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~~ SECURITY AGREEMENT DATE: , 1999 pART'IES: Pence/Kelly Construcrion, Inc. ("Debtor") 2747 Pence Loop SE Salem, OR 97302 ~,~: Marion County ("Secured Party") 100 High St NE Salem, OR 97301 and Salem Area Mass Transit District 3140 Del Webb Ave NE Salem, OR 97303-4165 RECITALS: A. Debtor, as contractor, has entered into a construction contract dated February 17, 1999 with Secured Party, as owner, to construct improvements on certain real property described therein. B. Under the terms of the construction contract, Secured Party has the right to withhold retainage from progress payments. Debtor has requested that Secured Party accept securities in lieu of retainage pursuant to ORS 279.420(3). C. Secured Party believes that because of the federal funding of the construction, ORS 279.420 is inapplicable, but is willing to accept securities in lieu of retainage in order to avoid the cost, delay and uncertainty of litigation. D. NOW, TI~REF4RE, in order to secure payment of retainage, in the manner contemplated by ORS 279.420, the parties hereby agree as follows: SECTION 1. DEFINITIONS 1.1 Whenever the following terms are used in this Agreement, they are defined as follows: (1) Code means the Uniform Commercial Code of the state of Oregon as amended from time to time. (2) Collateral means all of Debtor's rights to and under that certain securities account, and the securities held in such account, whether now owned or existing or hereafter acquired or arising or in which Debtor now has or hereafter acquires any rights, in the name of "Manon County and Salem Area Mass Transit District Secured Party, f/b/o Pence/Kelly Construction, Inc: ' at Salomon Smith Barney, Inc., and its successors in interest, ("Account holder"), account number , together with all products, proceeds, rents, and profits. Security Agreement Page - 1