an “investment company,” or a company “controlled” by an “investment company,” within the meaning of the Investment Company Act of 1940, as amended, or (iv) a “rail carrier,” or a “person controlled by or affiliated with a rail carrier,” within the meaning of Title 49, U.S.C., and it is not a “carrier” to which 49 U.S.C. § 11301(b)(1) is applicable.

(l) Securities Acts. It has not issued any unregistered securities in violation of the registration requirements of the Securities Act of 1933, as amended, or of any other Requirement of Law, and is not violating any rule, regulation, or requirement under the Securities Act of 1933, as amended, or the Securities and Exchange Act of 1934, as amended. The Borrower is not required to qualify an indenture under the Trust Indenture Act of 1939, as amended, in connection with its execution and delivery of the Notes.

(m) No Approvals Required. Other than consents and approvals previously obtained and actions previously taken, neither the execution and delivery of this Agreement and the other Transaction Documents to which it is a party, nor the consummation of any of the transactions contemplated hereby or thereby requires the consent or approval of, the giving of notice to, or the registration, recording or filing by it of any document with, or the taking of any other action in respect of, any Governmental Authority that has jurisdiction over it or any of its Property.

(n) Environmental Matters. There have been no past, and there are no pending or threatened, claims, complaints, notices, or governmental inquiries against it regarding any alleged violation of, or potential liability under, any environmental laws that could be expected to have a Material Adverse Effect. It and its properties are in compliance in all respects with all environmental laws and related licenses and permits. No conditions exist at, on or under any Property now or previously owned or leased by it that could give rise to liability under any environmental law that could be expected to have a Material Adverse Effect.

(o) Eligibility. The Servicer and each Originator are approved and qualified and in good standing as a lender or seller/servicer, as follows:

(i) The Servicer and each Originator is a Fannie Mae approved seller/servicer (in good standing) of Mortgage Loans, eligible to originate, purchase, hold, sell and, with respect to the Servicer, service Mortgage Loans to be sold to Fannie Mae.

(ii) The Servicer and each Originator is a Freddie Mac approved seller/servicer (in good standing) of Mortgage Loans, eligible to originate, purchase, hold, sell and, with respect to the Servicer, service Mortgage Loans to be sold to Freddie Mac.

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(iii) Each of the Servicer and each Originator are each an approved FHA servicer, VA servicer and Ginnie Mae issuer (in good standing) of mortgage loans, eligible to originate, purchase, hold, sell and service mortgage loans to be pooled into Ginnie Mae MBS Pools and to issue Ginnie Mae MBS.

5.2. Additional Representations of the Borrower. The Borrower further represents and warrants as follows:

(a) Activities. The Borrower was formed on May 21, 2003, and the Borrower did not engage in any business activities prior to the date of this Agreement. The Borrower will limit its activities to those specified in the Charter, and the Borrower has no Subsidiaries.

(b) Solvency. Both prior to and after giving effect to each Borrowing, (i) the fair value of the property of the Borrower is greater than the total amount of liabilities, including contingent liabilities, of the Borrower, (ii) the present fair salable value of the assets of the Borrower is not less than the amount that will be required to pay all probable liabilities of the Borrower on its debts as they become absolute and matured, (iii) the Borrower does not intend to, and does not believe that it will, incur debts or liabilities beyond the Borrower’s abilities to pay such debts and liabilities as they mature and (iv) the Borrower is not engaged in a business or a transaction, and is not about to engage in a business or a transaction, for which the Borrower’s property would constitute unreasonably small capital.

(c) Purchase of Mortgage Loans. With respect to each Mortgage Loan, the Borrower purchased such Mortgage Loan from one of the Originators for cash (in accordance with the provisions of the Repurchase Agreement), substitution of other Mortgage Loans, the Deferred Purchase Price (as such term is defined in the Repurchase Agreement), or a combination thereof in an amount that constitutes fair consideration and reasonably equivalent value. Each such sale referred to in the preceding sentence shall not have been made for or on account of an antecedent debt owed by one of the Originators to the Borrower and no such sale is or may be voidable or subject to avoidance under any section of the Federal Bankruptcy Code.

(d) Priority of Debts and Liens. The Borrower has incurred no Indebtedness except as expressly incurred hereunder and under the other Transaction Documents. Upon delivery of an Assignment to the Collateral Agent, the Administrative Agent will have a valid, enforceable, perfected and first-priority Lien, for the benefit of the holders of the Obligations, in all Mortgage Loan Collateral described in or delivered with such Assignment. Upon delivery of funds for deposit in the Collection Account to the Collateral Agent, the Administrative Agent will have a valid, enforceable, perfected and first-priority Lien for the benefit of the holders of the Obligations, on the Collection Account and related Collateral.

(e) No Liens. The Borrower has (or, as to all Mortgage Loan Collateral delivered to the Collateral Agent after the date of this Agreement, will have) good and indefeasible title to all Collateral, and the Mortgage Loan Collateral and all proceeds thereof are (or, as to all Mortgage Loan Collateral delivered to the Collateral Agent after the date of this Agreement, will be) free and clear of all Liens and other adverse claims of any nature, other than (i) the right of the related Originator to repurchase such Mortgage Loan Collateral pursuant to

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the terms of the Repurchase Agreement and/or (ii) Liens in the Mortgage Loan Collateral or proceeds in favor of the Administrative Agent for the benefit of the holders of the Obligations.

(f) Financial Condition. The opening pro forma balance sheet of the Borrower as of May 21, 2003, giving effect to the initial capitalization of the Borrower and the initial Borrowing to be made under this Agreement, a copy of which has been furnished to the Managing Agents, fairly presents the financial condition of the Borrower as at such date, in accordance with GAAP, and since the date of such opening pro forma balance sheet, there has been no material adverse change in the business, operations, property or financial or other condition of the Borrower.

(g) Principal Office, Etc. The principal office, chief executive office and principal place of business of (i) Universal American Mortgage Company, LLC is at 311 Park Place Boulevard, Suite 500, Clearwater, Florida 33759, (ii) Universal American Mortgage Company of California is at 391 N. Main Street, Suite 200, Corona, California 92880 and (iii) the Borrower is at 311 Park Place Boulevard, Suite 500, Clearwater, Florida 33759.

(h) Ownership. Universal American Mortgage Company, LLC is the owner of one hundred percent (100%) of the membership interests in the Borrower.

(i) UCC Financing Statements. Except as set forth on Schedule III, no effective financing statement or other instrument similar in effect covering any Mortgage Loan, any interest therein, or the related Collateral with respect thereto is on file in any recording office except such as may be filed (x) in favor of the Originators or the Borrower in accordance with the Mortgage Loans, (y) in favor of the Borrower in connection with the Repurchase Agreement, or (z) in favor of the Administrative Agent or the holders of the Obligations in accordance with this Agreement or in connection with a Lien arising solely as the result of any action taken by the Lenders (or any assignee thereof) or by the Administrative Agent.

(j) Trade Names. The Borrower is not known by and does not use any trade name or doing-business-as name.

(k) Origination of Mortgage Loans.

(i) Each Mortgage Loan was originated in compliance with local, state and federal law applicable thereto at the time of origination, including, without limitation, required disclosures of points, charges and fees.

(ii) Each Mortgage Loan was originated using credit policies in effect at the time of such origination, which were designated to provide guidelines in underwriting the creditworthiness of the Obligors and to determine the Obligors’ ability to repay the debt. In accordance with such policies, each of the Originators considered, among other things, the credit history of the Obligor and other credit indicators such as income verification and/or debt-to-income ratios of the Obligor. No Mortgage Loan was originated based solely on an estimation of the value of the mortgaged property without any consideration of the potential ability of the Obligor to repay the amount owed under the Mortgage Loan.

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(iii) No Mortgage Loan violates any of the provisions of the Home Ownership and Equity Protection Act of 1994 (15 U.S.C. § 1602(aa)) or Regulation Z (12 C.F.R. 226.32).

(iv) No Obligor was required to purchase any credit life, disability, accident or health insurance product as a condition of obtaining the Mortgage Loan. No Obligor obtained a prepaid single-premium credit life, disability, accident or health policy in connection with the origination of the Mortgage Loan.

5.3. Additional Representations and Warranties of the Servicer. The Servicer represents and warrants as follows:

(a) Financial Condition.

(i) The Servicer has delivered to the Administrative Agent (x) copies of the balance sheets of the Servicer (and its Subsidiaries, on a consolidated basis), as of November 30, 2002, and the related statements of income, stockholder’s equity and cash flows for the year ended on such date, audited by independent certified accountants of recognized national standing and (y) copies of the balance sheets of the Servicer (and its Subsidiaries, on a consolidated basis), as of February 28, 2003, and the related statements of income for the nine months ended on such date, audited by independent certified accountants of recognized national standing (“Interim Statements”); and all such financial statements fairly present the financial condition of the Servicer as of their respective dates, subject, in the case of the Interim Statements, to normal year end adjustments and the results of operations of the Servicer for the periods ended on such dates and have been prepared in accordance with GAAP.

(ii) As of the date thereof, there are no obligations, liabilities or Indebtedness (including contingent and indirect liabilities and obligations or unusual forward or long-term commitments) of the Servicer that are required to be reflected in the foregoing financial statements in accordance with GAAP and that are not reflected therein.

(iii) No change that constitutes a Material Adverse Effect has occurred in the financial condition or business of the Servicer or either of their subsidiaries, since November 30, 2002.

(b) Employee Benefit Plans. (i) No Employee Plan of the Servicer or any ERISA Affiliate has incurred an “accumulated funding deficiency” (as defined in Section 302 of ERISA or Section 412 of the Code), (ii) neither the Servicer nor any ERISA Affiliate has incurred liability under ERISA to the PBGC, (iii) neither the Servicer nor any ERISA Affiliate has partially or fully withdrawn from participation in a Multiemployer Plan, (iv) no Employee Plan of the Servicer or any ERISA Affiliate has been the subject of involuntary termination proceedings, (v) neither the Servicer nor any ERISA Affiliate has engaged in any “prohibited transaction” (as defined in Section 406 of ERISA or Section 4975 of the Code), and (vi) no “reportable event” (as defined in Section 4043 of ERISA) has occurred in connection with any

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Employee Plan of the Servicer or any ERISA Affiliate other than events for which the notice requirement is waived under applicable PBGC regulations.

(c) Ownership. On the date of this Agreement, the Performance Guarantor has beneficial ownership of 100% of the issued and outstanding shares of each class of the stock of or 100% of the membership interests in the Servicer and each Originator, as applicable.

5.4. Survival of Representations. All representations and warranties by the Borrower and the Servicer herein shall survive delivery of the Notes and the making of the Advances, and any investigation at any time made by or on behalf of the Administrative Agent or the Lenders shall not diminish the right of the Administrative Agent, the Managing Agents or the Lenders to rely thereon.

ARTICLE VI

AFFIRMATIVE COVENANTS

The Borrower and the Servicer shall each at all times comply with the covenants applicable to it contained in this Article VI, from the date hereof until the later of the Drawdown Termination Date and the date all of the Obligations are paid in full.

6.1. Financial Statements and Reports. The Servicer, for so long as the Servicer is one of the Originators, and thereafter the Borrower, shall furnish to the Managing Agents the following, all in form and detail satisfactory to the Managing Agent:

(a) promptly after becoming available, and in any event within 120 days after the close of each fiscal year of each of the Servicer, audited balance sheets of the Servicer (and its Subsidiaries, including the Borrower) on a consolidated and consolidating basis as of the end of such fiscal year, and the related statements of income, stockholder’s equity and cash flows of the Servicer for such year accompanied by (i) the related report of independent certified public accountants acceptable to the Managing Agents, which report shall be to the effect that such statements have been prepared in accordance with GAAP applied on a basis consistent with prior periods except for such changes in such principles with which the independent public accountants shall have concurred and (ii) if issued, the auditor’s letter or report to management customarily given in connection with such audit;

(b) promptly after becoming available, and in any event within 60 days after the end of each fiscal quarter, excluding the fourth fiscal quarter, of each fiscal year of the Servicer, a balance sheet and statements of income of the Servicer (and its Subsidiaries including the Borrower), on a consolidated and consolidating basis, for such fiscal quarter and the period from the first day of the then current fiscal year of the Servicer through the end of such fiscal quarter, certified by a Financial Officer of the Servicer, to have been prepared in accordance with GAAP applied on a basis consistent with prior periods, subject to normal year-end adjustments;

(c) promptly upon receipt thereof, a copy of each other report submitted to each of the Servicer, the Originators and the Performance Guarantor by independent accountants in connection with any annual, interim or special audit of the books of such Person;

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(d) promptly and in any event within twenty (20) days after the request of the Administrative Agent at any time and from time to time, a certificate, executed by the Financial Officer of the Servicer and the Originators, setting forth all of such Person’s warehouse borrowings and a description of the collateral related thereto;

(e) promptly and in any event within 60 days after the end of each of the first three (3) quarters in each fiscal year of the Borrower, and within 120 days after the close of the Borrower’s fiscal year, completed officer’s certificates in the form of Exhibit H-1 and H-2 hereto, executed by the Financial Officer of the Servicer and the Borrower, respectively;

(f) promptly and in any event within 60 days after the end of each quarter (90 days in the case of the fourth quarter), a management report regarding the Originators’ Mortgage Loan production for the prior quarter and year-to-date, in form and sufficient detail reasonably acceptable to the Administrative Agent;

(g) promptly after the filing or receiving thereof, copies of all reports and notices with respect to any “reportable event” defined in Article IV of ERISA that the Borrower, the any of the Originators or the Servicer files under ERISA with the Internal Revenue Service, the PBGC or the U.S. Department of Labor receives from the PBGC;

(h) immediately after becoming aware of the expiration, forfeiture, termination, or cancellation of, or default under, any Take-Out Commitment relating to any Collateral, telephone notice thereof confirmed in writing within one Business Day, together with a statement as to what action the Borrower proposes to take with respect thereto;

(i) [Reserved];

(j) [Reserved];

(k) promptly after the Borrower obtains knowledge thereof, notice of any “Event of Default” or “Facility Termination Date” under the Repurchase Agreement;

(l) promptly after receipt thereof, copies of all notices received by the Borrower from any of the Originators under the Repurchase Agreement;

(m) promptly after the Servicer obtains knowledge thereof, notice of any Servicer Default or of any condition or event that, with the giving of notice or lapse of time or both and unless cured or waived, would constitute a Servicer Default;

(n) such other information concerning the business, properties or financial condition of the Borrower or any of the Originators as the Administrative Agent or either Managing Agent may request; and

(o) upon request by the Administrative Agent, or if there is an Event of Default, copies of all Take-Out Commitments (if the Take-Out Commitment is made on a confirmation or supplement to a master agreement and the master agreement has been previously delivered to the Administrative Agent, only the confirmation or supplement is required to be delivered pursuant to this clause).

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6.2. Taxes and Other Liens. The Borrower shall pay and discharge promptly all taxes, assessments and governmental charges or levies imposed upon it or upon its income or upon any of its Property as well as all claims of any kind (including claims for labor, materials, supplies and rent) that, if unpaid, might become a Lien upon any or all of its Property; provided, however, the Borrower shall not be required to pay any such tax, assessment, charge, levy or claim if the amount, applicability or validity thereof shall currently be contested in good faith by appropriate proceedings diligently conducted by it or on its behalf and if it shall have set up reserves therefor adequate under GAAP.

6.3. Maintenance. The Borrower shall (i) maintain its entity existence, rights and franchises and (ii) observe and comply with all Governmental Requirements. The Servicer shall maintain its entity existence. The Borrower shall maintain its Properties (and any Properties leased by or consigned to it or held under title retention or conditional sales contracts) in good and workable condition at all times and make all repairs, replacements, additions, betterments and improvements to its Properties as are needful and proper so that the business carried on in connection therewith may be conducted properly and efficiently at all times.

6.4. Further Assurances. The Borrower and the Servicer shall, each within three (3) Business Days (or, in the case of Mortgage Notes, such longer period as provided under Section 3.4 of this Agreement) after the request of the Administrative Agent, cure any defects in the execution and delivery of the Notes, this Agreement or any other Transaction Document. The Borrower and the Servicer shall, each at its expense, promptly execute and deliver to the Administrative Agent, upon the Administrative Agent’s request, all such other and further documents, agreements and instruments in compliance with or accomplishment of the covenants and agreements of the Borrower and the Servicer, respectively, in this Agreement and in the other Transaction Documents or to further evidence and more fully describe the collateral intended as security for the Notes, or to correct any omissions in this Agreement or the other Transaction Documents, or more fully to state the security for the obligations set out herein or in any of the other Transaction Documents, or to perfect, protect or preserve any Liens created (or intended to be created) pursuant to any of the other Transaction Documents, or to make any recordings, to file any notices, or obtain any consents.

6.5. Compliance with Laws. The Servicer shall comply with all applicable laws, rules, regulations and orders in connection with servicing the Mortgage Assets.

6.6. Insurance.

(a) The Borrower and the Servicer shall each maintain with financially sound and reputable insurers, insurance with respect to its Properties and business against such liabilities, casualties, risks and contingencies and in such types and amounts as is customary in the case of Persons engaged in the same or similar businesses and similarly situated, including, without limitation, a fidelity bond or bonds in form and with coverage and with a company satisfactory to the Administrative Agent and with respect to such individuals or groups of individuals as the Administrative Agent may designate. Upon request of the Administrative Agent or a Managing Agent, the Borrower and the Servicer shall each furnish or cause to be furnished to the Administrative Agent and any requesting Managing Agent from time to time a summary of the insurance coverage of the Borrower and the Servicer, respectively, in form and

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substance satisfactory to the Administrative Agent or requesting Managing Agent and if requested shall furnish the Administrative Agent or requesting Managing Agent with copies of the applicable policies.

(b) With respect to Mortgages comprising the Collateral (i) the Servicer, for as long as the Servicer is one of the Originators, and thereafter the Borrower, shall cause the improvements on the land covered by each Mortgage to be kept continuously insured at all times by responsible insurance companies against fire and extended coverage hazards under policies, binders, letters, or certificates of insurance, with a standard mortgagee clause in favor of the original mortgagee and its successors and assigns or, in the case of a MERS Designated Mortgage Loan, the beneficial owner of such mortgage loan, and (ii) the Servicer, for so long as the Servicer is one of the Originators, and thereafter the Borrower, shall cause each such policy to be in an amount equal to the lesser of the maximum insurable value of the improvements or the original principal amount of the Mortgage, without reduction by reason of any co-insurance, reduced rate contribution, or similar clause of the policies or binders.

6.7. Accounts and Records. The Borrower and, so long as the Servicer and one of the Originators are the same entity, the Servicer shall each keep books of record and account in which full, true and correct entries will be made of all dealings or transactions in relation to its business and activities, in accordance with GAAP. The Borrower and the Servicer shall each maintain and implement administrative and operating procedures (including, without limitation, an ability to recreate all records pertaining to the performance of the Borrower’s obligations under the Take-Out Commitments and other agreements made with reference to any Mortgage Loans in the event of the destruction of the originals of such records) and keep and maintain all documents, books, records, computer tapes and other information necessary or advisable for the performance by the Borrower of its Obligations. The Borrower shall not enter the “loan servicing” business.

6.8. Right of Inspection; Audit. The Borrower, the Originators and, so long as the Servicer and one of the Originators are the same entity, the Servicer shall each

(a) permit any officer, employee or agent of the Administrative Agent or either Managing Agent (including an independent certified public accountant) to visit and inspect any of its Properties, examine its books, records, accounts, documents (including without limitation computer tapes and disks), telecopies and extracts from the foregoing, and discuss its affairs, finances and accounts with its officers, accountants, and auditors, all at such times and as often as the Administrative Agent may desire, but no more than once each calendar year unless a Default or an Event of Default has occurred or is continuing, and

(b) in conjunction with its annual audit by its independent certified public accountant, at its sole cost and expense, will ensure such independent certified public accountant, as part of its audit, will test the applicable systems pertaining to the origination, purchase and sale, and collection of Mortgage Loans, in accordance with the applicable testing guidelines published by HUD and the Servicer shall deliver to the Administrative Agent a copy of such audit report prepared by such independent certified public accountant; provided, however, that to the extent that HUD ceases to publish any such testing guidelines, the Administrative Agent and

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the Managing Agents shall agree upon the testing guidelines to be used based upon then existing industry guidelines.

The Borrower agrees to pay the reasonable costs of reviews and inspections performed pursuant to this Section 6.8.

6.9. Notice of Certain Events. The Borrower and, so long as the Servicer and one of the Originators are the same entity (other than with respect to clause (g) hereof), the Servicer shall each promptly notify the Managing Agents upon (a) the receipt of any notice from, or the taking of any other action by, the holder of any of its promissory notes, debentures or other evidences of Indebtedness with respect to a claimed default, together with a detailed statement by a responsible officer of the Borrower or the Servicer, as the case may be, specifying the notice given or other action taken by such holder and the nature of the claimed default and what action the Borrower or the Servicer is taking or proposes to take with respect thereto, but only if such alleged default or event of default (if it were true) would also be a Default or Event of Default under this Agreement; (b) the commencement of, or any determination in, any legal, judicial or regulatory proceedings that, if adversely determined, could also be a Default or Event of Default under this Agreement; (c) any dispute between the Borrower or the Servicer, as the case may be, and any Governmental Authority or any other Person that, if adversely determined, could reasonably be expected to have a Material Adverse Effect; (d) any change in the business, operations prospects or financial conditions of the Servicer, including, without limitation, the Servicer’s insolvency, that could reasonably be expected to have a Material Adverse Effect, or any adverse change in the business, operations prospects or financial condition of the Borrower, including, without limitation, the Borrower’s insolvency; (e) any event or condition known to it that, if adversely determined, could reasonably be expected to have a Material Adverse Effect; (f) the receipt of any notice from, or the taking of any other action by any Approved Investor indicating an intent not to honor, or claiming a default under a Take-Out Commitment, together with a detailed statement by a responsible officer of the Borrower specifying the notice given or other action taken by such Approved Investor and the nature of the claimed default and what action the Borrower is taking or proposes to take with respect thereto; (g) the receipt of any notice from, and or the taking of any action by any Governmental Authority indicating an intent to cancel the Borrower’s or the Servicer’s right to be either a seller or servicer of such Governmental Authority’s insured or guaranteed Mortgage Loans; and (h) the receipt of any notice of any final judgment or order for payment of money applicable to the Servicer that could reasonably be expected to have a Material Adverse Effect, or the receipt of any notice of any final judgment or order for payment of money applicable to the Borrower.

6.10. Performance of Certain Obligations. The Borrower and, so long as the Servicer and one of the Originators are the same entity, the Servicer shall each perform and observe each of the provisions of each Mortgage Loan and Take-Out Commitment on its part to be performed or observed and will cause all things to be done that are necessary to have each Mortgage Loan covered by a Take-Out Commitment comply with the requirements of such Take-Out Commitment.

6.11. Use of Proceeds; Margin Stock. The proceeds of the Advances shall be used by the Borrower solely for the acquisition of Mortgage Loans under the Repurchase Agreement. None of such proceeds shall be used for the purpose of purchasing or carrying any “margin

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stock” as defined in Regulation U, or for the purpose of reducing or retiring any Indebtedness that was originally incurred to purchase or carry margin stock or for any other purpose that might constitute this transaction a “purpose credit” within the meaning of such Regulation U. Neither the Borrower nor any Person acting on behalf of the Borrower shall take any action in violation of Regulations U or X or shall violate Section 7 of the Securities Exchange Act of 1934, as amended, or any rule or regulation thereunder, in each case as now in effect or as the same may hereafter be in effect.

6.12. Notice of Default. The Borrower shall furnish to the Managing Agents promptly, but in any event within one (1) Business Day, of becoming aware of the existence of any Default or Event of Default, a written notice specifying the nature and period of existence thereof and the action that the Borrower is taking or proposes to take with respect thereto.

6.13. Compliance with Transaction Documents. The Borrower and, so long as the Servicer and one of the Originators are the same entity, the Servicer shall each promptly comply with any and all covenants and provisions of this Agreement applicable to it, the Notes, in the case of the Borrower, and the other Transaction Documents.

6.14. Compliance with Material Agreements. The Borrower and, so long as the Servicer and one of the Originators are the same entity, the Servicer shall each comply in all respects with all agreements, indentures, Mortgages or documents (including, with respect to the Borrower, the Charter) binding on it or affecting its Property or business in all cases where the failure to so comply could reasonably be expected to result in a Material Adverse Effect.

6.15. Operations and Properties. The Borrower and, so long as the Servicer and one of the Originators are the same entity, the Servicer shall each act prudently and in accordance with customary industry standards in managing and operating its Property and shall continue to underwrite, hedge and sell Mortgage Loans in the same diligent manner it has applied in the past and take no greater credit or market risks than are currently being borne by it.

6.16. Performance Guarantor Credit Rating. If at any time any of the senior debt of the Performance Guarantor, which is publicly held, shall fail to bear a rating of at least BB by S&P, Ba2 by Moody’s and BB by Fitch, the Borrower shall give the Administrative Agent written notice of such change in rating, within one Business Day of the date on which such change is announced by any of these rating agencies.

6.17. Take-Out Commitments. The Borrower shall cause the Originators to obtain, and maintain in full force and effect, Take-Out Commitments (either in the form of loan-specific Take-Out Commitments or forward purchase Take-Out Commitments used to hedge capital and Mortgage Loans) reflecting total Approved Investor obligations, as of each date of determination, with an aggregate purchase price at least equal to the total of the original principal balances of the Borrower’s entire portfolio of Mortgage Loans. Each of such Take-Out Commitments shall reflect only those terms and conditions as are permitted hereunder or are acceptable to the Administrative Agent and the Managing Agents.

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6.18. Collateral Proceeds. The Borrower and the Servicer shall instruct all Approved Investors to cause all payments in respect of Take-Out Commitments on Mortgage Loans to be deposited directly in the Collection Account.

6.19. Environmental Compliance. The Borrower and, so long as the Servicer and one of the Originators are the same entity, the Servicer shall each use and operate all of its facilities and properties in compliance with all environmental laws, keep all necessary permits, approvals, certificates, licenses and other authorizations relating to environmental matters in effect and remain in compliance therewith, and handle all hazardous materials in compliance with all applicable environmental laws.

6.20. Closing Instructions. The Borrower agrees to indemnify and hold the Lenders, and the Administrative Agent and the Managing Agents harmless from and against any loss, including attorneys’ fees and costs, attributable to the failure of a title insurance company, agent, Managing Agent or approved attorney to comply with the disbursement or instruction letter or letters of the Borrower, the Managing Agents or of the Administrative Agent relating to any Mortgage Loan.

6.21. Special Affirmative Covenants Concerning Collateral.

(a) The Borrower shall at all times warrant and defend the right, title and interest of the Lenders, the Collateral Agent and the Administrative Agent in and to the Collateral against the claims and demands of all Persons whomsoever.

(b) The Borrower and the Servicer shall each service or cause to be serviced all Mortgage Loans in the best interests of and for the benefit of the Lenders, in accordance with the terms of this Agreement, the terms of the Principal Mortgage Documents, the standard requirements of the issuers of Take-Out Commitments covering the Mortgage Loans and, to the extent consistent with such terms, in accordance with Accepted Servicing Standards, including without limitation taking all actions necessary to enforce the obligations of the Obligors under such Eligible Mortgage Loans. The Borrower and the Servicer shall each hold all escrow funds collected in respect of Eligible Mortgage Loans in trust, without commingling the same with any other funds, and apply the same for the purposes for which such funds were collected.

(c) The Servicer shall, no less than on an annual basis, review financial statements, compliance with financial parameters, Fannie Mae/Freddie Mac approvals (if applicable), and state licenses of all Persons from whom the Originators acquire Mortgage Loans.

6.22. Entity Separateness.

(a) The Borrower covenants to take the following actions, and the Servicer covenants to cause the Borrower to take the following actions: The Borrower shall at all times maintain at least one Independent Manager (as such term is defined in the Charter).

(b) The Borrower shall not direct or participate in the management of any of the operations of the Other Companies.

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(c) The Borrower shall allocate fairly and reasonably any overhead for shared office space. The Borrower shall have stationery and other business forms separate from that of the Other Companies.

(d) The Borrower shall at all times be adequately capitalized in light of its contemplated business.

(e) The Borrower shall at all times provide for its own operating expenses and liabilities from its own funds.

(f) The Borrower shall maintain its assets and transactions separately from those of the Other Companies and reflect such assets and transactions in financial statements separate and distinct from those of the Other Companies and evidence such assets and transactions by appropriate entries in books and records separate and distinct from those of the Other Companies. The Borrower shall hold itself out to the public under the Borrower’s own name as a legal entity separate and distinct from the Other Companies. The Borrower shall not hold itself out as having agreed to pay, or as being liable, primarily or secondarily, for, any obligations of the Other Companies.

(g) The Borrower shall not maintain any joint account with any Other Company or become liable as a guarantor or otherwise with respect to any Indebtedness or contractual obligation of any Other Company.

(h) The Borrower shall not grant a Lien on any of its assets to secure any obligation of any Other Company.

(i) The Borrower shall not make loans, advances or otherwise extend credit to any of the Other Companies.

(j) The Borrower shall conduct its business in its own name and strictly comply with all organizational formalities to maintain its separate existence.

(k) The Borrower shall have bills of sale (or similar instruments of assignment) and, if appropriate, UCC1 financing statements, with respect to all assets purchased from any of the Other Companies.

(l) The Borrower shall not engage in any transaction with any of the Other Companies, except as permitted by this Agreement or the Charter and as contemplated by the Repurchase Agreement.

6.23. Approved Investor Concentration Limits. The Borrower covenants that, at any time:

(a) the portion of the total Collateral Value that may be attributable to any single Approved Investor listed on Schedule II pursuant to one or more Take-Out Commitments shall not exceed the concentration limit for such Approved Investor as set forth on Schedule II (as the same may be updated from time to time), and

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(b) the portion of Mortgage Loans covered by a single Approved Investor with (i) a rating of its short-term debt of A-3 or lower (or, if a short-term rating is not available, a rating of long-term debt of BBB- or lower) by S&P, a rating of its short-term debt of P-3 or lower (or, if a short-term rating is not available, a rating of the long-term debt of Baa3 or lower) by Moody’s or a rating of its short-term debt of F3 or lower (or, if a short-term rating is not available, a rating of long-term debt of BBB- or lower) by Fitch (it being understood that if the ratings assigned by S&P, Moody’s and Fitch are split, the lowest rating will control, and it being understood that if only one Rating Agency has assigned a rating, that rating will control) shall not exceed fifteen percent (15%) of the Maximum Facility Amount or, during the Seasonal Period, fifteen percent (15%) of the Combined Facility Amount, or (ii) no short-term or long-term rating by either Rating Agency shall not exceed ten percent (10%) of the Maximum Facility Amount or, during the Seasonal Period, ten percent (10%) of the Combined Facility Amount.

6.24. MERS Designated Mortgage Loans.

(a) Within five (5) Business Days from the date on which any then existing MERS Designated Mortgage Loan is assigned to the Administrative Agent under this Agreement, the Servicer shall cause the MERS Agent, as agent for the Administrative Agent, to be identified on the MERS electronic registration system as the “warehouse lender” with respect to any such MERS Designated Mortgage Loan; provided, however, that, subject to subparagraph (b) below, the Servicer’s failure to satisfy the foregoing shall not be an Event of Default hereunder.

(b) If the MERS Agent, as agent for the Administrative Agent, is not identified on the MERS electronic registration system as the “warehouse lender” with respect to any then existing MERS Designated Mortgage Loan within 5 Business Days of the date on which such MERS Designated Mortgage Loan was assigned to the Administrative Agent pursuant to this Agreement, at the commencement of the next Business Day, and in no event later than 9:00 a.m. (eastern time), the Servicer shall furnish to the Collateral Agent a report, either by facsimile or electronic transmission, that the Collateral Value for any such MERS Designated Mortgage Loan shall be zero.

6.25. Electronic Tracking Agreement. In the event that the Electronic Tracking Agreement is terminated, the Servicer shall deliver to the Administrative Agent assignments of all the MERS Designated Mortgage Loans.

ARTICLE VII

NEGATIVE COVENANTS

The Borrower and the Servicer shall each at all times comply with the covenants applicable to it contained in this Article VII, from the date hereof until the later of the Drawdown Termination Date and the date all of the Obligations are paid in full:

7.1. Limitations on Mergers and Acquisitions.

(a) The Servicer (so long as the Servicer and one of the Originators are the same entity) shall not (i) merge or consolidate with or into any corporation or other entity unless

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the Servicer is the surviving entity of any such merger or consolidation or (ii) liquidate or dissolve.

(b) The Borrower will not merge with or into or consolidate with or into, or convey, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions), all or substantially all of its assets (whether now owned or hereafter acquired) to, or acquire all or substantially all of the assets or capital stock or other ownership interest of, or enter into any joint venture or partnership agreement with, any Person, other than as contemplated by this Agreement and the Repurchase Agreement.

7.2. Fiscal Year. Neither the Borrower nor, so long as the Servicer and one of the Originators are the same entity, the Servicer shall change its fiscal year other than to conform with changes that may be made to the Performance Guarantor’s fiscal year and then only after notice to the Managing Agents and after whatever amendments are made to this Agreement as may be required by the Managing Agents, in order that the reporting criteria for the financial covenants contained in Articles VI and VII remain substantially unchanged.

7.3. Business. The Borrower will not engage in any business other than as set forth in Article 8 of the Charter.

7.4. Use of Proceeds. The Borrower shall not permit the proceeds of the Advances to be used for any purpose other than those permitted by Section 6.11 hereof. The Borrower shall not, directly or indirectly, use any of the proceeds of the Advances for the purpose, whether immediate, incidental or ultimate, of buying any “margin stock” or of maintaining, reducing or retiring any Indebtedness originally incurred to purchase a stock that is currently any “margin stock,” or for any other purpose that might constitute this transaction a “purpose credit,” in each case within the meaning of Regulation U, or otherwise take or permit to be taken any action that would involve a violation of such Regulation U or of Regulation T or Regulation Z (12 C.F.R. 224, as amended) or any other regulation promulgated by the Federal Reserve Board.

7.5. Actions with Respect to Collateral. Neither the Borrower nor the Servicer shall:

(a) Compromise, extend, release, or adjust payments on any Mortgage Collateral, accept a conveyance of mortgaged Property in full or partial satisfaction of any Mortgage debt or release any Mortgage securing or underlying any Mortgage Collateral, except as permitted by the related Approved Investor or as contemplated in the servicing guidelines distributed thereby;

(b) Agree to the amendment or termination of any Take-Out Commitment in which the Administrative Agent has a security interest or to substitution of a Take-Out Commitment for a Take-Out Commitment in which the Administrative Agent has a security interest hereunder, if such amendment, termination or substitution may be expected (as determined by the Collateral Agent or the Administrative Agent in either of their sole discretion) to have a Material Adverse Effect or to result in a Default or Event of Default;

(c) Transfer, sell, assign or deliver any Mortgage Loan Collateral pledged to the Administrative Agent to any Person other than the Administrative Agent, except pursuant to a Take-Out Commitment or pursuant to either Section 3.3 or Section 3.4;

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(d) Grant, create, incur, permit or suffer to exist any Lien upon any Mortgage Loan Collateral except for (i) Liens granted to the Administrative Agent to secure the Notes and Obligations and (ii) any rights created by the Repurchase Agreement; or

(e) With respect to any Mortgage Loans constituting Collateral, permit the payment instructions relating to a Take-Out Commitment to provide for payment to any Person except directly to the Collection Account.

7.6. Liens. The Borrower will not sell, assign (by operation of law or otherwise) or otherwise dispose of, or create or suffer to exist any Lien upon or with respect to, any Mortgage Asset, or upon or with respect to any account to which any Collections of any Mortgage Asset are sent, or assign any right to receive income in respect thereof except as contemplated hereby.

7.7. Employee Benefit Plans. Neither the Borrower nor, so long as the Servicer and one of the Originators are the same entity, the Servicer may permit any of the events or circumstances described in Section 5.3(b) to exist or occur.

7.8. Change of Principal Office. The Borrower shall not move its principal office, executive office or principal place of business from the address set forth in Section 5.2(g) without 30-days’ prior written notice to the Administrative Agent and the Managing Agents. The Borrower shall not change its place of organization or add a new jurisdiction of organization without 30 days’ prior written notice to the Administrative Agent.

7.9. No Commercial, A&D, Etc. Loans. The Borrower shall not make or acquire any direct outright ownership interest, participation interest or other creditor’s interest in any commercial real estate loan, acquisition and/or development loan, unimproved real estate loan, personal property loan, oil and gas loan, commercial loan, wrap-around real estate loan, unsecured loan, acquisition, development or construction loan.

7.10. Maximum Leverage. Universal American Mortgage Company, LLC shall not permit its Debt to exceed 10 times its Net Worth.

7.11. Indebtedness. The Borrower will not incur any Indebtedness, other than any Indebtedness incurred pursuant to this Agreement or the Repurchase Agreement or permitted to be incurred pursuant to the Charter.

7.12. Deposits to Collection Account. Neither the Borrower nor the Servicer shall deposit or otherwise credit, or cause or permit to be so deposited or credited, to the Collection Account, cash or cash proceeds other than Collateral Proceeds.

7.13. Transaction Documents. The Borrower will not amend, waive, terminate or modify any provision of any Transaction Document to which it is a party (provided that the Borrower may extend the “Facility Termination Date” or waive the occurrence of any “Event of Default” under the Repurchase Agreement) without, in each case, the prior written consent of the Managing Agents. The Borrower will perform all of its obligations under each Transaction Document to which it is a party and will enforce each Transaction Document to which it is a party in accordance with its terms in all respects.

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7.14. Distributions, Etc. The Borrower will not declare or make any distribution payment or other distribution of assets, properties, cash, rights, obligations or securities on account of any equity ownership interests of the Borrower, or return any capital to its members as such, or purchase, retire, defease, redeem or otherwise acquire for value or make any payment in respect of any equity ownership interests of the Borrower or any warrants, rights or options to acquire any such interests, now or hereafter outstanding; provided, however, that the Borrower may declare and pay cash distributions on its equity ownership interests to its members so long as (a) no Event of Default shall then exist or would occur as a result thereof, (b) such distributions are in compliance with all applicable law including the limited liability company law of the state of Borrower’s organization, and (c) such distributions have been approved by all necessary and appropriate action of the Borrower.

7.15. Charter. The Borrower will not amend or delete (a) Articles 7 through 10 or (b) the definition of “Independent Manager” set forth in the Charter. The Borrower will perform all of its obligations under the Charter.

7.16. Default Ratio. The Borrower shall not permit the Default Ratio to exceed two percent (2%) as at the end of any Collection Period.

7.17. Excess Spread. The Borrower shall not permit the Excess Spread to be less than twenty-five (25) basis points as at the end of any Collection Period.

ARTICLE VIII

EVENTS OF DEFAULT

8.1. Nature of Event. An “Event of Default” shall exist if any one or more of the following occurs:

(a) the Borrower fails (i) to make any payment of principal of or interest on any of the Notes when due, or (ii) to make any payment within two (2) Business Days after the date when due, of any fee, expense or other amount due hereunder, under the Notes or under any other Transaction Document or, so long as the Servicer is one of the Originators, the Servicer fails to make any payment or deposit to be made by it under this Agreement when due; or

(b) the Borrower, any one of the Originators or, so long as the Servicer and one of the Originators are the same entity, the Servicer fails (i) to keep or perform any covenant or agreement contained in this Agreement (other than as referred to in Section 8.1(a)) and such failure continues unremedied beyond the expiration of any applicable grace or notice period that may be expressly provided for in such covenant or agreement or, if no grace or notice period is provided for ten days after written notice thereof, provided, however, that no grace or notice period shall be permitted for any breach of Section 6.24(b), Section 7.16 and/or Section 7.17; or

(c) the Borrower, any one of the Originators, the Servicer (so long as the Servicer and one of the Originators are the same entity) or the Performance Guarantor defaults in the due observance or performance of any of the covenants or agreements contained in any Transaction Document other than this Agreement, and (unless such default otherwise constitutes a Default or an Event of Default pursuant to other provisions of this Section 8.1) such default

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continues unremedied beyond the expiration of any applicable grace or notice period that may be expressly provided for in such Transaction Document (or, if no grace or notice is provided, for ten days after written notice thereof); or

(d) any statement, warranty or representation by or on behalf of the Borrower, any one of the Originators, the Servicer (so long as the Servicer and one of the Originators are the same entity) or the Performance Guarantor contained in this Agreement, the Notes or any other Transaction Document or any Borrowing Request, officer’s certificate or other writing furnished in connection with this Agreement, proves to have been incorrect or misleading in any respect as of the date made or deemed made; or

(e) (i) in the case of the Borrower, the Borrower fails to make when due or within any applicable grace period any payment on any other Indebtedness with an unpaid principal balance or, in the case of the Originators, the Servicer and the Performance Guarantor, any one of the Originators, the Servicer (so long as the Servicer and one of the Originators are the same entity) or the Performance Guarantor fails to make when due or within any applicable grace period any payment on any other Indebtedness with an unpaid principal balance of over $5,000,000.00 with respect to each Originator, the Servicer and the Performance Guarantor; or (ii) any event or condition occurs under any provision contained in any such obligation or any agreement securing or relating to such obligation (or any other breach or default under such obligation or agreement occurs) if the effect thereof is to cause or permit with the giving of notice or lapse of time or both the holder or trustee of such obligation to cause such obligation to become due prior to its stated maturity; or (iii) any such obligation becomes due (other than by regularly scheduled payments) prior to its stated maturity; or (iv) in the case of the Borrower, any of the foregoing occurs with respect to any one or more items of Indebtedness with an unpaid principal balance, or, in the case of each of the Originators, the Servicer (so long as the Servicer and one of the Originator are the same entity) or the Performance Guarantor, any of the foregoing occurs with respect to any one or more items of Indebtedness with unpaid principal balances exceeding, in the aggregate, $5,000,000.00 with respect to each Originator, the Servicer and the Performance Guarantor; or

(f) the Borrower, any of the Originators, the Servicer (so long as the Servicer and one of the Originators are the same entity) or the Performance Guarantor generally shall not pay its debts as they become due or shall admit in writing its inability to pay its debts, or shall make a general assignment for the benefit of creditors; or

(g) the Borrower, any of the Originators, the Servicer (so long as the Servicer and one of the Originators are the same entity) or the Performance Guarantor shall (i) apply for or consent to the appointment of a receiver, trustee, custodian, intervenor or liquidator of it or of all or a substantial part of its assets, (ii) file a voluntary petition in bankruptcy, (iii) file a petition or answer seeking reorganization or an arrangement with creditors or to take advantage of any Debtor Laws, (iv) file an answer admitting the allegations of, or consent to, or default in answering, a petition filed against it in any bankruptcy, reorganization or insolvency proceeding, or (v) take action for the purpose of effecting any of the foregoing; or

(h) an involuntary petition or complaint shall be filed against the Borrower, any of the Originators, the Servicer (so long as the Servicer and one of the Originators are the

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same entity) or the Performance Guarantor seeking bankruptcy or reorganization of the Borrower, any of the Originators, the Servicer or the Performance Guarantor or the appointment of a receiver, custodian, trustee, intervenor or liquidator of the Borrower, any of the Originators, the Servicer or the Performance Guarantor, or all or substantially all of the assets of either the Borrower, any of the Originators, the Servicer or the Performance Guarantor, and such petition or complaint shall not have been dismissed within 60 days of the filing thereof; or an order, order for relief, judgment or, decree shall be entered by any court of competent jurisdiction or other competent authority approving a petition or complaint seeking reorganization of the Borrower, any of the Originators, the Servicer (so long as the Servicer and one of the Originators are the same entity) or the Performance Guarantor or appointing a receiver, custodian, trustee, intervenor or liquidator of the Borrower, any of the Originators, the Servicer or the Performance Guarantor, or of all or substantially all of assets of the Borrower, any of the Originators, the Servicer or the Performance Guarantor; or

(i) in the case of the Borrower, the Borrower shall fail within 30 days to pay, bond or otherwise discharge any final judgment or order for payment of money, or, in the case of the Originators, the Servicer and the Performance Guarantor, any of the Originators, the Servicer (so long as the Servicer and one of the Originators are the same entity) or the Performance Guarantor shall fail within 30 days to pay, bond or otherwise discharge any final judgment or order for payment of money in excess of $5,000,000.00; or any of the Originators, the Servicer (so long as the Servicer and one of the Originators are the same entity) or the Performance Guarantor shall fail within 30 days to pay, bond or otherwise discharge final judgments or orders for payment of money which exceed in the aggregate $5,000,000.00; or in the case of the Borrower, the Borrower shall fail within 30 days to timely appeal or pay, bond or otherwise discharge any judgments or order for payment which the Borrower may appeal, or in the case of the Originators, the Servicer and the Performance Guarantor, any of the Originators, the Servicer (so long as the Servicer and one of the Originators are the same entity) or the Performance Guarantor shall fail within 30 days to timely appeal or pay, bond or otherwise discharge any judgments or orders for payment of money which exceed, in the aggregate, $5,000,000.00 and which any of the Originators, the Servicer or the Performance Guarantor may appeal; or

(j) any Person shall levy on, seize or attach all or any material portion of the assets of the Borrower, any of the Originators, the Servicer (so long as the Servicer and one of the Originators are the same entity) or the Performance Guarantor and within thirty (30) days thereafter the Borrower, the related Originators, the Servicer or the Performance Guarantor shall not have dissolved such levy or attachment, as the case may be, and, if applicable, regained possession of such seized assets; or

(k) if an event or condition specified in Section 5.3(b) shall occur or exist; or

(l) any of the Originators or the Servicer (so long as the Servicer and one of the Originators are the same entity) becomes ineligible to originate, sell or service Mortgage Loans to Fannie Mae, Freddie Mac or Ginnie Mae, or Fannie Mae, Freddie Mac or Ginnie Mae shall impose any sanctions upon or terminate or revoke any rights of the Servicer (so long as the Servicer is one of the Originators) or any of the Originators; or

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(m) if (x) any Governmental Authority cancels an Originator’s right to be either a seller or servicer of such Governmental Authority’s insured or guaranteed Mortgage Loans or mortgage-backed securities, (y) any Approved Investor cancels for cause any servicing or underwriting agreement between any of the Originators and such Approved Investor or (z) any of the Originators receive notice from a Governmental Authority that such Governmental Authority intends to revoke an Originator’s right to be a seller or servicer of such Governmental Authority’s insured or guaranteed Mortgage Loans or mortgaged-backed securities and such notice is not withdrawn within ten days of the receipt thereof; or

(n) failure of the Borrower or any of the Originators to correct an imbalance in any escrow account established with the Borrower or the related Originators as either an originator, purchaser or servicer of Mortgage Loans, which imbalance may have a Material Adverse Effect, within two (2) Business Days after demand by any beneficiary of such account or by the Administrative Agent; or

(o) failure of any of the Originators or the Servicer to meet, at all times, the minimum net worth requirements of Fannie Mae, Freddie Mac or Ginnie Mae as an originator, seller or servicer, as applicable; or

(p) any provision of this Agreement, the Notes or any other Transaction Document shall for any reason cease to be in full force and effect, or be declared null and void or unenforceable in whole or in part; or the validity or enforceability of any such document shall be challenged or denied; or

(q) a “change in control,” with respect to the ownership of the Performance Guarantor shall have occurred (and as used in this subparagraph, the term “change in control” shall mean an acquisition by any Person, partnership or group, as defined under the Securities Exchange Act of 1934, as amended, of a direct or indirect beneficial ownership of 10% or more of the then-outstanding voting stock of the Performance Guarantor); or the Performance Guarantor shall cease at any time to own, directly or indirectly, at least 90% of each class of the outstanding capital stock of or at least 90% of all of the membership interests in, as applicable, each Originator; or

(r) the total Collateral Value of all Eligible Mortgage Collateral shall be less than the Principal Debt, at any time, and the Borrower shall fail either to provide additional Eligible Mortgage Collateral with a sufficient Collateral Value, or to pay Principal Debt, in an amount sufficient to correct the deficiency within the time period set forth in Section 2.5(b); or

(s) if, as a result of the Borrower’s failure to obtain and deliver to the Collateral Agent, Principal Mortgage Documents as required by Section 2.3(c), the Administrative Agent shall determine that the continuation of such condition may have a Material Adverse Effect on the Borrower or the Lenders; or

(t) there shall have occurred any event that adversely affects the enforceability or collectability of any significant portion of the Mortgage Loans or the Take-Out Commitments (provided that to the extent such event gives rise to an obligation by any of the Originators to repurchase such Mortgage Loans pursuant to the Repurchase Agreement and such

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Originator does so repurchase in accordance with the provisions of the Repurchase Agreement, no Event of Default shall occur under this Section 8.1(t)) or there shall have occurred any other event that adversely affects the ability of the Borrower, the Servicer or the Collateral Agent to collect a significant portion of Mortgage Loans or Take-Out Commitments or the ability of the Borrower or, so long as the Servicer and one of the Originators are the same entity, the Servicer to perform hereunder or a Material Adverse Effect has occurred in the financial condition or business of the Borrower since inception or, so long as the Servicer and one of the Originators are the same entity, the Servicer since February 28, 2003; or

(u) (i) any litigation (including, without limitation, derivative actions), arbitration proceedings or governmental proceedings not disclosed in writing by the Borrower to the Lenders, the Administrative Agent and the Managing Agents prior to the date of execution and delivery of this Agreement is pending against the Borrower or any Affiliate thereof, or (ii) any development not so disclosed has occurred in any litigation (including, without limitation, derivative actions), arbitration proceedings or governmental proceedings so disclosed, which, in the case of either clause (i) and/or (ii), in the opinion of the Administrative Agent, could reasonably be expected to have a Material Adverse Effect or impair the ability of the Borrower, any of the Originators, the Servicer or the Performance Guarantor to perform its obligations under this Agreement or any other Transaction Document; or

(v) the Internal Revenue Service shall file notice of a lien pursuant to Section 6323 of the Code with regard to any of the assets of the Borrower, any of the Originators or the Servicer (so long as the Servicer and any one of the Originators are the same entity) and such lien shall not have been released within thirty days, or the PBGC shall, or shall indicate its intention to, file notice of a lien pursuant to Section 4068 of ERISA with regard to any of the assets of the Borrower, any of the Originators, or the Servicer (so long as the Servicer and any one of the Originators are the same entity) or the Performance Guarantor and as to each of the Originators; or

(w) [Reserved]; or

(x) a successor Collateral Agent shall not have been appointed and accepted such appointment within 180 days after the retiring Collateral Agent shall have given notice of resignation pursuant to Section 4.4 of the Collateral Agreement; or

(y) a “Default” or an “Event of Default” shall occur under the Repurchase Agreement, or the Repurchase Agreement shall cease to be in full force and effect; or

(z) all of the outstanding equity ownership interests of the Borrower shall cease to be owned, directly or indirectly, by the Performance Guarantor; or

(aa) the Borrower shall cease or otherwise fail to have a good and valid title to (or, to the extent that Article 9 of the UCC is applicable to the Borrower’s acquisition thereof, a valid perfected security interest in) a significant portion of the Collateral (other than Collateral released in accordance with Section 3.3 or the Security Instruments shall for any reason (other than pursuant to the terms hereof) fail or cease to create a valid and perfected first priority security interest in the Mortgage Loans and the other Collateral for the benefit of the holders of

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the Obligations, which in the opinion of the Administrative Agent could reasonably be expected to have a Material Adverse Effect; or

(bb) the Net Worth of (i) Universal American Mortgage Company, LLC shall be less than $75,000,000, or (ii) Performance Guarantor shall be less than $250,000,000; or

(cc) [Reserved]; or

(dd) as of the Settlement Date following any withdrawal from the Reserve Account pursuant to Section 2.8(f)(i) (after giving effect to any deposit to the Reserve Account pursuant to Section 2.7(c)(iii)(D) on such Settlement Date) the amount on deposit in the Reserve Account shall be less than the Required Reserve Account Amount;

(ee) the Performance Guarantor ceases to have the Required Ratings; or

(ff) Take-Out Commitments attributable to an Approved Investor exceed the concentration permitted by Section 6.23, as provided in Schedule II.

8.2. Default Remedies.

(a) Upon the occurrence and continuation of an Event of Default under Sections 8.1(f), (g), (h), (j) or (v) of this Agreement, the entire unpaid balance of the Obligations shall automatically become due and payable, the Drawdown Termination Date shall immediately occur and the Maximum Facility Amount and Seasonal Facility Amount shall immediately terminate, all without any notice or action of any kind whatsoever.

(b) Upon the occurrence and continuation of an Event of Default under any other provision of Section 8.1 of this Agreement, the Administrative Agent, on behalf of the Managing Agents, may declare the Drawdown Termination Date to have occurred and terminate the Maximum Facility Amount and the Seasonal Facility Amount, and the Administrative Agent, on behalf of the Managing Agents, may do any one or more of the following: (i) declare the entire unpaid balance of the Obligations immediately due and payable, whereupon it shall be due and payable; (ii) declare the Drawdown Termination Date and the Seasonal Facility Termination Date to have occurred and terminate the Maximum Facility Amount and the Seasonal Facility Amount; (iii) reduce any claim to judgment pursuant to applicable law; (iv) exercise the rights of offset or banker’s Lien against the interest of the Borrower in and to every account and other Property of the Borrower that are in the possession of the Lenders, the Managing Agents, the Collateral Agent or the Administrative Agent to the extent of the full amount of the Obligations (the Borrower being deemed directly obligated to the Lenders and the Administrative Agent in the full amount of the Obligations for such purposes); (v) subject to applicable law foreclose or direct the Collateral Agent to foreclose any or all Liens or otherwise realize upon any and all of the rights the Administrative Agent may have in and to the Collateral, or any part thereof; and (vi) exercise any and all other legal or equitable rights afforded by the Transaction Documents, applicable Governmental Requirements, or otherwise, including, but not limited to, the right to bring suit or other proceedings before any Governmental Authority either for specific performance of any covenant or condition contained in any of the Transaction Documents or in aid of the exercise of any right granted to the Lenders, the Managing Agents or the Administrative Agent in any of the Transaction Documents.

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(c) Upon the occurrence and continuation of a Default hereunder or under any Transaction Document, the Administrative Agent, on behalf of the Managing Agents, may, in addition to any and all other legal or equitable rights afforded by the Transaction Documents, deliver an Activation Notice under the Collection Account Control Agreement and/or the Reserve Account Control Agreement.

(d) Notwithstanding anything to the contrary herein, the Obligations of the Borrower under this Agreement shall be recourse solely to the Mortgage Assets, and the Borrower shall have no obligation in respect of any deficiencies.

8.3. Paydowns. Immediately upon the occurrence of an Event of Default, and without any requirement for notice or demand (including, without limitation, any notice or demand otherwise required under Section 8.1), the Borrower shall (a) make a payment to the Administrative Agent equal to the Collateral Deficiency and (b) deliver to the Collateral Agent additional Take-Out Commitments in an amount equal to unrepaid Advances that have been made against any Uncovered Mortgage Loans. Take-Out Commitments for Conforming Loans that are delivered pursuant to clause (b), above, in addition to conforming with all other criteria of this Agreement, shall also substantially conform to the interest rates and “terms to maturity” for all Uncovered Mortgage Loans. This is a special, and not an exclusive, right or remedy, and any demand for performance under this Section 8.3 shall not waive or affect the Lenders’ or the Administrative Agent’s rights to enforce any security interest in the Collateral, collect a deficiency or to pursue damages or any other remedy, as herein provided or as permitted at law or in equity, until all Obligations have been fully paid and performed.

8.4. Waivers of Notice, Etc. Except as otherwise provided in this Agreement, the Borrower and each surety, endorser, guarantor and other party ever liable for payment of any sum or sums of money that may become due and payable, or the performance or any undertaking that may be owed, to the Lenders, the Managing Agents or the Administrative Agent pursuant to this Agreement, the Notes, or the other Transaction Documents, including the Obligations, jointly and severally waive demand for payment, presentment, protest, notice of protest and nonpayment or other notice of default, notice of acceleration and notice of intention to accelerate, and agree that its or their liability under this Agreement, the Notes or other Transaction Documents shall not be affected by any renewal or extension of the time or place of payment or performance hereof, or any indulgences by the Lenders, the Managing Agents or the Administrative Agent, or by any release or change in any security for the payment of the Obligations, and hereby consent to any and all renewals, extensions, indulgences, releases or changes, regardless of the number of such renewals, extensions, indulgences, releases or changes.

ARTICLE IX

THE ADMINISTRATIVE AGENT

9.1. Authorization. Each Lender has appointed the Administrative Agent as its agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Administrative Agent by the terms hereof, together with such powers as are reasonably incidental thereto. As to any matters not expressly provided for by this Agreement

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(including, without limitation, enforcement of this Agreement), the Administrative Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Majority Banks, and such instructions shall be binding upon all Lenders; provided, however, that the Administrative Agent shall not be required to take any action that exposes the Administrative Agent to personal liability or that is contrary to this Agreement or applicable law.

9.2. Reliance by Agent. Notwithstanding anything to the contrary in this Agreement or any other Transaction Document, neither the Administrative Agent nor any of its directors, officers, agents, representatives, employees, attorneys-in-fact or Affiliates shall be liable for any action taken or omitted to be taken by it or them (in their capacity as or on behalf of the Administrative Agent) under or in connection with this Agreement or the other Transaction Documents, except for its or their own gross negligence or willful misconduct. Without limitation of the generality of the foregoing, the Administrative Agent: (a) may treat the payee of the Notes as the holder thereof; (b) may consult with legal counsel (including counsel for the Borrower), independent certified public accountants and other experts selected by it or the Borrower and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (c) makes no warranty or representation to any Lender or the Managing Agent and shall not be responsible to any Lender or the Managing Agent for any statements, warranties or representations made in or in connection with this Agreement or the other Transaction Documents; (d) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement on the part of the Borrower or to inspect the Property (including the books and records) of the Borrower; (e) shall not be responsible to any Lender or the Managing Agent for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other instrument or document furnished pursuant hereto or the enforceability or perfection or priority of any Collateral; and (f) shall incur no liability under or in respect of this Agreement or any other Transaction Document by acting upon any notice, consent, certificate or other instrument or writing (which may be by telegram, cable or telex) believed by the Administrative Agent to be genuine and signed or sent by the proper Person or party.

9.3. Agent and Affiliates. With respect to any Advance made by CL New York, CL New York shall have the same rights and powers under this Agreement as would any Lender and may exercise the same as though it were not the Administrative Agent. CL New York and its Affiliates may accept deposits from, lend money to, act as trustee under indentures of, and generally engage in any kind of business with, the Borrower, the Managing Agents, any of the Borrower’s Affiliates and any Person who may do business with or own securities of the Borrower, the Managing Agents or any such Affiliate, all as if CL New York were not the Administrative Agent and without any duty to account therefor to the Lenders. If CL New York is removed as Administrative Agent, such removal will not affect CL New York’s rights and interests as a Lender.

9.4. Lender Decision. Each Lender (including each Lender that becomes a party hereto by assignment) acknowledges that it has, independently and without reliance on the Administrative Agent, any of its Affiliates or any other Lender and based on such documents and

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information as it has deemed appropriate, made its own evaluation and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance on the Administrative Agent, any of its Affiliates or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own decisions in taking or not taking action under this Agreement.

9.5. Rights of the Administrative Agent. Each right and remedy expressly provided by this Agreement as being available to the Administrative Agent shall be exercised by the Administrative Agent only at the direction of the Majority Banks.

9.6. Indemnification of Administrative Agent. Each Bank agrees to indemnify the Administrative Agent (to the extent not reimbursed by or on behalf of the Borrower), ratably according to the respective principal amounts held by it (or if no Advances are then outstanding, each Bank shall indemnify the Administrative Agent ratably according to the amount of its Bank Commitment), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever that may be imposed on, incurred by, or asserted against the Administrative Agent in any way relating to or arising out of this Agreement or the other Transaction Documents or any action taken or omitted by the Administrative Agent under this Agreement or the other Transaction Documents, provided that no Bank shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Administrative Agent’s gross negligence or willful misconduct.

9.7. UCC Filings. The Lenders and the Borrower expressly recognize and agree that the Administrative Agent may be listed as the assignee or secured party of record on the various UCC filings required to be made hereunder in order to perfect the security interest in the Collateral granted by the Borrower for the benefit of the holders of the Obligations and that such listing shall be for administrative convenience only in creating a record-holder or nominee to take certain actions hereunder on behalf of the holders of the Obligations.

ARTICLE X

INDEMNIFICATION

10.1. Indemnities by the Borrower. Without limiting any other rights that any such Person may have hereunder or under applicable law, the Borrower hereby agrees to indemnify each of the Lenders, each Managing Agent, the MERS agent, the Administrative Agent, any Affected Party, their respective successors, transferees, participants and assigns and all affiliates, officers, directors, shareholders, controlling persons, employees and agents of any of the foregoing (each an “Indemnified Party”), forthwith on demand, from and against any and all damages, losses, claims, liabilities and related costs and expenses, including attorneys’ fees and disbursements (all of the foregoing being collectively referred to as “Indemnified Amounts”) awarded against or incurred by any of them arising out of or relating to this Agreement or the exercise or performance of any of its or their powers or duties, in respect of any Mortgage Loan or Take-Out Commitment, or related in any way to its or their possession of, or dealings with, the Collateral, excluding, however, Indemnified Amounts to the extent resulting from gross negligence or willful misconduct on the part of such Indemnified Party.

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ARTICLE XI

ADMINISTRATION AND COLLECTION OF MORTGAGE LOANS

11.1. Designation of Servicer. The servicing, administration and collection of the Mortgage Assets shall be conducted by the Servicer so designated hereunder from time to time. Until the Administrative Agent gives notice to the Borrower and the Originators of the designation of a new Servicer, Universal American Mortgage Company, LLC, is hereby designated as, and hereby agrees to perform the duties and obligations of, the Servicer pursuant to the terms hereof. The Administrative Agent may at any time following the occurrence of a Servicer Default designate as Servicer any Person (including itself) to succeed the Originators or any successor Servicer, if such Person shall consent and agree to the terms hereof. The Servicer may, with the prior consent of the Administrative Agent, subcontract with any other Person for the servicing, administration or collection of the Mortgage Assets. Any such subcontract shall not affect the Servicer’s liability for performance of its duties and obligations pursuant to the terms hereof.

11.2. Duties of Servicer.

(a) The Servicer shall take or cause to be taken all such actions as may be necessary or advisable to collect each Mortgage Asset from time to time, all in accordance with applicable laws, rules and regulations, with care and diligence, and in accordance with the servicing guide issued by the Governmental Authority applicable to such Mortgage Asset or, in the case of Non-Conforming Loans, the servicing criteria specified by the Approved Investor that has issued a Take-Out Commitment with respect thereto. The Borrower and the Administrative Agent hereby appoint the Servicer, from time to time designated pursuant to Section 11.1, as agent for themselves and for the Lenders to enforce their respective rights and interests in the Mortgage Assets and the Collections thereof. In performing its duties as Servicer, the Servicer shall exercise the same care and apply the same policies as it would exercise and apply if it owned such Mortgage Loans and shall act in the best interests of the Borrower and the Lenders.

(b) The Servicer shall administer the Collections in accordance with the procedures described in Section 2.7 and shall service the Collateral in accordance with Section 6.21 and Section 7.5.

(c) The Servicer shall hold in trust for the Borrower and the Lenders, in accordance with their respective interests, all books and records (including, without limitation, computer tapes or disks) that relate to the Mortgage Assets.

(d) The Servicer shall, as soon as practicable following receipt, turn over to the Borrower or the Originators, as appropriate, any cash collections or other cash proceeds received with respect to Property not constituting Mortgage Assets.

(e) The Servicer shall, from time to time at the request of the Administrative Agent, furnish to the Administrative Agent (promptly after any such request) a calculation of the amounts set aside for the Lenders pursuant to Section 2.7(c).

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(f) The Servicer shall perform the duties and obligations of the Servicer set forth in the Collateral Agency Agreement and the other Security Instruments.

11.3. Certain Rights of the Administrative Agent. At any time following the designation of a Servicer other than the Originators pursuant to Section 11.1 or following an Event of Default:

(a) The Administrative Agent may direct the Obligors that all payments thereunder be made directly to the Administrative Agent or its designee.

(b) At the Administrative Agent’s request and at the Borrower’s expense, the Borrower shall notify each Obligor of the Lien on the Mortgage Assets and direct that payments be made directly to the Administrative Agent or its designee.

(c) At the Administrative Agent’s request and at the Borrower’s expense, the Borrower and the Servicer shall (i) assemble all of the documents, instruments and other records (including, without limitation, computer tapes and disks) that evidence or relate to the Mortgage Assets and Collections and Collateral, or that are otherwise necessary or desirable to collect the Mortgage Assets, and shall make the same available to the Administrative Agent at a place selected by the Administrative Agent or its designee, and (ii) segregate all cash, checks and other instruments received by it from time to time constituting Collections in a manner acceptable to the Administrative Agent and, promptly upon receipt, remit all such cash, checks and instruments, duly endorsed or with duly executed instruments of transfer, to the Administrative Agent or its designee.

(d) The Borrower authorizes the Administrative Agent to take any and all steps in the Borrower’s name and on behalf of the Borrower that are necessary or desirable, in the determination of the Administrative Agent, to collect amounts due under the Mortgage Assets, including, without limitation, endorsing the Borrower’s name on checks and other instruments representing Collections and enforcing the Mortgage Assets and the other Collateral.

11.4. Rights and Remedies.

(a) If the Servicer fails to perform any of its obligations under this Agreement, the Administrative Agent may (but shall not be required to) itself perform, or cause performance of, such obligation; and the Administrative Agent’s costs and expenses incurred in connection therewith shall be payable by the Servicer.

(b) The Borrower and the Originators shall perform their respective obligations under the Mortgage Loans to the same extent as if such Mortgage Loans had not been sold by the Originators and the exercise by the Administrative Agent on behalf of the Lenders of their rights under this Agreement shall not release the Servicer or the Borrower from any of their duties or obligations with respect to any Mortgage Loans. Neither the Administrative Agent, nor the Lenders shall have any obligation or liability with respect to any Mortgage Loans, nor shall any of them be obligated to perform the obligations of the Borrower thereunder.

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(c) In the event of any conflict between the provisions of this Article XI of this Agreement and Article VI of the Repurchase Agreement, the provisions of this Agreement shall control.

11.5. Indemnities by the Servicer. Without limiting any other rights that the Administrative Agent, the MERS Agent, any Lender or Managing Agent or any of their respective Affiliates (each, a “Special Indemnified Party”) may have hereunder or under applicable law, and in consideration of its appointment as Servicer, the Servicer hereby agrees to indemnify each Special Indemnified Party from and against any and all claims, losses and liabilities (including attorneys’ fees) (all of the foregoing being collectively referred to as “Special Indemnified Amounts”) arising out of or resulting from any of the following (excluding, however, (x) Special Indemnified Amounts to the extent resulting from gross negligence or willful misconduct on the part of such Special Indemnified Party, (y) recourse for Mortgage Assets that are not collected, not paid or uncollectible on account of the insolvency, bankruptcy or financial inability to pay of the applicable Obligor or (z) any income taxes or any other tax or fee measured by income incurred by such Special Indemnified Party arising out of or as a result of this Agreement or the Borrowings hereunder):

(a) any representation or warranty or statement made or deemed made by the Servicer under or in connection with this Agreement that shall have been incorrect in any respect when made;

(b) the failure by the Servicer to comply in any material respect with any applicable law, rule or regulation with respect to any Mortgage Asset or the failure of any Mortgage Loan to conform to any such applicable law, rule or regulation;

(c) the failure to have filed, or any delay in filing, financing statements, Mortgages or assignments of Mortgages under the applicable laws of any applicable jurisdiction with respect to any Mortgage Assets and the other Collateral and Collections in respect thereof, whether at the time of any purchase under the Repurchase Agreement or at any subsequent time;

(d) any failure of the Servicer to perform its duties or obligations in accordance with the provisions of this Agreement;

(e) the commingling of Collections at any time by the Servicer with other funds;

(f) any action or omission by the Servicer reducing or impairing the rights of the Administrative Agent or the Lenders with respect to any Mortgage Asset or the value of any Mortgage Asset;

(g) any Servicer Fees or other costs and expenses payable to any replacement Servicer, to the extent in excess of the Servicer Fees payable to the Servicer hereunder; or

(h) any claim brought by any Person other than a Special Indemnified Party arising from any activity by the Servicer or its Affiliates in servicing, administering or collecting any Mortgage Asset.

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ARTICLE XII

THE MANAGING AGENTS

12.1. Authorization. The CL New York Group has appointed CL New York as its Managing Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to such Managing Agent by the terms hereof, together with such powers as are reasonably incidental thereto. The Bank One Group has appointed Bank One as its Managing Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to such Managing Agent by the terms hereof, together with such powers as are reasonably incidental thereto. As to any matters not expressly provided for by this Agreement (including, without limitation, enforcement of this Agreement), each Managing Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of its Majority Group Banks, and such instructions shall be binding upon all Lenders in its Group; provided, however, that such Managing Agent shall not be required to take any action which exposes such Managing Agent to personal liability or which is contrary to this Agreement or applicable law.

12.2. Reliance by Agent. Notwithstanding anything to the contrary in this Agreement or any other Transaction Document, neither of the Managing Agents nor any of their respective directors, officers, agents, representatives, employees, attorneys-in-fact or Affiliates shall be liable for any action taken or omitted to be taken by it or them (in their capacity as or on behalf of such Managing Agent) under or in connection with this Agreement or the other Transaction Documents, except for its or their own gross negligence or willful misconduct. Without limitation of the generality of the foregoing, each Managing Agent: (a) may treat the payee of the Notes as the holder thereof; (b) may consult with legal counsel (including counsel for the Borrower), independent certified public accountants and other experts selected by it or any such party and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (c) makes no warranty or representation to any Lender or to the other Managing Agents and shall not be responsible to any Lender or to the other Managing Agents for any statements, warranties or representations made in or in connection with this Agreement or the other Transaction Documents; (d) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement on the part of the Borrower or to inspect the property (including the books and records) of the Borrower; (e) shall not be responsible to any Lender or to the other Managing Agents for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other instrument or document furnished pursuant hereto or the enforceability or perfection or priority of any Collateral; and (f) shall incur no liability under or in respect of this Agreement or any other Transaction Document by acting upon any notice, consent, certificate or other instrument or writing (which may be by telegram, cable or telex) believed by such Managing Agent to be genuine and signed or sent by the proper Person or party.

12.3. Agent and Affiliates. With respect to any Advance made by a Managing Agent, such Managing Agent shall have the same rights and powers under this Agreement as would any Lender and may exercise the same as though it were not a Managing Agent. The Managing

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Agents and their respective Affiliates may accept deposits from, lend money to, act as trustee under indentures of, and generally engage in any kind of business with, the Borrower, any of the Borrower’s respective Affiliates and any Person who may do business with the Borrower or any such Affiliates or own the Borrower’s securities or those of any such Affiliate, all as if no such Managing Agent were a Managing Agent and without any duty to account therefor to the Lenders. If any Managing Agent is removed as a Managing Agent, such removal will not affect the rights and interests of such Managing Agent as a Lender.

12.4. Notices. Each Managing Agent shall give each Lender in its Group prompt notice of each written notice received by it from the Borrower pursuant to the terms of this Agreement.

12.5. Lender Decision. Each Lender (including each Lender that becomes a party hereto by assignment) acknowledges that it has, independently and without reliance on any Managing Agent, any Managing Agent’s Affiliates or any other Lender and based on such documents and information as it has deemed appropriate, made its own evaluation and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance on any Managing Agent, any Managing Agent’s Affiliates or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own decisions in taking or not taking action under this Agreement.

ARTICLE XIII

THE MERS AGENT

13.1. Authorization. Each Lender has appointed the MERS Agent as its agent to take such action as agent on its behalf and to exercise such powers under the Electronic Tracking Agreement as are delegated to the MERS Agent by the terms thereof, together with such powers as are reasonably incidental thereto. As to any matters not expressly provided for by the Electronic Tracking Agreement (including, without limitation, enforcement of the Electronic Tracking Agreement), the MERS Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Majority Banks, and such instructions shall be binding upon all Lenders; provided, however, that the MERS Agent shall not be required to take any action that exposes the MERS Agent to personal liability or that is contrary to the Electronic Tracking Agreement or applicable law.

13.2. Reliance by Agent. Notwithstanding anything to the contrary in the Electronic Tracking Agreement, neither the MERS Agent nor any of its directors, officers, agents, representatives, employees, attorneys-in-fact or Affiliates shall be liable for any action taken or omitted to be taken by it or them (in their capacity as or on behalf of the MERS Agent) under or in connection with the Electronic Tracking Agreement, except for its or their own gross negligence or willful misconduct. Without limitation of the generality of the foregoing, the MERS Agent: (a) may consult with legal counsel (including counsel for the Borrower), independent certified public accountants and other experts selected by it or the Borrower and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (b) makes no warranty or representation to any Lender or the Managing Agent and shall not be responsible to any Lender or the

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Managing Agent for any statements, warranties or representations made in or in connection with the Electronic Tracking Agreement; (c) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of the Electronic Tracking Agreement on the part of the parties thereto or to inspect the Property (including the books and records) of the Borrower; (d) shall not be responsible to any Lender or the Managing Agent for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of the Electronic Tracking Agreement or any other instrument or document furnished pursuant thereto; and (e) shall incur no liability under or in respect of the Electronic Tracking Agreement by acting upon any notice, consent, certificate or other instrument or writing (which may be by telegram, cable or telex) believed by the MERS Agent to be genuine and signed or sent by the proper Person or party.

13.3. Agent and Affiliates. With respect to any Advance made by Bank One, Bank One shall have the same rights and powers under this Agreement as would any Lender and may exercise the same as though it were not the MERS Agent. Bank One and its Affiliates may accept deposits from, lend money to, act as trustee under indentures of, and generally engage in any kind of business with, the Borrower, the Managing Agents, any of the Borrower’s Affiliates and any Person who may do business with or own securities of the Borrower, the Managing Agents or any such Affiliate, all as if Bank One were not the MERS Agent and without any duty to account therefor to the Lenders. If Bank One is removed as MERS Agent, such removal will not affect Bank One’s rights and interests as a Lender.

13.4. Rights of the MERS Agent. Each right and remedy expressly provided by the Electronic Tracking Agreement as being available to the MERS Agent shall be exercised by the MERS Agent only at the direction of the Majority Banks.

13.5. Indemnification of MERS Agent. Each Bank agrees to indemnify the MERS Agent (to the extent not reimbursed by or on behalf of the Borrower), ratably according to the respective principal amounts held by it (or if no Advances are then outstanding, each Bank shall indemnify the MERS Agent ratably according to the amount of its Bank Commitment), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever that may be imposed on, incurred by, or asserted against the MERS Agent in any way relating to or arising out of the Electronic Tracking Agreement or any action taken or omitted by the MERS Agent under the Electronic Tracking Agreement, provided that no Bank shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the MERS Agent’s gross negligence or willful misconduct.

ARTICLE XIV

MISCELLANEOUS

14.1. Notices. Any notice or request required or permitted to be given under or in connection with this Agreement, the Notes or the other Transaction Documents (except as may otherwise be expressly required therein) shall be in writing and shall be mailed by first class or express mail, postage prepaid, or sent by telex, telegram, telecopy or other similar form of rapid transmission, confirmed by mailing (by first class or express mail, postage prepaid) written

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confirmation at substantially the same time as such rapid transmission, or personally delivered to an officer of the receiving party. With the exception of certain administrative and collateral reports that may be directed to specific departments of the Administrative Agent, all such communications shall be mailed, sent or delivered to the parties hereto at their respective addresses as follows:

The Borrower:	UAMC CAPITAL, LLC
	700 N.W. 107th Avenue
	Miami, Florida 33172
	Facsimile: (305) 229-6657
	Attention: Janice Munoz, Vice President & Treasurer
	With a copy to:
	LENNAR CORPORATION
	700 N.W. 107th Avenue
	Miami, Florida 33172
	Facsimile: (305) 229-6650
	Attention: Benjamin P. Butterfield, General Counsel
Issuers:	ATLANTIC ASSET SECURITIZATION CORP.
	c/o Lord Securities Corporation
	45 Broadway, 19th Floor
	New York, New York 10006
	Attention: Dwight Jenkins, Vice President
	With a copy to the Administrative Agent (except in the case of notice from the Administrative Agent).
	JUPITER SECURITIZATION CORPORATION
	c/o Bank One, NA (Main Office Chicago)
	Asset-Backed Finance Division
	1 Bank One Plaza
	Chicago, Illinois 60670
	Facsimile: (312) 732-1844
Banks:	CREDIT LYONNAIS NEW YORK BRANCH
	Credit Lyonnais Building
	1301 Avenue of the Americas
	New York, New York 10019
	Facsimile: (212) 459-3258
	Attention: Conduit Securitization
	BANK ONE, NA (MAIN OFFICE CHICAGO)
	c/o Bank One, NA (Main Office Chicago)
	Asset-Backed Finance Division
	1 Bank One Plaza
	Chicago, Illinois 60670
	Telephone No.: (312) 732-2722
	Facsimile: (312) 732-1844

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Seasonal Issuer:	JUPITER SECURITIZATION CORPORATION
	c/o Bank One, NA (Main Office Chicago)
	Asset-Backed Finance Division
	1 Bank One Plaza
	Chicago, Illinois 60670
	Facsimile: (312) 732-1844
Seasonal Bank:	BANK ONE, NA (MAIN OFFICE CHICAGO)
	c/o Bank One, NA (Main Office Chicago)
	Asset-Backed Finance Division
	1 Bank One Plaza
	Chicago, Illinois 60670
	Telephone No.: (312) 732-2722
	Facsimile: (312) 732-1844
Administrative Agent:	CREDIT LYONNAIS NEW YORK BRANCH,
	Credit Lyonnais Building
	1301 Avenue of the Americas
	New York, New York 10019
	Telephone No.: (212) 261-7810
	Telex No.: 62410
	(Answerback: CRED A 62410 UW)
	Facsimile: (212) 459-3258
	Attention: Conduit Securitization
Managing Agents:	CREDIT LYONNAIS NEW YORK BRANCH,
	Credit Lyonnais Building
	1301 Avenue of the Americas
	New York, New York 10019
	Telephone No.: (212) 261-7810
	Telex No.: 62410
	(Answerback: CRED A 62410 UW)
	Facsimile: (212) 459-3258
	Attention: Conduit Securitization
	BANK ONE, NA (MAIN OFFICE CHICAGO)
	c/o Bank One, NA (Main Office Chicago)
	Asset-Backed Finance Division
	1 Bank One Plaza
	Chicago, Illinois 60670
	Facsimile: (312) 732-1844
	Telephone No. (312) 732-2722

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Originators:	UNIVERSAL AMERICAN MORTGAGE COMPANY, LLC
	700 N.W. 107th Avenue
	Miami, Florida 33172
	Facsimile: (305) 229-6657
	Attention: Janice Munoz, Vice President & Treasurer
	With a copy to:
	LENNAR CORPORATION
	700 N.W. 107th Avenue
	Miami, Florida 33172
	Facsimile: (305) 229-6650
	Attention: Benjamin P. Butterfield, General Counsel
	UNIVERSAL AMERICAN MORTGAGE COMPANY OF CALIFORNIA
	700 N.W. 107th Avenue
	Miami, Florida 33172
	Facsimile: (305) 229-6657
	Attention: Janice Munoz, Vice President & Treasurer
	With a copy to:
	LENNAR CORPORATION
	700 N.W. 107th Avenue
	Miami, Florida 33172
	Facsimile: (305) 229-6650
	Attention: Benjamin P. Butterfield, General Counsel
Servicer:	UNIVERSAL AMERICAN MORTGAGE
	COMPANY, LLC
	700 N.W. 107th Avenue
	Miami, Florida 33172
	Facsimile: (305) 229-6657
	Attention: Janice Munoz, Vice President & Treasurer
	With a copy to:
	LENNAR CORPORATION
	700 N.W. 107th Avenue
	Miami, Florida 33172
	Facsimile: (305) 229-6650
	Attention: Benjamin P. Butterfield, General Counsel

or at such other addresses or to such officer’s, individual’s or department’s attention as any party may have furnished the other parties in writing. Any communication so addressed and mailed shall be deemed to be given when so mailed, except that notices and requests given pursuant to Section 3.3(e). Borrowing Requests and communications related thereto shall not be effective

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until actually received by the Collateral Agent, the Administrative Agent, the Issuers or the Borrower, as the case may be; and any notice so sent by rapid transmission shall be deemed to be given when receipt of such transmission is acknowledged, and any communication so delivered in person shall be deemed to be given when receipted for by, or actually received by, an authorized officer of the Borrower, the Collateral Agent, or the Administrative Agent.

14.2. Amendments, Etc. No amendment or waiver of any provision of this Agreement or consent to any departure by the Borrower therefrom shall be effective unless in a writing signed by the Majority Banks, the Administrative Agent (as agent for the Issuers) and the Administrative Agent (and, in the case of any amendment, also signed by the Borrower), and then such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. Notwithstanding the foregoing, unless an amendment, waiver or consent shall be made in writing and signed by each of the Banks, the Managing Agents, and the Administrative Agent, and each of the Rating Agencies shall confirm that any amendment will not result in a downgrade or withdrawal of the ratings assigned to any Commercial Paper Notes, no amendment, waiver or consent shall do any of the following:

(a) amend the definitions of Eligible Mortgage Loan, Collateral Value, Advance Rate or Majority Banks or

(b) amend, modify or waive any provision of this Agreement in any way that would:

(i) reduce the amount of principal or interest that is payable on account of any Advance or delay any scheduled date for payment thereof or

(ii) impair any rights expressly granted to an assignee or participant under this Agreement or

(iii) reduce the fees payable by the Borrower to the Managing Agents, to the Administrative Agent, or to the Lenders or

(iv) delay the dates on which such fees are payable or

(c) amend or waive the Event of Default set forth in Sections 8.1(f), (g) or (h) relating to the bankruptcy of the Performance Guarantor, the Originators or the Borrower or

(d) amend or waive the Event of Default set forth in Sections 8.1(i), (j), (v) or (w) or

(e) amend clause (a) of the definition of Drawdown Termination Date or

(f) amend this Section 13.2;

and provided, further, that no amendment, waiver or consent shall, unless in writing and signed by the Servicer in addition to the other parties required above to take such action, affect the rights or duties of the Servicer under this Agreement. No failure on the part of the Lenders, the Managing Agents, or the Administrative Agent to exercise, and no delay in exercising, any right

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thereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right.

14.3. Invalidity. In the event that any one or more of the provisions contained in the Notes, this Agreement or any other Transaction Document shall, for any reason, be held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of such document.

14.4. Restrictions on Informal Amendments. No course of dealing or waiver on the part of the Administrative Agent, the Managing Agents, the Collateral Agent, any Lender or any Affected Party, or any of their officers, employees, consultants or agents, or any failure or delay by any such Person with respect to exercising any right, power or privilege under the Notes, this Agreement or any other Transaction Document shall operate as an amendment to the express written terms of the Notes, this Agreement or any other Transaction Document or shall act as a waiver of any right, power or privilege of any such Person.

14.5. Cumulative Rights. The rights, powers, privileges and remedies of each of the Lenders, the Collateral Agent, the Managing Agents, and the Administrative Agent under the Notes, this Agreement, and any other Transaction Document shall be cumulative, and the exercise or partial exercise of any such right, power, privilege or remedy shall not preclude the exercise of any other right or remedy.

14.6. Construction; Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF, OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW WHICH SHALL APPLY HERETO).

14.7. Interest. Any provisions herein, in the Notes, or in any other Transaction Document, or any other document executed or delivered in connection herewith, or in any other agreement or commitment, whether written or oral, expressed or implied, to the contrary notwithstanding, the Lenders shall in no event be entitled to receive or collect, nor shall or may amounts received hereunder be credited, so that the Lenders shall be paid, as interest, a sum greater than the maximum amount permitted by applicable law to be charged to the Person primarily obligated to pay such Note at the time in question. If any construction of this Agreement, any Note or any other Transaction Document, or any and all other papers, agreements or commitments indicate a different right given to a Lender to ask for, demand or receive any larger sum as interest, such is a mistake in calculation or wording that this clause shall override and control, it being the intention of the parties that this Agreement, each Note, and all other Transaction Documents or other documents executed or delivered in connection herewith shall in all things comply with applicable law and proper adjustments shall automatically be made accordingly. In the event that any of the Lenders shall ever receive, collect or apply as interest, any sum in excess of the maximum nonusurious rate permitted by applicable law (the “Maximum Rate”), if any, such excess amount shall be applied to the reduction of the unpaid principal balance of the Note held by such Lender, and if such Note is paid in full, any remaining excess shall be paid to the Borrower. In determining whether or not the interest paid or payable, under any specific contingency, exceeds the Maximum Rate, if any,

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the Borrower and each of the Lenders shall, to the maximum extent permitted under applicable law: (a) characterize any nonprincipal payment as an expense or fee rather than as interest, (b) exclude voluntary prepayments and the effects thereof, and (c) “spread” the total amount of interest throughout the entire term of the respective Note; provided that if any Note is paid and performed in full prior to the end of the full contemplated term hereof, and if the interest received for the actual period of existence thereof exceeds the Maximum Rate, if any, the respective Lender shall refund to the Borrower the amount of such excess, or credit the amount of such excess against the aggregate unpaid principal balance of all Advances made by such Lender hereunder at the time in question.

14.8. Right of Offset. The Borrower hereby grants to each of the Lenders and the Administrative Agent and to any assignee or participant a right of offset, to secure the repayment of the Obligations, upon any and all monies, securities or other Property of the Borrower, and the proceeds therefrom now or hereafter held or received by or in transit to such Person, from or for the account of the Borrower, whether for safekeeping, custody, pledge, transmission, collection or otherwise, and also upon any and all deposits (general or special, time or demand, provisional or final) and credits of the Borrower, and any and all claims of the Borrower against such Person at any time existing, in accordance with the following sentence. Upon the occurrence of any Event of Default, such Person is hereby authorized at any time and from time to time, without notice to the Borrower, to offset, appropriate, and apply any and all items hereinabove referred to against the Obligations. Notwithstanding anything in this Section 13.8 or elsewhere in this Agreement to the contrary, the Administrative Agent and the Lenders and any assignee or participant shall not have any right to offset, appropriate or apply any accounts of the Borrower that consist of escrowed funds (except and to the extent of any beneficial interest of the Borrower in such escrowed funds) that have been so identified by the Borrower in writing at the time of deposit thereof.

14.9. Successors and Assigns.

(a) This Agreement and the Lenders’ rights and obligations herein (including ownership of each Advance) shall be assignable by the Lenders and their successors and assigns to any Eligible Assignee. Each assignor of an Advance or any interest therein shall notify the Administrative Agent and the Borrower of any such assignment.

(b) Each Bank may assign to any Eligible Assignee or to any other Bank all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Bank Commitment and any Advances or interests therein owned by it), provided however, that:

(i) each such assignment shall be of a constant, and not a varying, percentage of all rights and obligations under this Agreement,

(ii) the amount being assigned pursuant to each such assignment (determined as of the date of the Assignment and Acceptance Agreement with respect to such assignment) shall in no event be less than the lesser of (x) $20,000,000 and (y) all of the assigning Bank’s Bank Commitment,

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(iii) the parties to each such assignment shall execute and deliver to the Administrative Agent, for its acceptance and recording in the Register, an Assignment and Acceptance Agreement, together with a processing and recordation fee of $2,500, and

(iv) concurrently with such assignment, such assignor Bank shall assign to such assignee Bank an equal percentage of its rights and obligations under the related Liquidity Agreement.

Upon such execution, delivery, acceptance and recording, from and after the effective date specified in such Assignment and Acceptance Agreement, (x) the assignee thereunder shall be a party to this Agreement and, to the extent that rights and obligations hereunder or under this Agreement have been assigned to it pursuant to such Assignment and Acceptance Agreement, have the rights and obligations of a Bank hereunder and thereunder and (y) the assigning Bank shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance Agreement, relinquish such rights and be released from such obligations under this Agreement (and, in the case of an Assignment and Acceptance Agreement covering all or the remaining portion of an assigning Bank’s rights and obligations under this Agreement, such Bank shall cease to be a party thereto).

(c) The Administrative Agent shall maintain at its address referred to in Section 13.1 a copy of each Assignment and Acceptance Agreement delivered to and accepted by it and a register for the recordation of the names and addresses of the Banks and the Bank Commitment of, and aggregate outstanding principal of Advances or interests therein owned by, each Bank from time to time (the “Register”). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrower, the Servicer, the Managing Agents, the Administrative Agent and the Banks may treat each person whose name is recorded in the Register as a Bank under this Agreement for all purposes of this Agreement. The Register shall be available for inspection by the Borrower, the Servicer, the Managing Agents, the Administrative Agent or any Bank at any time and from time to time upon prior notice.

(d) Each Bank may sell participations, to one or more banks or other entities that are Eligible Assignees, in or to all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Bank Commitment and the Advances or interests therein owned by it); provided, however, that:

(i) such Bank’s obligations under this Agreement (including, without limitation, its Bank Commitment to the Borrower thereunder) shall remain unchanged,

(ii) such Bank shall remain solely responsible to the other parties to this Agreement for the performance of such obligations, and

(iii) concurrently with such participation, the selling Bank shall sell to such bank or other entity a participation in an equal percentage of its rights and obligations under the related Liquidity Agreement.

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The Administrative Agent, the other Banks, the Managing Agents, the Servicer and the Borrower shall have the right to continue to deal solely and directly with such Bank in connection with such Bank’s rights and obligations under this Agreement.

(e) The Borrower may not assign its rights or obligations hereunder or any interest herein without the prior written consent of the Administrative Agent, each Managing Agent, and each Lender.

(f) The parties hereto acknowledge that Atlantic has granted to the Atlantic Program Agent for the benefit of holders of its Commercial Paper Notes, its liquidity banks, and certain other creditors of Atlantic, a security interest in its right, title and interest in and to the Advances, the Transaction Documents and the Collateral. Each reference herein or in any of the other Transaction Documents to the Liens in the Collateral granted to Atlantic under the Transaction Documents shall be deemed to include a reference to such security interest of the Atlantic Program Agent.

14.10. Survival of Termination. The provisions of Article X and Sections 2.12, 11.4, 13.14, 13.15 and 13.20 shall survive any termination of this Agreement.

14.11. Exhibits. The exhibits attached to this Agreement are incorporated herein and shall be considered a part of this Agreement for the purposes stated herein, except that in the event of any conflict between any of the provisions of such exhibits and the provisions of this Agreement, the provisions of this Agreement shall prevail.

14.12. Titles of Articles, Sections and Subsections. All titles or headings to articles, sections, subsections or other divisions of this Agreement or the exhibits hereto are only for the convenience of the parties and shall not be construed to have any effect or meaning with respect to the other content of such articles, sections, subsections or other divisions, such other content being controlling as to the agreement between the parties hereto.

14.13. Counterparts. This Agreement may be executed in two or more counterparts, and it shall not be necessary that the signatures of each of the parties hereto be contained on any one counterpart hereof; each counterpart shall be deemed an original, but all counterparts together shall constitute one and the same instrument.

14.14. No Proceedings. The Borrower, the Servicer, the Administrative Agent and each Bank hereby agrees that it will not institute against the Issuers, or join any other Person in instituting against the Issuers, any bankruptcy, reorganization, arrangement, insolvency, or liquidation proceeding, or other proceeding under any federal or state bankruptcy or similar law so long as any Commercial Paper Notes issued by either of the Issuers shall be outstanding or there shall not have elapsed one year plus one day since the last day on which any such Commercial Paper Notes shall have been outstanding. The foregoing shall not limit the rights of the Borrower, the Servicer, any Managing Agent, the Administrative Agent or any Bank to file any claim in or otherwise take any action with respect to any insolvency proceeding that was instituted by any other Person.

14.15. Confidentiality. The Borrower and the Servicer each hereby agrees that it will maintain and cause its respective employees to maintain the confidentiality of this Agreement,

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and the other Transaction Documents (and all drafts thereof), and each Lender, each Managing Agent, and the Administrative Agent agrees that it will maintain and cause its respective employees to maintain the confidentiality of the Collateral and all other non-public information with respect to the Borrower and the Servicer, and their respective businesses obtained by such party in connection with the structuring, negotiating and execution of the transactions contemplated herein, in each case except (a) as may be required or appropriate in communications with its respective independent certified public accountants, legal advisors, or with independent financial rating agencies, (b) as may be required or appropriate in any report, statement or testimony submitted to any municipal, state or Federal regulatory body having or claiming to have jurisdiction over it, (c) as may be required or appropriate in response to any summons or subpoena or in connection with any litigation, (d) as may be required by or in order to comply with any law, order, regulation or ruling, (e) as may be required or appropriate in connection with disclosures to any and all persons, without limitation of any kind, of information relating in the tax treatment and tax structure of the transaction and all materials of any kind (including opinions and other tax analyses) that are provided to the Borrower or any of the Originators relating to such tax treatment and tax structure, (f) in the case of any Bank, any Issuer, each Managing Agent, or the Administrative Agent, to any Liquidity Bank or provider of credit support to either of the Issuers, either Managing Agent, any dealer or placement Administrative Agent for either of the Issuers’ commercial paper, and any actual or potential assignee of, or participant in, any of the rights or obligations of such Lender, or (g) in the case of any Issuer, any Managing Agent or the Administrative Agent, to any Person whom any dealer or placement Administrative Agent for either of the Issuers shall have identified as an actual or potential investor in Commercial Paper Notes; provided that any proposed recipient under clause (f) or (g) shall, as a condition to the receipt of any such information, agree to maintain the confidentiality thereof.

14.16. No Recourse Against Directors, Officers, Etc. The Obligations are solely the entity obligations of the Borrower. No recourse for the Obligations shall be had hereunder against any director, officer, employee (in its capacity as such, and not as Servicer), trustee, Administrative Agent or any Person owning, directly or indirectly, any legal or beneficial interest in the Borrower (in its capacity as such owner, and not as Servicer, Performance Guarantor or otherwise as a party to any Transaction Document). This Section 13.16 shall not, however, (a) constitute a waiver, release or impairment of the Obligations, or (b) affect the validity or enforceability of the Performance Guaranty or any other Transaction Document to which the Originators, the Servicer, the Performance Guarantor or any of their Affiliates may be a party.

14.17. Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT, THE NOTES, ANY OTHER TRANSACTION DOCUMENT OR UNDER ANY AMENDMENT, INSTRUMENT OR DOCUMENT DELIVERED OR THAT MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR ARISING FROM ANY BANKING OR OTHER RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT, THE NOTES OR ANY OTHER TRANSACTION DOCUMENT AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.

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14.18. Consent to Jurisdiction; Waiver of Immunities. EACH PARTY HERETO HEREBY ACKNOWLEDGES AND AGREES THAT:

(a) IT IRREVOCABLY (i) SUBMITS TO THE JURISDICTION, FIRST, OF ANY UNITED STATES FEDERAL COURT, AND, SECOND, IF FEDERAL JURISDICTION IS NOT AVAILABLE, OF ANY NEW YORK STATE COURT, IN EITHER CASE SITTING IN NEW YORK CITY, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, (ii) AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED ONLY IN SUCH NEW YORK STATE OR FEDERAL COURT AND NOT IN ANY OTHER COURT, AND (iii) WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO, THE DEFENSE OF AN INCONVENIENT FORUM TO MAINTENANCE OF SUCH ACTION OR PROCEEDING.

(b) TO THE EXTENT THAT IT HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM THE JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID TO EXECUTION, EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, IT HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER OR IN CONNECTION WITH THIS AGREEMENT.

14.19. Costs, Expenses and Taxes. In addition to its obligations under Articles II and X, the Borrower agrees to pay on demand:

(a) (i) all costs and expenses incurred by the Administrative Agent, the Managing Agents and the Lenders, in connection with the negotiation, preparation, execution and delivery or the administration (including periodic auditing) of this Agreement, the Notes, the other Transaction Documents, and, to the extent related to this Agreement, the Program Documents (including any amendments or modifications of or supplements to the Program Documents entered into in connection herewith), and any amendments, consents or waivers executed in connection therewith, including, without limitation, (A) the fees and expenses of counsel to any of such Persons incurred in connection with any of the foregoing or in advising such Persons as to their respective rights and remedies under any of the Transaction Documents or (to the extent related to this Agreement) the Program Documents, and (B) all out-of-pocket expenses (including fees and expenses of independent accountants) incurred in connection with any review of the books and records of the Borrower or the Servicer either prior to the execution and delivery hereof or pursuant to Section 6.8, provided that any such review pursuant to Section 6.8(a) shall be limited to once each calendar year unless a Default or an Event of Default has occurred or is continuing, and (ii) all costs and expenses incurred by the Administrative Agent, the Managing Agents and the Lenders, in connection with the enforcement of, or any actual or claimed breach of, this Agreement, the Notes, the other Transaction Documents and, to the extent related to this Agreement, the Program Documents (including any amendments or modifications of or supplements to the Program Documents entered into in connection herewith), including, without limitation, the fees and expenses of counsel to any of such Persons incurred in connection therewith including without limitation, with respect to each Issuer, the cost of rating

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the Commercial Paper Notes by the Rating Agencies and the reasonable fees and out-of-pocket expenses of counsel to each Issuer; and

(b) all stamp and other taxes and fees payable or determined to be payable in connection with the execution, delivery, filing and recording of this Agreement, the Notes, the other Transaction Documents or (to the extent related to this Agreement) the Program Documents, and agrees to indemnify each Indemnified Party against any liabilities with respect to or resulting from any delay in paying or omission to pay such taxes and fees.

14.20. Entire Agreement. THE NOTES, THIS AGREEMENT, AND THE OTHER TRANSACTION DOCUMENTS EXECUTED AND DELIVERED AS OF EVEN DATE HEREWITH REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES HERETO AND THERETO ANY MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES. TO THE EXTENT THAT ANY PROVISIONS OF THE TRANSACTION DOCUMENTS ARE INCONSISTENT WITH THE TERMS OF THIS AGREEMENT, THIS AGREEMENT SHALL CONTROL.

14.21. Excess Funds. An Issuer shall not be obligated to pay any amount pursuant to this Agreement unless such Issuer has excess cash flow from operations or has received funds with respect to such obligation which may be used to make such payment and which funds or excess cash flow are not required to repay when due its Commercial Paper Note or other short term funding backing its Commercial Paper Notes. Any amount which such Issuer does not pay pursuant to the operation of the preceding sentence shall not constitute a claim, as defined in Section 101(5) of the United States Bankruptcy Code, against such Issuer for any such insufficiency unless and until such Issuer does have excess cash flow or excess funds.

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written.

BORROWER:	UAMC CAPITAL, LLC
	By:	/s/    Robert S. Greaton
	Name:	Robert S. Greaton
	Title:	Vice President
SERVICER:	UNIVERSAL AMERICAN MORTGAGE COMPANY, LLC
	By:	/s/    Susan E. Carlson
	Name:	Susan E. Carlson
	Title:	Vice President
ISSUER:	ATLANTIC ASSET SECURITIZATION CORP.
	By:	Credit Lyonnais New York Branch, as Attorney-in-Fact
	By:	/s/    Gary M. Miller
	Name:	Gary M. Miller
	Title:	Director
ISSUER AND SEASONAL ISSUER:	JUPITER SECURITIZATION CORPORATION
	By:	/s/    Daniel J. Clarke, Jr.
	Name:	Daniel J. Clarke, Jr.
	Title:	Authorized Signer

BANK, ADMINISTRATIVE AGENT AND MANAGING AGENT:	CREDIT LYONNAIS NEW YORK BRANCH
	By:	/s/    Gary M. Miller
	Name:	Gary M. Miller
	Title:	Director

BANK, SEASONAL BANK, AND MANAGING AGENT:	BANK ONE, NA (MAIN OFFICE CHICAGO)
	By:	/s/     Daniel J. Clarke, Jr.
	Name:	Daniel J. Clarke, Jr.
	Title:	Managing Director

EX-10.18

EXHIBIT 10(r)

EXTENSION AGREEMENT

This is an agreement dated as of August 26, 2003 between Lennar Corporation (“Lennar”), a Delaware corporation, and LNR Property Corporation (“LNR”), a Delaware corporation, formerly named LPC, Inc., extending the provisions of Paragraphs 4.1 and 4.2 of the Separation and Distribution Agreement (the “Separation Agreement”) dated June 10, 1997 between Lennar and LNR, as amended on October 31, 1997.

The agreement between Lennar and LNR is as follows:

1. Lennar agrees to be bound by Paragraph 4.1 of the Separation Agreement until November 30, 2005.

2. LNR agrees to be bound by Paragraph 4.2 of the Separation Agreement until November 30, 2005.

3. Lennar and LNR each agrees that no violation of Paragraph 4.1 or Paragraph 4.2 of the Separation Agreement that has occurred between December 1, 2002 and the date of this Agreement will give rise to any claim by either of them against the other of them.

4. Paragraphs 4.3 through 4.5 and 12.6 through 12.10 of the Separation Agreement apply to this Agreement to the same extent as though they were set forth in this Agreement. For purposes of this Agreement, the term “Lennar Land Partners” in Paragraph 4.1, 4.2 or 4.3 of the Separation Agreement will be deemed to refer to “Lennar Land Partners or any other partnership or other entity in which both Lennar and LNR, directly or through subsidiaries, own equity interests.”

5. This document contains the entire agreement between Lennar and LNR relating to the obligations that are the subject of this Agreement, and all prior negotiations, understandings and agreements between Lennar and LNR regarding those obligations are superceded by this Agreement.

6. This Agreement may be executed in two or more counterparts, some of which may bear the signatures of only some of the parties or may bear facsimile copies of the signatures of some of the parties. Each of those counterparts will be deemed an original copy of this Agreement, but all of them together will be one and the same agreement.

IN WITNESS WHEREOF, Lennar and LNR have executed this Agreement, intending to be legally bound by it, on the day shown above.

LENNAR CORPORATION
By:	/s/    Bruce E. Gross
Title:	Bruce E. Gross Chief Financial Officer
LNR PROPERTY CORPORATION
By:	/s/    SHELLY L. RUBIN
	Shelly L. Rubin Vice President

EX-21

Exhibit 21

	Where Incorporated
Lennar Corporation	Delaware
Subsidiaries of Lennar Corporation
208 Meadowview Farms, Ltd.	Texas
56th And Lone Mountain, L.L.C.	Arizona
5800 Third Street Partners, LLC	California
Acme Water Supply & Management Company	Florida
Alma Del Lagos, L.L.C.	Arizona
American Hotel Lofts - Greystone, LLC	California
AmeriStar Financial Services, Inc.	California
Ann Arundel Farms, Ltd.	Texas
Aquaterra Utilities, Inc.	Florida
ARBOR WEST, LLC	Delaware
ARBORETUM - PCC III, LLC	Delaware
Arboretum Holdings, LLC	Delaware
ARBORWEST-INT-STRAWBERRY COURT, LLC	Delaware
Asbury Woods L.L.C.	Illinois
Autumn Creek Development Limited Partnership	Texas
Avalon Sienna III L.L.C.	Illinois
B. Andrews & Co., Inc.	Maryland
Barnsboro Associates, LLC	New Jersey
Bayhome USH, Inc.	Florida
Bayvest, L.L.C.	Florida
Bella Oaks L.L.C.	Illinois
Bennetts Village LLC	New Jersey
Bermuda Springs Developers Joint Venture	Nevada
BHF/LH at Amerige Heights, LLC	Delaware
Bickford Holdings, LLC	Nevada
Boca Greens, Inc.	Florida
Boca Isles South Club, Inc.	Florida
Boggy Creek LLC	Florida
Boggy Creek USH, Inc.	Florida
Bramalea California Properties, Inc.	California
Bramalea California Realty, Inc.	California
Bramalea California, Inc.	California
Brazoria County LP, Inc.	Nevada
Bressi Gardenlane, LLC	Delaware
Brewer Baseline Investors, LLC	California
Brookfield Bay Area Holdings, Inc.	California
Builders Acquisition Corp.	Delaware
Builders LP, Inc.	Delaware
C/L JV Holdings Limited Partnership	Florida
Cambria L.L.C.	Illinois
Cantera Village L.L.C.	Illinois
Canyon View Development, LLC	Colorado
Capevest, L.L.C.	Florida
Cary Woods L.L.C.	Illinois
Chancellor Place, L.L.C.	New Jersey
Chantilly Green Joint Venture, L.L.C.	Virginia
Cibola Vista Community Development, L.L.C.	Arizona
Claremont Ridge L.L.C.	Illinois

Claridge Estates L.L.C.	Illinois
Clodine-Bellaire LP, Inc.	Nevada
Club Pembroke Isles, Inc.	Florida
Club Tampa Palms, Inc.	Florida
Colonial Heritage LLC	Virginia
Colony Escrow, Inc.	Washington
Columbia Station L.L.C.	Illinois
Concord at Bridlewood L.L.C.	Illinois
Concord at Cornerstone Lakes L.L.C.	Illinois
Concord at Interlaken L.L.C.	Illinois
Concord at Meadowbrook L.L.C.	Illinois
Concord at Pheasant Run Trails L.L.C.	Illinois
Concord at Ravenna L.L.C.	Illinois
Concord at the Glen L.L.C.	Illinois
Concord at Zurich Village L.L.C.	Illinois
Concord City Centre L.L.C.	Illinois
Concord Hills Limited Partnership	Illinois
Concord Hills, Inc.	Illinois
Concord Homes, Inc.	Delaware
Concord Lake Limited Partnership	Illinois
Concord Lake, Inc.	Illinois
Concord Mills Estates L.L.C.	Illinois
Concord Mills Limited Partnership	Illinois
Concord Oaks Limited Partnership	Illinois
Concord Oaks, Inc.	Illinois
Concord Park Limited Partnership	Illinois
Concord Park, Inc.	Illinois
Concord Pointe Limited Partnership	Illinois
Concord Pointe, Inc.	Illinois
Continental Escrow Company	California
Corta Bella Holdings, LLC	Delaware
Coto de Caza, Ltd.	California
Country Club Development at the Fort, LLC	California
Country Club Development, LLC	California
Countryplace Golf Course, Inc.	Texas
Coventry L.L.C.	Illinois
Crismon & Baseline, L.L.C.	Arizona
Crowne Hill 100 Holdings, LLC	Delaware
Custer/Hedgecoxe L.L.C.	Texas
Cypress Shadow Development, L.L.C.	Florida
Dalco Land Limited Liability Company	Colorado
DCA Financial Corporation	Florida
DCA NJ Realty, Inc.	New Jersey
DCA of Lake Worth, Inc.	Florida
DCA of New Jersey, Inc.	New Jersey
Don Galloway Homes, LLC	Delaware
E.M.J.V. Corp.	Florida
Eagle Bend Commercial, LLC	Colorado
Eagle Home Mortgage, Inc.	Washington
East Meadows Joint Venture	Florida

Edgewater Reinsurance, Ltd.	Turks & Caicos Islands
Edwards Landing, L.L.C.	Virginia
El Dorado Development, LLC	Delaware
Elk Grove 82 Partnership	California
Elkhorn Ranch Venture, LLC	Colorado
Enclave Land, L.L.C.	Illinois
ERMLOE, LLC	Florida
Estates Seven, LLC	Delaware
F.P. Construction Corp.	Delaware
Fidelity Guaranty and Acceptance Corporation	Delaware
Florida Title Consultants	Florida
Fortress Holding - Virginia, LLC	Delaware
Fortress Illinois, LLC	Delaware
Fortress Management, Inc.	Texas
Fortress Missouri, LLC	Delaware
Fortress Mortgage, Inc.	Delaware
Fortress Pennsylvania Realty, Inc.	Pennsylvania
Fortress Pennsylvania, LLC	Delaware
Fortress-Florida, Inc.	Delaware
Fox-Maple Associates, LLC	New Jersey
Foxwood L.L.C.	Illinois
FR Exchanges, Inc.	Colorado
Francisco Oaks, LLC	California
Friendswood Development Company, Ltd.	Texas
Fulton Homes Corporation	Arizona
Galloway Enterprises, LLC	Delaware
Gateway Commons, L.L.C.	Maryland
Genesee Communities I, Inc.	Colorado
Genesee Communities II, LLC	Colorado
Genesee Communities III, Inc.	Colorado
Genesee Communities IV, LLC	Colorado
Genesee Communities IX, LLC	Colorado
Genesee Communities V, LLC	Colorado
Genesee Communities VI, LLC	Colorado
Genesee Communities VII, LLC	Colorado
Genesee Communities VIII, LLC	Colorado
Genesee Venture, LLC	Colorado
Glenview Reserve L.L.C.	Illinois
Glenview Reserve, LLC	Illinois
Glenwood Investors, L.L.C.	Maryland
Golf Associates, LLC	New Jersey
Grand Isle Club, Inc.	Florida
Greenbriar at River Valley, Ltd.	Ohio
Greenfield/Waterbury L.L.C.	Illinois
Greentree Holdings, LLC	New Jersey
Greystone Construction, Inc.	Arizona
Greystone Hidden Meadows, LLC	Delaware
Greystone Homes of Nevada, Inc.	Delaware
Greystone Homes, Inc.	Delaware
Greystone Nevada, LLC	Delaware
Greywes, LLC	California

Hallston Burbank LLC	Delaware
Harbourvest, L.L.C.	Florida
Harris County LP, Inc.	Nevada
Harveston, LLC	Delaware
Haverford Venture L.L.C.	Illinois
Haverton L.L.C.	Illinois
HCC Investors, LLC	Delaware
Heartland Colorado, LLC	Colorado
Heathcote Commons LLC	Virginia
Heritage at Hawk Ridge, L.L.C.	Missouri
Heritage at Miami Bluffs, LLC	Ohio
Heritage Harbour Realty, Inc.	Florida
Heritage Housing Group, Inc.	Maryland
Heritage Hunt Commercial, LLC	Virginia
Heritage Lakes, LLC	Florida
Heritage of Auburn Hills, L.L.C.	Michigan
Heritage Pines, LLC	North Carolina
Heritage Ridge, LLC	Georgia
Heritage USH, Inc.	Florida
Hickory Ridge, Ltd.	Texas
Homecraft Corporation	Texas
Hometrust Insurance Company	Vermont
Homevest, L.L.C	Florida
Homeward Development Corporation	Florida
Imperial Homes Corporation	Florida
Impressions L.L.C.	Illinois
Inactive Corporations, Inc.	Florida
Independence L.L.C.	Virginia
Independence Land Title Company, LLC	Texas
Institutional Mortgages, Inc.	Florida
Kings Lake TH, LLC	Florida
Kings Ridge Golf Corporation	Florida
Kings Ridge Recreation Corporation	Florida
Kings Wood Development Company, L.C.	Florida
Kings Wood Development Corporation	Florida
L/Cleve Holdings Limited Partnership	Florida
La Canada Holding Company	California
Laguna-Stonelake, LLC	California
Landmark Homes, Inc.	North Carolina
LandSource Communities Development LLC	Delaware
LandSource Communities Development Sub LLC	Delaware
Laureate Homes of Arizona, Inc.	Arizona
Laurel Creek Associates, LLC	Delaware
Legacy Homes, Inc.	North Carolina
Legends Club, Inc.	Florida
Legends Golf Club, Inc.	Florida
LEN - Inland, LLC	Delaware
LEN-Brentwood II, LLC	California
LEN-Carmel Oaks, LLC	Delaware
LEN-El Dorado Hills II, LLC	Delaware
LEN-Greystone Torrey Highlands, LLC	Delaware
LEN-Hiddenbrooke II Sub, LLC	California

LEN-Highland Park LLC	Delaware
LEN-Lakeside, LLC	California
LEN-Machado Partners, LLC	Delaware
LEN-Murrieta Springs, LLC	Delaware
LEN-OBS Windemere, LLC	Delaware
LEN-Rivermark Greens, LLC	Delaware
LEN-Rivermark Promenade, LLC	Delaware
LEN-SCGA50, LLC	Delaware
LEN-SCGA60, LLC	Delaware
LEN-Windemere Village 11, LLC	Delaware
LEN-Windemere Village 15, LLC	Delaware
LEN-Woodlands, LLC	Delaware
LENH I, LLC	Florida
Lennar - BVHP, LLC	California
Lennar Acquisition Corp. II	California
Lennar Alta Vista, LLC	Delaware
Lennar Americanos Douglas, LLC	California
Lennar Associates Management Holding Company	Florida
Lennar Associates Management, LLC	Delaware
Lennar Aviation, Inc.	Delaware
Lennar Bakersfield, Inc.	Delaware
Lennar Bressi Carlsbad, LLC	California
Lennar Bressi Ranch Venture, LLC	California
Lennar Bridges, LLC	California
Lennar Central Park, LLC	Delaware
Lennar Central Region Sweep, Inc.	Nevada
Lennar Charitable Housing Foundation	California
Lennar Coastal Development Group II, LLC	Florida
Lennar Communities Development, Inc.	Delaware
Lennar Communities of Carolina, Inc.	Delaware
Lennar Communities of Florida, Inc.	Florida
Lennar Communities of South Florida, Inc.	Florida
Lennar Communities, Inc.	California
Lennar Construction, Inc.	Arizona
Lennar Coto Holdings, L.L.C.	California
Lennar Developers, Inc.	Florida
Lennar Developers, Inc. II	Florida
Lennar Developers, Inc. III	Florida
Lennar Family of Builders GP, Inc.	Delaware
Lennar Family of Builders Limited Partnership	Delaware
Lennar Financial Services, LLC	Florida
Lennar Fresno, Inc.	California
Lennar Greer Ranch Venture, LLC	California
Lennar Homes Holding Corp.	Delaware
Lennar Homes of Arizona, Inc.	Arizona
Lennar Homes of California, Inc.	California
Lennar Homes of Texas Land and Construction, Ltd.	Texas
Lennar Homes of Texas Sales and Marketing, Ltd.	Texas
Lennar Homes, Inc.	Florida
Lennar Houston Land, LLC	Texas
Lennar Huntington Beach, LLC	California

Lennar Insurance Services, Inc.	Florida
Lennar La Paz Limited, Inc.	California
Lennar La Paz, Inc.	California
Lennar Land Partners	Florida
Lennar Land Partners II	Florida
Lennar Land Partners Sub II, Inc.	Nevada
Lennar Land Partners Sub, Inc.	Delaware
Lennar Mare Island LLC	California
Lennar Military Housing, Inc.	Delaware
Lennar Moorpark, L.L.C.	Delaware
Lennar Mote Ranch, Ltd.	Florida
Lennar MS Legacy, LLC	Delaware
Lennar Nevada Investments, a Nevada general partnerhship	Nevada
Lennar Nevada, Inc.	Nevada
Lennar Northland I, Inc.	California
Lennar Northland II, Inc.	California
Lennar Northland III, Inc.	California
Lennar Northland IV, Inc.	California
Lennar Northland V, Inc.	California
Lennar Northland VI, Inc.	California
Lennar Northpointe North, LLC	California
Lennar Pacific Properties Management, Inc.	Delaware
Lennar Pacific Properties, Inc.	Delaware
Lennar Pacific, Inc.	Delaware
Lennar Pacific, L.P.	Delaware
Lennar Realty Trust	Maryland
Lennar Realty, Inc.	Florida
Lennar Renaissance, Inc.	California
Lennar Reno, LLC	Nevada
Lennar Sacramento, Inc.	California
Lennar Sales Corp.	California
Lennar San Jose Holdings, Inc.	California
Lennar Sierra Sunrise, LLC	California
Lennar Southland I, Inc.	California
Lennar Southland II, Inc.	California
Lennar Southland III, Inc.	California
Lennar Southwest Holding Corp.	Nevada
Lennar Stevenson Holdings, L.L.C.	California
Lennar Stonelake, LLC	California
Lennar Sun Ridge, LLC	California
Lennar Sunrise, LLC	California
Lennar Sycamore Creek, LLC	California
Lennar Texas Holding Company	Texas
Lennar Trading Company, LP	Texas
Lennar Winncrest, LLC	Delaware
Lennar-Century 8th Street Developers	Florida
Lennar-Intergulf (Little Italy), LLC	Delaware
Lennar-Kings Lake, Inc.	Florida
Lennar-Lantana Boatyard, Inc.	Florida
Lennar-Tamarac-Apartments, Inc.	Florida
Lennar.Com, Inc.	Florida
Lennar/LNR Camino Palomar, LLC	California

Lennarstone Marketing Group, LLC	Arizona
Lenwin 1, LLC	California
Lewis and Clark Title Company, Inc.	Missouri
LFS Holding Company, LLC	Delaware
LH Eastwind, LLC	Florida
LH-EH Layton Lakes Estates, L.L.C.	Arizona
LHI Renaissance, LLC	Florida
LL Partners, Inc.	Nevada
LN, L.L.C.	Florida
LNR Lennar Brannan Street, LLC	California
LNR Meadowlark, LLC	California
LNR NWHL Holdings, Inc.	Delaware
LNR-Lennar 250 Brannan Street, LLC	California
LNR-Lennar 41 Federal, LLC	California
LNR-Lennar Brannan Street, LLC	California
LNR-Lennar Temescal Holdings, LLC	California
Long Point Development Corporation	Texas
Lori Gardens Associates, L.L.C.	New Jersey
Lorton Station, LLC	Virginia
LPC One Development Partners, LLC	Delaware
LSC Associates	Florida
LSC Associates, Joint Venture	Florida
Lucerne Merged Condominiums, Inc.	Florida
Lundgren Bros. Construction, Inc.	Minnesota
Lyon Moorpark, L.P.	Delaware
M.A.P. Builders, Inc.	Florida
Madrona Ridge L.L.C.	Illinois
Madrona Village L.L.C.	Illinois
Madrona Village Mews L.L.C.	Illinois
Majestic Woods, LLC	New Jersey
Marble Mountain Partners, LLC	Delaware
Marlborough Development Corporation	California
Marlborough Financial Corporation	California
Marlborough Mortgage Corporation	California
Maywood L.L.C.	Virginia
Melbourne Woods L.L.C.	Illinois
Melrose Park Joint Venture	Florida
Meritus Title Company	California
Mid America Title Company	Illinois
Mid-County Utilities, Inc.	Maryland
Midland Housing Industries Corp.	California
Midland Investment Corporation	California
Mill Branch Associates, LLC	New Jersey
Millennium Ventures Limited Partnership, LLP	Florida
Millennium Ventures Management Company, Ltd., L.L.P.	Florida
Mission Viejo 12S Venture, LP	California
Mission Viejo Holdings, Inc.	California
Moffett Meadows Partners, LLC	Delaware
Montgomery Crossings L.L.C.	Illinois
Moreno Valley Lakes 146-Via Del Rey, LLC	Delaware
Mulberry Grove L.L.C.	Illinois
Murietta Holdings, LLC	Delaware

Natomas Estates, LLC	California
NC Builders Acquisition Corp.	Delaware
Netter Woods, LLC	New Jersey
New Home Brokerage, Inc.	Florida
NGMC Finance Corporation, IV	Florida
North American Asset Development Corporation	California
North American Real Estate Services, Inc.	California
North American Title Agency of Arizona, Inc.	Arizona
North American Title Company	Florida
North American Title Company of Colorado	Colorado
North American Title Company, Inc.	California
North American Title Group, Inc.	Florida
North American Title Insurance Company	California
North American Title Insurance Corporation	Florida
North County Land Company, LLC	California
North Vineyard Station Implementation Group, LLC	California
Northbridge L.L.C.	Illinois
Northern Land Company, LLC	Colorado
Northgate Highlands Development II, LLC	Colorado
Northgate Highlands Development, LLC	Colorado
Northpointe North, LLC	California
NuHome Designs, L.L.C.	Texas
NWHL Acquisition L.P.	California
NWHL GP LLC	Delaware
NWHL Investment LLC	Delaware
Oceanpointe Development Corporation	Florida
Ogden Pointe at the Wheatlands L.L.C.	Illinois
Ogden Pointe L.L.C.	Illinois
Orrin Thompson Construction Company	Minnesota
Orrin Thompson Homes Corp.	Minnesota
Palm Springs Classic, LLC	California
Palmdale 101 Venture	Unincorporated entity
Paparone Construction Co.	New Jersey
Parc Chestnut L.L.C.	Illinois
Patriot Homes of Virginia, Inc.	Virginia
Patriot Homes, Inc.	Maryland
PCC III - CAPSTONE, LLC	Delaware
PCC III - CROWNE HILL 100, LLC	Delaware
PCC III - INT - OAK COMMUNITIES, LLC	California
PCC III - INT CROWNE HILL, LLC	Delaware
PCC III - OAK COMMUNITIES, LLC	Delaware
PCC III - VIA DEL REY, LLC	Delaware
PDC Fairway Village, Ltd.	Texas
Perris Green Valley Associates	California
Pinery Retail Center & Business Park, LLC	Colorado
Placer Vineyards, LLC	California
Plum-Lundgren Joint Venture I, LLC	Minnesota
Polo Club L.L.C.	Illinois
Polo Club Pointe L.L.C.	Illinois
Pratt Avenue L.L.C.	Illinois
Prestonfield L.L.C.	Illinois
Pride Homes Mortgage, LLC	Florida

Providence Glen L.L.C.	Illinois
Quest Testing	Texas
Raintree Village L.L.C.	Illinois
Rancho Summit LLC	California
REGTC, Inc. d/b/a North American Title Company	Texas
Renaissance Place Hyde Park L.L.C.	Illinois
Reserve at River Park, LLC	New Jersey
Restoration Development, LLC	Minnesota
Rivendell Joint Venture	Florida
Rivenhome Corporation	Florida
Rivermark Partners, LLC	California
Riverwalk at Waterside Island, LLC	Florida
Riviera Land Corp.	Florida
Roseridge Development, LLC	California
Rottlund Advantage, LLC	Florida
RRKTG Lumber, LLC	Delaware
Rutenberg Homes of Texas, Inc.	Texas
Rutenberg Homes, Inc. (Florida)	Florida
Rye Hill Partners, LLC	New York
S. Florida Construcion, LLC	Florida
S. Florida Construction II, LLC	Florida
S. Florida Construction III, LLC	Florida
San Felipe Indemnity Co., Ltd.	Bermuda
Santa Ana Transit Village, LLC	California
Santa Clarita 700, LLC	Delaware
Savannah Development, Ltd.	Texas
Savell Gulley Development Corporation	Texas
SEA Joint Venture, LLC	Colorado
Seppala Homes, Inc.	South Carolina
SFHR Management, L.L.C.	Illinois
Silver Lakes-Gateway Clubhouse, Inc.	Florida
SLTC, Inc.	Texas
Sonoma L.L.C.	Illinois
Sossaman Estates, L.L.C.	Arizona
Spanish Springs Development, LLC	Nevada
Spring Ridge Development, Ltd.	Texas
St. Andrews at Kings Point, Tamarac, Ltd.	Florida
State Home Acceptance Corporation	Florida
Stetson Venture II, LLC	Arizona
Stevenson Ranch Venture LLC	Delaware
Stoney Corporation	Florida
Stoneybrook Clubhouse West, Inc.	Florida
Stoneybrook Clubhouse, Inc.	Florida
Stoneybrook Golf Club, Inc.	Florida
Stoneybrook Golf Management, L.L.C.	Florida
Stoneybrook Joint Venture	Florida
Strategic Cable Technologies, L.P.	Texas
Strategic Holdings, Inc.	Nevada
Strategic Technologies Communications of California, Inc.	California
Strategic Technologies, Inc.	Florida
Summerway Investment Corp.	Florida
Summerwood, L.L.C.	Maryland

Summit Acquisition Corp.	Delaware
Summit Development Corporation	Illinois
Summit Enclave, L.L.C.	Illinois
Summit Fields, L.L.C.	Illinois
Summit Glen, L.L.C.	Illinois
Summit Land, L.L.C.	Illinois
Summit Ridge 23, L.L.C.	Illinois
Summit Townes, L.L.C.	Illinois
Summit-Meadowbrook, L.L.C.	Illinois
Summit-Reserve, L.L.C.	Illinois
Sunstar Enterprises, LLC	Delaware
T/L Huntington Beach, LLC	Delaware
Temecula Valley, LLC	Delaware
Texas Professional Title, Inc. d/b/a North American Title Company	Texas
Texas-Wide General Agency, Inc.	Texas
The Bridges at Rancho Santa Fe Sales Company, Inc.	California
The Bridges Club at Rancho Santa Fe, Inc.	California
The Club at Stoneybrook, Inc.	Florida
The Courts of Indian Creek L.L.C.	Illinois
The Fortress Group, Inc.	Delaware
The Grande By Lennar Builders, Inc.	Florida
The Homeward Foundation	Texas
The Sentinal Title Corporation	Maryland
The Sentinel Title Corporation	Maryland
The Sexton L.L.C.	Illinois
TitleAmerica Insurance Corporation	Florida
Treasure Island Community Development, LLC	California
Tustin Villas Partners, LLC	Delaware
Tustin Vistas Partners, LLC	Delaware
U.S. Home & Development Corporation	Delaware
U.S. Home Acceptance Corporation	Delaware
U.S. Home Associates Management, Inc.	Delaware
U.S. Home Corporation	Delaware
U.S. Home Corporation of New York	New York
U.S. Home Mortgage Corporation	Florida
U.S. Home of Arizona Construction Co.	Arizona
U.S. Home of Colorado Real Estate, Inc.	Colorado
U.S. Home of Colorado, Inc.	Colorado
U.S. Home of West Virginia, Inc.	West Virginia
U.S. Home Realty Corporation	Florida
U.S. Home Realty, Inc.	Texas
U.S. Home Southwest Holding Corp.	Nevada
U.S. Insurors, Inc.	Florida
U.S.H. Realty, Inc.	Maryland
U.S.H. Corporation of New York	New York
U.S.H. Indemnity Co., Ltd.	Bermuda
U.S.H. Los Prados, Inc.	Nevada
UAMC Asset Corp. II	Nevada
UAMC Capital, LLC	Delaware
UAMC Holding Company, LLC	Delaware
UAMC Holdings II	Nevada

Universal American Insurance Agency, Inc. (FL)	Florida
Universal American Insurance Agency, Inc. (Texas)	Texas
Universal American Mortgage Company of California	California
Universal American Mortgage Company, LLC	Florida
University Community Partners, LLC	Delaware
USH (West Lake), Inc.	New Jersey
USH Acquisition Corp.	Delaware
USH Bickford, LLC	California
USH Equity Corporation	Nevada
USH Funding Corp.	Texas
USH Heritage Pom, L.L.C.	Arizona
USH Millennium Ventures Corp.	Florida
USH Woodbridge, Inc.	Texas
USH/JRC River Gate, LLC	Arizona
USH/MJR, Inc.	Texas
USH/SVA Star Valley, LLC	Arizona
USHHH, Inc.	Florida
Via Del Rey Holdings, LLC	Delaware
Victoria Arbors, LLC	California
Villages of Rio Pinar Club, Inc.	Florida
WCP, LLC	South Carolina
West Adams Street L.L.C.	Illinois
West Chocolate Bayou Development Corp.	Texas
West Lake Village L.L.C.	New Jersey
West Van Buren L.L.C.	Illinois
West Van Buren L.L.C.	Illinois
Westbrook Homes, LLC	Delaware
Westchase Development, LLC	Colorado
Westchase, Inc.	Nevada
Westchase, Ltd.	Texas
Westchester Woods L.L.C.	Illinois
Weststone Corporation	Florida
Willowbrook Investors, LLC	New Jersey
Windemere BLC Land Company LLC	California
Winncrest Natomas, LLC	Nevada
Woodbridge Residential Partners, Ltd.	Texas
Wright Farm, L.L.C.	Virginia

EX-23

Exhibit 23

INDEPENDENT AUDITORS’ CONSENT

We consent to the incorporation by reference in Post-Effective Amendment No. 1 to Registration Statement No. 333-70212 on Form S-8/A, Registration Statement No. 333-65244 on Form S-3, Registration Statement No. 333-65246 on Form S-4 and Registration Statement No. 333-105019 on Form S-8 of Lennar Corporation of our reports dated February 27, 2004, appearing in this Annual Report on Form 10-K of Lennar Corporation for the year ended November 30, 2003.

/s/ DELOITTE & TOUCHE LLP

Miami, Florida

February 27, 2004

EX-31.1

Exhibit 31.1

CHIEF EXECUTIVE OFFICER’S CERTIFICATION

I, Stuart A. Miller, certify that:

1. I have reviewed this annual report on Form 10-K of Lennar Corporation;

2. Based on my knowledge, this 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 report;

3. Based on my knowledge, the financial statements, and other financial information included in this 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 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 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 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 the 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.

/s/ Stuart A. Miller

Name: Stuart A. Miller

Title: President and Chief Executive Officer

Date: February 27, 2004

EX-31.2

Exhibit 31.2

CHIEF FINANCIAL OFFICER’S CERTIFICATION

I, Bruce E. Gross, certify that:

1. I have reviewed this annual report on Form 10-K of Lennar Corporation;

2. Based on my knowledge, this 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 report;

3. Based on my knowledge, the financial statements, and other financial information included in this 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 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 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 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 the 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.

/s/ Bruce E. Gross

Name: Bruce E. Gross

Title: Vice President and Chief Financial Officer

Date: February 27, 2004

EX-32

Exhibit 32

Officers’ Section 1350 Certifications

Each of the undersigned officers of Lennar Corporation, a Delaware corporation (the “Company”), hereby certifies that (i) the Company’s Annual Report on Form 10-K for the year ended November 30, 2003 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and (ii) the information contained in the Company’s Annual Report on Form 10-K for the year ended November 30, 2003 fairly presents, in all material respects, the financial condition and results of operations of the Company, at and for the periods indicated.

/s/ Stuart A. Miller

Name: Stuart A. Miller

Title: President and Chief Executive Officer

/s/ Bruce E. Gross

Name: Bruce E. Gross

Title: Vice President and Chief Financial Officer

Date: February 27, 2004

EX-99

Exhibit 99

INDEPENDENT AUDITORS’ REPORT

To the Board of Directors of

Lennar Homes, Inc.:

We have audited the accompanying consolidated balance sheets of Lennar Homes, Inc. and subsidiaries (the “Company”), a wholly-owned subsidiary of Lennar Corporation, as of November 30, 2003 and 2002 and the related consolidated statements of earnings, stockholder’s equity and cash flows for each of the three years in the period ended November 30, 2003. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of November 30, 2003 and 2002, and the results of its operations and its cash flows for each of the three years in the period ended November 30, 2003, in conformity with accounting principles generally accepted in the United States of America.

/s/    DELOITTE & TOUCHE LLP        

Certified Public Accountants

Miami, Florida

February 27, 2004

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LENNAR HOMES, INC. AND SUBSIDIARIES

(A Wholly-Owned Subsidiary of Lennar Corporation)

CONSOLIDATED BALANCE SHEETS

NOVEMBER 30, 2003 AND 2002 (Dollars in thousands, except par value)

	2003		2002
ASSETS
Cash	$	27,311	$	41,331
Inventories		1,099,894		970,029
Investments in unconsolidated partnerships		154,396		111,653
Other assets		119,866		114,465
Total assets	$	1,401,467	$	1,237,478
LIABILITIES AND STOCKHOLDER’S EQUITY
LIABILITIES:
Accounts payable and other liabilities	$	294,292	$	224,041
Liabilities related to consolidated inventory not owned		7,473		—
Mortgage notes payable		40,176		10,980
Due to affiliates		441,250		535,155
Total liabilities		783,191		770,176
STOCKHOLDER’S EQUITY:
Common stock, $10 par value; 5,000 shares authorized, issued and outstanding		50		50
Additional paid-in capital		16,175		16,175
Retained earnings		602,051		451,077
Total stockholder’s equity		618,276		467,302
Total liabilities and stockholder’s equity	$	1,401,467	$	1,237,478

See accompanying notes to consolidated financial statements.

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LENNAR HOMES, INC. AND SUBSIDIARIES

(A Wholly-Owned Subsidiary of Lennar Corporation)

CONSOLIDATED STATEMENTS OF EARNINGS

YEARS ENDED NOVEMBER 30, 2003, 2002 AND 2001 (Dollars in thousands)

	2003		2002		2001
REVENUES:
Sales of homes	$	2,867,674	$	2,747,249	$	2,632,946
Sales of land		175,645		86,910		48,249
Revenues from affiliates		52,463		—		—
Total revenues		3,095,782		2,834,159		2,681,195
COSTS AND EXPENSES:
Cost of homes sold		2,240,364		2,168,708		2,110,249
Cost of land sold		141,007		75,678		41,246
Selling, general and administrative		339,113		327,620		295,183
Expense to affiliates		174,523		150,903		129,161
Minority interest		41,735		42,049		42,697
Total costs and expenses		2,936,742		2,764,958		2,618,536
Equity in earnings from unconsolidated partnerships		68,962		21,788		13,340
Management fees and other income, net		14,527		29,207		23,055
EARNINGS BEFORE PROVISION FOR INCOME TAXES		242,529		120,196		99,054
PROVISION FOR INCOME TAXES		91,555		45,374		38,136
NET EARNINGS	$	150,974	$	74,822	$	60,918

See accompanying notes to consolidated financial statements.

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LENNAR HOMES, INC. AND SUBSIDIARIES

(A Wholly-Owned Subsidiary of Lennar Corporation)

CONSOLIDATED STATEMENTS OF STOCKHOLDER’S EQUITY

YEARS ENDED NOVEMBER 30, 2003, 2002 AND 2001 (Dollars in thousands)

	Common Stock		Additional Paid-in Capital		Retained Earnings		Total
Balance, November 30, 2000	$	50	$	16,175	$	315,337	$	331,562
2001 net earnings		—		—		60,918		60,918
Balance, November 30, 2001		50		16,175		376,255		392,480
2002 net earnings		—		—		74,822		74,822
Balance, November 30, 2002		50		16,175		451,077		467,302
2003 net earnings		—		—		150,974		150,974
Balance, November 30, 2003	$	50	$	16,175	$	602,051	$	618,276

See accompanying notes to consolidated financial statements.

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LENNAR HOMES, INC. AND SUBSIDIARIES

(A Wholly-Owned Subsidiary of Lennar Corporation)

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED NOVEMBER 30, 2003, 2002 AND 2001 (Dollars in thousands)

	2003			2002			2001
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings	$	150,974		$	74,822		$	60,918
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		9,853			10,330			12,501
Equity in earnings from unconsolidated partnerships		(68,962	)		(21,788	)		(13,340	)
Deferred income tax provision (benefit)		17,275			(15,246	)		(10,745	)
Changes in assets and liabilities, net of effect of acquisitions:
(Increase) decrease in inventories		(21,237	)		20,846			(39,614	)
(Increase) decrease in other assets		(23,647	)		(18,703	)		3,659
Increase in accounts payable and other liabilities		52,758			22,581			2,285
Net cash provided by operating activities		117,014			72,842			15,664
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in investments in unconsolidated partnerships, net		30,565			2,040			(36,323	)
Net cash provided by (used in) investing activities		30,565			2,040			(36,323	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on borrowings		(7,295	)		(391	)		(2,294	)
Increase (decrease) in amounts due to affiliates		(154,304	)		(89,061	)		19,530
Net cash provided by (used in) financing activities		(161,599	)		(89,452	)		17,236
NET DECREASE IN CASH		(14,020	)		(14,570	)		(3,423	)
CASH AT BEGINNING OF YEAR		41,331			55,901			59,324
CASH AT END OF YEAR	$	27,311		$	41,331		$	55,901
See Note 1 for supplemental disclosures of cash flow information related to interest and income taxes paid.
Supplemental disclosures of non-cash investing and financing activities:
Consolidated inventory not owned	$	7,473		$	—		$	—
Purchases of inventory financed by sellers	$	2,391		$	2,378		$	5,848
Fair value of assets acquired	$	60,257		$	29,471		$	—

See accompanying notes to consolidated financial statements.

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LENNAR HOMES, INC. AND SUBSIDIARIES

(A Wholly-Owned Subsidiary of Lennar Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED NOVEMBER 30, 2003, 2002 AND 2001

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Consolidation—The accompanying consolidated financial statements include the accounts of Lennar Homes, Inc., a wholly-owned subsidiary of Lennar Corporation, and all subsidiaries, partnerships and other entities (the “Company”) in which the Company has a controlling interest and variable interest entities (“VIEs”) created after January 31, 2003 in which the Company is deemed the primary beneficiary (see Note 7). The Company’s investments in unconsolidated partnerships in which a significant, but less than controlling, interest is held and VIEs created after January 31, 2003 in which the Company is not deemed to be the primary beneficiary, are accounted for by the equity method. All significant intercompany transactions and balances have been eliminated in consolidation.

During 2001, U.S. Home Corporation, a wholly-owned subsidiary of Lennar Corporation, made a tax-free contribution of real and personal property and equity interests of its, and certain of its subsidiaries, homebuilding business within the State of Texas (the “Texas Operations”), to Lennar Homes of Texas Land & Construction, Ltd. (the “Texas Partnership”), a majority-owned subsidiary of Lennar Southwest Holding Corp., which is a wholly-owned subsidiary of Lennar Homes, Inc., in exchange for an approximate 40% limited partners’ interest in the Texas Partnership.

The transaction was accounted for as a reorganization of entities under common control and, accordingly, all prior period consolidated financial statements have been restated to consolidate the carrying values of the net assets and historical operations of the Texas Operations as if this transaction occurred on May 3, 2000, the date of Lennar Corporation’s acquisition of U.S. Home Corporation. At the date of the acquisition, the Texas Operations had assets of $132.5 million and liabilities of $126.5 million. Minority interest is classified in due to affiliates in the consolidated balance sheets.

The Company operates in one operating and reporting segment—homebuilding. Homebuilding operations include the sale and construction of single-family attached and detached homes, as well as the purchase, development and sale of residential land directly and through unconsolidated partnerships.

Use of Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Revenue Recognition—Revenues from sales of homes are recognized when the sales are closed and title passes to the new homeowners. Revenues from sales of other real estate, including the sale of land, are recognized when a significant down payment is received, the earnings process is complete and the collection of any remaining receivables is reasonably assured.

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Cash—The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. Cash as of November 30, 2003 and 2002 included $11.0 million and $14.4 million, respectively, of cash primarily held in escrow for approximately three days.

Inventories—Inventories are stated at cost unless the inventory within a community is determined to be impaired, in which case the impaired inventory is written down to fair value. Inventory costs include land, land development and home construction costs, real estate taxes and interest related to development and construction. The Company evaluates long-lived assets for impairment based on the undiscounted future cash flows of the assets. Write-downs of inventories deemed to be impaired are recorded as adjustments to the cost basis of the respective inventories. No impairment was recorded during the years ended November 30, 2003, 2002 or 2001.

Construction overhead and selling expenses are expensed as incurred. Homes held for sale are classified as inventories until delivered. Land, land development, amenities and other costs are accumulated by specific area and allocated to homes within the respective areas.

Due to Affiliates—Due to affiliates includes the Company’s transactions in the normal course of business with Lennar Corporation and/or affiliated companies as well as minority interest.

Interest and Real Estate Taxes—Interest and real estate taxes attributable to land and homes are capitalized as inventories while they are being actively developed. Interest related to homebuilding and land, including interest costs relieved from inventories, is included in cost of homes sold and cost of land sold. Interest costs result from the interest related to the Company’s outstanding debt as disclosed in the consolidated balance sheets, as well as debt incurred by Lennar Corporation. Lennar Corporation allocates a portion of its interest to the Company based on the Company’s inventory levels during the year.

Operating Properties and Equipment—Operating properties and equipment are recorded at cost. The assets are depreciated over their estimated useful lives using the straight-line method. The estimated useful life for operating properties is 30 years and for equipment is 2 to 10 years. At the time operating properties and equipment are disposed of, the asset and related accumulated depreciation are removed from the accounts and any resulting gain or loss is credited or charged to earnings. At November 30, 2003 and 2002, operating properties and equipment of $6.2 million and $6.5 million, respectively, were included in other assets in the consolidated balance sheets.

Income Taxes—The Company files a consolidated federal income tax return with Lennar Corporation. Income taxes have been provided at the Company level as if the Company filed an income tax return on a stand-alone basis. Current taxes due are recorded as a payable to Lennar Corporation, and the deferred portion is recorded as deferred taxes. Income taxes are accounted for in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 109, Accounting for Income Taxes. Under SFAS No. 109, deferred tax assets and liabilities are determined based on differences between financial reporting carrying values and tax bases of assets and liabilities, and are measured by using enacted tax rates expected to apply to taxable income in the years in which those differences are expected to reverse.

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Warranty Costs—Warranty and similar reserves for homes are established at an amount estimated to be adequate to cover potential costs for materials and labor with regard to warranty-type claims to be incurred subsequent to the delivery of a home. Reserves are determined based on historical data and trends with respect to similar product types and geographical areas. Warranty reserves are included in accounts payable and other liabilities in the consolidated balance sheets. The following table sets forth the activity in the Company’s warranty reserve for the year ended November 30, 2003:

(Dollars in thousands)
Warranty reserve, November 30, 2002	$	39,312
Provision		44,427
Payments		(38,583	)
Warranty reserve, November 30, 2003	$	45,156

Self-Insurance—Certain insurable risks such as general liability, medical and workers’ compensation are self-insured by Lennar Corporation up to certain limits. Lennar Corporation allocates a portion of its self-insurance accrual to the Company based on various factors.

Fair Value of Financial Instruments—The carrying amount of cash and accounts payable approximates fair value due to the short-term nature of the financial instrument. Since the mortgage notes payable have fixed interest rates that approximate market indices, the carrying amounts approximate fair value.

New Accounting Pronouncements—In October 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 provides accounting guidance for financial accounting and reporting for impairment or disposal of long-lived assets. SFAS No. 144 supersedes SFAS No. 121. The implementation of SFAS No. 144 did not have a material impact on the Company’s financial condition, results of operations or cash flows.

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. This statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under SFAS No. 133. This statement was effective for contracts entered into or modified after June 30, 2003. The implementation of SFAS No. 149 did not have a material impact on the Company’s financial condition, results of operations or cash flows.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. This statement establishes standards for the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. Certain provisions of this statement were effective for financial instruments entered into or modified after May 31, 2003 and otherwise was effective at the beginning of the first interim period beginning after June 15, 2003. In October 2003, the FASB deferred indefinitely certain provisions of this statement pertaining to non-controlling interests in limited life entities. The Company does not believe that the implementation of SFAS No. 150 had, or will have, a material impact on the Company’s financial position, results of operations or cash flows.

-8-

In November 2002, the FASB issued Interpretation No. 45 (“FIN 45”), Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. In accordance with the provisions of FIN 45, the Company adopted the initial recognition and measurement provisions on a prospective basis with regard to guarantees issued after December 31, 2002. The implementation of FIN 45 did not have a material impact on the Company’s financial condition, results of operations or cash flows.

In January 2003, the FASB issued Interpretation No. 46 (“FIN 46”), Consolidation of Variable Interest Entities, as further clarified and amended by the FASB’s issuance of a revision to FIN 46 in December 2003. FIN 46 requires the consolidation of entities in which an enterprise absorbs a majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual or other financial interests in the entity. Prior to the issuance of FIN 46, entities were generally consolidated by an enterprise when it had a controlling financial interest through ownership of a majority voting interest in the entity. FIN 46 applied immediately to variable interests created after January 31, 2003, and with respect to variable interests created before February 1, 2003, FIN 46 will apply in the Company’s second quarter ending May 31, 2004, as deferred by the FASB in December 2003. Although the Company does not believe the full adoption of FIN 46 will have a material impact on net earnings, the Company cannot make any definitive determination until it completes its evaluation (see Note 7).

Reclassifications—Certain prior year amounts in the consolidated financial statements have been reclassified to conform with the 2003 presentation. These reclassifications had no impact on reported net earnings. In particular, operating results reflect reclassifications that have been made to interest expense (now included in cost of homes sold and cost of land sold), equity in earnings from unconsolidated partnerships and management fees and other income, net.

2. ACQUISITIONS

During 2003, the Company acquired the assets of a California homebuilder. Lennar Corporation paid $60.3 million in cash for the acquisition. This amount paid on the Company’s behalf is included in due to affiliates in the consolidated balance sheets. The results of operations of the acquired homebuilder are included in the Company’s results of operations since the respective acquisition date. There was no goodwill associated with the acquisition. The Company acquired assets (primarily inventories) with a fair value of $60.3 million and assumed no liabilities. The pro forma effect of this acquisition on the consolidated results of operations is not presented as the effect is not considered material.

During 2002, the Company acquired the assets of a California homebuilder. Lennar Corporation paid $29.5 million in cash for the acquisition. These amounts paid on the Company’s behalf are included in due to affiliates in the consolidated balance sheets. The results of operations of the acquired homebuilder are included in the Company’s results of operations since the respective acquisition date. There was no goodwill associated with the acquisition. The Company acquired assets (primarily inventories) with a fair value of $29.5 million and assumed no liabilities. The pro forma effect of this acquisition on the consolidated results of operations is not presented as the effect is not considered material.

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3. INVESTMENTS IN UNCONSOLIDATED PARTNERSHIPS

Summarized condensed financial information on a combined 100% basis related to unconsolidated partnerships and other similar entities (collectively the “Partnerships”) in which the Company invests that are accounted for by the equity method was as follows:

	November 30,
(Dollars in thousands)	2003		2002
Assets:
Cash	$	177,079	$	29,031
Inventories		1,146,552		631,005
Other assets		153,775		38,833
Total assets	$	1,477,406	$	698,869
Liabilities and equity:
Accounts payable and other liabilities	$	191,854	$	76,341
Notes and mortgages payable		680,122		336,190
Equity		605,430		286,338
Total liabilities and equity	$	1,477,406	$	698,869

	Years Ended November 30,
(Dollars in thousands)	2003		2002		2001
Revenues	$	945,219	$	458,007	$	429,834
Costs and expenses		651,114		387,290		364,209
Net earnings of unconsolidated partnerships	$	294,105	$	70,717	$	65,625

At November 30, 2003, the Company’s equity interest in these Partnerships did not exceed 50%. The Company’s partners generally are unrelated homebuilders, land sellers or other real estate entities. The Partnerships follow accounting principles generally accepted in the United States of America. The Company shares in the profits and losses of these Partnerships generally in accordance with its ownership interests. In many instances, the Company is appointed as the day-to-day manager of the Partnerships and receives fees for performing this function. During 2003, 2002 and 2001, the Company received management fees and reimbursement of expenses from the Partnerships totaling $10.8 million, $6.6 million and $4.3 million, respectively. In determining its share of the Partnerships’ net earnings, the Company does not include in its income its pro rata share of Partnership earnings resulting from land sales to the Company. Instead, the Company accounts for those earnings as a reduction of the cost of purchasing the land from the Partnerships. This in effect defers recognition of the Company’s share of the Partnership earnings relating to these sales until a home is delivered and title passes to a homebuyer.

The Company and/or its partners sometimes obtain options or enter into other arrangements under which the Company can purchase portions of the land held by the Partnerships. Option prices are generally negotiated prices that approximate fair value when options are purchased. During 2003, 2002 and 2001, $286.4 million, $242.3 million and $83.6 million, respectively, of the Partnerships’ revenues were from land sales to the Company or its affiliates.

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In some instances, the Company and/or its partners have provided varying levels of guarantees on certain Partnership debt. At November 30, 2003, the Company had recourse guarantees of $45.7 million and limited maintenance guarantees of $81.8 million of Partnership debt. When the Company and/or its partners provide a guarantee, the partnership generally receives more favorable terms from its lenders than would otherwise be available to it. The limited maintenance guarantees only apply if a partnership defaults on its loan arrangements and the carrying value of the collateral (generally land and improvements) is less than a specified percentage of the loan balance. If the Company is required to make a payment under a limited maintenance guarantee to bring the carrying value of the collateral above the specified percentage of the loan balance, the payment would constitute a capital contribution or loan to the unconsolidated partnership and increase the Company’s share of any funds the unconsolidated partnership distributes. There were no assets held as collateral that, upon the occurrence of any triggering event or condition under a guarantee, the Company could obtain and liquidate to recover all or a portion of the amounts paid under a guarantee.

Investment in LandSource Communities Development LLC

In November 2003, the Company contributed its 50% ownership interest in certain of its jointly-owned unconsolidated partnerships that had significant assets with LNR Property Corporation, to a new limited liability company named LandSource Communities Development LLC (“LandSource”), in exchange for a 13% interest in LandSource. The assets and liabilities of LandSource at November 30, 2003 were $347.5 million and $122.3 million, respectively. The Company’s investment in LandSource was $30.3 million at November 30, 2003.

4. MORTGAGE NOTES PAYABLE

At November 30, 2003, the Company had mortgage notes on land with fixed interest rates ranging from 3.0% to 7.0%. The weighted average interest rate of the notes was 3.4% at November 30, 2003. The notes are due through 2006 and are collateralized by land. As of November 30, 2003 and 2002, the outstanding balance of the notes was $40.2 million and $11.0 million, respectively.

The minimum aggregate principal maturities of mortgage notes payable during the five years subsequent to November 30, 2003 are as follows: 2004 – $2.1 million; 2005 – $34.1 million and 2006 – $4.0 million.

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5. INCOME TAXES

The provision (benefit) for income taxes consisted of the following:

	Years Ended November 30,
(Dollars in thousands)	2003		2002			2001
Current:
Federal	$	65,725	$	53,182		$	42,730
State		8,555		7,438			6,151
		74,280		60,620			48,881
Deferred:
Federal		15,334		(13,536	)		(10,208	)
State		1,941		(1,710	)		(537	)
		17,275		(15,246	)		(10,745	)
	$	91,555	$	45,374		$	38,136

The actual income tax expense differs from the “expected” tax expense for the year (computed by applying the U.S. federal corporate rate of 35% to earnings before provision for income taxes) primarily due to the amount of state income taxes, net of the related federal tax benefit.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of the assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

The tax effects of significant temporary differences that give rise to the net deferred tax asset are as follows:

	November 30,
(Dollars in thousands)	2003		2002
Deferred tax assets:
Acquisition adjustments	$	38	$	424
Reserves and accruals		21,478		21,478
Capitalized expenses		29,622		28,393
Investments in unconsolidated partnerships		234		2,606
Other		4,438		16,733
Total deferred tax assets		55,810		69,634
Deferred tax liabilities:
Acquisition adjustments		616		169
Reserves and accruals		242		184
Capitalized expenses		10,537		10,664
Other		10,167		7,094
Total deferred tax liabilities		21,562		18,111
Net deferred tax asset	$	34,248	$	51,523

The net deferred tax asset is included in other assets in the consolidated balance sheets.

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6. RELATED PARTY TRANSACTIONS

Lennar Corporation has an agreement with Greystone Homes of Nevada, Inc. (“Greystone”), a wholly-owned subsidiary of Lennar Corporation, whereby Greystone has granted to the Company the right to use certain property for a fee. The fee and its related interest (9% annually) are included in expense to affiliates in the consolidated statements of earnings. On a quarterly basis, these amounts are paid by Lennar Corporation to Greystone.

During December 2002, Greystone transferred the license agreement to another wholly-owned subsidiary of Lennar Corporation. That subsidiary has continued to grant the Company the right to use the property as applied to the grant from Greystone. The amounts paid quarterly by Lennar Corporation on behalf of the Company are included in due to affiliates in the Company’s consolidated balance sheets, and bear interest at 7.7% annually. The fee and its related interest are included in expense to affiliates in the consolidated statements of earnings. The term of the agreement automatically renews on the anniversary date unless terminated earlier by three months written notice by either party.

Under the agreements discussed above, during 2003, 2002 and 2001, the Company’s fee and related interest were $174.0 million, $150.5 million and $129.2 million, respectively.

During 2002, the Company entered into an agreement with Lennar Associates Management, LLC (“Lessor”), a wholly-owned subsidiary of Lennar Corporation, whereby the Lessor leases certain employees to the Company for its costs incurred, including salaries, plus a fee. Costs incurred are included in selling, general and administrative expenses and the fee is included in expense to affiliates in the consolidated statements of earnings. During 2003 and 2002, the Company’s fee was $0.5 million and $0.4 million, respectively. On a quarterly basis, these amounts are paid by Lennar Corporation to the Lessor. The amounts paid by Lennar Corporation on behalf of the Company are included in due to affiliates in the Company’s consolidated balance sheets. The term of the agreement automatically renews on the anniversary date unless terminated earlier by three months written notice by either party.

During January 2003, Lennar Family of Builders, LP (“LFB”), a wholly-owned subsidiary of the Company, entered into a contract with certain affiliates of Lennar Corporation whereby LFB will construct homes on behalf of the affiliates for a fee. Unpaid fees bear no interest. The construction fees are included in revenues from affiliates in the consolidated statement of earnings in fiscal 2003. During 2003, LFB’s construction fee revenue was $52.5 million. On a quarterly basis, these amounts are paid by Lennar Corporation to LFB. The term of the agreement automatically renews on the anniversary date unless terminated earlier by three months written notice by either party.

During 2003 and 2002, Lennar Corporation and its subsidiaries also advanced funds to the Company which had no stated repayment terms. At November 30, 2003 and 2002, the Company’s aggregate payable to affiliates was $441.3 million and $535.2 million, respectively.

7. CONSOLIDATION OF VARIABLE INTEREST ENTITIES

In January 2003, the FASB issued FIN 46, as further clarified and amended by the FASB’s issuance of a revision to FIN 46 in December 2003, which requires the consolidation of entities in which an enterprise absorbs a majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual or other financial interests in the entity. Prior to the issuance of FIN 46, entities were generally consolidated by an enterprise when

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it had a controlling financial interest through ownership of a majority voting interest in the entity. FIN 46 applied immediately to variable interests created after January 31, 2003, and with respect to variable interests created before February 1, 2003, FIN 46 will apply in the Company’s second quarter ending May 31, 2004, as deferred by the FASB in December 2003. Although the Company does not believe the full adoption of FIN 46 will have a material impact on net earnings, the Company cannot make any definitive determination until it completes its evaluation.

Partnerships

At November 30, 2003, the Company had investments in and advances to partnerships established to acquire and develop land for sale to the Company in connection with its homebuilding operations or for sale to third parties. The Company evaluated its partnership agreements entered into subsequent to January 31, 2003 under FIN 46. The Company determined that it is the primary beneficiary of one partnership that was created after January 31, 2003, and, accordingly, included the accounts of that partnership in the accompanying consolidated financial statements. The Company did not consolidate any other partnerships created after January 31, 2003 as the Company determined it was not the primary beneficiary, as defined under FIN 46. The Company is in the process of evaluating the remainder of its investments in unconsolidated partnerships that may be deemed variable interest entities under the provisions of FIN 46. At November 30, 2003, the Company’s estimated maximum exposure to loss with regard to unconsolidated partnerships was its recorded investment in these partnerships totaling $154.4 million in addition to the exposure under the guarantees discussed in Note 3.

Option contracts

The Company evaluated its option contracts for land entered into subsequent to January 31, 2003 and determined it is the primary beneficiary of certain of these option contracts. Although the Company does not have legal title to the optioned land, under FIN 46, the Company, as the primary beneficiary, is required to consolidate the land under option at fair value (the exercise price). The effect of the consolidation was an increase of $7.5 million to inventories with a corresponding increase to liabilities related to consolidated inventory not owned in the accompanying consolidated balance sheet as of November 30, 2003. At November 30, 2003, the total fair value of the inventory consolidated under FIN 46 was $7.5 million. The Company is in the process of evaluating the remainder of its option contracts that may be deemed issued by variable interest entities under the provisions of FIN 46. At November 30, 2003, the Company had non-refundable option deposits and/or letters of credit related to options with estimated aggregate exercise prices totaling approximately $1 billion.

8. COMMITMENTS AND CONTINGENT LIABILITIES

The Company and certain subsidiaries are party to various claims, legal actions and complaints arising in the ordinary course of business. In the opinion of management, the disposition of these matters will not have a material adverse effect on the financial condition, results of operations or cash flows of the Company.

The Company is subject to the usual obligations associated with entering into contracts (including option contracts) for the purchase, development and sale of real estate, which it does in the routine conduct of its business. Option contracts for the purchase of land permit the Company to defer acquiring portions of properties owned by third parties and certain unconsolidated partnerships until the Company is ready to build homes on them. The use of option contracts allows the Company to reduce the financial risk of adverse market conditions associated with long-term land holdings. At

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November 30, 2003, the Company had $45.1 million of non-refundable option deposits and advanced costs on real estate, which are included in inventories in the consolidated balance sheet.

The Company has entered into agreements to lease certain office facilities and equipment under operating leases. Future minimum payments under the noncancelable leases are as follows: 2004 – $8.2 million; 2005 – $5.5 million; 2006 – $4.4 million; 2007 – $3.5 million; 2008 – $2.8 million and thereafter – $6.2 million. Rental expense for the years ended November 30, 2003, 2002 and 2001 was $8.4 million, $9.2 million and $9.0 million, respectively.

The Company is committed, under various letters of credit, to perform certain development and construction activities and provide certain guarantees in the normal course of business. Outstanding letters of credit under these arrangements totaled $214.2 million at November 30, 2003. The Company also had outstanding performance and surety bonds with estimated costs to complete of $367.2 million related principally to its obligations for site improvements at various projects at November 30, 2003. The Company does not believe that draws upon these bonds, if any, will have a material effect on the Company’s financial condition, results of operations or cash flows.

The Company has guaranteed obligations of Lennar Corporation with regard to certain issues of its outstanding debt, and the stock of the Company has been pledged as collateral for Lennar Corporation’s obligations with regard to that debt. The Company knows of no event of default which would require it to satisfy these guarantees and, therefore, the fair value of these contingent liabilities is considered immaterial.

*  *  *  *  *  *

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INDEPENDENT AUDITORS’ REPORT

To the Board of Directors of

Lennar Southwest Holding Corp.:

We have audited the accompanying consolidated balance sheets of Lennar Southwest Holding Corp. and subsidiaries (the “Company”), a wholly-owned subsidiary of Lennar Homes, Inc., as of November 30, 2003 and 2002 and the related consolidated statements of earnings, stockholder’s equity and cash flows for each of the three years in the period ended November 30, 2003. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of November 30, 2003 and 2002, and the results of its operations and its cash flows for each of the three years in the period ended November 30, 2003, in conformity with accounting principles generally accepted in the United States of America.

/s/    DELOITTE & TOUCHE LLP        

Certified Public Accountants

Miami, Florida

February 27, 2004

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LENNAR SOUTHWEST HOLDING CORP. AND SUBSIDIARIES

(A Wholly-Owned Subsidiary of Lennar Homes, Inc.)

CONSOLIDATED BALANCE SHEETS

NOVEMBER 30, 2003 AND 2002 (Dollars in thousands, except par value)

	2003		2002
ASSETS
Cash	$	5,932	$	34,445
Inventories		444,528		445,734
Investments in unconsolidated partnerships		23,280		15,279
Other assets		43,410		36,366
Total assets	$	517,150	$	531,824
LIABILITIES AND STOCKHOLDER’S EQUITY
LIABILITIES:
Accounts payable and other liabilities	$	52,198	$	45,640
Liabilities related to consolidated inventory not owned		7,473		—
Mortgage notes payable		1,633		—
Due to affiliates		362,547		394,287
Total liabilities		423,851		439,927
STOCKHOLDER’S EQUITY:
Common stock, $1 par value; 5,000 shares authorized, issued and outstanding		5		5
Additional paid-in capital		9,296		9,296
Retained earnings		83,998		82,596
Total stockholder’s equity		93,299		91,897
Total liabilities and stockholder’s equity	$	517,150	$	531,824

See accompanying notes to consolidated financial statements.

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LENNAR SOUTHWEST HOLDING CORP. AND SUBSIDIARIES

(A Wholly-Owned Subsidiary of Lennar Homes, Inc.)

CONSOLIDATED STATEMENTS OF EARNINGS

YEARS ENDED NOVEMBER 30, 2003, 2002 AND 2001 (Dollars in thousands)

	2003		2002		2001
REVENUES:
Sales of homes	$	1,184,148	$	1,089,770	$	1,013,847
Sales of land		42,047		24,484		15,692
Total revenues		1,226,195		1,114,254		1,029,539
COSTS AND EXPENSES:
Cost of homes sold		955,149		876,238		805,194
Cost of land sold		37,655		20,691		14,830
Selling, general and administrative		134,074		118,684		109,215
Licensing expense to affiliate		67,080		56,289		43,731
Minority interest		41,735		42,049		42,697
Total costs and expenses		1,235,693		1,113,951		1,015,667
Equity in earnings from unconsolidated partnerships		1,385		2,083		4,688
Management fees and other income, net		10,365		15,264		14,840
EARNINGS BEFORE PROVISION FOR INCOME TAXES		2,252		17,650		33,400
PROVISION FOR INCOME TAXES		850		6,663		12,859
NET EARNINGS	$	1,402	$	10,987	$	20,541

See accompanying notes to consolidated financial statements.

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LENNAR SOUTHWEST HOLDING CORP. AND SUBSIDIARIES

(A Wholly-Owned Subsidiary of Lennar Homes, Inc.)

CONSOLIDATED STATEMENTS OF STOCKHOLDER’S EQUITY

YEARS ENDED NOVEMBER 30, 2003, 2002 AND 2001 (Dollars in thousands)

	Common Stock		Additional Paid-in Capital		Retained Earnings		Total
Balance, November 30, 2000	$	5	$	9,296	$	51,068	$	60,369
2001 net earnings		—		—		20,541		20,541
Balance, November 30, 2001		5		9,296		71,609		80,910
2002 net earnings		—		—		10,987		10,987
Balance, November 30, 2002		5		9,296		82,596		91,897
2003 net earnings		—		—		1,402		1,402
Balance, November 30, 2003	$	5	$	9,296	$	83,998	$	93,299

See accompanying notes to consolidated financial statements.

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LENNAR SOUTHWEST HOLDING CORP. AND SUBSIDIARIES

(A Wholly-Owned Subsidiary of Lennar Homes, Inc.)

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED NOVEMBER 30, 2003, 2002 AND 2001 (Dollars in thousands)

	2003			2002			2001
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings	$	1,402		$	10,987		$	20,541
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
Depreciation and amortization		2,073			1,895			1,934
Equity in earnings from unconsolidated partnerships		(1,385	)		(2,083	)		(4,688	)
Deferred income tax provision (benefit)		87			2,265			(1,908	)
Changes in assets and liabilities:
(Increase) decrease in inventories		8,500			(48,538	)		(42,936	)
Increase in other assets		(7,392	)		(6,573	)		(8,516	)
Increase (decrease) in accounts payable and other liabilities		6,558			(7,403	)		15,338
Net cash provided by (used in) operating activities		9,843			(49,450	)		(20,235	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in investments in unconsolidated partnerships, net		(6,616	)		(965	)		(980	)
Net cash used in investing activities		(6,616	)		(965	)		(980	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on borrowing		—			—			(1,061	)
Increase (decrease) in amounts due to affiliates		(31,740	)		41,481			34,325
Net cash provided by (used in) financing activities		(31,740	)		41,481			33,264
NET INCREASE (DECREASE) IN CASH		(28,513	)		(8,934	)		12,049
CASH AT BEGINNING OF YEAR		34,445			43,379			31,330
CASH AT END OF YEAR	$	5,932		$	34,445		$	43,379
See Note 1 for supplemental disclosures of cash flow information related to interest and income taxes paid.
Supplemental disclosures of non-cash investing and financing activities:
Consolidated inventory not owned	$	7,473		$	—		$	—
Purchases of inventory financed by sellers	$	1,633		$	—		$	—

See accompanying notes to consolidated financial statements.

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LENNAR SOUTHWEST HOLDING CORP. AND SUBSIDIARIES

(A Wholly-Owned Subsidiary of Lennar Homes, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED NOVEMBER 30, 2003, 2002 AND 2001

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Consolidation—The accompanying consolidated financial statements include the accounts of Lennar Southwest Holding Corp. and all subsidiaries, partnerships and other entities (the “Company”) in which the Company has a controlling interest and variable interest entities (“VIEs”) created after January 31, 2003 in which the Company is deemed the primary beneficiary (see Note 6). The Company’s investments in unconsolidated partnerships in which a significant, but less than controlling, interest is held and VIEs created after January 31, 2003 in which the Company is not deemed to be the primary beneficiary, are accounted for by the equity method. All significant intercompany transactions and balances have been eliminated in consolidation. The Company is a wholly-owned subsidiary of Lennar Homes, Inc. which is a wholly-owned subsidiary of Lennar Corporation.

During 2001, U.S. Home Corporation, a wholly-owned subsidiary of Lennar Corporation, made a tax-free contribution of real and personal property and equity interests of its, and certain of its subsidiaries, homebuilding business within the State of Texas (the “Texas Operations”), to Lennar Homes of Texas Land & Construction, Ltd. (the “Texas Partnership”), a majority-owned subsidiary of Lennar Southwest Holding Corp., in exchange for an approximate 40% limited partners’ interest in the Texas Partnership.

The transaction was accounted for as a reorganization of entities under common control, which is similar to the pooling of interests method of accounting for business combinations and, accordingly, all prior period consolidated financial statements have been restated to consolidate the carrying values of the net assets and historical operations of the Texas Operations as if this transaction occurred on May 3, 2000, the date of Lennar Corporation’s acquisition of U.S. Home Corporation. At the date of the acquisition, the Texas Operations had assets of $132.5 million and liabilities of $126.5 million. Minority interest is classified in due to affiliates in the consolidated balance sheets.

The Company operates in one operating and reporting segment—homebuilding. Homebuilding operations primarily include the sale and construction of single-family attached and detached homes, as well as the purchase, development and sale of residential land directly and through the Company’s unconsolidated partnerships.

Use of Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Revenue Recognition—Revenues from sales of homes are recognized when the sales are closed and title passes to the new homeowners. Revenues from sales of other real estate including the sales of land are recognized when a significant down payment is received, the earnings process is complete and the collection of any remaining receivables is reasonably assured.

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Cash—The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. Cash as of November 30, 2003 and 2002 included $5.8 million and $10.0 million, respectively, of cash primarily held in escrow for approximately three days.

Inventories—Inventories are stated at cost unless the inventory within a community is determined to be impaired, in which case the impaired inventory is written down to fair value. Inventory costs include land, land development and home construction costs, real estate taxes and interest related to development and construction. The Company evaluates long-lived assets for impairment based on the undiscounted future cash flows of the assets. Write-downs of inventories deemed to be impaired are recorded as adjustments to the cost basis of the respective inventories. No impairment was recorded during the years ended November 30, 2003, 2002 or 2001.

Construction overhead and selling expenses are expensed as incurred. Homes held for sale are classified as inventories until delivered. Land, land development, amenities and other costs are accumulated by specific area and allocated to homes within the respective areas.

Due to Affiliates—Due to affiliates includes the Company’s transactions in the normal course of business with Lennar Corporation and/or affiliated companies as well as minority interest.

Interest and Real Estate Taxes—Interest and real estate taxes attributable to land and homes are capitalized as inventories while they are being actively developed. Interest related to homebuilding and land, including interest costs relieved from inventories, is included in cost of homes sold and cost of land sold. Interest costs result from the interest related to the Company’s outstanding debt as disclosed in the consolidated balance sheets, as well as debt incurred by Lennar Corporation. Lennar Corporation allocates a portion of its interest to the Company based on the Company’s inventory levels during the year.

Operating Equipment—Operating equipment is recorded at cost. The assets are depreciated over their estimated useful lives using the straight-line method. The estimated useful life is 2 to 10 years. At the time operating equipment is disposed of, the asset and related accumulated depreciation are removed from the accounts and any resulting gain or loss is credited or charged to earnings. At November 30, 2003 and 2002, operating equipment of $0.3 million and $0.8 million, respectively, was included in other assets in the consolidated balance sheets.

Income Taxes—The Company files a consolidated federal income tax return with Lennar Corporation. Income taxes have been provided at the Company level as if the Company filed an income tax return on a stand-alone basis. Current taxes due are recorded as a payable to Lennar Corporation, and the deferred portion is recorded as deferred taxes. Income taxes are accounted for in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 109, Accounting for Income Taxes. Under SFAS No. 109, deferred tax assets and liabilities are determined based on differences between financial reporting carrying values and tax bases of assets and liabilities, and are measured by using enacted tax rates expected to apply to taxable income in the years in which those differences are expected to reverse.

Warranty Costs—Warranty and similar reserves for homes are established at an amount estimated to be adequate to cover potential costs for materials and labor with regard to warranty-type claims to be incurred subsequent to the delivery of a home. Reserves are determined based on historical data and trends with respect to similar product types and geographical areas. Warranty reserves are included in accounts payable and other liabilities in the consolidated balance sheets. The following table sets forth the activity in the Company’s warranty reserve for the year ended November 30, 2003:

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(Dollars in thousands)
Warranty reserve, November 30, 2002	$	5,407
Provision		16,210
Payments		(11,491	)
Warranty reserve, November 30, 2003	$	10,126

Self-Insurance—Certain insurable risks such as general liability, medical and workers’ compensation are self-insured by Lennar Corporation up to certain limits. Lennar Corporation allocates a portion of its self-insurance accrual to the Company based on various factors.

Fair Value of Financial Instruments—The carrying amounts of cash and accounts payable approximate fair value due to the short-term nature of these financial instruments. Since the mortgage notes payable have fixed interest rates that approximate market indices, the carrying amounts approximate fair value.

New Accounting Pronouncements—In October 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 provides accounting guidance for financial accounting and reporting for impairment or disposal of long-lived assets. SFAS No. 144 supersedes SFAS No. 121. The implementation of SFAS No. 144 did not have a material impact on the Company’s financial condition, results of operations or cash flows.

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. This statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under SFAS No. 133. This statement was effective for contracts entered into or modified after June 30, 2003. The implementation of SFAS No. 149 did not have a material impact on the Company’s financial condition, results of operations or cash flows.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. This statement establishes standards for the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. Certain provisions of this statement were effective for financial instruments entered into or modified after May 31, 2003 and otherwise was effective at the beginning of the first interim period beginning after June 15, 2003. In October 2003, the FASB deferred indefinitely certain provisions of this statement pertaining to non-controlling interests in limited life entities. The Company does not believe that the implementation of SFAS No. 150 had, or will have, a material impact on the Company’s financial position, results of operations or cash flows.

In November 2002, the FASB issued Interpretation No. 45 (“FIN 45”), Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. In accordance with the provisions of FIN 45, the Company adopted the initial recognition and measurement provisions on a prospective basis with regard to guarantees issued after December 31, 2002. The implementation of FIN 45 did not have a material impact on the Company’s financial condition, results of operations or cash flows.

In January 2003, the FASB issued Interpretation No. 46 (“FIN 46”), Consolidation of Variable Interest Entities, as further clarified and amended by the FASB’s issuance of a revision to FIN 46 in December

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2003. FIN 46 requires the consolidation of entities in which an enterprise absorbs a majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual or other financial interests in the entity. Prior to the issuance of FIN 46, entities were generally consolidated by an enterprise when it had a controlling financial interest through ownership of a majority voting interest in the entity. FIN 46 applied immediately to variable interests created after January 31, 2003, and with respect to variable interests created before February 1, 2003, FIN 46 will apply in the Company’s second quarter ending May 31, 2004, as deferred by the FASB in December 2003. Although the Company does not believe the full adoption of FIN 46 will have a material impact on net earnings, the Company cannot make any definitive determination until it completes its evaluation (see Note 6).

Reclassifications—Certain prior year amounts in the consolidated financial statements have been reclassified to conform with the 2003 presentation. These reclassifications had no impact on reported net earnings. In particular, operating results reflect reclassifications that have been made to interest expense (now included in cost of homes sold and cost of land sold), equity in earnings from unconsolidated partnerships and management fees and other income, net.

2. INVESTMENTS IN UNCONSOLIDATED PARTNERSHIPS

Summarized condensed financial information on a combined 100% basis related to unconsolidated partnerships and other similar entities (collectively the “Partnerships”) in which the Company invests that are accounted for by the equity method was as follows:

	November 30,
(Dollars in thousands)	2003		2002
Assets:
Cash	$	2,719	$	3,130
Inventories		140,478		83,524
Other assets		863		4,823
	$	144,060	$	91,477
Liabilities and equity:
Accounts payable and other liabilities	$	6,342	$	3,821
Notes and mortgages payable		98,093		59,994
Equity		39,625		27,662
	$	144,060	$	91,477

	Years Ended November 30,
(Dollars in thousands)	2003		2002		2001
Revenues	$	48,783	$	39,627	$	26,568
Costs and expenses		41,828		31,092		18,147
Net earnings of unconsolidated partnerships	$	6,955	$	8,535	$	8,421

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At November 30, 2003, the Company’s equity interest in these Partnerships did not exceed 50%. The Company’s partners generally are unrelated homebuilders, land sellers or other real estate entities. The Partnerships follow accounting principles generally accepted in the United States of America. The Company shares in the profits and losses of these Partnerships generally in accordance with its ownership interests. In many instances, the Company is appointed as the day-to-day manager of the Partnerships and receives fees for performing this function. During 2003, 2002 and 2001, the Company received management fees and reimbursement of expenses from the Partnerships totaling $0.5 million, $0.7 million, and $0.5 million, respectively. In determining its share of the Partnerships’ net earnings, the Company does not include in its income its pro rata share of Partnership earnings resulting from land sales to its homebuilding divisions. Instead, the Company accounts for those earnings as a reduction of the cost of purchasing the land from the Partnerships. This in effect defers recognition of the Company’s share of the Partnership earnings relating to these sales until a home is delivered and title passes to a homebuyer.

The Company and/or its partners sometimes obtain options or enter into other arrangements under which the Company can purchase portions of the land held by the Partnerships. Option prices are generally negotiated prices that approximate fair value when options are purchased. During 2003, 2002 and 2001, $28.2 million, $20.8 million, and $11.5 million, respectively, of the Partnerships’ revenues were from land sales to the Company or its affiliates.

In some instances, the Company and/or its partners have provided varying levels of guarantees of debt of unconsolidated partnerships. At November 30, 2003, the Company had recourse guarantees of $5.8 million of debt of unconsolidated partnerships. When the Company and/or its partners provide a guarantee, the partnership generally receives more favorable terms from its lenders than would otherwise be available to it. There were no assets held as collateral that, upon the occurrence of any triggering event or condition under a guarantee, the Company could obtain and liquidate to recover all or a portion of the amounts paid under a guarantee.

3. MORTGAGE NOTES PAYABLE

At November 30, 2003, the Company had mortgage notes on land bearing interest at 6.0%. The notes are due in fiscal 2004 and are collateralized by land. At November 30, 2003, the carrying value of the mortgage notes was $1.6 million.

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4. INCOME TAXES

The provision (benefit) for income taxes consisted of the following:

	Years Ended November 30,
(Dollars in thousands)	2003		2002		2001
Current:
Federal	$	675	$	3,859	$	12,909
State		88		539		1,858
		763		4,398		14,767
Deferred:
Federal		77		2,011		(1,813	)
State		10		254		(95	)
		87		2,265		(1,908	)
	$	850	$	6,663	$	12,859

The actual income tax expense differs from the “expected” tax expense for the year (computed by applying the U.S. federal corporate rate of 35% to earnings before provision for income taxes) primarily due to the amount of state income taxes, net of the related federal tax benefit.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of the assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The tax effects of significant temporary differences that give rise to the net deferred tax asset are as follows:

	November 30,
(Dollars in thousands)	2003		2002
Deferred tax assets:
Capitalized expenses	$	7,587	$	8,315
Total deferred tax assets		7,587		8,315
Deferred tax liabilities:
Capitalized expenses		4,259		4,900
Other		1,142		1,142
Total deferred tax liabilities		5,401		6,042
Net deferred tax asset	$	2,186	$	2,273

The net deferred tax asset is included in other assets in the consolidated balance sheets.

5. RELATED PARTY TRANSACTIONS

Lennar Corporation has an agreement with Greystone Homes of Nevada, Inc. (“Greystone”), a wholly-owned subsidiary of Lennar Corporation, whereby Greystone has granted to the Company the right to

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use certain property for a fee. The fee and its related interest (9% annually) are included in licensing expense to affiliate in the consolidated statements of earnings. On a quarterly basis, these amounts are paid by Lennar Corporation to Greystone.

During December 2002, Greystone transferred the license agreement to another wholly-owned subsidiary of Lennar Corporation. That subsidiary has continued to grant the Company the right to use the property as applied to the grant from Greystone. The amounts paid quarterly by Lennar Corporation on behalf of the Company are included in due to affiliates in the Company’s consolidated balance sheets, and bear interest at 7.7% annually. The fee and its related interest are included in licensing expense to affiliate in the consolidated statements of earnings. The term of the agreement automatically renews on the anniversary date unless terminated earlier by three months written notice by either party.

During 2003 and 2002, Lennar Corporation and its subsidiaries also advanced funds to the Company which had no stated repayment terms. At November 30, 2003 and 2002, the Company’s aggregate payable to affiliates was $362.5 million and $394.3 million, respectively.

6. CONSOLIDATION OF VARIABLE INTEREST ENTITIES

In January 2003, the FASB issued FIN 46, as further clarified and amended by the FASB’s issuance of a revision to FIN 46 in December 2003, which requires the consolidation of entities in which an enterprise absorbs a majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual or other financial interests in the entity. Prior to the issuance of FIN 46, entities were generally consolidated by an enterprise when it had a controlling financial interest through ownership of a majority voting interest in the entity. FIN 46 applied immediately to variable interests created after January 31, 2003, and with respect to variable interests created before February 1, 2003, FIN 46 will apply in the Company’s second quarter ending May 31, 2004, as deferred by the FASB in December 2003. Although the Company does not believe the full adoption of FIN 46 will have a material impact on net earnings, the Company cannot make any definitive determination until it completes its evaluation.

Partnerships

At November 30, 2003, the Company had investments in and advances to partnerships established to acquire and develop land for sale to the Company in connection with its homebuilding operations or for sale to third parties. The Company evaluated its partnership agreements entered into subsequent to January 31, 2003 under FIN 46. The Company did not consolidate any partnerships created after January 31, 2003 as the Company determined it was not the primary beneficiary, as defined under FIN 46. The Company is in the process of evaluating the remainder of its investments in unconsolidated partnerships that may be deemed variable interest entities under the provisions of FIN 46. At November 30, 2003, the Company’s estimated maximum exposure to loss with regard to unconsolidated partnerships was its recorded investment in these partnerships totaling $23.3 million in addition to the exposure under the guarantees discussed in Note 2.

Option contracts

The Company evaluated its option contracts for land entered into subsequent to January 31, 2003 and determined it is the primary beneficiary of certain of these option contracts. Although the Company does not have legal title to the optioned land, under FIN 46, the Company, as the primary beneficiary, is required to consolidate the land under option at fair value (the exercise price). The effect of the

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consolidation was an increase of $7.5 million to inventories with a corresponding increase to liabilities related to consolidated inventory not owned in the accompanying consolidated balance sheet as of November 30, 2003. At November 30, 2003, the total fair value of the inventory consolidated under FIN 46 was $7.5 million. The Company is in the process of evaluating the remainder of its option contracts that may be deemed issued by variable interest entities under the provisions of FIN 46. At November 30, 2003, the Company had non-refundable option deposits and/or letters of credit related to options with estimated aggregate exercise prices totaling approximately $104.1 million.

7. COMMITMENTS AND CONTINGENT LIABILITIES

The Company and certain subsidiaries are party to various claims, legal actions and complaints arising in the ordinary course of business. In the opinion of management, the disposition of these matters will not have a material adverse effect on the financial condition, results of operations or cash flows of the Company.

The Company is subject to the usual obligations associated with entering into contracts (including option contracts) for the purchase, development and sale of real estate, which it does in the routine conduct of its business. Option contracts for the purchase of land permit the Company to defer acquiring portions of properties owned by third parties and certain unconsolidated partnerships until the Company is ready to build homes on them. The use of option contracts allows the Company to reduce the financial risk of adverse market conditions associated with long-term land holdings. At November 30, 2003, the Company had $8.3 million of non-refundable option deposits and advanced costs on real estate, which are included in inventories in the consolidated balance sheet.

The Company has entered into agreements to lease certain office facilities and equipment under operating leases. Future minimum payments under the noncancelable leases are as follows: 2004—$3.1 million; 2005—$2.6 million; 2006—$2.2 million; 2007—$2.0 million; 2008—$1.6 million and thereafter—$4.7 million. Rental expense for the years ended November 30, 2003, 2002 and 2001 was $3.2 million, $2.6 million and $2.0 million, respectively.

The Company is committed, under various letters of credit, to perform certain development and construction activities and provide certain guarantees in the normal course of business. Outstanding letters of credit under these arrangements totaled $82.4 million at November 30, 2003. The Company also had outstanding performance and surety bonds with estimated costs to complete of $19.9 million related principally to its obligations for site improvements at various projects at November 30, 2003. The Company does not believe that draws upon these bonds, if any, will have a material effect on the Company’s financial condition, results of operations or cash flows.

The Company has guaranteed obligations of Lennar Corporation with regard to certain issues of its outstanding debt, and the stock of the Company has been pledged as collateral for Lennar Corporation’s obligations with regard to that debt. The Company knows of no event of default which would require it to satisfy these guarantees and, therefore, the fair value of these contingent liabilities is considered immaterial.

* * * * * *

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INDEPENDENT AUDITORS’ REPORT

To the Board of Directors of

Lennar Homes of California, Inc.:

We have audited the accompanying consolidated balance sheets of Lennar Homes of California, Inc. and subsidiaries (the “Company”), a wholly-owned subsidiary of Lennar Homes, Inc., as of November 30, 2003 and 2002 and the related consolidated statements of earnings, stockholder’s equity and cash flows for each of the three years in the period ended November 30, 2003. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of November 30, 2003 and 2002, and the results of its operations and its cash flows for each of the three years in the period ended November 30, 2003, in conformity with accounting principles generally accepted in the United States of America.

/s/    DELOITTE & TOUCHE LLP

Certified Public Accountants

Miami, Florida

February 27, 2004

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LENNAR HOMES OF CALIFORNIA, INC. AND SUBSIDIARIES

(A Wholly-Owned Subsidiary of Lennar Homes, Inc.)

CONSOLIDATED BALANCE SHEETS

NOVEMBER 30, 2003 AND 2002 (Dollars in thousands, except par value)

	2003		2002
ASSETS
Cash	$	12,266	$	—
Inventories		187,336		88,714
Investments in unconsolidated partnerships		60,298		57,437
Other assets		3,266		2,248
Total assets	$	263,166	$	148,399
LIABILITIES AND STOCKHOLDER’S EQUITY
LIABILITIES:
Accounts payable and other liabilities	$	63,274	$	37,367
Mortgage notes payable		34,100		1,600
Due to affiliates		30,158		15,201
Total liabilities		127,532		54,168
STOCKHOLDER’S EQUITY:
Common stock, $1 par value; 5,000 shares authorized, issued and outstanding		5		5
Retained earnings		135,629		94,226
Total stockholder’s equity		135,634		94,231
Total liabilities and stockholder’s equity	$	263,166	$	148,399

See accompanying notes to consolidated financial statements.

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LENNAR HOMES OF CALIFORNIA, INC. AND SUBSIDIARIES

(A Wholly-Owned Subsidiary of Lennar Homes, Inc.)

CONSOLIDATED STATEMENTS OF EARNINGS

YEARS ENDED NOVEMBER 30, 2003, 2002 AND 2001 (Dollars in thousands)

	2003		2002		2001
REVENUES:
Sales of homes	$	160,083	$	383,801	$	398,858
Sales of land		31,820		51,577		7,548
Total revenues		191,903		435,378		406,406
COSTS AND EXPENSES:
Cost of homes sold		92,904		300,615		325,095
Cost of land sold		23,751		32,924		9,131
Selling, general and administrative		34,439		46,659		45,135
Expense to affiliates		14,380		22,084		21,114
Total costs and expenses		165,474		402,282		400,475
Equity in earnings from unconsolidated partnerships		39,916		12,826		8,044
Management fees and other income, net		166		6,959		4,821
EARNINGS BEFORE PROVISION FOR INCOME TAXES		66,511		52,881		18,796
PROVISION FOR INCOME TAXES		25,108		19,963		7,236
NET EARNINGS	$	41,403	$	32,918	$	11,560

See accompanying notes to consolidated financial statements.

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LENNAR HOMES OF CALIFORNIA, INC. AND SUBSIDIARIES

(A Wholly-Owned Subsidiary of Lennar Homes, Inc.)

CONSOLIDATED STATEMENTS OF STOCKHOLDER’S EQUITY

YEARS ENDED NOVEMBER 30, 2003, 2002 AND 2001 (Dollars in thousands)

	Common Stock		Retained Earnings		Total
Balance, November 30, 2000	$	5	$	49,748	$	49,753
2001 net earnings		—		11,560		11,560
Balance, November 30, 2001		5		61,308		61,313
2002 net earnings		—		32,918		32,918
Balance, November 30, 2002		5		94,226		94,231
2003 net earnings		—		41,403		41,403
Balance, November 30, 2003	$	5	$	135,629	$	135,634

See accompanying notes to consolidated financial statements.

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LENNAR HOMES OF CALIFORNIA, INC. AND SUBSIDIARIES

(A Wholly-Owned Subsidiary of Lennar Homes, Inc.)

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED NOVEMBER 30, 2003, 2002 AND 2001 (Dollars in thousands)

	2003			2002			2001
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings	$	41,403		$	32,918		$	11,560
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
Depreciation and amortization		1,728			2,855			3,103
Equity in earnings from unconsolidated partnerships		(39,916	)		(12,826	)		(8,044	)
Deferred income tax provision (benefit)		(723	)		2,119			(317	)
Changes in assets and liabilities, net of effect from an acquisition:
(Increase) decrease in inventories		7,440			59,818			(8,886	)
(Increase) decrease in other assets		(439	)		(1,724	)		147
Increase (decrease) in accounts payable and other liabilities		8,414			5,100			(1,635	)
Net cash provided by (used in) operating activities		17,907			88,260			(4,072	)
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in investments in unconsolidated partnerships, net		41,401			29,391			(40,894	)
Net cash provided by (used in) investing activities		41,401			29,391			(40,894	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on borrowings		(1,600	)		(200	)		(200	)
Increase (decrease) in amounts due to affiliates		(45,442	)		(117,451	)		45,166
Net cash provided by (used in) financing activities		(47,042	)		(117,651	)		44,966
NET INCREASE IN CASH		12,266			—			—
CASH AT BEGINNING OF YEAR		—			—			—
CASH AT END OF YEAR	$	12,266		$	—		$	—
See Note 1 for supplemental disclosures of cash flow information related to interest and income taxes paid.
Supplemental disclosures of non-cash investing and financing activities:
Fair value of assets acquired	$	60,257		$	—		$	—

See accompanying notes to consolidated financial statements.

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LENNAR HOMES OF CALIFORNIA, INC. AND SUBSIDIARIES

(A Wholly-Owned Subsidiary of Lennar Homes, Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED NOVEMBER 30, 2003, 2002 and 2001

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Consolidation—The accompanying consolidated financial statements include the accounts of Lennar Homes of California, Inc, a wholly-owned subsidiary of Lennar Homes, Inc., and all subsidiaries, partnerships and other entities (the “Company”) in which the Company has a controlling interest and variable interest entities (“VIEs”) created after January 31, 2003 in which the Company is deemed the primary beneficiary (see Note 7). The Company’s investments in unconsolidated partnerships in which a significant, but less than controlling, interest is held and VIEs created after January 31, 2003 in which the Company is not deemed to be the primary beneficiary, are accounted for by the equity method. All significant intercompany transactions and balances have been eliminated in consolidation.

The Company operates in one operating and reporting segment—homebuilding. Homebuilding operations include the sale and construction of single-family attached and detached homes, as well as the purchase, development and sale of residential land directly and through the Company’s unconsolidated partnerships.

Use of Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Revenue Recognition—Revenues from sales of homes are recognized when the sales are closed and title passes to the new homeowners. Revenues from sales of other real estate, including the sale of land, are recognized when a significant down payment is received, the earnings process is complete and the collection of any remaining receivables is reasonably assured.

Cash—The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents.

Inventories—Inventories are stated at cost unless the inventory within a community is determined to be impaired, in which case the impaired inventory is written down to fair value. Inventory costs include land, land development and home construction costs, real estate taxes and interest related to development and construction. The Company evaluates long-lived assets for impairment based on the undiscounted future cash flows of the assets. Write-downs of inventories deemed to be impaired are recorded as adjustments to the cost basis of the respective inventories. No impairment was recorded during the years ended November 30, 2003, 2002 or 2001.

Construction overhead and selling expenses are expensed as incurred. Homes held for sale are classified as inventories until delivered. Land, land development, amenities and other costs are accumulated by specific area and allocated to homes within the respective areas.

Due to Affiliates—Due to affiliates includes the Company’s transactions in the normal course of business with Lennar Corporation and/or affiliated companies.

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Interest and Real Estate Taxes—Interest and real estate taxes attributable to land and homes are capitalized as inventories while they are being actively developed. Interest related to homebuilding and land, including interest costs relieved from inventories, is included in cost of homes sold and cost of land sold. Interest costs result from the interest related to the Company’s outstanding debt as disclosed in the consolidated balance sheets, as well as debt incurred by Lennar Corporation. Lennar Corporation allocates a portion of its interest to the Company based on the Company’s inventory levels during the year.

Operating Equipment—Operating equipment is recorded at cost. The assets are depreciated over their estimated useful lives using the straight-line method. The estimated useful life is 2 to 10 years. At the time operating equipment is disposed of, the asset and related accumulated depreciation are removed from the accounts and any resulting gain or loss is credited or charged to earnings. At November 30, 2003 and 2002, operating equipment of $0.4 million and $0.2 million, respectively, was included in other assets in the consolidated balance sheets.

Income Taxes—The Company files a consolidated federal income tax return with Lennar Corporation. Income taxes have been provided at the Company level as if the Company filed an income tax return on a stand-alone basis. Current taxes due are recorded as a payable to Lennar Corporation, and the deferred portion is recorded as deferred taxes. Income taxes are accounted for in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 109, Accounting for Income Taxes. Under SFAS No. 109, deferred tax assets and liabilities are determined based on differences between financial reporting carrying values and tax bases of assets and liabilities, and are measured by using enacted tax rates expected to apply to taxable income in the years in which those differences are expected to reverse.

Warranty Costs—Warranty and similar reserves for homes are established at an amount estimated to be adequate to cover potential costs for materials and labor with regard to warranty-type claims to be incurred subsequent to the delivery of a home. Reserves are determined based on historical data and trends with respect to similar product types and geographical areas. Warranty reserves are included in accounts payable and other liabilities in the consolidated balance sheets. The following table sets forth the activity in the Company’s warranty reserve for the year ended November 30, 2003:

(Dollars in thousands)
Warranty reserve, November 30, 2002	$	3,200
Provision		3,509
Payments		(4,644	)
Warranty reserve, November 30, 2003	$	2,065

Self-Insurance—Certain insurable risks such as general liability, medical and workers’ compensation are self-insured by Lennar Corporation up to certain limits. Lennar Corporation allocates a portion of its self-insurance accrual to the Company based on various factors.

Fair Value of Financial Instruments—The carrying amount of cash and accounts payable approximates fair value due to the short-term nature of the financial instrument. Since the mortgage notes payable have fixed interest rates that approximates market indices, the carrying amounts approximate fair value.

New Accounting Pronouncements—In October 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 provides accounting guidance for financial accounting and reporting for impairment or disposal of long-lived assets. SFAS No. 144 supersedes SFAS No. 121. The implementation of SFAS

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No. 144 did not have a material impact on the Company’s financial condition, results of operations or cash flows.

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. This statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under SFAS No. 133. This statement was effective for contracts entered into or modified after June 30, 2003. The implementation of SFAS No. 149 did not have a material impact on the Company’s financial condition, results of operations or cash flows.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. This statement establishes standards for the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. Certain provisions of this statement were effective for financial instruments entered into or modified after May 31, 2003 and otherwise was effective at the beginning of the first interim period beginning after June 15, 2003. In October 2003, the FASB deferred indefinitely certain provisions of this statement pertaining to non-controlling interests in limited life entities. The Company does not believe that the implementation of SFAS No. 150 had, or will have, a material impact on the Company’s financial position, results of operations or cash flows.

In November 2002, the FASB issued Interpretation No. 45 (“FIN 45”), Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. In accordance with the provisions of FIN 45, the Company adopted the initial recognition and measurement provisions on a prospective basis with regard to guarantees issued after December 31, 2002. The implementation of FIN 45 did not have a material impact on the Company’s financial condition, results of operations or cash flows.

In January 2003, the FASB issued Interpretation No. 46 (“FIN 46”), Consolidation of Variable Interest Entities, as further clarified and amended by the FASB’s issuance of a revision to FIN 46 in December 2003. FIN 46 requires the consolidation of entities in which an enterprise absorbs a majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual or other financial interests in the entity. Prior to the issuance of FIN 46, entities were generally consolidated by an enterprise when it had a controlling financial interest through ownership of a majority voting interest in the entity. FIN 46 applied immediately to variable interests created after January 31, 2003, and with respect to variable interests created before February 1, 2003, FIN 46 will apply in the Company’s second quarter ending May 31, 2004, as deferred by the FASB in December 2003. Although the Company does not believe the full adoption of FIN 46 will have a material impact on net earnings, the Company cannot make any definitive determination until it completes its evaluation (see Note 7).

Reclassifications—Certain prior year amounts in the consolidated financial statements have been reclassified to conform with the 2003 presentation. These reclassifications had no impact on reported net earnings. In particular, operating results reflect reclassifications that have been made to interest expense (now included in cost of homes sold and cost of land sold), equity in earnings from unconsolidated partnerships and management fees and other income, net.

2. ACQUISITION

During 2003, the Company acquired the assets of a California homebuilder. Lennar Corporation paid $60.3 million in cash for the acquisition. This amount paid on the Company’s behalf is included in due

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to affiliates in the consolidated balance sheets. The results of operations of the acquired homebuilder are included in the Company’s results of operations since the respective acquisition date. There was no goodwill associated with the acquisition. The Company acquired assets (primarily inventories) with a fair value of $60.3 million and assumed no liabilities. The pro forma effect of this acquisition on the consolidated results of operations is not presented as the effect is not considered material.

3. INVESTMENTS IN UNCONSOLIDATED PARTNERSHIPS

Summarized condensed financial information on a combined 100% basis related to unconsolidated partnerships and other similar entities (collectively the “Partnerships”) in which the Company invests that are accounted for by the equity method was as follows:

	November 30,
(Dollars in thousands)	2003		2002
Assets:
Cash	$	152,095	$	23,196
Inventories		660,767		397,585
Other assets		129,830		25,966
Total assets	$	942,692	$	446,747
Liabilities and equity:
Accounts payable and other liabilities	$	126,692	$	48,925
Notes and mortgages payable		406,657		220,013
Equity		409,343		177,809
Total liabilities and equity	$	942,692	$	446,747

	Years Ended November 30,
(Dollars in thousands)	2003		2002		2001
Revenues	$	608,510	$	383,589	$	403,255
Costs and expenses		443,059		329,101		345,493
Net earnings of unconsolidated partnerships	$	165,451	$	54,488	$	57,762

At November 30, 2003, the Company’s equity interest in these Partnerships did not exceed 50%. The Company’s partners generally are unrelated homebuilders, land sellers or other real estate entities. The Partnerships follow accounting principles generally accepted in the United States of America. The Company shares in the profits and losses of these Partnerships generally in accordance with its ownership interests. In many instances, the Company is appointed as the day-to-day manager of the Partnerships and receives fees for performing this function. During 2003, 2002 and 2001, the Company received management fees and reimbursement of expenses from the Partnerships totaling $7.5 million, $4.8 million and $3.8 million, respectively. In determining its share of the Partnerships’ net earnings, the

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Company does not include in its income its pro rata share of Partnership earnings resulting from land sales to the Company. Instead, the Company accounts for those earnings as a reduction of the cost of purchasing the land from the Partnerships. This in effect defers recognition of the Company’s share of the Partnership earnings relating to these sales until a home is delivered and title passes to a homebuyer.

The Company and/or its partners sometimes obtain options or enter into other arrangements under which the Company can purchase portions of the land held by the Partnerships. Option prices are generally negotiated prices that approximate fair value when options are purchased. During 2003, 2002 and 2001, $165.8 million, $221.5 million and $72.1 million, respectively, of the Partnerships’ revenues were from land sales to the Company or its affiliates.

In some instances, the Company and/or its partners have provided varying levels of guarantees on certain Partnership debt. At November 30, 2003, the Company had recourse guarantees of $16.6 million and limited maintenance guarantees of $61.8 million of Partnership debt. When the Company and/or its partners provide a guarantee, the partnership generally receives more favorable terms from its lenders than would otherwise be available to it. The limited maintenance guarantees only apply if a partnership defaults on its loan arrangements and the carrying value of the collateral (generally land and improvements) is less than a specified percentage of the loan balance. If the Company is required to make a payment under a limited maintenance guarantee to bring the carrying value of the collateral above the specified percentage of the loan balance, the payment would constitute a capital contribution or loan to the unconsolidated partnership and increase the Company’s share of any funds the unconsolidated partnership distributes. There were no assets held as collateral that, upon the occurrence of any triggering event or condition under a guarantee, the Company could obtain and liquidate to recover all or a portion of the amounts paid under a guarantee.

Investment in LandSource Communities Development LLC

In November 2003, the Company contributed its 50% ownership interest in certain of its jointly-owned unconsolidated partnerships that had significant assets with LNR Property Corporation, to a new limited liability company named LandSource Communities Development LLC (“LandSource”), in exchange for a 13% interest in LandSource. The assets and liabilities of LandSource at November 30, 2003 were $347.5 million and $122.3 million, respectively. The Company’s investment in LandSource was $30.3 million at November 30, 2003.

4. MORTGAGE NOTES PAYABLE

At November 30, 2003, the Company had mortgage notes on land bearing interest at fixed interest rates ranging from 3.0% to 5.0%. The weighted average interest rate of the notes was 4.4% at November 30, 2003. The notes are due in fiscal 2005 and are collateralized by land. At November 30, 2003 and 2002, the outstanding balance of the notes was $34.1 million and $1.6 million, respectively.

The minimum aggregate principal maturities of mortgage notes payable during the five years subsequent to November 30, 2003 are as follows: 2005 – $34.1 million.

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5. INCOME TAXES

The provision (benefit) for income taxes consisted of the following:

	Years Ended November 30,
(Dollars in thousands)	2003			2002		2001
Current:
Federal	$	22,856		$	15,655	$	6,603
State		2,975			2,189		950
		25,831			17,844		7,553
Deferred:
Federal		(642	)		1,881		(301	)
State		(81	)		238		(16	)
		(723	)		2,119		(317	)
	$	25,108		$	19,963	$	7,236

The actual income tax expense differs from the “expected” tax expense for the year (computed by applying the U.S. federal corporate rate of 35% to earnings before provision for income taxes) primarily due to the amount of state income taxes, net of the related federal tax benefit.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of the assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The tax effects of significant temporary differences that give rise to the net deferred tax asset (liability) are as follows:

	November 30,
(Dollars in thousands)	2003		2002
Deferred tax assets:
Capitalized expenses	$	3,197	$	1,655
Total deferred tax assets		3,197		1,655
Deferred tax liabilities:
Capitalized expenses		1,794		975
Other		1,287		1,287
Total deferred tax liabilities		3,081		2,262
Net deferred tax asset (liability)	$	116	$	(607	)

The net deferred tax asset is included in other assets in the consolidated balance sheet at November 30, 2003. The net deferred tax liability is included in accounts payable and other liabilities in the consolidated balance sheet at November 30, 2002.

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6. RELATED PARTY TRANSACTIONS

Lennar Corporation has an agreement with Greystone Homes of Nevada, Inc. (“Greystone”), a wholly-owned subsidiary of Lennar Corporation, whereby Greystone has granted to the Company the right to use certain property for a fee. The fee and its related interest (9% annually) are included in expense to affiliates in the consolidated statements of earnings. On a quarterly basis, these amounts are paid by Lennar Corporation to Greystone.

During December 2002, Greystone transferred the license agreement to another wholly-owned subsidiary of Lennar Corporation. That subsidiary has continued to grant the Company the right to use the property as applied to the grant from Greystone. The amounts paid quarterly by Lennar Corporation on behalf of the Company are included in due to affiliates in the Company’s consolidated balance sheets, and bear interest at 7.7% annually. The fee and its related interest are included in expense to affiliates in the consolidated statements of earnings. The term of the agreement automatically renews on the anniversary date unless terminated earlier by three months written notice by either party.

Under the agreements discussed above, during 2003, 2002 and 2001, the Company’s fee and related interest were $14.1 million, $21.9 million and $21.1 million, respectively.

During 2002, the Company entered into an agreement with Lennar Associates Management, LLC (“Lessor”), a wholly-owned subsidiary of Lennar Corporation, whereby the Lessor leases certain employees to the Company for its costs incurred, including salaries, plus a fee. Costs incurred are included in selling, general and administrative expenses and the fee is included in expense to affiliates in the consolidated statements of earnings. During 2003 and 2002, the Company’s fee was $0.3 million and $0.2 million, respectively. On a quarterly basis, these amounts are paid by Lennar Corporation to the Lessor. The amounts paid by Lennar Corporation on behalf of the Company are included in due to affiliates in the Company’s consolidated balance sheets. The term of the agreement automatically renews on the anniversary date unless terminated earlier by three months written notice by either party.

During 2003 and 2002, Lennar Corporation and its subsidiaries also advanced funds to the Company which had no stated repayment terms. At November 30, 2003 and 2002, the Company’s aggregate payable to affiliates was $30.2 million and $15.2 million, respectively.

7. CONSOLIDATION OF VARIABLE INTEREST ENTITIES

In January 2003, the FASB issued FIN 46, as further clarified and amended by the FASB’s issuance of a revision to FIN 46 in December 2003, which requires the consolidation of entities in which an enterprise absorbs a majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual or other financial interests in the entity. Prior to the issuance of FIN 46, entities were generally consolidated by an enterprise when it had a controlling financial interest through ownership of a majority voting interest in the entity. FIN 46 applied immediately to variable interests created after January 31, 2003, and with respect to variable interests created before February 1, 2003, FIN 46 will apply in the Company’s second quarter ending May 31, 2004, as deferred by the FASB in December 2003. Although the Company does not believe the full adoption of FIN 46 will have a material impact on net earnings, the Company cannot make any definitive determination until it completes its evaluation.

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Partnerships

At November 30, 2003, the Company had investments in and advances to partnerships established to acquire and develop land for sale to the Company in connection with its homebuilding operations or for sale to third parties. The Company evaluated its partnership agreements entered into subsequent to January 31, 2003 under FIN 46. The Company determined that it was the primary beneficiary of one partnership that was created after January 31, 2003, and, accordingly, included the accounts of that partnership in the accompanying consolidated financial statements. The Company did not consolidate any other partnerships created after January 31, 2003 as the Company determined it was not the primary beneficiary, as defined under FIN 46. The Company is in the process of evaluating the remainder of its investments in unconsolidated partnerships that may be deemed variable interest entities under the provisions of FIN 46. At November 30, 2003, the Company’s estimated maximum exposure to loss with regard to unconsolidated partnerships was its recorded investment in these partnerships totaling $60.3 million in addition to the exposure under the guarantees discussed in Note 3.

Option contracts

The Company evaluated its option contracts for land entered into subsequent to January 31, 2003 and determined it was not the primary beneficiary of these option contracts. As a result, the Company did not consolidate any option contracts entered into after January 31, 2003. The Company is in the process of evaluating the remainder of its option contracts that may be deemed issued by variable interest entities under the provisions of FIN 46. At November 30, 2003, the Company had non-refundable option deposits and/or letters of credit related to options with estimated aggregate exercise prices totaling approximately $117.9 million.

8. COMMITMENTS AND CONTINGENT LIABILITIES

The Company and certain subsidiaries are party to various claims, legal actions and complaints arising in the ordinary course of business. In the opinion of management, the disposition of these matters will not have a material adverse effect on the financial condition, results of operations or cash flows of the Company.

The Company is subject to the usual obligations associated with entering into contracts (including option contracts) for the purchase, development and sale of real estate, which it does in the routine conduct of its business. Option contracts for the purchase of land permit the Company to defer acquiring portions of properties owned by third parties and certain unconsolidated partnerships until the Company is ready to build homes on them. The use of option contracts allows the Company to reduce the financial risk of adverse market conditions associated with long-term land holdings. At November 30, 2003, the Company had $12.6 million of non-refundable option deposits and advanced costs on real estate, which are included in inventories in the consolidated balance sheet.

The Company has entered into agreements to lease certain office facilities and equipment under operating leases. Future minimum payments under the noncancelable leases are as follows: 2004—$0.5 million; 2005—$0.2 million and 2006—$0.1 million. Rental expense for the years ended November 30, 2003, 2002 and 2001 was $1.7 million, $1.5 million and $1.4 million, respectively.

The Company is committed, under various letters of credit, to perform certain development and construction activities and provide certain guarantees in the normal course of business. Outstanding letters of credit under these arrangements totaled $49.9 million at November 30, 2003. The Company also had outstanding performance and surety bonds with estimated costs to complete of $177.9 million related principally to its obligations for site improvements at various projects at November 30, 2003. The

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Company does not believe that draws upon these bonds, if any, will have a material effect on the Company’s financial condition, results of operations or cash flows.

The Company has guaranteed obligations of Lennar Corporation with regard to certain issues of its outstanding debt, and the stock of the Company has been pledged as collateral for Lennar Corporation’s obligations with regard to that debt. The Company knows of no event of default, which would require it to satisfy these guarantees and, therefore, the fair value of these contingent liabilities is considered immaterial.

* * * * * *

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INDEPENDENT AUDITORS’ REPORT

To the Board of Directors of

Greystone Homes, Inc.:

We have audited the accompanying consolidated balance sheets of Greystone Homes, Inc. and subsidiaries (the “Company”), a wholly-owned subsidiary of U.S. Home Corporation, as of November 30, 2003 and 2002 and the related consolidated statements of earnings, stockholder’s equity and cash flows for each of the three years in the period ended November 30, 2003. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of November 30, 2003 and 2002, and the results of its operations and its cash flows for each of the three years in the period ended November 30, 2003, in conformity with accounting principles generally accepted in the United States of America.

/s/    DELOITTE & TOUCHE LLP

Certified Public Accountants

Miami, Florida

February 27, 2004

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GREYSTONE HOMES, INC. AND SUBSIDIARIES

(A Wholly-Owned Subsidiary of U.S. Home Corporation)

CONSOLIDATED BALANCE SHEETS

NOVEMBER 30, 2003 AND 2002 (Dollars in thousands, except par value)

	2003		2002
ASSETS
Cash	$	3,579	$	—
Inventories		624,106		476,445
Goodwill, net		29,473		36,451
Investments in unconsolidated partnerships		18,686		25,446
Other assets		74,736		44,788
Due from affiliates		360,398		282,933
Total assets	$	1,110,978	$	866,063
LIABILITIES AND STOCKHOLDER’S EQUITY
LIABILITIES:
Accounts payable and other liabilities	$	71,243	$	62,622
Liabilities related to consolidated inventory not owned		22,266		—
Mortgage notes payable		21,197		63,764
Total liabilities		114,706		126,386
STOCKHOLDER’S EQUITY:
Common stock, $0.01 par value; 1,000 shares authorized, issued and outstanding		—		—
Additional paid-in capital		216,073		216,073
Retained earnings		780,199		523,604
Total stockholder’s equity		996,272		739,677
Total liabilities and stockholder’s equity	$	1,110,978	$	866,063

See accompanying notes to consolidated financial statements.

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GREYSTONE HOMES, INC. AND SUBSIDIARIES

(A Wholly-Owned Subsidiary of U.S. Home Corporation)

CONSOLIDATED STATEMENTS OF EARNINGS

YEARS ENDED NOVEMBER 30, 2003, 2002 AND 2001 (Dollars in thousands)

	2003		2002			2001
REVENUES:
Sales of homes	$	1,202,139	$	928,115		$	789,141
Sales of land		40,988		35,956			22,130
Revenues from affiliates		263,348		213,817			129,161
Total revenues		1,506,475		1,177,888			940,432
COSTS AND EXPENSES:
Cost of homes sold		947,012		754,452			624,214
Cost of land sold		29,470		39,213			22,724
Selling, general and administrative		121,286		111,679			99,536
Total costs and expenses		1,097,768		905,344			746,474
Equity in earnings from unconsolidated partnerships		300		454			6
Management fees and other income, net		3,194		(105	)		369
EARNINGS BEFORE PROVISION FOR INCOME TAXES		412,201		272,893			194,333
PROVISION FOR INCOME TAXES		155,606		103,017			74,818
NET EARNINGS	$	256,595	$	169,876		$	119,515

See accompanying notes to consolidated financial statements.

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GREYSTONE HOMES, INC. AND SUBSIDIARIES

(A Wholly-Owned Subsidiary of U.S. Home Corporation)

CONSOLIDATED STATEMENTS OF STOCKHOLDER’S EQUITY

YEARS ENDED NOVEMBER 30, 2003, 2002 AND 2001 (Dollars in thousands)

	Common Stock		Additional Paid-in Capital		Retained Earnings		Total
Balance, November 30, 2000	$	—	$	216,073	$	234,213	$	450,286
2001 net earnings		—		—		119,515		119,515
Balance, November 30, 2001		—		216,073		353,728		569,801
2002 net earnings		—		—		169,876		169,876
Balance, November 30, 2002		—		216,073		523,604		739,677
2003 net earnings		—		—		256,595		256,595
Balance, November 30, 2003	$	—	$	216,073	$	780,199	$	996,272

See accompanying notes to consolidated financial statements.

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GREYSTONE HOMES, INC. AND SUBSIDIARIES

(A Wholly-Owned Subsidiary of U.S. Home Corporation)

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED NOVEMBER 30, 2003, 2002 AND 2001 (Dollars in thousands)

	2003			2002			2001
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings	$	256,595		$	169,876		$	119,515
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		11,589			12,062			9,984
Equity in earnings from unconsolidated partnerships		(300	)		(454	)		(6	)
Deferred income tax provision (benefit)		(23,782	)		(13,016	)		4,246
Changes in assets and liabilities, net of effect of an acquisition:
(Increase) decrease in inventories		(133,845	)		16,049			3,605
(Increase) decrease in other assets		423			(3,203	)		(1,030	)
Increase in accounts payable and other liabilities		8,621			7,139			904
Net cash provided by operating activities		119,301			188,453			137,218
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in investments in unconsolidated partnerships, net		7,060			(9,790	)		(13,489	)
Net cash provided by (used in) investing activities		7,060			(9,790	)		(13,489	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on borrowings		(45,317	)		(27,967	)		(672	)
Increase in amounts due from affiliates		(77,465	)		(150,696	)		(123,057	)
Net cash used in financing activities		(122,782	)		(178,663	)		(123,729	)
NET INCREASE IN CASH		3,579			—			—
CASH AT BEGINNING OF YEAR		—			—			—
CASH AT END OF YEAR	$	3,579		$	—		$	—
See Note 1 for supplemental disclosures of cash flow information related to interest and income taxes paid.
Supplemental disclosures of non-cash investing and financing activities:
Consolidated inventory not owned	$	22,266		$	—		$	—
Purchases of inventory financed by sellers	$	2,750		$	12,461		$	—
Fair value of assets acquired, inclusive of cash of $7	$	—		$	185,561		$	—
Fair value of liabilities assumed	$	—		$	76,078		$	—

See accompanying notes to consolidated financial statements.

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GREYSTONE HOMES, INC. AND SUBSIDIARIES

(A Wholly-Owned Subsidiary of U.S. Home Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED NOVEMBER 30, 2003, 2002 AND 2001

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Consolidation—The accompanying consolidated financial statements include the accounts of Greystone Homes, Inc. and all subsidiaries, partnerships and other entities (the “Company”) in which the Company has a controlling interest and variable interest entities (“VIEs”) created after January 31, 2003 in which the Company is deemed the primary beneficiary (see Note 7). The Company’s investments in unconsolidated partnerships in which a significant, but less than controlling, interest is held and VIEs created after January 31, 2003 in which the Company is not deemed to be the primary beneficiary, are accounted for by the equity method. All significant intercompany transactions and balances have been eliminated in consolidation. During 2001, the Company became a wholly-owned subsidiary of U.S. Home Corporation, which is a wholly-owned subsidiary of Lennar Corporation.

The Company operates in one operating and reporting segment—homebuilding. Homebuilding operations primarily include the sale and construction of single-family attached and detached homes, as well as the purchase, development and sale of residential land directly and through the Company’s unconsolidated partnerships.

Use of Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Revenue Recognition—Revenues from sales of homes are recognized when the sales are closed and title passes to the new homeowners. Revenues from sales of other real estate, including the sale of land, are recognized when a significant down payment is received, the earnings process is complete and the collection of any remaining receivables is reasonably assured.

Cash—The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents.

Inventories—Inventories are stated at cost unless the inventory within a community is determined to be impaired, in which case the impaired inventory is written down to fair value. Inventory costs include land, land development and home construction costs, real estate taxes and interest related to development and construction. The Company evaluates long-lived assets for impairment based on the undiscounted future cash flows of the assets. Write-downs of inventories deemed to be impaired are recorded as adjustments to the cost basis of the respective inventories. No impairment was recorded during the years ended November 30, 2003, 2002 or 2001.

Construction overhead and selling expenses are expensed as incurred. Homes held for sale are classified as inventories until delivered. Land, land development, amenities and other costs are accumulated by specific area and allocated to homes within the respective areas.

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Due from Affiliates—Due from affiliates includes the Company’s transactions in the normal course of business with Lennar Corporation and/or affiliated companies.

Interest and Real Estate Taxes—Interest and real estate taxes attributable to land and homes are capitalized as inventories while they are being actively developed. Interest related to homebuilding and land, including interest costs relieved from inventories, is included in cost of homes sold and cost of land sold. Interest costs result from the interest related to the Company’s outstanding debt as disclosed in the consolidated balance sheets, as well as debt incurred by Lennar Corporation. Lennar Corporation allocates a portion of its interest to the Company based on the Company’s inventory levels during the year.

Operating Equipment—Operating equipment is recorded at cost. The assets are depreciated over their estimated useful lives using the straight-line method. The estimated useful life is 2 to 10 years. At the time operating equipment is disposed of, the asset and related accumulated depreciation are removed from the accounts and any resulting gain or loss is credited or charged to earnings. At November 30, 2003 and 2002, operating equipment of $1.0 million and $1.1 million, respectively, was included in other assets in the consolidated balance sheets.

Goodwill—Goodwill represents the excess of the purchase price over the fair value of net assets acquired and was previously amortized by the Company through fiscal 2001 on a straight-line basis over 20 years. At November 30, 2003 and 2002, goodwill was $29.5 million and $36.5 million, respectively (net of accumulated amortization of $9.4 million at both November 30, 2003 and 2002). During fiscal 2003, the Company’s goodwill decreased $7.0 million due to the reduction of the Company’s net deferred tax asset valuation allowance. Because the asset was established in connection with an acquisition, the reduction of the valuation allowance resulted in a decrease to goodwill. Historically through fiscal 2001, in the event that facts and circumstances had indicated that the carrying value of goodwill might be impaired, an evaluation of recoverability would have been performed. If an evaluation had been required, the estimated future undiscounted cash flows associated with the goodwill would have been compared to the carrying amount to determine if a write-down to fair value based on discounted cash flows was required. No impairment was recorded during the years ended November 30, 2003, 2002 or 2001.

The Company adopted SFAS No. 142, Goodwill and Other Intangible Assets on December 1, 2001. SFAS No. 142 no longer requires or permits the amortization of goodwill and indefinite-lived intangible assets. Instead, these assets must be reviewed annually (or more frequently under certain conditions) for impairment in accordance with this statement. This impairment test uses a fair value approach rather than the undiscounted cash flows approach previously required by SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. No impairment charges were recognized from the adoption of SFAS No. 142. The Company performed its annual impairment test of goodwill as of September 30, 2003 and determined that goodwill was not impaired. As of November 30, 2003 and 2002, there were no material identifiable intangible assets, other than goodwill. Net earnings for fiscal 2001 adjusted to exclude goodwill amortization, net of taxes, is as follows:

(Dollars in thousands)
Reported net earnings	$	119,515
Goodwill amortization, net of tax		2,290
Adjusted net earnings	$	121,805

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Income Taxes—The Company files a consolidated federal income tax return with Lennar Corporation. Income taxes have been provided at the Company level as if the Company filed an income tax return on a stand-alone basis. Current taxes due are recorded as a payable to Lennar Corporation, and the deferred portion is recorded as deferred taxes. Income taxes are accounted for in accordance with SFAS No. 109, Accounting for Income Taxes. Under SFAS No. 109, deferred tax assets and liabilities are determined based on differences between financial reporting carrying values and tax bases of assets and liabilities, and are measured by using enacted tax rates expected to apply to taxable income in the years in which those differences are expected to reverse.

Warranty Costs—Warranty and similar reserves for homes are established at an amount estimated to be adequate to cover potential costs for materials and labor with regard to warranty-type claims to be incurred subsequent to the delivery of a home. Reserves are determined based on historical data and trends with respect to similar product types and geographical areas. Warranty reserves are included in accounts payable and other liabilities in the consolidated balance sheets. The following table sets forth the activity in the Company’s warranty reserve for the year ended November 30, 2003:

(Dollars in thousands)
Warranty reserve, November 30, 2002	$	12,210
Provision		23,857
Payments		(18,213	)
Warranty reserve, November 30, 2003	$	17,854

Self-Insurance—Certain insurable risks such as general liability, medical and workers’ compensation are self-insured by Lennar Corporation up to certain limits. Lennar Corporation allocates a portion of its self-insurance accrual to the Company based on various factors.

Fair Value of Financial Instruments—The carrying amount of cash and accounts payable approximates fair value due to the short-term nature of the financial instrument. Since the mortgage notes payable have fixed interest rates that approximate market indices, the carrying amounts approximate fair value.

New Accounting Pronouncements—In October 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 provides accounting guidance for financial accounting and reporting for impairment or disposal of long-lived assets. SFAS No. 144 supersedes SFAS No. 121. The implementation of SFAS No. 144 did not have a material impact on the Company’s financial condition, results of operations or cash flows.

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. This statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under SFAS No. 133. This statement was effective for contracts entered into or modified after June 30, 2003. The implementation of SFAS No. 149 did not have a material impact on the Company’s financial condition, results of operations or cash flows.

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In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. This statement establishes standards for the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. Certain provisions of this statement were effective for financial instruments entered into or modified after May 31, 2003 and otherwise was effective at the beginning of the first interim period beginning after June 15, 2003. In October 2003, the FASB deferred indefinitely certain provisions of this statement pertaining to non-controlling interests in limited life entities. The Company does not believe that the implementation of SFAS No. 150 had, or will have, a material impact on the Company’s financial position, results of operations or cash flows.

In November 2002, the FASB issued Interpretation No. 45 (“FIN 45”), Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. In accordance with the provisions of FIN 45, the Company adopted the initial recognition and measurement provisions on a prospective basis with regard to guarantees issued after December 31, 2002. The implementation of FIN 45 did not have a material impact on the Company’s financial condition, results of operations or cash flows.

In January 2003, the FASB issued Interpretation No. 46 (“FIN 46”), Consolidation of Variable Interest Entities, as further clarified and amended by the FASB’s issuance of a revision to FIN 46 in December 2003. FIN 46 requires the consolidation of entities in which an enterprise absorbs a majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual or other financial interests in the entity. Prior to the issuance of FIN 46, entities were generally consolidated by an enterprise when it had a controlling financial interest through ownership of a majority voting interest in the entity. FIN 46 applied immediately to variable interests created after January 31, 2003, and with respect to variable interests created before February 1, 2003, FIN 46 will apply in the Company’s second quarter ending May 31, 2004, as deferred by the FASB in December 2003. Although the Company does not believe the full adoption of FIN 46 will have a material impact on net earnings, the Company cannot make any definitive determination until it completes its evaluation (see Note 7).

Reclassification—Certain prior year amounts in the consolidated financial statements have been reclassified to conform with the 2003 presentation. These reclassifications had no impact on reported net earnings. In particular, operating results reflect reclassifications that have been made to interest expense (now included in cost of homes sold and cost of land sold), equity in earnings from unconsolidated partnerships and management fees and other income, net.

2. ACQUISITION

During 2002, the Company acquired the assets of a California homebuilder. Lennar Corporation paid $109.5 million in cash for the acquisition. This amount paid on the Company’s behalf is included in due from affiliates in the consolidated balance sheets. The results of operations of the acquired homebuilder are included in the Company’s results of operations since the respective acquisition date. There was no goodwill associated with the acquisition. The Company acquired assets (primarily inventories) with a fair value of $185.6 million and assumed liabilities of $76.1 million. The pro forma effect of this acquisition on the consolidated results of operations is not presented as the effect is not considered material.

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3. INVESTMENTS IN UNCONSOLIDATED PARTNERSHIPS

Summarized condensed financial information on a combined 100% basis related to unconsolidated partnerships and other similar entities (collectively the “Partnerships”) in which the Company invests that are accounted for by the equity method was as follows:

	November 30,
(Dollars in thousands)	2003		2002
Assets:
Cash	$	6,318	$	1,046
Inventories		72,874		89,071
Other assets		224		15
	$	79,416	$	90,132
Liabilities and equity:
Accounts payable and other liabilities	$	568	$	3,346
Notes and mortgages payable		22,392		19,242
Equity		56,456		67,544
	$	79,416	$	90,132

	Years Ended November 30,
(Dollars in thousands)	2003			2002			2001
Revenues	$	2,779		$	4,843		$	32
Costs and expenses		3,179			4,920			2,905
Net loss of unconsolidated partnerships	$	(400	)	$	(77	)	$	(2,873	)

At November 30, 2003, the Company’s equity interest in these Partnerships did not exceed 50%. The Company’s partners generally are unrelated homebuilders, land sellers or other real estate entities. The Partnerships follow accounting principles generally accepted in the United States of America. The Company shares in the profits and losses of these Partnerships generally in accordance with its ownership interests. In determining its share of the Partnerships’ net earnings, the Company does not include in its income its pro rata share of partnership earnings resulting from land sales to its homebuilding divisions. Instead, the Company accounts for those earnings as a reduction of the cost of purchasing the land from the partnerships. This in effect defers recognition of the Company’s share of the partnership earnings relating to these sales until a home is delivered and title passes to a homebuyer.

The Company and/or its partners sometimes obtain options or enter into other arrangements under which the Company can purchase portions of the land held by the Partnerships. Option prices are generally negotiated prices that approximate fair value when options are purchased. During 2003 and 2001, there were no land sales to the Company or its affiliates. During 2002, $2.4 million of the Partnerships’ revenues were from land sales to the Company or its affiliates.

In some instances, the Company and/or its partners have provided varying levels of guarantees of debt of unconsolidated partnerships. At November 30, 2003, the Company had limited maintenance guarantees of $7.5 million of Partnership debt. When the Company and/or its partners provide a

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guarantee, the partnership generally receives more favorable terms from its lenders than would otherwise be available to it. The limited maintenance guarantees only apply if a partnership defaults on its loan arrangements and the carrying value of the collateral (generally land and improvements) is less than a specified percentage of the loan balance. If the Company is required to make a payment under a limited maintenance guarantee to bring the carrying value of the collateral above the specified percentage of the loan balance, the payment would constitute a capital contribution or loan to the unconsolidated partnership and increase the Company’s share of any funds the unconsolidated partnership distributes. There were no assets held as collateral that, upon the occurrence of any triggering event or condition under a guarantee, the Company could obtain and liquidate to recover all or a portion of the amounts paid under a guarantee.

4. MORTGAGE NOTES PAYABLE

At November 30, 2003, the Company had mortgage notes on land bearing interest at fixed interest rates ranging from 5.9% to 25.0%. The weighted average interest rate of the notes was 20.5% at November 30, 2003. The notes are due through 2006 and are collateralized by land. At November 30, 2003 and 2002, the outstanding balance of the notes was $21.2 million and $63.8 million, respectively. During fiscal 2003, the Company repaid the balance of a note payable due to an affiliate of the Company. At November 30, 2002, the outstanding balance of this note due to an affiliate was $15.0 million.

The minimum aggregate principal maturities of mortgage notes payable during the five years subsequent to November 30, 2003 are as follows: 2004—$3.1 million; 2005—$7.6 million and 2006—$10.5 million.

5. INCOME TAXES

The provision (benefit) for income taxes consisted of the following:

	Years Ended November 30,
(Dollars in thousands)	2003			2002			2001
Current:
Federal	$	158,729		$	101,797		$	61,692
State		20,659			14,236			8,880
		179,388			116,033			70,572
Deferred:
Federal		(21,108	)		(11,556	)		4,034
State		(2,674	)		(1,460	)		212
		(23,782	)		(13,016	)		4,246
	$	155,606		$	103,017		$	74,818

The actual income tax expense differs from the “expected” tax expense for the year (computed by applying the U.S. federal corporate rate of 35% to earnings before provision for income taxes) primarily due to the amount of state income taxes, net of the related federal tax benefit.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of the assets and liabilities for financial reporting purposes and the amounts used for income

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tax purposes. The tax effects of significant temporary differences that give rise to the net deferred tax asset are as follows:

	November 30,
(Dollars in thousands)	2003		2002
Deferred tax assets:
Acquisition adjustments	$	12,419	$	12,419
Reserves and accruals		40,633		29,503
Net operating loss and capital loss carryforwards, tax affected		4,379		4,379
Capitalized expenses		12,383		10,618
Deferred income		13,581		1,954
Investments in unconsolidated partnerships		730		730
Deferred tax assets		84,125		59,603
Less: valuation allowance		—		(6,978	)
Total deferred tax assets, net		84,125		52,625
Deferred tax liabilities:
Acquisition adjustments		2,810		2,810
Reserves and accruals		573		573
Capitalized expenses		5,979		5,239
Other		14,715		14,715
Total deferred tax liabilities		24,077		23,337
Net deferred tax asset	$	60,048	$	29,288

The net deferred tax asset is included in other assets in the consolidated balance sheets. SFAS No. 109 requires the reduction of deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is more likely than not that a portion or all of the deferred tax asset will not be realized. At November 30, 2002, the Company had a valuation allowance of $7.0 million for net operating loss and capital loss carryforwards and certain acquisition adjustments. During fiscal 2003, restrictions associated with the utilization of the capital loss carryforwards and acquisition adjustments lapsed, resulting in the reduction of the valuation allowance. Because the asset was established in connection with an acquisition, the reduction of the valuation allowance resulted in a decrease to goodwill. Based on management’s assessment, it is more likely than not that the net deferred tax asset will be realized through future taxable earnings.

6. RELATED PARTY TRANSACTIONS

Lennar Corporation has an agreement with Greystone Homes of Nevada, Inc. (“Greystone”), a majority-owned subsidiary of the Company, which is a wholly-owned subsidiary of Lennar Corporation, whereby Greystone has granted to affiliates of Lennar Corporation the right to use certain property for a fee. Unpaid fees bear interest at 9% annually. During 2002 and 2001, revenues

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from affiliates in the consolidated statements of earnings are comprised of the affiliates’ fee and interest. On a quarterly basis, these amounts are paid to Greystone by Lennar Corporation through a financing arrangement between Lennar Corporation and certain affiliates.

During December 2002, Greystone transferred the license agreement to another majority-owned subsidiary of the Company. That subsidiary has continued to grant the Company the right to use the property as applied to the grant from Greystone. Unpaid fees bear interest at 7.7% annually. During 2003, revenues from affiliates in the consolidated statements of earnings are comprised of the affiliates’ fees and interest. On a quarterly basis, these amounts are paid to Greystone by Lennar Corporation through a financing arrangement between Lennar Corporation and certain affiliates. The term of the agreement automatically renews on the anniversary date unless terminated earlier by three months written notice by either party.

The Company has an agreement with Lennar Associates Management, LLC (“Lessor”), a wholly-owned subsidiary of Lennar Corporation, whereby the Lessor leases certain employees to the Company for its costs incurred, including salaries, plus a fee. Costs incurred and the related fee are included in selling, general and administrative expenses in the consolidated statements of earnings. During 2003 and 2002, the Company’s fee was $0.5 million and $0.3 million, respectively. On a quarterly basis, these amounts are paid by Lennar Corporation to the Lessor. The amounts paid by Lennar Corporation on behalf of the Company are included in due from affiliates in the Company’s consolidated balance sheets. The term of the agreement automatically renews on the anniversary date unless terminated earlier by three months written notice by either party.

During 2003 and 2002, Lennar Corporation and its subsidiaries also advanced and borrowed funds to and from the Company which had no stated repayment terms. At November 30, 2003 and 2002, the Company’s aggregate receivable from affiliates was $360.4 million and $282.9 million, respectively.

7. CONSOLIDATION OF VARIABLE INTEREST ENTITIES

In January 2003, the FASB issued FIN 46, as further clarified and amended by the FASB’s issuance of a revision to FIN 46 in December 2003, which requires the consolidation of entities in which an enterprise absorbs a majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual or other financial interests in the entity. Prior to the issuance of FIN 46, entities were generally consolidated by an enterprise when it had a controlling financial interest through ownership of a majority voting interest in the entity. FIN 46 applied immediately to variable interests created after January 31, 2003, and with respect to variable interests created before February 1, 2003, FIN 46 will apply in the Company’s second quarter ending May 31, 2004, as deferred by the FASB in December 2003. Although the Company does not believe the full adoption of FIN 46 will have a material impact on net earnings, the Company cannot make any definitive determination until it completes its evaluation.

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Partnerships

At November 30, 2003, the Company had investments in and advances to partnerships established to acquire and develop land for sale to the Company in connection with its homebuilding operations or for sale to third parties. The Company evaluated its partnership agreements entered into subsequent to January 31, 2003 under FIN 46. The Company did not consolidate any partnerships created after January 31, 2003 as the Company determined it was not the primary beneficiary, as defined under FIN 46. The Company is in the process of evaluating the remainder of its investments in unconsolidated partnerships that may be deemed variable interest entities under the provisions of FIN 46. At November 30, 2003, the Company’s estimated maximum exposure to loss with regard to unconsolidated partnerships was its recorded investment in these partnerships totaling $18.7 million in addition to the exposure under the guarantees discussed in Note 3.

Option contracts

The Company evaluated its option contracts for land entered into subsequent to January 31, 2003 and determined it is the primary beneficiary of certain of these option contracts. Although the Company does not have legal title to the optioned land, under FIN 46, the Company, as the primary beneficiary, is required to consolidate the land under option at fair value (the exercise price). The effect of the consolidation was an increase of $22.3 million to inventories with a corresponding increase to liabilities related to consolidated inventory not owned in the accompanying consolidated balance sheet as of November 30, 2003. The liabilities related to consolidated inventory not owned represent the difference between the exercise price of the optioned land and the Company’s deposits. At November 30, 2003, the total fair value of the inventory consolidated under FIN 46 was $23.3 million. The Company is in the process of evaluating the remainder of its option contracts that may be deemed issued by variable interest entities under the provisions of FIN 46. At November 30, 2003, the Company had non-refundable option deposits and/or letters of credit related to options with estimated aggregate exercise prices totaling approximately $670.1 million.

8. COMMITMENTS AND CONTINGENT LIABILITIES

The Company and certain subsidiaries are party to various claims, legal actions and complaints arising in the ordinary course of business. In the opinion of management, the disposition of these matters will not have a material adverse effect on the financial condition, results of operations or cash flows of the Company.

The Company is subject to the usual obligations associated with entering into contracts (including option contracts) for the purchase, development and sale of real estate, which it does in the routine conduct of its business. Option contracts for the purchase of land permit the Company to defer acquiring portions of properties owned by third parties and certain unconsolidated partnerships until the Company is ready to build homes on them. The use of option contracts allows the Company to reduce the financial risk of adverse market conditions associated with long-term land holdings. At November 30, 2003, the Company had $37.4 million of non-refundable option deposits and advanced costs on real estate, which is included in inventories in the consolidated balance sheet.

The Company has entered into agreements to lease certain office facilities and equipment under operating leases. Future minimum payments under the noncancelable leases are as follows: 2004—$4.3 million; 2005—$2.4 million; 2006—$1.7 million; 2007—$1.4 million; 2008—$1.0 million and thereafter—$3.3 million. Rental expense for the years ended November 30, 2003, 2002 and 2001 was $4.7 million, $2.8 million, $2.0 million, respectively.

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The Company is committed, under various letters of credit, to perform certain development and construction activities and provide certain guarantees in the normal course of business. Outstanding letters of credit under these arrangements totaled $72.6 million at November 30, 2003. The Company also had outstanding performance and surety bonds with estimated costs to complete of $374.1 million related principally to its obligations for site improvements at various projects at November 30, 2003. The Company does not believe that draws upon these bonds, if any, will have a material effect on the Company’s financial condition, results of operations or cash flows.

The Company has guaranteed obligations of Lennar Corporation with regard to certain issues of its outstanding debt, and the stock of the Company has been pledged as collateral for Lennar Corporation’s obligations with regard to that debt. The Company knows of no event of default which would require it to satisfy these guarantees and, therefore, the fair value of these contingent liabilities is considered immaterial.

* * * * * *

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INDEPENDENT AUDITORS’ REPORT

To the Board of Directors of

U.S. Home Corporation:

We have audited the accompanying consolidated balance sheets of U.S. Home Corporation and subsidiaries (the “Company”), a wholly-owned subsidiary of Lennar Corporation, as of November 30, 2003 and 2002 and the related consolidated statements of earnings, stockholder’s equity and cash flows for each of the three years in the period ended November 30, 2003. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of November 30, 2003 and 2002, and the results of its operations and its cash flows for each of the three years in the period ended November 30, 2003, in conformity with accounting principles generally accepted in the United States of America.

/s/ DELOITTE & TOUCHE LLP

Certified Public Accountants

Miami, Florida

February 27, 2004

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U.S. HOME CORPORATION AND SUBSIDIARIES

(A Wholly-Owned Subsidiary of Lennar Corporation)

CONSOLIDATED BALANCE SHEETS

NOVEMBER 30, 2003 AND 2002 (Dollars in thousands, except par value)

	2003		2002
ASSETS
Homebuilding:
Cash	$	222,200	$	38,132
Inventories		2,067,896		1,789,386
Investments in unconsolidated partnerships		128,016		125,162
Goodwill, net		70,677		77,655
Other assets		261,163		167,941
		2,749,952		2,198,276
Financial services		971,940		1,073,078
Total assets	$	3,721,892	$	3,271,354
LIABILITIES AND STOCKHOLDER’S EQUITY
Homebuilding:
Accounts payable and other liabilities	$	278,301	$	235,612
Liabilities related to consolidated inventory not owned		30,962		—
Senior notes and other debts payable		35,101		68,317
Due to affiliates		14,743		88,624
		359,107		392,553
Financial services		826,353		955,301
Total liabilities		1,185,460		1,347,854
Stockholder’s equity:
Common stock, $0.10 par value; 5,000 shares authorized, issued and outstanding		1		1
Additional paid-in capital		737,331		737,331
Retained earnings		1,799,100		1,186,168
Total stockholder’s equity		2,536,432		1,923,500
Total liabilities and stockholder’s equity	$	3,721,892	$	3,271,354

See accompanying notes to consolidated financial statements.

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U.S. HOME CORPORATION AND SUBSIDIARIES

(A Wholly-Owned Subsidiary of Lennar Corporation)

CONSOLIDATED STATEMENTS OF EARNINGS

YEARS ENDED NOVEMBER 30, 2003, 2002 AND 2001 (Dollars in thousands)

	2003		2002		2001
REVENUES:
Homebuilding	$	4,269,983	$	3,400,093	$	2,914,903
Financial services		559,362		487,246		424,554
Revenues from affiliates		188,095		152,252		129,161
Total revenues		5,017,440		4,039,591		3,468,618
COSTS AND EXPENSES:
Homebuilding		3,655,453		2,998,688		2,574,952
Financial services		401,669		358,406		333,657
Total costs and expenses		4,057,122		3,357,094		2,908,609
Equity in earnings from unconsolidated partnerships		8,314		8,112		1,473
Management fees and other income, net		15,999		12,441		8,957
EARNINGS BEFORE PROVISION FOR INCOME TAXES		984,631		703,050		570,439
PROVISION FOR INCOME TAXES		371,699		265,532		218,284
NET EARNINGS	$	612,932	$	437,518	$	352,155

See accompanying notes to consolidated financial statements.

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U.S. HOME CORPORATION AND SUBSIDIARIES

(A Wholly-Owned Subsidiary of Lennar Corporation)

CONSOLIDATED STATEMENTS OF STOCKHOLDER’S EQUITY

YEARS ENDED NOVEMBER 30, 2003, 2002 AND 2001 (Dollars in thousands)

	Common Stock		Additional Paid-in Capital		Retained Earnings		Total
Balance, November 30, 2000	$	1	$	737,331	$	396,495	$	1,133,827
2001 net earnings		—		—		352,155		352,155
Balance, November 30, 2001		1		737,331		748,650		1,485,982
2002 net earnings		—		—		437,518		437,518
Balance, November 30, 2002		1		737,331		1,186,168		1,923,500
2003 net earnings		—		—		612,932		612,932
Balance, November 30, 2003	$	1	$	737,331	$	1,799,100	$	2,536,432

See accompanying notes to consolidated financial statements.

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U.S. HOME CORPORATION AND SUBSIDIARIES

(A Wholly-Owned Subsidiary of Lennar Corporation)

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED NOVEMBER 30, 2003, 2002 AND 2001 (Dollars in thousands)

	2003			2002			2001
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings	$	612,932		$	437,518		$	352,155
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
Depreciation and amortization		32,181			28,548			30,470
Equity in earnings from unconsolidated partnerships		(8,314	)		(8,112	)		(1,473	)
Deferred income tax provision (benefit)		(28,489	)		8,126			11,718
Changes in assets and liabilities, net of effects from acquisitions:
Increase in inventories		(255,284	)		(177,961	)		(70,266	)
Increase in other assets		(106,383	)		(104,883	)		(93,574	)
(Increase) decrease in financial services loans held for sale		165,773			(123,015	)		(206,461	)
Increase (decrease) in accounts payable and other liabilities		35,694			(10,901	)		(60,995	)
Net cash provided by (used in) operating activities		448,110			49,320			(38,426	)
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in investments in unconsolidated partnerships, net		5,460			4,417			(39,113	)
(Increase) decrease in financial services mortgage loans		(297	)		18,082			3,910
Purchases of investment securities		(23,274	)		(31,545	)		(18,143	)
Receipts from investment securities		17,674			22,442			17,700
Decrease in financial services mortgage servicing rights		—			—			10,812
Acquisitions, net of cash acquired		(10,177	)		(8,670	)		(1,630	)
Net cash provided by (used in) investing activities		(10,614	)		4,726			(26,464	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under financial services debt		(118,989	)		159,485			264,996
Principal payments on borrowings		(50,284	)		(32,161	)		(20,419	)
Decrease in amounts due to affiliates		(74,159	)		(254,105	)		(128,377	)
Net cash provided by (used in) financing activities		(243,432	)		(126,781	)		116,200
NET INCREASE (DECREASE) IN CASH		194,064			(72,735	)		51,310
CASH AT BEGINNING OF YEAR		72,029			144,764			93,454
CASH AT END OF YEAR	$	266,093		$	72,029		$	144,764
Summary of cash:
Homebuilding	$	222,200		$	38,132		$	98,127
Financial services		43,893			33,897			46,637
	$	266,093		$	72,029		$	144,764
See Note 1 for supplemental disclosures of cash flow information related to interest and income taxes paid.
Supplemental disclosures of non-cash investing and financing activities:
Consolidated inventory not owned	$	30,962		$	—		$	—
Purchases of inventory financed by sellers	$	2,750		$	18,709		$	17,897
Fair value of assets acquired, inclusive of cash of $693 in 2003 and $4,880 in 2002	$	3,563		$	190,793		$	—
Goodwill recorded	$	9,501		$	8,844		$	—
Fair value of liabilities assumed	$	2,194		$	76,611		$	—

See accompanying notes to consolidated financial statements.

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U.S. HOME CORPORATION AND SUBSIDIARIES

(A Wholly-Owned Subsidiary of Lennar Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED NOVEMBER 30, 2003, 2002 AND 2001

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Consolidation—The accompanying consolidated financial statements include the accounts of U.S. Home Corporation, a wholly-owned subsidiary of Lennar Corporation, and all subsidiaries, partnerships and other entities (the “Company” or “U.S. Home”) in which the Company has a controlling interest and variable interest entities (“VIEs”) created after January 31, 2003 in which the Company is deemed the primary beneficiary (see Note 10). The Company’s investments in unconsolidated partnerships in which a significant, but less than controlling, interest is held and VIEs created after January 31, 2003 in which the Company is not deemed to be the primary beneficiary, are accounted for by the equity method. All significant intercompany transactions and balances have been eliminated in consolidation.

During 2001, the Company made a tax-free contribution of real and personal property and equity interests of its, and certain of its subsidiaries, homebuilding business within the State of Texas (the “Texas Operations”), to Lennar Homes of Texas Land & Construction, Ltd. (the “Texas Partnership”), a majority-owned subsidiary of Lennar Southwest Holding Corp., in exchange for an approximate 40% limited partners’ interest in the Texas Partnership. This interest in the Texas Partnership is included in other assets in the consolidated balance sheets. This transaction was accounted for as a reorganization of entities under common control and, accordingly, all prior period consolidated financial statements have been restated as if this transaction occurred on May 3, 2000, the date of Lennar Corporation’s acquisition of U.S. Home.

During 2001, Lennar Corporation contributed to the Company, as a tax-free contribution, all of the issued and outstanding shares of the common stock of Greystone Homes, Inc. and Lennar Financial Services, LLC (f/k/a Lennar Financial Services, Inc.), both of which were wholly-owned subsidiaries of Lennar Corporation. These transactions were accounted for as a reorganization of entities under common control and, accordingly, all prior period consolidated financial statements have been restated.

Use of Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Revenue Recognition—Revenues from sales of homes are recognized when the sales are closed and title passes to the new homeowners. Revenues from sales of other real estate (including the sales of land and operating properties) are recognized when a significant down payment is received, the earnings process is complete and the collection of any remaining receivables is reasonably assured.

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Cash—The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. Due to the short maturity period of the cash equivalents, the carrying amount of these instruments approximates their fair values. Cash as of November 30, 2003 and 2002 included $22.6 million and $31.4 million, respectively, of cash primarily held in escrow for approximately three days.

Inventories—Inventories are stated at cost unless the inventory within a community is determined to be impaired, in which case the impaired inventory is written down to fair value. Inventory costs include land, land development and home construction costs, real estate taxes and interest related to development and construction. The Company evaluates long-lived assets for impairment based on the undiscounted future cash flows of the assets. Write-downs of inventories deemed to be impaired are recorded as adjustments to the cost basis of the respective inventories. No impairment was recorded during the years ended November 30, 2003, 2002 or 2001.

Construction overhead and selling expenses are expensed as incurred. Homes held for sale are classified as inventories until delivered. Land, land development, amenities and other costs are accumulated by specific area and allocated to homes within the respective areas.

Due to Affiliates—Due to affiliates includes the Company’s transactions in the normal course of business with Lennar Corporation and/or affiliated companies as well as the Company’s minority interest in the Texas Partnership.

Interest and Real Estate Taxes—Interest and real estate taxes attributable to land and homes are capitalized as inventories while they are being actively developed. Interest related to homebuilding and land, including interest costs relieved from inventories, is included in cost of homes sold and cost of land sold. Interest costs result from the interest related to the Company’s outstanding debt as disclosed in the consolidated balance sheets as well as debt incurred by the Company’s parent, Lennar Corporation. Lennar Corporation allocates a portion of its interest to the Company based on the Company’s inventory levels during the year. Interest expense relating to the financial services operations is included in its respective costs and expenses.

Operating Properties and Equipment—Operating properties and equipment are recorded at cost. The assets are depreciated over their estimated useful lives using the straight-line method. At the time operating properties and equipment are disposed of, the asset and related accumulated depreciation are removed from the accounts and any resulting gain or loss is credited or charged to earnings. The estimated useful life for operating properties is 30 years and for equipment is 2 to 10 years. At November 30, 2003 and 2002, operating properties and equipment of $6.6 million and $8.2 million, respectively, was included in other assets in the consolidated balance sheets.

Investment Securities—Investment securities are classified as available-for-sale unless they are classified as trading or held-to-maturity. Securities classified as trading are carried at fair value and unrealized holding gains and losses are recorded in earnings. Securities classified as held-to-maturity are carried at amortized cost because they are purchased with the intent and ability to hold to maturity. Available-for-sale securities are recorded at fair value. Any unrealized holding gains or losses on available-for-sale securities would be reported in a separate component of stockholders’ equity, net of tax effects, until realized.

At November 30, 2003 and 2002, investment securities classified as held-to-maturity totaled $28.0 million and $22.4 million, respectively, and were included in the assets of the Financial Services

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Division. At November 30, 2003 and 2002, the fair value of these investment securities were $28.0 million and $22.4 million, respectively. There were no other investment securities at November 30, 2003 or 2002.

Derivative Financial Instruments—Effective December 1, 2000, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended. SFAS No. 133 establishes accounting and reporting standards for derivative instruments and for hedging activities by requiring that all derivatives be recognized in the balance sheet and measured at fair value. Gains or losses resulting from changes in the fair value of derivatives are recognized in earnings or recorded in other comprehensive income and recognized in the statement of earnings when the hedged item affects earnings, depending on the purpose of the derivatives and whether they qualify for hedge accounting treatment.

The Company’s policy is to designate at a derivative’s inception the specific assets, liabilities, or future commitments being hedged and monitor the derivative to determine if it remains an effective hedge. The effectiveness of a derivative as a hedge is based on high correlation between changes in its value and changes in the value of the underlying hedged item. The Company recognizes gains or losses for amounts received or paid when the underlying transaction settles. The Company does not enter into or hold derivatives for trading or speculative purposes.

The Financial Services Division, in the normal course of business, uses derivative financial instruments to reduce its exposure to fluctuations in interest rates. The Financial Services Division enters into forward commitments and, to a lesser extent, option contracts to protect the value of fixed rate locked loan commitments and loans held for sale from fluctuations in market interest rates. These derivative financial instruments are designated as fair value hedges, and, accordingly, for all qualifying and highly effective fair value hedges, the changes in the fair value of the derivative and the loss or gain on the hedged asset relating to the risk being hedged are recorded currently in earnings. The effect of the implementation of SFAS No. 133 on the Financial Services Division’s operating earnings was not significant.

Goodwill—Goodwill represents the excess of the purchase price over the fair value of net assets acquired and was amortized by the Company through fiscal 2001 on a straight-line basis over periods ranging from 15 to 20 years. At November 30, 2003 and 2002, goodwill was $114.2 million and $111.6 million, respectively (net of accumulated amortization of $17.7 million at both November 30, 2003 and 2002). During fiscal 2003, the Company’s goodwill increased $9.5 million due to both a current year acquisition and payment of contingent consideration related to prior year acquisitions, partially offset by the reduction of the Company’s net deferred tax asset valuation allowance. Because the asset was established in connection with an acquisition, the reduction of the valuation allowance resulted in a decrease to goodwill. Goodwill of the Homebuilding Division was $70.7 million and $77.7 million at November 30, 2003 and 2002, respectively. Goodwill is included in the assets of the Financial Services Division ($43.5 million and $34.0 million at November 30, 2003 and 2002, respectively) in the consolidated balance sheets. Historically through fiscal 2001, in the event that facts and circumstances had indicated that the carrying value of goodwill might be impaired, an evaluation of recoverability would have been performed. If an evaluation had been required, the estimated future undiscounted cash flows associated with the goodwill would have been compared to the carrying amount to determine if a write-down to fair value based on discounted cash flows was required. No impairment was recorded during the years ended November 30, 2003, 2002 or 2001.

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The Company adopted SFAS No. 142, Goodwill and Other Intangible Assets on December 1, 2001. SFAS No. 142 no longer requires or permits the amortization of goodwill and indefinite-lived intangible assets. Instead, these assets must be reviewed annually (or more frequently under certain conditions) for impairment in accordance with this statement. This impairment test uses a fair value approach rather than the undiscounted cash flows approach previously required by SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. No impairment charges were recognized from the adoption of SFAS No. 142. The Company performed its annual impairment test of goodwill as of September 30, 2003 and determined that goodwill was not impaired. As of November 30, 2003 and 2002, there were no material identifiable intangible assets, other than goodwill. Net earnings for fiscal 2001 adjusted to exclude goodwill amortization, net of taxes, is as follows:

(Dollars in thousands)
Reported net earnings	$	352,155
Goodwill amortization, net of tax		6,148
Adjusted net earnings	$	358,303

Income Taxes—The Company files a consolidated federal income tax return with Lennar Corporation. Income taxes have been provided at the Company level as if the Company filed an income tax return on a stand-alone basis. Current taxes due are recorded as a payable to Lennar Corporation, and the deferred portion is recorded as deferred taxes. Income taxes are accounted for in accordance with SFAS No. 109, Accounting for Income Taxes. Under SFAS No. 109, deferred tax assets and liabilities are determined based on differences between financial reporting carrying values and tax bases of assets and liabilities, and are measured by using enacted tax rates expected to apply to taxable income in the years in which those differences are expected to reverse.

Warranty Costs—Warranty and similar reserves for homes are established at an amount estimated to be adequate to cover potential costs for materials and labor with regard to warranty-type claims to be incurred subsequent to the delivery of a home. Reserves are determined based on historical data and trends with respect to similar product types and geographical areas. Warranty reserves are included in accounts payable and other liabilities in the consolidated balance sheets. The following table sets forth the activity in the Company’s warranty reserve for the year ended November 30, 2003:

(Dollars in thousands)
Warranty reserve, November 30, 2002	$	27,941
Provision		66,822
Payments		(54,723	)
Warranty reserve, November 30, 2003	$	40,040

Self-Insurance—Certain insurable risks such as general liability, medical and workers’ compensation are self-insured by Lennar Corporation up to certain limits. Lennar Corporation allocates a portion of its self-insurance accrual to the Company based on various factors.

Financial Services—Loan origination revenues, net of direct origination costs, are recognized when the related loans are sold. Gains and losses from the sale of loans and loan servicing rights are recognized when the loans are sold and delivered to an investor. Premiums from title insurance

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policies are recognized as revenue on the effective date of the policy. Escrow fees are recognized at the time the related real estate transactions are completed, usually upon the close of escrow.

Mortgage loans held for sale by the Financial Services Division that are designated as hedged assets are carried at market value, as the effect of changes in fair value are reflected in the carrying amount of the loans and in earnings. Premiums and discounts recorded on these loans are presented as an adjustment to the carrying amount of the loans and are not amortized.

When the Financial Services Division sells loans in the secondary market, a gain or loss is recognized to the extent that the sales proceeds exceed, or are less than, the book value of the loans. Loan origination fees, net of direct origination costs, are deferred and recognized as a component of the gain or loss when loans are sold.

Mortgage loans for which the Financial Services Division has the positive intent and ability to hold to maturity consist of mortgage loans carried at cost, net of unamortized discounts. Discounts are amortized over the estimated lives of the loans using the interest method.

The Financial Services Division also provides allowances for loan losses when and if management determines that loans or portions thereof are uncollectible. The provision recorded and the adequacy of the related allowance is determined by management’s continuing evaluation of the loan portfolio in light of past loan loss experience, regulatory examinations, present economic conditions and other factors considered relevant by management. Anticipated changes in economic factors which may influence the level of the allowance are considered in the evaluation by management when the likelihood of the changes can be reasonably determined. While management uses the best information available to make such evaluations, future adjustments to the allowance may be necessary as a result of future economic and other conditions that may be beyond management’s control.

The Financial Services Division provides an allowance for estimated title and escrow losses based upon management’s evaluation of claims presented and estimates for any incurred but not reported claims. The allowance is established at a level that management estimates to be sufficient to satisfy those claims where a loss is determined to be probable and the amount of such loss can be reasonably estimated. The allowance for title and escrow losses for both known and incurred but not reported claims is considered by management to be adequate for such purposes.

New Accounting Pronouncements—In October 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 provides accounting guidance for financial accounting and reporting for impairment or disposal of long-lived assets. SFAS No. 144 supersedes SFAS No. 121. The implementation of SFAS No. 144 did not have a material impact on the Company’s financial condition, results of operations or cash flows.

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. This statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under SFAS No. 133. This statement was effective for contracts entered into or modified after June 30, 2003. The implementation of SFAS No. 149 did not have a material impact on the Company’s financial condition, results of operations or cash flows.

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In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. This statement establishes standards for the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. Certain provisions of this statement were effective for financial instruments entered into or modified after May 31, 2003 and otherwise was effective at the beginning of the first interim period beginning after June 15, 2003. In October 2003, the FASB deferred indefinitely certain provisions of this statement pertaining to non-controlling interests in limited life entities. The Company does not believe that the implementation of SFAS No. 150 had, or will have, a material impact on the Company’s financial position, results of operations or cash flows.

In November 2002, the FASB issued Interpretation No. 45 (“FIN 45”), Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. In accordance with the provisions of FIN 45, the Company adopted the initial recognition and measurement provisions on a prospective basis with regard to guarantees issued after December 31, 2002. The implementation of FIN 45 did not have a material impact on the Company’s financial condition, results of operations or cash flows.

In January 2003, the FASB issued Interpretation No. 46 (“FIN 46”), Consolidation of Variable Interest Entities, as further clarified and amended by the FASB’s issuance of a revision to FIN 46 in December 2003. FIN 46 requires the consolidation of entities in which an enterprise absorbs a majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual or other financial interests in the entity. Prior to the issuance of FIN 46, entities were generally consolidated by an enterprise when it had a controlling financial interest through ownership of a majority voting interest in the entity. FIN 46 applied immediately to variable interests created after January 31, 2003, and with respect to variable interests created before February 1, 2003, FIN 46 will apply in the Company’s second quarter ending May 31, 2004, as deferred by the FASB in December 2003. Although the Company does not believe the full adoption of FIN 46 will have a material impact on net earnings, the Company cannot make any definitive determination until it completes its evaluation (see Note 10).

In December 2003, the Securities and Exchange Commission (“SEC”) expressed their view on accounting for loan commitments that relate to the origination of mortgage loans that will be held for resale. It is the SEC’s view that loan commitments are written options that should be recorded at their fair value, which in all cases should be a liability until either expiration or exercise. The Company estimates the value of these loan commitments as the difference between the current value of similar loans and the price at which the Company has committed to originate the loans. Under the Company’s current method of accounting for these loan commitments, the Company recognizes both derivative assets and liabilities. The SEC’s view, which is to be applied prospectively, is effective for commitments entered into in the first reporting period beginning after March 15, 2004. Management is currently evaluating the adoption of the SEC’s view and has not made a definitive determination as to its impact.

Reclassifications—Certain prior year amounts in the consolidated financial statements have been reclassified to conform with the 2003 presentation. These reclassifications had no impact on reported net earnings. In particular, homebuilding results reflect reclassifications that have been made to interest expense (now included in cost of homes sold and cost of land sold), equity in earnings from unconsolidated partnerships and management fees and other income, net.

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2. ACQUISITIONS

During 2003, the Company purchased a title company, which expanded the Company’s title and closing business into the Chicago market. In connection with this acquisition and contingent consideration related to prior period acquisitions, the Company paid $10.2 million, net of cash acquired. The results of operations of the acquired company are included in the Company’s results of operations since the acquisition date. The pro forma effect of this acquisition on the results of operations is not presented as the effect is not considered material. Total goodwill associated with this acquisition and contingent consideration relating to prior year acquisitions was $9.5 million.

During 2002, the Company acquired a California homebuilder. Lennar Corporation paid $109.5 million in cash for the acquisition. This amount paid on the Company’s behalf is included in due to affiliates in the consolidated balance sheets. The results of operations of the acquired homebuilder are included in the Company’s consolidated statements of earnings since the respective acquisition date. There was no goodwill associated with the acquisition. The Company acquired assets (primarily inventories) with a fair value of $185.6 million and assumed liabilities of $76.1 million. The pro forma effect of this acquisition on the consolidated results of operations is not presented as the effect is not considered material.

During 2002, the Company also acquired a mortgage company and a title company for a total of $8.7 million in cash and acquired total assets with a fair value of $5.2 million, assumed total liabilities of $0.5 million and recorded total goodwill of $8.8 million. The results of operations of these companies were included in the Company’s consolidated statements of earnings since the respective acquisition dates. The pro forma effect of these acquisitions on the consolidated results of operations is not presented as their effect is not considered material.

3. OPERATING AND REPORTING SEGMENTS

The Company has two operating and reporting segments: Homebuilding and Financial Services. The Company’s reportable segments are strategic business units that offer different products and services. The accounting policies of the segments are the same as those described in the summary of significant accounting policies in Note 1. Segment amounts include all elimination adjustments made in consolidation.

Homebuilding—Homebuilding operations include the sale and construction of single-family attached and detached homes, as well as the purchase, development and sale of residential land directly and through the Company’s unconsolidated partnerships.

Financial Services—The Financial Services Division (the “Division”) provides mortgage financing, title insurance, closing services and insurance agency services for both buyers of the Company’s homes and others. It sells the loans it originates in the secondary mortgage market. The Division also provides high-speed Internet access, cable television and alarm installation and monitoring services to residents of the Company’s communities and others.

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Financial information relating to the Company’s reportable segments is as follows:

	Years Ended November 30,
(Dollars in thousands)	2003		2002		2001
Homebuilding revenues:
Sales of homes	$	4,110,048	$	3,278,885	$	2,834,602
Sales of land		159,935		121,208		80,301
Total revenues		4,269,983		3,400,093		2,914,903
Homebuilding costs and expenses:
Cost of homes sold		3,156,520		2,557,891		2,211,572
Cost of land sold		79,706		86,231		43,275
Selling, general and administrative		419,227		354,566		320,105
Total costs and expenses		3,655,453		2,998,688		2,574,952
Equity in earnings from unconsolidated partnerships		8,314		8,112		1,473
Management fees and other income, net		15,999		12,441		8,957
Homebuilding operating earnings	$	638,843	$	421,958	$	350,381
Financial services revenues	$	559,362	$	487,246	$	424,554
Financial services costs and expenses		401,669		358,406		333,657
Financial services operating earnings	$	157,693	$	128,840	$	90,897
Revenues from affiliates		188,095		152,252	$	129,161
Earnings before provision for income taxes	$	984,631	$	703,050	$	570,439

Depreciation and amortization expense for homebuilding operations for the years ended November 30, 2003, 2002 and 2001 was $24.0 million, $21.3 million and $21.0 million, respectively.

The following table sets forth additional financial information relating to the financial services operations:

	Years Ended November 30,
(Dollars in thousands)	2003		2002		2001
Depreciation and amortization	$	8,206	$	7,273	$	9,487
Interest income, net	$	34,379	$	29,461	$	24,139

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4. INVESTMENTS IN UNCONSOLIDATED PARTNERSHIPS

Summarized condensed financial information on a combined 100% basis related to unconsolidated partnerships and other similar entities (collectively the “Partnerships”) in which the Company invests that are accounted for by the equity method was as follows:

	November 30,
(Dollars in thousands)	2003		2002
Assets:
Cash	$	38,702	$	16,214
Inventories		499,637		378,728
Other assets		18,604		18,289
	$	556,943	$	413,231
Liabilities and equity:
Accounts payable and other liabilities	$	107,591	$	49,721
Notes and mortgages payable		210,432		131,951
Equity		238,920		231,559
	$	556,943	$	413,231

	Years Ended November 30,
(Dollars in thousands)	2003		2002		2001
Revenues	$	249,711	$	238,136	$	158,619
Costs and expenses		228,778		223,560		157,702
Net earnings of unconsolidated partnerships	$	20,933	$	14,576	$	917

At November 30, 2003, the Company’s equity interest in these Partnerships did not exceed 50%. The Company’s partners generally are unrelated homebuilders, land sellers or other real estate entities. The Partnerships follow accounting principles generally accepted in the United States of America. The Company shares in the profits and losses of these Partnerships generally in accordance with its ownership interests. In many instances, the Company is appointed as the day-to-day manager of the Partnerships and receives fees for performing this function. During 2003, 2002 and 2001, the Company received management fees and reimbursement of expenses from the Partnerships totaling $17.9 million, $16.4 million and $15.9 million, respectively. In determining its share of the Partnerships’ net earnings, the Company does not include in its income its pro rata share of partnership earnings resulting from land sales to its homebuilding divisions. Instead, the Company accounts for those earnings as a reduction of the cost of purchasing the land from the partnerships. This in effect defers recognition of the Company’s share of the partnership earnings relating to these sales until a home is delivered and title passes to a homebuyer.

The Company and/or its partners sometimes obtain options or enter into other arrangements under which the Company can purchase portions of the land held by the Partnerships. Option prices are generally negotiated prices that approximate fair value when options are purchased. During 2003, 2002 and 2001, $73.7 million, $86.3 million and $44.6 million, respectively, of the Partnerships’ revenues were from land sales to the Company.

In some instances, the Company and/or its partners have provided varying levels of guarantees on certain Partnership debt. At November 30, 2003, the Company had recourse guarantees of $28.8 million and limited maintenance guarantees of $29.0 million of Partnership debt. When the Company and/or its partners provide a guarantee, the partnership generally receives more favorable terms from its lenders than would otherwise be available to it. The limited maintenance guarantees only apply if a partnership defaults on its loan arrangements and the carrying value of the collateral (generally land

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and improvements) is less than a specified percentage of the loan balance. If the Company is required to make a payment under a limited maintenance guarantee to bring the carrying value of the collateral above the specified percentage of the loan balance, the payment would constitute a capital contribution or loan to the unconsolidated partnership and increase the Company’s share of any funds the unconsolidated partnership distributes. There were no assets held as collateral that, upon the occurrence of any triggering event or condition under a guarantee, the Company could obtain and liquidate to recover all or a portion of the amounts paid under a guarantee.

5. SENIOR NOTES AND OTHER DEBTS PAYABLE

	November 30,
(Dollars in thousands)	2003		2002
8.25% senior notes due 2004	$	980	$	980
7.75% senior notes due 2005		—		2,199
8.88% senior subordinated notes due 2007		—		4,800
8.875% senior subordinated notes due 2009		1,387		1,387
Mortgage notes on land		32,734		58,951
	$	35,101	$	68,317

As a result of LEN Acquisition Corporation’s acquisition of U.S. Home, holders of U.S. Home’s publicly-held notes totaling $525 million were entitled to require U.S. Home to repurchase the notes for 101% of their principal amount within 90 days after the transaction was completed. Independent of that requirement, in April 2000, Lennar Corporation made a tender offer for all of the notes and a solicitation of consents to modify provisions of the indentures relating to the notes. As a result of the tender offer and required repurchases after the acquisition, Lennar Corporation paid approximately $520 million in 2000, which includes tender and consent fees, for $508 million of U.S. Home’s notes. These amounts paid on the Company’s behalf are included in due to affiliates in the consolidated balance sheets. At November 30, 2003 and 2002, the carrying value of U.S. Home’s senior notes detailed above was $2.4 million and $9.4 million, respectively.

At November 30, 2003, the Company had mortgage notes on land bearing interest at fixed interest rates ranging from 2.9% to 25.0%. The weighted average interest rate of the notes was 15.3% at November 30, 2003. The notes are due through 2009 and are collateralized by land. At November 30, 2003 and 2002, the carrying value of the mortgage notes was $32.7 million and $59.0 million, respectively.

The minimum aggregate principal maturities of senior notes and other debts payable during the years subsequent to November 30, 2003 are as follows: 2004—$15.4 million; 2005—$7.6 million and 2006—$10.5 million. The remaining principal obligations are due subsequent to November 30, 2008.

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6. FINANCIAL SERVICES

The assets and liabilities related to the Company’s financial services operations were as follows:

	November 30,
(Dollars in thousands)	2003		2002
Assets:
Cash	$	43,893	$	33,897
Receivables		213,032		185,277
Mortgage loans held for sale, net		542,507		708,304
Mortgage loans, net		30,451		30,137
Title plants		18,215		15,586
Goodwill, net		43,503		34,002
Investment securities		28,022		22,379
Collateral for bonds and notes payable		4,817		8,411
Other		47,500		35,085
	$	971,940	$	1,073,078
Liabilities:
Notes and other debts payable	$	734,657	$	853,416
Bonds and notes payable		4,580		7,947
Other		87,116		93,938
	$	826,353	$	955,301

At November 30, 2003, the Financial Services Division had warehouse lines of credit totaling $750 million, which included a $145 million temporary increase that expired in December 2003, to fund its mortgage loan activities. Borrowings under the facilities were $714.4 million and $489.7 million at November 30, 2003 and 2002, respectively, and were collateralized by mortgage loans and receivables on loans sold not yet funded with outstanding principal balances of $742.2 million and $523.8 million, respectively. There are several interest rate pricing options which fluctuate with market rates. The effective interest rate on the facilities at November 30, 2003 and 2002 was 1.7% and 2.3%, respectively. The warehouse lines of credit mature in May 2004 ($250 million) and in October 2005 ($500 million), at which time the Division expects both facilities to be renewed. Additionally, the line of credit maturing in May 2004 includes an incremental $100 million commitment available at each fiscal quarter-end. At November 30, 2003 and 2002, the Division had advances under a conduit funding agreement with a major financial institution amounting to $0.6 million and $343.7 million, respectively. Borrowings under this agreement are collateralized by mortgage loans and had an effective interest rate of 1.9% and 2.3% at November 30, 2003 and 2002, respectively. The Division also had a $20 million revolving line of credit with a bank, collateralized by certain assets of the Division and stock of certain title subsidiaries. Borrowings under the line of credit were $19.4 million and $20.0 million at November 30, 2003 and 2002, respectively, and had an effective interest rate of 2.1% and 2.4% at November 30, 2003 and 2002, respectively.

The minimum aggregate principal maturities of the Financial Services Division’s notes and other debts payable (including limited-purpose finance subsidiaries) during the five years subsequent to November 30, 2003 are as follows: 2004—$734.5 million; 2005—$0.1 million and 2006—$0.1 million. The remaining principal obligations are due subsequent to November 30, 2008.

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7. INCOME TAXES

The provision (benefit) for income taxes consisted of the following:

	Years Ended November 30,
(Dollars in thousands)	2003			2002		2001
Current:
Federal	$	354,190		$	226,622	$	182,425
State		45,998			30,784		24,141
		400,188			257,406		206,566
Deferred:
Federal		(25,146	)		7,195		11,468
State		(3,343	)		931		250
		(28,489	)		8,126		11,718
	$	371,699		$	265,532	$	218,284

The actual income tax expense differs from the “expected” tax expense for the year (computed by applying the U.S. federal corporate rate of 35% to earnings before provision for income taxes) primarily due to the amount of state income taxes, net of the related federal tax benefit.

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Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of the assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The tax effects of significant temporary differences that give rise to the net deferred tax asset are as follows:

	November 30,
(Dollars in thousands)	2003		2002
Deferred tax assets:
Acquisition adjustments	$	26,531	$	36,041
Reserves and accruals		99,512		76,108
Net operating loss and capital loss carryforwards, tax affected		4,379		4,379
Capitalized expenses		13,501		11,415
Deferred income		13,581		—
Investments in unconsolidated partnerships		988		1,004
Other		2,230		4,665
Deferred tax assets		160,722		133,612
Less: valuation allowance		—		(6,978	)
Total deferred tax assets, net		160,722		126,634
Deferred tax liabilities:
Acquisition adjustments		3,443		3,058
Reserves and accruals		1,839		574
Capitalized expenses		22,392		30,663
Investments in unconsolidated partnerships		34		—
Other		43,816		38,608
Total deferred tax liabilities		71,524		72,903
Net deferred tax asset	$	89,198	$	53,731

The net deferred tax asset is included in other assets of the Homebuilding Division and the assets of the Financial Services Division in the consolidated balance sheets. SFAS No. 109 requires the reduction of deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is more likely than not that a portion or all of the deferred tax asset will not be realized. During fiscal 2003, restrictions associated with the utilization of the capital loss carryforwards and acquisition adjustments lapsed, resulting in the reduction of the valuation allowance. Because the asset was established in connection with an acquisition, the reduction of the valuation allowance resulted in a decrease to goodwill. Based on management’s assessment, it is more likely than not that the net deferred tax asset will be realized through future taxable earnings.

8. FINANCIAL INSTRUMENTS

The following table presents the carrying amounts and estimated fair values of financial instruments held by the Company at November 30, 2003 and 2002, using available market information and what the Company believes to be appropriate valuation methodologies. Considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies might have a material effect on the estimated fair value amounts. The table excludes cash, receivables and accounts payable, which had fair values approximating their carrying values.

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	NOVEMBER 30,
(Dollars in thousands)	2003						2002
	Carrying Amount			Fair Value			Carrying Amount			Fair Value
Financial services assets:
Mortgage loans held for sale, net	$	542,507		$	542,507		$	708,304		$	708,304
Mortgage loans, net		30,451			29,355			30,137			29,467
Collateral for bonds and notes payable		4,817			5,134			8,411			8,912
Investment securities		28,022			28,021			22,379			22,412
Homebuilding liabilities:
Senior notes and other debts payable	$	35,101		$	35,101		$	68,317		$	68,317
Financial services liabilities:
Notes and other debts payable	$	734,657			734,657		$	853,416			853,416
Bonds and notes payable		4,580			4,930			7,947			8,465
Other instruments:
Commitments to originate loans	$	(229	)		(229	)	$	(717	)		(717	)
Commitments to sell loans and option contracts		(1,120	)		(1,120	)		1,430			1,430

The following methods and assumptions are used by the Company in estimating fair values:

Homebuilding—Senior notes and other debts payable: The fair value of fixed rate borrowings is based on quoted market prices. Variable rate borrowings are tied to market indices and therefore approximate fair value.

Financial services—The fair values are based on quoted market prices, if available. The fair values for instruments which do not have quoted market prices are estimated by the Company on the basis of discounted cash flows or other financial information.

As of November 30, 2003, the Financial Services Division’s commitments regarding loans in process totaled approximately $2.6 billion. To minimize credit risk, the Division uses the same credit policies in the approval of the commitments as are applied to all lending activities. Since a portion of these commitments is expected to expire without being exercised by the borrowers, the total commitments do not necessarily represent future cash requirements. Loans in process for which interest rates were committed to the borrowers totaled approximately $330.7 million as of November 30, 2003. Substantially all of these commitments were for periods of 60 days or less.

Mandatory mortgage-backed securities forward commitments (“MBS”) are used by the Company to hedge its interest rate exposure during the period from when it makes an interest rate commitment to a loan applicant until the time at which the loan is sold to an investor. These instruments involve, to varying degrees, elements of credit and interest rate risk. Credit risk is managed by entering into MBS

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only with investment banks with primary dealer status and with permanent investors meeting the credit standards of the Company. At any time, the risk to the Company, in the event of default by the purchaser, is the difference between the contract price and current market value. At November 30, 2003, the Company had open commitments amounting to $512.0 million to sell MBS with varying settlement dates through January 2004.

9. RELATED PARTY TRANSACTIONS

Lennar Corporation has an agreement with Greystone Homes of Nevada, Inc. (“Greystone”), a majority-owned subsidiary of Greystone Homes, Inc. and U.S. Home, which are both wholly-owned subsidiaries of Lennar Corporation, whereby Greystone has granted to affiliates of Lennar Corporation the right to use certain property for a fee. Unpaid fees bear interest at 9% annually. During 2002 and 2001, revenues from affiliates in the consolidated statements of earnings are comprised of the affiliates’ fee and interest. On a quarterly basis, these amounts are paid to Greystone by Lennar Corporation through a financing arrangement between Lennar Corporation and certain affiliates.

During December 2002, Greystone transferred the license agreement to another majority-owned subsidiary of the Company. That subsidiary has continued to grant the Company the right to use the property as applied to the grant from Greystone. Unpaid fees bear interest at 7.7% annually. On a quarterly basis, these amounts are paid to Greystone by Lennar Corporation through a financing arrangement between Lennar Corporation and certain affiliates. During 2003, revenues from affiliates in the consolidated statements of earnings are comprised of the affiliates’ fee and interest. The term of the agreement automatically renews on the anniversary date unless terminated earlier by three months written notice by either party.

The Company has an agreement with Lennar Associates Management, LLC (“LAM”), a wholly-owned subsidiary of Lennar Corporation, whereby LAM leases certain employees to the Company for its costs incurred, including salaries, plus a fee. Costs incurred and the related fee are included in homebuilding expenses in the consolidated statements of earnings. During 2003 and 2002, the Company’s fee was $0.3 million and $0.5 million, respectively. On a quarterly basis, these amounts are paid by Lennar Corporation to LAM. The amounts paid by Lennar Corporation on behalf of the Company are included in due to affiliates in the Company’s consolidated balance sheets. The term of the agreement automatically renews on the anniversary date unless terminated earlier by three months written notice by either party.

During 2003, U.S. Home Associates Management, Inc. (“USHAM”), a wholly-owned subsidiary of the Company, entered into an agreement with certain affiliates of Lennar Corporation whereby USHAM leases certain employees for the Company’s costs incurred, including salaries, plus a fee. The fees are included in revenues from affiliates. During 2003, USHAM’s leasing fee was $0.3 million. On a quarterly basis, these amounts are paid by Lennar Corporation to USHAM. The amounts paid by Lennar Corporation are included in due to affiliates in the Company’s consolidated balance sheets. The term of the agreement automatically renews on the anniversary date unless terminated earlier by three months written notice by either party.

During January 2003, Lennar Family of Builders, LP (“LFB”), a wholly-owned subsidiary of Lennar Homes, Inc., which is a wholly-owned subsidiary of Lennar Corporation, entered into a contract with the Company whereby LFB will construct certain homes on behalf of the Company for a fee. Unpaid fees bear no interest. Costs incurred to construct homes and the related fees are included in homebuilding expenses in the consolidated statements of earnings. During 2003, LFB’s construction fee was $38.4 million. On a quarterly basis, these amounts are paid to LFB

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by Lennar Corporation. The term of the agreement automatically renews on the anniversary date unless terminated earlier by three months written notice by either party.

During 2003 and 2002, Lennar Corporation and its subsidiaries advanced and borrowed funds to and from the Company which had no stated repayment terms. At November 30, 2003, the Company’s aggregate payable to affiliates was $14.7 million and $88.6 million, respectively.

10. CONSOLIDATION OF VARIABLE INTEREST ENTITIES

In January 2003, the FASB issued FIN 46, as further clarified and amended by the FASB’s issuance of a revision to FIN 46 in December 2003, which requires the consolidation of entities in which an enterprise absorbs a majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual or other financial interests in the entity. Prior to the issuance of FIN 46, entities were generally consolidated by an enterprise when it had a controlling financial interest through ownership of a majority voting interest in the entity. FIN 46 applied immediately to variable interests created after January 31, 2003, and with respect to variable interests created before February 1, 2003, FIN 46 will apply in the Company’s second quarter ending May 31, 2004, as deferred by the FASB in December 2003. Although the Company does not believe the full adoption of FIN 46 will have a material impact on net earnings, the Company cannot make any definitive determination until it completes its evaluation.

Partnerships

At November 30, 2003, the Company had investments in and advances to partnerships established to acquire and develop land for sale to the Company in connection with its homebuilding operations or for sale to third parties. The Company evaluated its partnership agreements entered into subsequent to January 31, 2003 under FIN 46. The Company did not consolidate any partnerships created after January 31, 2003 as the Company determined it was not the primary beneficiary, as defined under FIN 46. The Company is in the process of evaluating the remainder of its unconsolidated partnerships that may be deemed variable interest entities under the provisions of FIN 46. At November 30, 2003, the Company’s estimated maximum exposure to loss with regard to unconsolidated partnerships was its recorded investment in these partnerships totaling $128.0 million in addition to the exposure under the guarantees discussed in Note 4.

Option contracts

The Company evaluated its option contracts for land entered into subsequent to January 31, 2003 and determined it is the primary beneficiary of certain of these option contracts. Although the Company does not have legal title to the optioned land, under FIN 46, the Company, as the primary beneficiary, is required to consolidate the land under option at fair value (the exercise price). The effect of the consolidation was an increase of $31.0 million to inventories with a corresponding increase to liabilities related to consolidated inventory not owned in the accompanying consolidated balance

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sheet as of November 30, 2003. The liabilities related to consolidated inventory not owned represent the difference between the exercise price of the optioned land and the Company’s deposits. At November 30, 2003, the total fair value of the inventory consolidated under FIN 46 was $32.7 million. The Company is in the process of evaluating the remainder of its option contracts that may be deemed issued by variable interest entities under the provisions of FIN 46. At November 30, 2003, the Company’s exposure to loss represents its non-refundable option deposits and/or letters of credit related to options with estimated aggregate exercise prices totaling approximately $2 billion.

11. COMMITMENTS AND CONTINGENT LIABILITIES

The Company and certain subsidiaries are party to various claims, legal actions and complaints arising in the ordinary course of business. In the opinion of management, the disposition of these matters will not have a material adverse effect on the financial condition, results of operations or cash flows of the Company.

The Company is subject to the usual obligations associated with entering into contracts (including option contracts) for the purchase, development and sale of real estate, which it does in the routine conduct of its business. Option contracts for the purchase of land permit the Company to defer acquiring portions of properties owned by third parties and certain unconsolidated partnerships until the Company is ready to build homes on them. The use of option contracts allows the Company to reduce the financial risk of adverse market conditions associated with long-term land holdings. At November 30, 2003, the Company had $150.1 million of non-refundable option deposits and advanced costs on real estate, which are included in inventories in the consolidated balance sheet.

The Company has entered into agreements to lease certain office facilities and equipment under operating leases. Future minimum payments under the noncancelable leases are as follows: 2004—$34.5 million; 2005—$26.4 million; 2006—$20.6 million; 2007—$15.4 million; 2008—$8.6 million and thereafter—$9.1 million. Rental expense for the years ended November 30, 2003, 2002 and 2001 was $39.8 million, $33.1 million, and $33.4 million, respectively.

The Company is committed, under various letters of credit, to perform certain development and construction activities and provide certain guarantees in the normal course of business. Outstanding letters of credit under these arrangements totaled $307.3 million at November 30, 2003. The Company also had outstanding performance and surety bonds with estimated costs to complete of $556.4 million related principally to its obligations for site improvements at various projects at November 30, 2003. The Company does not believe that draws upon these bonds, if any, will have a material effect on the Company’s financial position, results of operations or cash flows.

The Company has guaranteed obligations of Lennar Corporation with regard to certain issues of its outstanding debt, and the stock of the Company has been pledged as collateral for Lennar Corporation’s obligations with regard to that debt. The Company knows of no event of default which would require it to satisfy these guarantees and, therefore, the fair value of these contingent liabilities is considered immaterial.

* * * * * *

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INDEPENDENT AUDITORS’ REPORT

To the Board of Directors of

Lennar Land Partners Sub II, Inc.:

We have audited the accompanying consolidated balance sheets of Lennar Land Partners Sub II, Inc. and subsidiaries (the “Company”), a wholly-owned subsidiary of Lennar Corporation, as of November 30, 2003 and 2002 and the related consolidated statements of earnings, stockholder’s equity and cash flows for each of the three years in the period ended November 30, 2003. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of November 30, 2003 and 2002, and the results of its operations and its cash flows for each of the three years in the period ended November 30, 2003, in conformity with accounting principles generally accepted in the United States of America.

/s/ DELOITTE & TOUCHE LLP

Certified Public Accountants

Miami, Florida

February 27, 2004

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LENNAR LAND PARTNERS SUB II, INC. AND SUBSIDIARIES

(A Wholly-Owned Subsidiary of Lennar Corporation)

CONSOLIDATED BALANCE SHEETS

NOVEMBER 30, 2003 AND 2002 (Dollars in thousands, except par value)

	2003		2002
ASSETS
Cash	$	252	$	49
Investment in unconsolidated partnership		50,598		34,716
Other assets		10		10
Due from affiliates		140,807		156,324
Total assets	$	191,667	$	191,099
LIABILITIES AND STOCKHOLDER’S EQUITY
LIABILITIES:
Accounts payable and other liabilities	$	127	$	9,240
Total liabilities		127		9,240
STOCKHOLDER’S EQUITY:
Common stock, $1 par value; 5,000 shares authorized, 100 shares issued and outstanding		—		—
Additional paid-in capital		92,420		92,420
Retained earnings		99,120		89,439
Total stockholder’s equity		191,540		181,859
Total liabilities and stockholder’s equity	$	191,667	$	191,099

See accompanying notes to consolidated financial statements.

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LENNAR LAND PARTNERS SUB II, INC. AND SUBSIDIARIES

(A Wholly-Owned Subsidiary of Lennar Corporation)

CONSOLIDATED STATEMENTS OF EARNINGS

YEARS ENDED NOVEMBER 30, 2003, 2002 AND 2001 (Dollars in thousands)

	2003		2002		2001
REVENUES:
Land sales	$	—	$	14,495	$	37,270
Total revenues		—		14,495		37,270
COSTS AND EXPENSES:
Cost of land sold				3,934		14,111
General and administrative		84		225		291
Total costs and expenses		84		4,159		14,402
Equity in earnings from unconsolidated partnership		15,635		22,493		16,386
Management fees and other income, net		—		—		425
EARNINGS BEFORE PROVISION FOR INCOME TAXES		15,551		32,829		39,679
PROVISION FOR INCOME TAXES		5,870		12,393		15,276
NET EARNINGS	$	9,681	$	20,436	$	24,403

See accompanying notes to consolidated financial statements.

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LENNAR LAND PARTNERS SUB II, INC. AND SUBSIDIARIES

(A Wholly-Owned Subsidiary of Lennar Corporation)

CONSOLIDATED STATEMENTS OF STOCKHOLDER’S EQUITY

YEARS ENDED NOVEMBER 30, 2003, 2002 AND 2001 (Dollars in thousands)

	Common Stock		Additional Paid-in Capital		Retained Earnings		Total
Balance, November 30, 2000	$	—	$	92,420	$	44,600	$	137,020
2001 net earnings		—		—		24,403		24,403
Balance, November 30, 2001		—		92,420		69,003		161,423
2002 net earnings		—		—		20,436		20,436
Balance, November 30, 2002		—		92,420		89,439		181,859
2003 net earnings		—		—		9,681		9,681
Balance, November 30, 2003	$	—	$	92,420	$	99,120	$	191,540

See accompanying notes to consolidated financial statements.

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LENNAR LAND PARTNERS SUB II, INC. AND SUBSIDIARIES

(A Wholly-Owned Subsidiary of Lennar Corporation)

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED NOVEMBER 30, 2003, 2002 AND 2001 (Dollars in thousands)

	2003			2002			2001
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings	$	9,681		$	20,436		$	24,403
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
Equity in earnings from unconsolidated partnership		(15,635	)		(22,493	)		(16,386	)
Deferred income tax provision (benefit)		—			42			(17	)
Changes in assets and liabilities:
(Increase) decrease in land held for development and sale		—			3,212			(991	)
Decrease in other assets		—			—			65
Increase (decrease) in accounts payable and other liabilities		(9,113	)		(6,198	)		10,675
Net cash provided by (used in) operating activities		(15,067	)		(5,001	)		17,749
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in investment in unconsolidated partnership, net		(2,930	)		32,620			28,212
Net cash provided by (used in) investing activities		(2,930	)		32,620			28,212
CASH FLOWS FROM FINANCING ACTIVITIES:
(Increase) decrease in amounts due from affiliates		18,200			(27,806	)		(45,725	)
Net cash provided by (used in) financing activities		18,200			(27,806	)		(45,725	)
NET INCREASE (DECREASE) IN CASH		203			(187	)		236
CASH AT BEGINNING OF YEAR		49			236			—
CASH AT END OF YEAR	$	252		$	49		$	236

See Note 1 for supplemental disclosures of cash flow information related to interest

and income taxes paid.

See accompanying notes to consolidated financial statements.

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LENNAR LAND PARTNERS SUB II, INC. AND SUBSIDIARIES

(A Wholly-Owned Subsidiary of Lennar Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED NOVEMBER 30, 2003, 2002 and 2001

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Consolidation—The accompanying consolidated financial statements include the accounts of Lennar Land Partners Sub II, Inc., and all subsidiaries, partnerships and other entities (the “Company”) in which the Company has a controlling interest and variable interest entities (“VIEs”) created after January 31, 2003 in which the Company is deemed the primary beneficiary (see Note 5). The Company’s investments in unconsolidated partnerships in which a significant, but less than controlling, interest is held and VIEs created after January 31, 2003 in which the Company is not deemed to be the primary beneficiary, are accounted for by the equity method. The Company is a wholly-owned subsidiary of Lennar Corporation and was formed on June 21, 1999 by the contribution of an investment in an unconsolidated partnership. The investment in the unconsolidated partnership was recorded at Lennar Corporation’s historical carrying value. All significant intercompany transactions and balances have been eliminated in consolidation.

The Company operates in one operating and reporting segment. The activities in this segment include the purchase, development and sale of residential land directly and through the Company’s unconsolidated partnership.

Use of Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Revenue Recognition—Revenues from land sales are recognized when a significant down payment is received, the earnings process is complete and the collection of any remaining receivables is reasonably assured.

Cash—The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents.

Due from Affiliates—The Company has transactions in the normal course of business with Lennar Corporation and/or affiliated companies.

Interest and Real Estate Taxes—Interest and real estate taxes attributable to land are capitalized as inventories while the properties are being actively developed. Interest related to land, including interest costs relieved from inventories, is included in cost of land sold. Interest costs result from the interest related to debt incurred by the Company’s parent, Lennar Corporation. Lennar Corporation allocates a portion of its interest to the Company based on the Company’s inventory levels during the year.

Income Taxes—The Company files a consolidated federal income tax return with Lennar Corporation. Income taxes have been provided at the Company level as if the Company filed an income tax return on a stand-alone basis. Current taxes due are recorded as a payable to Lennar Corporation, and the deferred portion is recorded as deferred taxes. Income taxes are accounted for in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 109, Accounting for Income Taxes. Under

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SFAS No. 109, deferred tax assets and liabilities are determined based on differences between financial reporting carrying values and tax bases of assets and liabilities, and are measured by using enacted tax rates expected to apply to taxable income in the years in which those differences are expected to reverse.

Fair Value of Financial Instruments—The carrying amounts of cash and accounts payable approximate fair value due to the short-term nature of the financial instruments.

New Accounting Pronouncements—In October 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 provides accounting guidance for financial accounting and reporting for impairment or disposal of long-lived assets. SFAS No. 144 supersedes SFAS No. 121. The implementation of SFAS No. 144 did not have a material impact on the Company’s financial condition, results of operations or cash flows.

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. This statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under SFAS No. 133. This statement was effective for contracts entered into or modified after June 30, 2003. The implementation of SFAS No. 149 did not have a material impact on the Company’s financial condition, results of operations or cash flows.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. This statement establishes standards for the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. Certain provisions of this statement were effective for financial instruments entered into or modified after May 31, 2003 and otherwise was effective at the beginning of the first interim period beginning after June 15, 2003. In October 2003, the FASB deferred indefinitely certain provisions of this statement pertaining to non-controlling interests in limited life entities. The Company does not believe that the implementation of SFAS No. 150 had, or will have, a material impact on the Company’s financial position, results of operations or cash flows.

In November 2002, the FASB issued Interpretation No. 45 (“FIN 45”), Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. In accordance with the provisions of FIN 45, the Company adopted the initial recognition and measurement provisions on a prospective basis with regard to guarantees issued after December 31, 2002. The implementation of FIN 45 did not have a material impact on the Company’s financial condition, results of operations or cash flows.

In January 2003, the FASB issued Interpretation No. 46 (“FIN 46”), Consolidation of Variable Interest Entities, as further clarified and amended by the FASB’s issuance of a revision to FIN 46 in December 2003. FIN 46 requires the consolidation of entities in which an enterprise absorbs a majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual or other financial interests in the entity. Prior to the issuance of FIN 46, entities were generally consolidated by an enterprise when it had a controlling financial interest through ownership of a majority voting interest in the entity. FIN 46 applied immediately to variable interests created after January 31, 2003, and with respect to variable interests created before February 1, 2003, FIN 46 will apply in the Company’s second quarter ending May 31, 2004, as deferred by the FASB in December 2003. Although the Company does not believe the full adoption of FIN 46 will have a

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material impact on net earnings, the Company cannot make any definitive determination until it completes its evaluation (see Note 5).

Reclassifications—Certain prior year amounts in the consolidated financial statements have been reclassified to conform with the 2003 presentation.

2. INVESTMENT IN UNCONSOLIDATED PARTNERSHIP

On November 30, 2003, the Company contributed its 50% ownership interest in its unconsolidated partnership that is jointly-owned with LNR Property Corporation, to a new limited liability company named LandSource Communities Development LLC (“LandSource”), in exchange for a 23% interest in LandSource. Summarized condensed financial information of partnerships in which the Company invests that are accounted for by the equity method was as follows (all information presented below relates to the Company’s investment in Lennar Land Partners II, except for the November 30, 2003 balance sheet which relates to LandSource):

	November 30,
(Dollars in thousands)	2003		2002
ASSETS:
Cash	$	85,042	$	—
Inventories		137,981		115,985
Other assets		124,518		62,277
	$	347,541	$	178,262
LIABILITIES AND EQUITY:
Accounts payable and other liabilities	$	63,252	$	50,186
Mortgage notes and other debts payable		59,033		58,644
Equity		225,256		69,432
	$	347,541	$	178,262

	Years Ended November 30,
(Dollars in thousands)	2003		2002		2001
Revenues	$	136,072	$	139,565	$	130,002
Costs and expenses		104,802		94,579		97,230
Net earnings of unconsolidated partnership	$	31,270	$	44,986	$	32,772

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3. INCOME TAXES

The provision (benefit) for income taxes consisted of the following:

	Years ended November 30,
(Dollars in thousands)	2003		2002		2001
Current:
Federal	$	5,195	$	10,836	$	13,369
State		675		1,515		1,924
		5,870		12,351		15,293
Deferred:
Federal		—		37		(16	)
State		—		5		(1	)
		—		42		(17	)
	$	5,870	$	12,393	$	15,276

The actual income tax expense differs from the “expected” tax expense for the year (computed by applying the U.S. federal corporate rate of 35% to earnings before provision for income taxes) primarily due to the amount of state income taxes, net of the related federal tax benefit.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of the assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. As of November 30, 2003, there were no temporary differences that gave rise to deferred tax assets.

4. RELATED PARTY TRANSACTIONS

The Company and its unconsolidated partnership, in the ordinary course of business, sell land to affiliates of Lennar Corporation. During 2003, 2002 and 2001, these land sales amounted to $26.5 million, $39.2 million and $88.7 million, respectively, and generated gains of $6.0 million, $23.2 million and $39.4 million, respectively. Amounts received from affiliates of Lennar Corporation approximated fair value.

During 2003 and 2002, Lennar Corporation and its subsidiaries advanced and borrowed funds to and from the Company which had no stated repayment terms. At November 30, 2003 and 2002, the Company’s aggregate receivable from affiliates was $140.8 million and $156.3 million, respectively.

5. CONSOLIDATION OF VARIABLE INTEREST ENTITIES

In January 2003, the FASB issued FIN 46, as further clarified and amended by the FASB’s issuance of a revision to FIN 46 in December 2003, which requires the consolidation of entities in which an enterprise absorbs a majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual or other financial interests in the entity. Prior to the issuance of FIN 46, entities were generally consolidated by an enterprise when it had a controlling financial interest through ownership of a majority voting interest in the entity. FIN 46

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applied immediately to variable interests created after January 31, 2003, and with respect to variable interests created before February 1, 2003, FIN 46 will apply in the Company’s second quarter ending May 31, 2004, as deferred by the FASB in December 2003. Although the Company does not believe the full adoption of FIN 46 will have a material impact on net earnings, the Company cannot make any definitive determination until it completes its evaluation.

Partnership

At November 30, 2003, the Company had an investment in and advances to an unconsolidated partnership which acquires and develops land for sale to Lennar Corporation in connection with its homebuilding operations or for sale to third parties. The Company evaluated this partnership, which was entered into subsequent to January 31, 2003 under FIN 46. This partnership was not consolidated as the Company determined it was not the primary beneficiary, as defined under FIN 46. At November 30, 2003, the Company’s estimated maximum exposure to loss with regard to this partnership was its recorded investment in the partnership totaling $50.6 million.

6. COMMITMENTS AND CONTINGENT LIABILITIES

The Company and certain subsidiaries are party to various claims, legal actions and complaints arising in the ordinary course of business. In the opinion of management, the disposition of these matters will not have a material adverse effect on the financial condition, results of operations or cash flows of the Company.

The Company has guaranteed obligations of Lennar Corporation with regard to certain issues of its outstanding debt, and the stock of the Company has been pledged as collateral for Lennar Corporation’s obligations with regard to that debt. The Company knows of no event of default which would require it to satisfy these guarantees and, therefore, the fair value of these contingent liabilities is considered immaterial.

* * * * * *

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INDEPENDENT AUDITORS’ REPORT

To the Board of Directors of

Lennar Financial Services, LLC:

We have audited the accompanying consolidated balance sheets of Lennar Financial Services, LLC and subsidiaries (“LFS”), a wholly owned subsidiary of U.S. Home Corporation, as of November 30, 2003 and 2002 and the related consolidated statements of earnings, members’ equity and cash flows for each of the three years in the period ended November 30, 2003. These financial statements are the responsibility of LFS’ management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of LFS as of November 30, 2003 and 2002, and the results of its operations and its cash flows for each of the three years in the period ended November 30, 2003, in conformity with accounting principles generally accepted in the United States of America.

/s/ DELOITTE & TOUCHE LLP

Certified Public Accountants

Miami, Florida

February 27, 2004

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LENNAR FINANCIAL SERVICES, LLC AND SUBSIDIARIES

(A Wholly Owned Subsidiary of U.S. Home Corporation)

CONSOLIDATED BALANCE SHEETS

NOVEMBER 30, 2003 AND 2002 (in thousands)

	2003		2002
ASSETS
Cash	$	43,482	$	33,410
Receivables, net		212,886		185,248
Loans held for sale, net		542,507		708,304
Loans held for investment, net		35,268		38,548
Investment securities		28,022		22,379
Due from affiliates		242,386		171,378
Title plants		18,215		15,586
Goodwill, net		43,503		34,002
Other assets		47,039		34,546
TOTAL	$	1,213,308	$	1,243,401
LIABILITIES AND MEMBERS’ EQUITY
Accounts payable and other liabilities	$	87,097	$	93,919
Borrowings under credit agreements and other debt		739,237		861,363
Total liabilities		826,334		955,282
Members’ equity		386,974		288,119
TOTAL	$	1,213,308	$	1,243,401

See accompanying notes to consolidated financial statements.

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LENNAR FINANCIAL SERVICES, LLC AND SUBSIDIARIES

(A Wholly Owned Subsidiary of U.S. Home Corporation)

CONSOLIDATED STATEMENTS OF EARNINGS

YEARS ENDED NOVEMBER 30, 2003, 2002 AND 2001 (in thousands)

	2003		2002		2001
REVENUES:
Title and escrow	$	300,691	$	267,148	$	232,294
Loan origination and sales		192,675		158,015		136,164
Interest income		45,434		41,280		37,410
Other		21,573		22,463		17,627
Total revenues		560,373		488,906		423,495
OPERATING EXPENSES:
Payroll and benefits		268,349		213,562		185,747
Other administrative expenses		74,353		94,189		91,299
Occupancy		30,394		26,147		24,853
Provision for losses		11,702		7,513		8,591
Depreciation and amortization		8,242		7,317		9,809
Interest		8,528		9,592		13,271
Total operating expenses		401,568		358,320		333,570
EARNINGS BEFORE PROVISION FOR INCOME TAXES		158,805		130,586		89,925
PROVISION FOR INCOME TAXES		59,950		49,427		33,286
NET EARNINGS	$	98,855	$	81,159	$	56,639

See accompanying notes to consolidated financial statements.

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LENNAR FINANCIAL SERVICES, LLC AND SUBSIDIARIES

(A Wholly Owned Subsidiary of U.S. Home Corporation)

CONSOLIDATED STATEMENTS OF MEMBERS’ EQUITY

YEARS ENDED NOVEMBER 30, 2003, 2002 AND 2001 (in thousands)

	U.S. Home Corporation		LFS Holding Company, LLC		Total
BALANCE—November 30, 2000	$	148,323	$	1,498	$	149,821
Net earnings		56,073		566		56,639
BALANCE—November 30, 2001		204,396		2,064		206,460
Cash contributions		495		5		500
Net earnings		80,347		812		81,159
BALANCE—November 30, 2002		285,238		2,881		288,119
Net earnings		97,866		989		98,855
BALANCE—November 30, 2003	$	383,104	$	3,870	$	386,974

See accompanying notes to consolidated financial statements.

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LENNAR FINANCIAL SERVICES, LLC AND SUBSIDIARIES

(A Wholly Owned Subsidiary of U.S. Home Corporation)

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED NOVEMBER 30, 2003, 2002 AND 2001 (in thousands)

	2003			2002			2001
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings	$	98,855		$	81,159		$	56,639
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
Deferred income tax (benefit) provision		(3,730	)		3,583			(10,100	)
Depreciation and amortization		8,242			7,317			9,809
Amortization of discounts		(36	)		(44	)		(322	)
Provision for losses		11,702			7,513			8,591
Origination and acquisition of loans		(6,665,575	)		(6,131,731	)		(5,135,877	)
Proceeds on sales of loans		6,831,348			6,008,716			4,929,416
Changes in assets and liabilities, net of effect from acquisitions:
Net increase in receivables		(27,180	)		(79,032	)		(77,814	)
Net (increase) decrease in other assets		(6,465	)		(7,411	)		5,435
Net (decrease) increase in accounts payable and other liabilities		(16,773	)		3,360			2,407
Net cash provided by (used in) operating activities		230,388			(106,570	)		(211,816	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Net additions and principal reductions of loans and mortgage-backed securities held for investment, net		(297	)		18,082			3,910
Purchases of investments		(23,274	)		(31,545	)		(18,143	)
Maturities of investments		17,674			22,442			17,700
Principal reductions (increases) of collateral for bonds and notes payable		3,594			(180	)		932
Originations of mortgage servicing rights, net		—			—			10,802
Proceeds from sale of cable system		—			9,399			—
Net additions to operating properties and equipment		(14,215	)		(10,270	)		(6,875	)
Acquisitions, net of cash acquired		(10,177	)		(8,670	)		(1,630	)
Capital contributions		—			500			—
Other investments		—			(261	)		—
Net cash (used in) provided by investing activities		(26,695	)		(503	)		6,696
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in borrowings under credit agreements		(118,989	)		159,485			264,996
Repayment of bonds and notes payable		(3,366	)		(3,733	)		(6,598	)
Net increase in amounts due from affiliates		(71,266	)		(61,562	)		(46,306	)
Net cash (used in) provided by financing activities		(193,621	)		94,190			212,092
NET INCREASE (DECREASE) IN CASH		10,072			(12,883	)		6,972
CASH—Beginning of year		33,410			46,293			39,321
CASH—End of year	$	43,482		$	33,410		$	46,293
								(Continued	)

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LENNAR FINANCIAL SERVICES, LLC AND SUBSIDIARIES

(A Wholly Owned Subsidiary of U.S. Home Corporation)

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED NOVEMBER 30, 2003, 2002 AND 2001 (in thousands)

	2003			2002			2001
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest	$	9,047		$	10,322		$	13,981
ACQUISITION OF MID AMERICA TITLE COMPANY, SENTINEL TITLE CORPORATION, EAGLE HOME MORTGAGE, INC., PRASKI MORTGAGE, INC., AND TEXAS PROFESSIONAL TITLE, INC.:
Fair value of assets (inclusive of cash of $693)	$	3,563
Goodwill recorded		9,501
Fair value of liabilities assumed		(2,194	)
Cash paid	$	10,870
ACQUISITION OF SENTINEL TITLE CORPORATION, PRASKI MORTGAGE, INC., EAGLE HOME MORTGAGE, INC., AND NORTH AMERICAN ASSET DEVELOPMENT CORPORATION AND SUBSIDIARIES:
Fair value of assets (inclusive of cash of $4,873 )				$	5,232
Goodwill recorded					8,844
Fair value of liabilities assumed					(533	)
Cash paid				$	13,543
ACQUISITION OF TEXAS PROFESSIONAL TITLE, INC., AND NORTH AMERICAN ASSET DEVELOPMENT CORPORATION AND SUBSIDIARIES:
Fair value of assets (inclusive of cash of $ —  )							$	—
Goodwill recorded								1,630
Fair value of liabilities assumed								—
Cash paid							$	1,630

(Concluded)

See accompanying notes to consolidated financial statements.

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LENNAR FINANCIAL SERVICES, LLC AND SUBSIDIARIES

(A Wholly Owned Subsidiary of U.S. Home Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED NOVEMBER 30, 2003, 2002 AND 2001

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation—Lennar Financial Services, LLC and Subsidiaries (“LFS”), a wholly owned subsidiary of U.S. Home Corporation (“U.S. Home”), is the holding company for the entities which primarily form the Financial Services Division (the “Division”) of Lennar Corporation (“Lennar”). The Division’s operations include mortgage financing, title insurance and closing services, insurance agency services, broadband services including high-speed Internet access, as well as alarm installation and monitoring services, all of which are available to residents of Lennar communities and others. These services are conducted by the Division’s subsidiaries: Universal American Mortgage Company, LLC (“UAMC”), North American Title Group, Inc., Strategic Technologies, Inc., Universal American Insurance Agency, Inc. and their related subsidiaries. The Division’s investments in unconsolidated entities in which a significant, but less than a controlling interest is held and variable interest entities created after January 31, 2003 in which LFS is not deemed to be the primary beneficiary, are accounted for by the equity method. Controlling interest is determined based on a number of factors, which include the Division’s ownership interest and participation in the management of the limited liability company.

In June 2001, the ownership structure of LFS was reorganized whereby LFS became a subsidiary of U.S. Home. U.S. Home Mortgage Corporation (formerly a subsidiary of U.S. Home) became a subsidiary of LFS and U.S. Home Mortgage Corporation was then merged into LFS’s subsidiary UAMC, with UAMC being the surviving entity. These transactions were accounted for as a reorganization of entities under common control and, accordingly, all prior period consolidated financial statements have been presented at historical carrying values as if this transaction had occurred on May 3, 2000, the date when Lennar acquired U.S. Home.

In August 2002, Lennar Financial Services, Inc. merged with Lennar Financial Services, LLC. Lennar Financial Services, LLC did not have any operations or net assets prior to the merger with Lennar Financial Services, Inc. Lennar Financial Services, LLC was the surviving entity. This transaction was accounted for as a reorganization of entities under common control and, accordingly, all assets, liabilities and operations of Lennar Financial Services, LLC for periods prior to the reorganization transaction presented herein are those of Lennar Financial Services, Inc. at historical carrying values. Subsequent to the merger, U.S. Home has a 99% ownership interest in LFS and LFS Holding Company, LLC, a wholly owned subsidiary of U.S. Home, has a 1% ownership interest in LFS.

The financial statements of Lennar Financial Services, LLC include the accounts of LFS and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

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Loans Held for Sale, net—Loans held for sale consist of residential mortgage loans. Effective December 1, 2000, loans held for sale that are designated as hedged assets are carried at market value, as the effect of changes in fair value are reflected in the carrying amount of the loans and in earnings. Premiums and discounts recorded on loans held for sale are presented as an adjustment of the carrying amount of the loans and are not amortized.

Effective December 1, 2000, LFS adopted Statement of Financial Accounting Standards (“SFAS”) No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended. SFAS No. 133 establishes accounting and reporting standards for derivative instruments and for hedging activities by requiring that all derivatives be recognized in the balance sheet and measured at fair value. Gains or losses resulting from changes in the fair value of derivatives are recognized in the statement of earnings when the hedged item affects earnings, depending on the purpose of the derivatives and whether they qualify for hedge accounting treatment.

The Division’s policy is to designate at a derivative’s inception the specific assets, liabilities, or future commitments being hedged and monitor the derivative to determine if it remains an effective hedge. The effectiveness of a derivative as a hedge is based on high correlation between changes in its value and changes in the value of the underlying hedged item. The Division recognizes gains or losses for amounts received or paid when the underlying transaction settles. The Division does not enter into or hold derivatives for trading or speculative purposes.

The Division, in the normal course of business, uses derivative financial instruments to reduce its exposure to fluctuations in interest rates. The Division enters into forward commitments and option contracts to protect the value of fixed rate locked loan commitments and loans held for sale from fluctuations in market interest rates. These derivative financial instruments are designated as fair value hedges, and, accordingly, for all qualifying and highly effective fair value hedges, the changes in the fair value of the derivative and the loss or gain on the hedged asset relating to the risk being hedged are recorded currently in earnings. The effect of the implementation of SFAS No. 133 on the Financial Services Division’s earnings was not significant.

Loans Held for Investment, net—Loans for which LFS has the positive intent and ability to hold to maturity consist of mortgage loans carried at cost net of unamortized discounts. Discounts are amortized over the estimated lives of the loans using the interest method.

Collateral for Bonds and Notes Payable—Collateral for bonds and notes payable consists of mortgage loans, mortgage-backed securities, and funds held by the trustee. Mortgage loans and mortgage-backed securities are carried net of unamortized discounts. Discounts are amortized over the estimated lives of the assets using the interest method. An unaffiliated company holds an interest in the collateral for bonds and notes payable to the extent such assets exceed the related liabilities.

Mortgage Servicing Rights—Historically, LFS retained servicing rights when it sold certain of the loans it originated. During 2001, LFS sold substantially all its existing portfolio of mortgage servicing rights, realizing a pretax profit from the sale of approximately $13 million reflected in other revenue. LFS currently sells all of its loans on a servicing released, non-recourse basis.

Income Taxes—LFS is included in the consolidated federal income tax return of Lennar. Although LFS and some entities in the LFS consolidated reporting group are limited liability companies that have elected to be treated as disregarded entities for federal income tax purposes, in accordance with the tax sharing arrangement with Lennar, income taxes have been provided as if the LFS reporting group filed as a separate federal consolidated group. Current taxes due are recorded as a payable to Lennar, and the

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deferred portion is recorded as deferred taxes. Income taxes are accounted for in accordance with SFAS No. 109, Accounting for Income Taxes. Under SFAS No. 109, deferred tax assets and liabilities are determined based on differences between financial reporting carrying values and tax bases of assets and liabilities, and are measured by using enacted tax rates expected to apply to taxable income in the years in which those differences are expected to reverse.

Title Plants—Title plants, which are comprised of indexed and catalogued information concerning titles to real property, are recorded at cost. Acquired and capitalized costs of title plants are not depreciated or charged to income unless circumstances indicate that the value of the title plant has been impaired. Management reviews the title plant for impairment whenever events or changes in circumstances indicate that the carrying value of the title plants may not be recoverable. Management believes that there has been no impairment of the title plant for the years ended November 30, 2003 and 2002. Costs of maintaining and operating title plants are expensed in the period in which they are incurred.

Goodwill—Goodwill arises due to acquisitions made by LFS, which are accounted for under SFAS No. 141, Business Combinations. The pro forma effects of acquisitions made during the three year period ending November 30, 2003 on the consolidated results of operations is not presented as the effects are not considered material. The Division adopted SFAS No. 142, Goodwill and Other Intangible Assets on December 1, 2001. SFAS No. 142 no longer requires or permits the amortization of goodwill and indefinite-lived intangible assets. Instead, these assets must be reviewed annually (or more frequently under certain conditions) for impairment in accordance with this statement. This impairment test uses a fair value approach rather than the undiscounted cash flows approach previously required by SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. No impairment charges were recognized upon the adoption of this statement. The Division performed its annual impairment test of goodwill as of September 30, 2003 and determined that goodwill was not impaired. As of November 30, 2003 and 2002, there were no material identifiable intangible assets, other than goodwill.

Pro forma net earnings for fiscal 2001 adjusted to exclude amortization expense (net of taxes) are as follows:

(In thousands)
Net Earnings:
Reported net earnings	$	56,639
Goodwill amortization, net of tax		1,452
Adjusted net earnings	$	58,091

At November 30, 2003 and 2002, goodwill was $43.5 million and $34.0 million, respectively (net of accumulated amortization of $4.4 million at November 30, 2003 and 2002). While the Division believes that no impairment existed as of November 30, 2003, there can be no assurances that future economic or financial developments, including general interest rate increases or a slowdown in the economy, might not lead to impairment of goodwill.

Operating Properties and Equipment—Operating properties and equipment are recorded at cost and are included in other assets in the accompanying consolidated balance sheets. The assets are depreciated over their estimated useful lives using the straight-line method. The estimated useful life for operating properties is 30 years and for equipment is 2 to 10 years.

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Escrow Funds Held in Trust—At November 30, 2003 and 2002, LFS held approximately $618.2 million and $459.3 million, respectively, in trust for others, pending completion of real estate transactions. These funds are not included in LFS’ consolidated balance sheets.

Title and Escrow Revenue—Premiums from title insurance policies are recognized as revenue on the effective date of the policy. Escrow fees are recognized at the time the related real estate transactions are completed, usually upon the close of escrow.

Loan Origination and Sales Revenue—Loan origination revenues, net of direct origination costs, are recognized when the related loans are sold. Gains and losses from the sale of loans and loan servicing rights are recognized when the loans are sold and delivered to an investor.

Provision for Losses—LFS provides an allowance for estimated title and escrow losses based upon management’s evaluation of claims presented and estimates for any incurred but not reported claims. The allowance is established at a level that management estimates to be sufficient to satisfy those claims where a loss is determined to be probable and the amount of such loss can be reasonably estimated. The allowance for title and escrow losses for both known and incurred but not reported claims is considered by management of LFS to be adequate for such purposes.

In the normal course of business, loans are sold without recourse that may be subject to repurchase or indemnification obligations if the loan fails to meet the standard representations and warranties included in the sales contract or if shortly after sale of the loan to an investor the borrower has past due payments (Early Payment Defaults or “EPD”). The EPD term varies by investor and is defined in their respective purchase agreements, with none of the obligations exceeding a period of twelve months. Loan loss reserves include management’s estimated loss exposure of potential indemnifications issued after December 31, 2002, in accordance with Financial Accounting Standards Board Interpretation (“FASB”) No. 45 (“FIN 45”), Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.

LFS also provides allowances for loan losses when and if management determines that loans or portions thereof are uncollectible. The provision recorded and the adequacy of the related allowance is determined by management’s continuing evaluation of the loan portfolio in light of past loan loss experience, regulatory examinations, present economic conditions and other factors considered relevant by management. Anticipated changes in economic factors which may influence the level of the allowance are considered in the evaluation by management when the likelihood of the changes can be reasonably determined. While management uses the best information available to make such evaluations, future adjustments to the allowance may be necessary as a result of future economic and other conditions that may be beyond management’s control.

LFS has errors and omissions and fidelity bond insurance policies, both in the amount of $1.5 million.

New Accounting Pronouncements—In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. This statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under SFAS No. 133. This statement is effective for contracts entered into or modified after June 30, 2003. The implementation of SFAS No. 149 did not have a material impact on the Division’s financial condition, results of operations or cash flows.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. This statement establishes standards for the classification and measurement of certain financial instruments with characteristics of both liabilities and equity.

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Certain provisions of this statement are effective for financial instruments entered into or modified after May 31, 2003 and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. In October 2003, the FASB deferred indefinitely certain provisions of this statement pertaining to noncontrolling interests in limited life entities. The Division does not believe that the implementation of SFAS No. 150 had, or will have, a material impact on the Division’s financial position, results of operations, or cash flows.

In November 2002, the FASB issued FIN 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. In accordance with the provisions of FIN 45, the Division adopted the initial recognition and measurement provisions on a prospective basis with regard to guarantees issued after December 31, 2002. The implementation of FIN 45 did not have a material impact on the Division’s financial condition, results of operations or cash flows.

In January 2003, the FASB issued Interpretation No. 46 (“FIN 46”), Consolidation of Variable Interest Entities, as further clarified and amended by the FASB’s issuance of a revision to FIN 46 in December 2003. FIN 46 requires the consolidation of entities in which an enterprise absorbs a majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual or other financial interests in the entity. Prior to the issuance of FIN 46, entities were generally consolidated by an enterprise when it had a controlling financial interest through ownership of a majority voting interest in the entity. FIN 46 applied immediately to variable interests created after January 31, 2003, and with respect to variable interests created before February 1, 2003, FIN 46 will apply in the Division’s second quarter ending May 31, 2004, as deferred by the FASB in December 2003. Although the Division does not believe the full adoption of FIN 46 will have a material impact on net earnings, the Division cannot make any definitive determination until it completes its evaluation.

In December 2003, the Securities and Exchange Commission (“SEC”) expressed their view on accounting for loan commitments that relate to the origination of mortgage loans that will be held for resale. It is the SEC’s view that loan commitments are written options that should be recorded at their fair value, which in all cases should be a liability until either expiration or exercise. LFS estimates the value of these loan commitments as the difference between the current value of similar loans and the price at which LFS has committed to originate the loans. Under LFS’ current method of accounting for these loan commitments, LFS recognizes both derivative assets and liabilities. The SEC’s view, which is to be applied prospectively, is effective for commitments entered into in the first reporting period beginning after March 15, 2004. Management is currently evaluating the adoption of the SEC’s view and has not made a definitive determination as to its impact.

Financial Statement Presentation—LFS prepares its financial statements using an unclassified balance sheet presentation as is customary in the financial services industry. A classified balance sheet presentation would have aggregated current assets, current liabilities and net working capital at November 30, 2003 and 2002 as follows:

(In thousands)	2003		2002
Current assets	$	1,041,261	$	1,098,340
Current liabilities		805,422		927,729
Net working capital	$	235,839	$	170,611

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Reclassifications—Certain prior year amounts in the consolidated financial statements have been reclassified to conform with the 2003 presentation.

2. LOANS HELD FOR INVESTMENT, NET

LFS periodically acquires loans collateralized by residential and other real property, which it holds for investment. At November 30, 2003 and 2002, these loans totaling $29.1 million and $27.6 million, respectively, carried interest rates ranging from 5.4% to 16.8% per annum, respectively, (weighted average interest rate of 7.8% at November 30, 2003). At November 30, 2003 and 2002, mortgage loans receivable of $22.5 million and $27.5 million, respectively, were pledged as collateral for short-term debt.

At November 30, 2003 and 2002, LFS estimates that the fair value of its investments in residential mortgage loans and mortgage notes receivable approximate their recorded amount, based on the interest rates on the loans compared to the current market rates, the collectibility, term and type of loans, the value of the underlying properties and the remaining available mortgage loan insurance coverage.

During the year ended November 30, 2001, LFS purchased subordinated performance notes issued by an affiliate of a mortgage insurance company in which the interest earned on each note is variable depending on, among other things, the default experience and related losses from mortgage insurance claims on a specific pool of mortgage loans originated by LFS. At November 30, 2003 and 2002, the performance notes of $1.4 million and $2.5 million, respectively, earned interest at an average rate of 36.9% and 26.0% per annum, respectively.

At November 30, 2003 and 2002, LFS estimates that the fair value of its investments in performance notes approximates their recorded amount based on the Division’s history of originating high quality loans with related low delinquency and default rates, and its option to redeem at par certain of the performance notes (representing a majority of such notes) having an acceptable underlying loan loss experience.

Collateral for bonds and notes payable (the “Collateral”) consists of fixed and adjustable rate mortgage loans and fixed-rate mortgage-backed securities guaranteed by U.S. government agencies. At November 30, 2003 and 2002, collateral for bonds and notes payable totaled $4.8 million and $8.4 million, respectively. All collateral is pledged to secure repayment of the bonds and notes payable. All principal and interest on the collateral is remitted directly to a trustee and, together with any reinvestment income earned thereon, is available for payment on the bonds and notes payable.

The components of the collateral at November 30, 2003 and 2002 are as follows:

(In thousands)	2003		2002
Mortgage-backed securities	$	3,227	$	5,926
Mortgage loans		1,450		1,904
Funds held by trustee		140		581
	$	4,817	$	8,411

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3. INVESTMENT SECURITIES

Securities held by LFS are classified as held-to-maturity and are carried at amortized cost because they are purchased with the positive intent and ability to hold such securities to maturity.

The amortized cost, unrealized gains, unrealized losses and fair values for held-to-maturity securities by type as of November 30, 2003 and 2002 are as follows:

(In thousands)	2003
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
U.S. Treasury securities	$	6,401	$	5	$	6	$	6,400
Certificates of deposit		21,621		—		—		21,621
Total	$	28,022	$	5	$	6	$	28,021
(In thousands)	2002
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
U.S. Treasury securities	$	852	$	33	$	—	$	885
Certificates of deposit		21,527		—		—		21,527
Total	$	22,379	$	33	$	—	$	22,412

The amortized cost and estimated fair value of securities held-to-maturity at November 30, 2003 by contractual maturity are shown below.

(In thousands)	Amortized Cost		Fair Value
Due in one year or less	$	27,152	$	27,152
Due after one year through five years		870		869
Total	$	28,022	$	28,021

4. OTHER ASSETS

Other assets consist of the following at November 30, 2003 and 2002:

(In thousands)	2003		2002
Operating properties and equipment (net of accumulated depreciation of $40.5 million and $34.2 million for 2003 and 2002, respectively)	$	28,386	$	20,390
Other (includes a deferred tax asset of $11.1 million and $7.8 million for 2003 and 2002, respectively)		18,653		14,156
	$	47,039	$	34,546

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5. BORROWINGS UNDER CREDIT AGREEMENTS AND OTHER DEBT

(In thousands)	2003		2002
Warehouse line of credit with banks totaling $500 million, at November 30, 2003 and 2002, including a $145 million 30-day increase expiring on December 19, 2003, variable interest rate (approximately 2.0% and 2.3% at November 30, 2003 and 2002, respectively); secured by receivables on loans sold not yet funded and mortgage loans	$	464,404	$	489,651
Warehouse line of credit with banks totaling $250 million, at November 30, 2003, including a $100 million seasonal commitment available at each fiscal quarter-end, variable interest rate (approximately 1.5% at November 30, 2003) secured by receivables on loans sold not yet funded and mortgage loans		250,000		—
Advance under conduit funding lines with a major financial institution, variable interest rates (approximately 1.9% and 2.3% at November 30, 2003 and 2002, respectively); secured by mortgage loans		627		343,663
Line of credit with a bank totaling $20 million expiring on May 31, 2004; variable interest rate (approximately 2.1% and 2.4% at November 30, 2003 and 2002, respectively); secured by substantially all of the assets and common stock of North American Title Company, Inc. and the common stock of North American Title Insurance Company (both are subsidiaries of North American Title Group, Inc.)		19,437		20,013
Bonds and notes payable maturing in years 2015 through 2018 with interest rates ranging from 8.8% to 11.7%		4,580		7,947
Other borrowings		189		89
Total	$	739,237	$	861,363

The warehouse lines of credit are subject to restrictive covenants relating to certain financial ratios as to net worth and debt with which LFS was in compliance at November 30, 2003. Substantially all of the borrowings under credit agreements mature during the next twelve months.

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6. INCOME TAXES

The provision (benefit) for income taxes for the years ended November 30, 2003, 2002 and 2001 consisted of:

(In thousands)	2003			2002		2001
Current:
Federal	$	56,435		$	40,999	$	38,108
State		7,245			4,845		5,278
		63,680			45,844		43,386
Deferred:
Federal		(3,171	)		3,182		(8,873	)
State		(559	)		401		(1,227	)
		(3,730	)		3,583		(10,100	)
	$	59,950		$	49,427	$	33,286

The actual income tax differs from the “expected” tax expense for the year (computed by applying the U.S. federal corporate rate of 35% to earnings before income taxes) primarily due to the amount of state income taxes, net of the related federal tax benefit.

Deferred income taxes reflect the net tax effects of temporary differences between carrying amounts of the assets and liabilities for financial reporting purposes and the amount used for income tax purposes. At November 30, 2003 and 2002, the tax effects of significant temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities are as follows:

(In thousands)	2003		2002
Deferred tax assets:
Loss reserves	$	13,299	$	9,689
Accruals not currently deductible		5,871		3,499
Other		3,381		1,907
		22,551		15,095
Valuation allowance		—		(225	)
		22,551		14,870
Deferred tax liabilities:
Intangible assets		—		1,647
Other		11,481		5,465
		11,481		7,112
Net deferred tax asset	$	11,070	$	7,758

The Division recorded $0.4 million of deferred tax liabilities related to the purchase of Mid America Title Company. The Division’s net deferred tax asset is included in other assets in the accompanying balance sheets.

7. FINANCIAL INSTRUMENTS

Discussion of Credit and Interest Rate Risk Management—LFS enters into derivative financial instruments in the normal course of business through the origination and sale of mortgage loans and the

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management of the related loss exposure caused by fluctuations in interest rates. These financial instruments include commitments to extend credit (e.g., the mortgage loan pipeline), forward contracts for the delivery of mortgage-backed securities (“MBS”), and other hedging instruments. These instruments involve, to varying degrees, elements of credit and market risk. All of LFS’ derivative financial instruments are held or issued for purposes other than trading.

As of November 30, 2003, the Division’s pipeline of loans in process totaled approximately $2.6 billion. Loans in process for which interest rates were committed to the borrower totaled approximately $330.7 million as of November 30, 2003. Substantially all of these commitments were for periods of 60 days or less. To minimize credit risk, LFS uses the same credit policies in the approval of the commitments as are applied to all lending activities. Since a portion of these commitments are expected to expire without being exercised by the borrowers, the total commitments do not necessarily represent future cash requirements.

Mandatory MBS forward commitments and MBS option contracts are used by LFS to hedge its interest rate exposure during the period from when LFS extends an interest rate lock to a loan applicant until the time in which the loan is sold to an investor. These instruments involve, to varying degrees, elements of credit and interest rate risk. Credit risk is managed by LFS by entering into agreements only with investment bankers with primary dealer status and with permanent investors meeting the credit standards of LFS. At any time, the risk to LFS, in the event of default by the purchaser, is the difference between the contract price and current market value. At November 30, 2003, LFS had open commitments amounting to $512.0 million to sell MBS with varying settlement dates through January 2004.

Fair Value of Financial Instruments—SFAS No. 107, Disclosures About Fair Values of Financial Instruments, requires the disclosure of information about certain financial instruments. The estimated fair values have been determined by LFS using available market information and appropriate valuation methodologies. The fair values are significantly affected by the assumptions used. Accordingly, the use of different assumptions and/or estimation methodologies may have a material effect on the estimated fair values. The estimated fair values presented herein are not necessarily indicative of the amounts that LFS could realize in a current market exchange.

The following describes the methods and assumptions used by LFS in estimating fair values:

Cash and Accounts Payable—Fair value approximates their carrying values because of their typically liquid, short-term nature and market rate terms.

Loans Held for Sale, net—Fair value is based on quoted market prices for securities backed by similar loans, adjusted for differences in loan characteristics.

Loans Held for Investment, net—Fair value is based on discounting estimated cash flows through the estimated maturity, adjusted for approximate prepayments, using appropriate market discount rates, or quoted market prices.

Collateral for Bonds and Notes Payable—Fair value is based on quoted market prices for securities backed by similar loans, adjusted for differences in loan characteristics.

Investment Securities—Fair value is based on quoted market prices.

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Borrowings Under Credit Agreements—Fair value approximates carrying value due to variable interest rate pricing terms and the short-term nature of the borrowings.

Bonds and Notes Payable—Fair value is based on quoted market prices for securities backed by similar loans, adjusted for differences in loan characteristics.

Commitments to Originate and to Sell Loans—Fair value of commitments to originate loans is based upon the difference between the current value of similar loans and the price at which LFS has committed to originate the loans. The fair value of commitments to sell loan contracts is the estimated amount that LFS would receive or pay to terminate the commitments at the reporting date based on market prices for similar financial instruments.

The estimated fair value of the Division’s financial instruments was as follows:

	November 30
(In thousands)	2003						2002
	Carrying Amount			Fair Value			Carrying Amount			Fair Value
Financial assets:
Loans held for sale, net	$	542,507		$	542,507		$	708,304		$	708,304
Loans held for investment, net		30,451			29,355			30,137			29,467
Collateral for bonds and notes payable		4,817			5,134			8,411			8,912
Investment securities		28,022			28,021			22,379			22,412
Financial liabilities:
Borrowings under credit agreements		734,657			734,657			853,416			853,416
Bonds and notes payable		4,580			4,930			7,947			8,465
Other instruments:
Commitments to originate loans		(229	)		(229	)		(717	)		(717	)
Commitments to sell loans and option contracts		(1,120	)		(1,120	)		1,430			1,430

The table above excludes cash, receivables and accounts payable, which had fair values approximating their carrying values.

8. RELATED PARTIES

During 2003 and 2002, Lennar has periodically advanced and borrowed funds to and from LFS. These advances and borrowings are short-term in nature and bear interest at a rate tied to Lennar’s short-term borrowing rate. At November 30, 2003 and 2002, Lennar had borrowed $242.4 million and $171.4 million, respectively, from LFS. LFS believes that Lennar has the ability and intent to repay all amounts owed. LFS recorded net interest income related to these advances of $4.8 million and $4.4 million in 2003 and 2002, respectively.

At November 30, 2003 and 2002, LFS had issued and outstanding $1.1 million and $4.8 million, respectively, of letters of credit for the benefit of Lennar.

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9. COMMITMENTS AND CONTINGENCIES

Because of the nature of its activities, LFS is at times subject to threatened legal actions which arise out of the normal course of business. In the opinion of management, there is no pending, active or threatened litigation which will have a material effect on the Division’s financial position or results of operations.

LFS has committed to certain lease agreements to rent office facilities and equipment. Base rental expense for the years ended November 30, 2003, 2002 and 2001 was $25.5 million, $22.7 million and $17.6 million, respectively. Future minimum payments under the noncancelable leases are as follows:

Years ending November 30
(In thousands)	Amount
2004	$	19,829
2005		15,934
2006		12,606
2007		9,168
2008		5,125
2009 and thereafter		5,205
Total minimum payments required	$	67,867

LFS has guaranteed obligations of Lennar with regard to certain issues of its outstanding debt, and the stock of LFS has been pledged as collateral for Lennar’s obligations with regard to that debt. LFS knows of no event of default which would require it to satisfy these guarantees and the fair value of these contingent liabilities is considered immaterial.

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