Document:

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                                                                  Exhibit 10.12

                              EMPLOYMENT AGREEMENT
                              --------------------

     This Employment Agreement, dated as of December 18, 2003 (the "Agreement"),
is entered into by and between Haights Cross Communications, Inc. (the
"Company"), a Delaware corporation, and, and Peter J. Quandt (the "Executive").
In consideration of the mutual covenants contained herein, the Company and
Executive agree as follows:

     1. Term. The Company agrees to employ Executive, and Executive hereby
agrees to work for the Company as a full-time Executive, commencing on the date
first set forth above until terminated pursuant to the provisions of Section 6
hereof (the "Employment Period").

     2. Employment. During the Employment Period, Executive shall be employed as
a senior executive officer of the Company with the titles of Chairman and Chief
Executive Officer, or in such other executive position as the Board of Directors
of the Company (the "Board of Directors") may from time to time determine and
which position is acceptable to Executive. In the performance of his duties,
Executive shall be subject to the direction of the Board of Directors.
Executive's duties and authority shall be commensurate with his title and
position with the Company. Executive agrees to his employment as described in
this Section 2 and agrees to devote substantially all of his business time and
efforts to the business and affairs of the Company. Executive agrees to serve
the Company faithfully and to the best of his ability, and to perform such
services and duties in connection with the business, affairs and operations of
the Company as may be assigned or delegated to him from time to time by or
under, and in accordance with, the authority and direction of the Board of
Directors, and to use his reasonable best efforts in the promotion and
advancement of the Company and its welfare.

     3. Base Salary. During the Employment Period, Executive's salary will be
determined by the Board of Directors on a per year basis ("Base Salary"). Base
Salary shall be payable in accordance with the Company's normal business
practices for senior executive officers, but no less frequently than
semi-monthly. Executive's Base Salary shall be reviewed no less frequently than
annually by the Board of Directors and may be increased, but not decreased,
during the Employment Period.

     4. Performance Bonus. Executive will be eligible for annual bonus
compensation (generally payable during the first quarter of the following year)
in an amount to be determined under a mutually agreeable bonus program (the
"Bonus Plan"), subject to proration for any period less than a full year.

     5. Other Benefits. During the Employment Period, Executive shall have the
right to participate in any of the Company's health, dental, retirement, pension
or other benefit plans that are made generally available to the executive
officers of the Company from time to time. Executive shall be entitled to paid
vacation time in accordance with the then regular procedures of the Company for
senior executive officers.

<PAGE>

     6. Termination.

          (a) At-Will Employment. Executive's employment hereunder is "at will"
and may be terminated by the Company at any time without Cause (as herein
defined), by a majority vote of all of the members of the Board of Directors
upon written notice to Executive, subject only to the severance provisions set
forth in Section 6(c) hereof.

          (b) Termination by Executive. Executive's employment hereunder may be
terminated by Executive upon 30 days notice to the Board of Directors in the
event (i) the Company fails to comply with the provisions of Sections 3 or 5
hereof, or fails to pay amounts due under Section 4 hereof, if any, or (ii)
materially breaches any other provision of this Agreement, and such failure to
comply or such breach has not been cured by the Board of Directors within 15
days after receiving notice thereof from Executive, subject only to the
severance provisions set forth in Section 6(c) hereof.

          (c) Certain Benefits upon Termination. Unless otherwise specifically
provided in this Agreement or otherwise required by law, all compensation and
benefits to Executive under this Agreement shall terminate on the date of
termination of the Employment Period. Notwithstanding the foregoing, in the
event of termination of the Employment Period pursuant to Sections 6(a) or 6(b)
hereof, the Company shall pay Executive an amount equal to the Base Salary for a
period of time equal to twelve months following such termination, and no other
compensation or benefits.

          (d) Termination by Reason of Death. The Employment Period shall
terminate upon Executive's death and in such event, the Company shall pay to
Executive's estate or a beneficiary designated by Executive in writing prior to
his death an amount equal to the Base Salary for a period of time equal to
twelve months following such termination.

          (e) Termination by Reason of Disability. In the event that Executive
shall become unable to efficiently perform his duties hereunder because of any
Permanent Disability, the Employment Period shall terminate and the Company
shall pay Executive an amount equal to the Base Salary for a period equal to
twelve months following such termination. As used herein, Executive shall be
deemed to be "Permanently Disabled" if:

                    (1) he is under a legal decree of incompetency (the date of
          such decree being deemed to be the date on which such disability
          occurred);

                    (2) he submits any claim for disability insurance benefits
          or for early distribution of any amounts from a qualified pension or
          profit sharing plan maintained by the Company on account of more than
          fifty percent (50%) disability, and such claim is approved by the
          insurance company or the trustee of the qualified pension or profit
          sharing plan (the date of such approval shall be the date on which
          such disability shall be deemed to have occurred); or

                    (3) he is subject to a medical determination that because of
          a medically determinable disease, injury, or other mental or physical
          disability, he is unable to

<PAGE>

          perform substantially all of his regular duties, and that such
          disability is determined or reasonably expected to last at least
          twelve (12) months, based on then available medical information;
          provided

                    (i) a medical determination of disability will exist upon
          the receipt by the Company of the written opinion of a physician who
          has examined Executive if the Company is in agreement therewith,

                    (ii) if the Company disagrees with the opinion of such
          physician (the "First Physician"), it may engage at its own expense
          another physician (the "Second Physician") to examine Executive. The
          Second Physician shall confer with the First Physician and, if they
          together agree in writing that Executive is or is not disabled, their
          written opinion shall be conclusive as to such disability. If the
          First and Second Physician do not agree, they shall choose a third
          consulting physician (the expense of which shall be borne by the
          Company), and the written opinion of a majority of these three (3)
          physicians shall be conclusive as to such disability. The date of any
          written opinion that is conclusive as to such disability is the date
          on which such disability, if that is the conclusion, will be deemed to
          have occurred, and

                    (iii) in signing this Agreement, Executive consents to such
          examination, to furnish any medical information requested by any
          examining physician, and to waive any applicable physician-patient
          privilege that may arise because of such examination. All physicians
          except the First Physician selected hereunder must be board-certified
          in the specialty most closely related to the nature of the disability
          alleged to exist.

          (f) Termination by the Company for Cause. If Executive is terminated
for Cause (as defined below), then the Employment Period shall terminate as of
the effective date set forth in the written notice of such termination (the
"Termination Date") and Executive shall be entitled to receive only that portion
of his Base Salary at the rate provided pursuant to Section 3 which is due and
payable but not yet paid prior to the Termination Date. "Cause" shall mean a
finding by the Board of Directors that the Executive has (a) acted with gross
negligence or willful misconduct in connection with the performance of his
material duties hereunder, (b) defaulted in the performance of his material
duties hereunder and has not corrected such action within fifteen (15) days of
receipt of written notice thereof; (c) committed a material act of common law
fraud against the Company or its executive officers, which act has had an
adverse impact on the financial affairs of the Company; (d) been convicted of a
felony; (e) breached a fiduciary duty owed to the Company; (f) embezzled assets
of the Company; (g) become insolvent or bankrupt; (h) failed to adequately treat
a drug or alcohol dependency or problem, which in the sole discretion of the
Board of Directors has had an adverse impact on the performance of Executive's
duties hereunder; or (i) voluntarily terminated his employment (other than
pursuant to Section 6(b) hereof).

          (g) Effect of Termination. Upon termination of the Employment Period
for any of the reasons set forth in this Section 6, only the provisions of
Sections 1, 2, 3, 4, and 5 shall terminate, and the remainder of this Agreement
shall remain in full force and effect.

<PAGE>

     7. Noncompetition. Because Executive's services to the Company are
essential and because Executive has access to the Company's confidential
information, Executive covenants and agrees that during the Employment Period
and until the date one (1) year following the termination of the Employment
Period, Executive will not, without the express prior written consent of the
Board of Directors, (a) manage, own, be employed by, or invest in any business
or venture which competes directly with the Company in the acquisition,
management or operation of newsletters and other publishing and information
entities, (b) solicit or encourage any employee of the Company to terminate his
or her employment by the Company and to become employed by Executive, or any
business or entity with which Employer is affiliated as an owner, investor,
lender or in any other capacity, (c) solicit for or on behalf of any business or
entity, any past or present customer, author, advertiser or subscriber of the
Company, and (d) divert to any business or entity any present or future author,
customer, advertiser or subscriber of the Company. Notwithstanding anything
contained herein to the contrary, Executive is not prohibited by this Section 7
from making investments in any entity that owns, invests in, manages or operates
newsletters and other publishing and information entities if the shares of such
entity are publicly traded and Executive's aggregate investment in such entity
constitutes less than 5% of the equity ownership of such entity or from making
passive investments in any such businesses.

     8. Remedies For Breach. If Executive materially breaches the terms of this
Agreement, in addition to any other remedies which it may have, the Company may
terminate Executive's employment and any further participation in any Executive
plan in accordance with employment policies of the Company, as in effect from
time to time, and Executive shall forfeit any further compensation. In addition,
the provisions of this Agreement may be specifically enforced if not performed
according to their terms. Without limiting the generality of the foregoing the
parties acknowledge that the Company would be irreparably damaged and there
would be no adequate remedy at law for Executive's breach of Sections 7 and 9
hereof and, accordingly, Executive hereby consents to the entry of any temporary
restraining order or preliminary or ex parte injunction, in addition to any
other remedies available at law or in equity, to enforce the provisions thereof.
This Section shall survive the termination of this Agreement.

     9. Records and Nondisclosure of Confidential Information. During the
Employment Period and until the date five years following the termination of the
Employment Period, Executive will not (nor will Executive assist any other
person to do so) directly or indirectly furnish, divulge, reveal, report,
publish, disclose or make accessible (other than as may be required under
applicable law) any Confidential Information (as hereinafter defined) to any
person, firm, corporation or other entity, or use (or assist any person to use)
such Confidential Information except for the benefit of the Company. For
purposes of this Agreement, the term "Confidential Information" means all
information or material not generally known outside of the Company, which gives
the Company a competitive business advantage or the opportunity of obtaining
such advantage or the disclosure of which could be detrimental to the interests
of the Company, including without limitation, trade secrets, inventions,
drawings, file data, documentation, diagrams, specifications, know how,
processes, formulas, models, subscriber lists, sales representative lists,
proprietary information, research and development procedures and test results,
marketing techniques and materials, marketing and development plans, price
lists, pricing policies, business plans, information relating to customers
and/or suppliers' identities,

<PAGE>

characteristics and agreements, financial information and projections, and
employee files. Unless generally available to others outside of the Company,
"Confidential Information" also includes any information described above which
the Company obtains from another party and which the Company treats as
proprietary or designates as Confidential Information, whether or not owned or
developed by the Company.

     10. Waiver. The failure of the Company to require the performance of any
term or obligation provided for herein, or the waiver by the Company of any
breach of this Agreement, shall not prevent enforcement of such term or
obligation or be deemed a waiver of any subsequent breach.

     11. Conflicting Agreements. Executive hereby represents and warrants that
the execution of this Agreement and the performance of his duties and
obligations hereunder will not breach or be in conflict with any other agreement
to which he is a party or is bound, and that he is not now subject to any
covenants against competition or similar covenants in favor of any other person
or entity which could affect the performance of his duties hereunder.

     12. Entire Agreement. This Agreement constitutes the entire agreement among
the parties hereto with respect to the subject matter hereof. This Agreement
supersedes and replaces any prior agreement or arrangement relative to
Executive's employment by the Company, and all such prior agreements and
arrangements are hereby terminated.

     13. Governing Law and Severability. This Agreement shall be governed by and
construed under the laws of the State of New York and shall not be modified or
discharged in whole or in part except by an agreement in writing signed by the
parties hereto. In case any one or more of the provisions or parts of a
provision contained in this Agreement shall for any reason be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision or part of a provision of
this Agreement, but this Agreement shall be construed as if such invalid or
illegal or unenforceable provision or part of a provision had been limited or
modified (consistent with its general intent) to the extent necessary so that it
shall be valid, legal and enforceable, or if it shall not be possible to so
limit or modify such invalid, illegal or unenforceable provision or part of a
provision, this Agreement shall be construed as if such invalid, illegal or
unenforceable provision or part of a provision had never been contained herein,
and the parties will use their best efforts to substitute a valid, legal and
enforceable provision which, insofar as practicable, implements the purpose and
intent of the provision or part of such provision originally contained herein.

     14. Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
permitted assigns; provided, however, that this Agreement may not be assigned by
Executive without the prior written consent of the Company. The Company shall
require any successor of the Company which shall acquire, directly or
indirectly, by merger, consolidation, purchase or otherwise, all or
substantially all of the assets of the Company, by an agreement in form and
substance satisfactory to Executive, expressly to assume and agree to perform
this Agreement in the same manner and to the same extent as the Company would be
required to perform if no such succession had taken place. It is hereby
expressly agreed that the noncompetition provisions of

<PAGE>

Section 7 hereof shall be fully assignable to any entity which purchases an
interest in the Company.

     15. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original and all of which shall
constitute one agreement.

     16. Dispute Resolution. Except for claims for equitable relief provided for
herein, any dispute arising out of or relating to this Agreement or the breach,
termination or validity hereof shall be finally settled by arbitration conducted
expeditiously in accordance with the Center for Public Resources Rules for
Nonadministered Arbitration of Business Disputes (the "CPR Rules"). The Center
for Public Resources shall appoint a neutral advisor from its national CPR
Panel. The arbitration shall be governed by the United Sates Arbitration Act, 9
U.S.C. **1-16, and judgment upon the award rendered by the arbitrators may be
entered by any court having jurisdiction thereof. The place of arbitration shall
be New York, New York.

     Such proceedings shall be administered by the neutral advisor in accordance
with the CPR Rules as he/she deems appropriate, however, such proceedings shall
be guided by the following agreed upon procedures:

     (a)  mandatory exchange of all relevant documents, to be accomplished
          within forty-five (45) days of the initiation of the procedure;

     (b)  hearings before the neutral advisor shall consist of a summary
          presentation by each side of not more than three hours; and

     (c)  decision to be rendered not more than ten (10) days following such
          hearings.

     Notwithstanding anything to the contrary contained herein, the provisions
of this Section 16 shall not apply with regard to any equitable remedies to
which any party may be entitled hereunder.

     Each of the parties hereto (a) hereby irrevocably submits to the
jurisdiction of the United States District Court for the Southern District of
New York for the purpose of enforcing the award or decision in any such
proceeding and (b) hereby waives, and agrees not to assert, by way of motion, as
a defense, or otherwise, in any such suit, action or proceeding, any claim that
it is not subject personally to the jurisdiction of the above-named courts, that
its property is exempt or immune from attachment or execution, that the suit,
action or proceeding is brought in an inconvenient forum, that the venue of the
suit, action or proceeding is improper or that this Agreement or the subject
matter hereof may not be enforced in or by such court, and (c) hereby waives and
agrees not to seek any review by any court of any other jurisdiction which may
be called upon to grant an enforcement of the judgment of any such court. Each
of the parties hereto hereby consents to service of process by registered mail
at the address to which notices are to be given. Each of the parties hereto
agrees that its submission to jurisdiction and its consent to service of process
by mail is made for the express benefit of the other parties hereto. Final
judgment against any party hereto in any such action, suit or proceeding may be
enforced in other jurisdictions by suit, action or proceeding on the judgment,
or in any other manner

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provided by or pursuant to the laws of such other jurisdiction; provided,
however, that any party hereto may at its option bring suit, or institute other
judicial proceedings, in any state or federal court of the United States or of
any country or place where the other parties or their assets may be found.

                  [Remainder of Page Intentionally Left Blank]

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     IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement as an instrument under seal as of the date first set forth above.

                                     HAIGHTS CROSS COMMUNICATIONS, INC.

                                     By:        /s/ Paul J. Crecca
                                        ---------------------------------------
                                        Name:  Paul J. Crecca
                                        Title: EVP and Chief Financial Officer

                                     EXECUTIVE

                                                /s/ Peter J. Quandt
                                        ---------------------------------------
                                        Name:    Peter J. Quandt
                                        Address: 77 Haights Cross Road
                                                 Chappaqua, NY  10514exv4w1

 

Exhibit 4.1

D.R. HORTON, INC. AND THE GUARANTORS PARTY HERETO

5.0% Senior Notes due 2009

Eighteenth Supplemental Indenture

Dated as of January 13, 2004

AMERICAN STOCK TRANSFER & TRUST COMPANY,

Trustee

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 
	 	 	 	 	Page
	 	 	 	 	

	ARTICLE ONE Scope of Supplemental Indenture; General	 	 	2	 
	ARTICLE TWO Certain Definitions	 	 	2	 
	ARTICLE THREE Covenants	 	 	24	 
	Section 3.01.	 	
Repurchase of Notes upon Change of Control
	 	 	24	 
	Section 3.02.	 	
Limitations on Indebtedness
	 	 	24	 
	Section 3.03.	 	
Limitations on Restricted Payments
	 	 	25	 
	Section 3.04.	 	
Limitations on Transactions with Affiliates
	 	 	27	 
	Section 3.05.	 	
Limitations on Dispositions of Assets
	 	 	28	 
	Section 3.06.	 	
Limitations on Liens
	 	 	29	 
	Section 3.07.	 	
Limitations on Restrictions Affecting Restricted Subsidiaries
	 	 	29	 
	Section 3.08.	 	
Limitations on Mergers, Consolidations and Sales of Assets
	 	 	30	 
	Section 3.09.	 	
Reports to Holders of Notes
	 	 	31	 
	ARTICLE FOUR Miscellaneous	 	 	31	 
	Section 4.01.	 	
Governing Law
	 	 	31	 
	Section 4.02.	 	
No Adverse Interpretation of Other Agreements
	 	 	32	 
	Section 4.03.	 	
No Recourse Against Others
	 	 	32	 
	Section 4.04.	 	
Successors and Assigns
	 	 	32	 
	Section 4.05.	 	
Duplicate Originals
	 	 	32	 
	Section 4.06.	 	
Severability
	 	 	32	 

-i-

 

 

          EIGHTEENTH SUPPLEMENTAL INDENTURE dated as of January 13, 2004
(“Supplemental Indenture”), to the Indenture dated as of June 9, 1997 (as
amended, modified or supplemented from time to time in accordance therewith,
the “Indenture”), by and among D.R. HORTON, INC., a Delaware corporation (the
“Company”), each of the Guarantors (as defined herein) and AMERICAN STOCK
TRANSFER & TRUST COMPANY, as trustee (the “Trustee”).

          Each party agrees as follows for the benefit of the other party and for
the equal and ratable benefit of the holders of Notes (as defined herein):

          WHEREAS, the Company, the Guarantors and the Trustee have duly authorized
the execution and delivery of the Indenture to provide for the issuance from
time to time of senior debt securities (the “Securities”) to be issued in one
or more series as in the Indenture provided;

          WHEREAS, the Company and the Guarantors desire and have requested the
Trustee to join them in the execution and delivery of this Supplemental
Indenture in order to establish and provide for the issuance by the Company of
a series of Securities designated as its 5.0% Senior Notes due 2009,
substantially in the form attached hereto as Exhibit A (the “Notes”),
guaranteed by the Guarantors, on the terms set forth herein;

          WHEREAS, Section 2.01 of the Indenture provides that a supplemental
indenture may be entered into by the Company, the Guarantors and the Trustee
for such purpose provided certain conditions are met;

          WHEREAS, the conditions set forth in the Indenture for the execution and
delivery of this Supplemental Indenture have been complied with; and

          WHEREAS, all things necessary to make this Supplemental Indenture a valid
agreement of the Company, the Guarantors and the Trustee, in accordance with
its terms, and a valid amendment of, and supplement to, the Indenture have been
done;

          NOW, THEREFORE:

          In consideration of the premises and the purchase and acceptance of the
Notes by the holders thereof the Company and the Guarantors mutually covenant
and agree with the Trustee, for the equal and ratable benefit of the holders,
that the Indenture is supplemented and amended, to the extent expressed herein,
as follows:

 

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ARTICLE ONE

Scope of Supplemental Indenture; General

          The changes, modifications and supplements to the Indenture effected by
this Supplemental Indenture shall be applicable only with respect to, and
govern the terms of, the Notes, which shall not be limited in aggregate
principal amount, and shall not apply to any other Securities that may be
issued under the Indenture unless a supplemental indenture with respect to such
other Securities specifically incorporates such changes, modifications and
supplements. Pursuant to this Supplemental Indenture, there is hereby created
and designated a series of Securities under the Indenture entitled “5.0% Senior
Notes due 2009.” The Notes shall be in the form of Exhibit A hereto. The
Notes shall be guaranteed by the Guarantors as provided in such form and the
Indenture. If required, the Notes may bear an appropriate legend regarding
original issue discount for federal income tax purposes.

          In the event that a partial redemption is made pursuant to paragraph 5 of
the Notes, selection of the Notes or portions thereof for redemption shall be
made by the Trustee only on a pro rata basis or on as nearly a pro rata basis
as is practicable (subject to the procedures of The Depository Trust Company),
unless that method is otherwise prohibited.

ARTICLE TWO

Certain Definitions

          The following terms have the meanings set forth below in this Supplemental
Indenture. Capitalized terms used but not defined herein have the meanings
ascribed to such terms in the Indenture. To the extent terms defined herein
differ from the Indenture the terms defined herein will govern.

          “Acquired Indebtedness” means (i) with respect to any Person that becomes
a Restricted Subsidiary (or is merged into the Company or any Restricted
Subsidiary) after the Issue Date, Indebtedness of such Person or any of its
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary
(or is merged into the Company or any Restricted Subsidiary) that was not
incurred in connection with, or in contemplation of, such Person becoming a
Restricted Subsidiary (or being merged into the Company or any Restricted
Subsidiary) and (ii) with respect to the Company or any Restricted Subsidiary,
any Indebtedness expressly assumed by the Company or any Restricted Subsidiary
in connection with the acquisition of any assets from another Person (other
than the Company or any Restricted Subsidiary), which Indebtedness was not
incurred by such other Person in connection with or in contemplation of such
acquisition. Indebtedness incurred in connection with or in contemplation of
any transaction described in clause (i) or (ii) of the preceding sentence shall
be deemed to have been incurred by the Company or a Restricted Subsidiary, as
the case may be, at the time such Person becomes a Restricted Subsidiary (or is
merged into the Company or any Restricted Subsidiary) in the case

 

-3-

of clause (i) or at the time of the acquisition of such assets in the case
of clause (ii), but shall not be deemed Acquired Indebtedness.

          “Affiliate” means, when used with reference to a specified Person, any
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with the Person specified.

          “Affiliate Transaction” has the meaning set forth in Section 3.03 hereof.

          “Asset Acquisition” means (i) an Investment by the Company or any
Restricted Subsidiary in any other Person if, as a result of such Investment,
such Person shall become a Restricted Subsidiary or shall be consolidated or
merged with or into the Company or any Restricted Subsidiary or (ii) the
acquisition by the Company or any Restricted Subsidiary of the assets of any
Person, which constitute all or substantially all of the assets or of an
operating unit or line of business of such Person or which is otherwise outside
the ordinary course of business.

          “Asset Disposition” means any sale, transfer, conveyance, lease or other
disposition (including, without limitation, by way of merger, consolidation or
sale and leaseback or sale of shares of Capital Stock in any Subsidiary) (each,
a “transaction”) by the Company or any Restricted Subsidiary to any Person of
any Property having a fair market value in any transaction or series of related
transactions of at least $10 million. The term “Asset Disposition” shall not
include (i) a transaction between the Company and any Restricted Subsidiary or
a transaction between Restricted Subsidiaries, (ii) a transaction in the
ordinary course of business, including, without limitation, sales (directly or
indirectly), dedications and other donations to governmental authorities,
leases and sales and leasebacks of (A) homes, improved land and unimproved land
and (B) real estate (including related amenities and improvements), (iii) a
transaction involving the sale of Capital Stock of, or the disposition of
assets in, an Unrestricted Subsidiary, (iv) any exchange or swap of assets of
the Company or any Restricted Subsidiary for assets that (x) are to be used by
the Company or any Restricted Subsidiary in the ordinary course of its Real
Estate Business and (y) have a Fair Market Value not less than the Fair Market
Value of the assets exchanged or swapped, (v) any sale, transfer, conveyance,
lease or other disposition of assets and properties of the Company that is
governed by Section 3.08 hereof, or (iv) dispositions of mortgage loans and
related assets and mortgage-backed securities in the ordinary course of a
mortgage lending business.

          “Attributable Debt” means, with respect to any Capitalized Lease
Obligations, the capitalized amount thereof determined in accordance with GAAP.

          “Bankruptcy Law” means title 11 of the United States Code, as amended, or
any similar federal or state law for the relief of debtors.

 

-4-

          “Business Day” means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in New York, New York are
authorized or obligated by law or executive order to close.

          “Capital Stock” means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of or in
such Person’s capital stock or other equity interests, and options, rights or
warrants to purchase such capital stock or other equity interests, whether now
outstanding or issued after the Issue Date, including, without limitation, all
Disqualified Stock and Preferred Stock.

          “Capitalized Lease Obligations” of any Person means the obligations of
such Person to pay rent or other amounts under a lease that is required to be
capitalized for financial reporting purposes in accordance with GAAP, and the
amount of such obligations will be the capitalized amount thereof determined in
accordance with GAAP.

          “Cash Equivalents” means: (a) U.S. dollars; (b) securities issued or
directly and fully guaranteed or insured by the U.S. government or any agency
or instrumentality thereof having maturities of one year or less from the date
of acquisition; (c) certificates of deposit and eurodollar time deposits with
maturities of one year or less from the date of acquisition, bankers’
acceptances with maturities not exceeding six months and overnight bank
deposits, in each case with any domestic commercial bank having capital and
surplus in excess of $500 million; (d) repurchase obligations with a term of
not more than seven days for underlying securities of the types described in
clauses (b) and (c) entered into with any financial institution meeting the
qualifications specified in clause (c) above; (e) commercial paper rated P-1,
A-1 or the equivalent thereof by Moody’s Investors Service, Inc. or Standard &
Poor’s Ratings Group, respectively, and in each case maturing within six months
after the date of acquisition; and (f) investments in money market funds
substantially all of the assets of which consist of securities described in the
foregoing clauses (a) through (e).

          “Change of Control” means (i) any sale, lease or other transfer (in one
transaction or a series of transactions) of all or substantially all of the
consolidated assets of the Company and its Restricted Subsidiaries to any
Person (other than a Restricted Subsidiary); provided, however, that a
transaction where the holders of all classes of Common Equity of the Company
immediately prior to such transaction own, directly or indirectly, more than
50% of all classes of Common Equity of such Person immediately after such
transaction shall not be a Change of Control; (ii) a “person” or “group”
(within the meaning of Section 13(d) of the Exchange Act (other than (x) the
Company or (y) Donald R. Horton, Terrill J. Horton, or their respective wives,
children, grandchildren and other descendants, or any trust or other entity
formed or controlled by any of such individuals)) becomes the “beneficial
owner” (as defined in Rule 13d-3 under the Exchange Act) of Common Equity of
the Company representing more than 50% of the voting power of the Common Equity
of the Company; (iii) Continuing Directors cease to constitute at least a
majority of the Board of Directors of the Company;

 

-5-

or (iv) the stockholders of the Company approve any plan or proposal
for the liquidation or dissolution of the Company; provided, however, that a
liquidation or dissolution of the Company which is part of a transaction that
does not constitute a Change of Control under the proviso contained in clause
(i) above shall not constitute a Change of Control.

          “Common Equity” of any Person means Capital Stock of such Person that is
generally entitled to (i) vote in the election of directors of such Person or
(ii) if such Person is not a corporation, vote or otherwise participate in the
selection of the governing body, partners, managers or others that will control
the management or policies of such Person.

          “Consolidated Adjusted Tangible Assets” of the Company as of any date
means the Consolidated Tangible Assets of the Company and the Restricted
Subsidiaries at the end of the fiscal quarter immediately preceding the date
less any assets securing any Non-Recourse Indebtedness, as determined in
accordance with GAAP.

          “Consolidated Cash Flow Available for Fixed Charges” means, for any
period, on a consolidated basis for the Company and the Restricted
Subsidiaries, Consolidated Net Income for such period plus (each to the extent
deducted in calculating such Consolidated Net Income and determined in
accordance with GAAP) (a) the sum for such period, without duplication, of (i)
income taxes, (ii) Consolidated Interest Expense, (iii) depreciation and
amortization expenses and other non-cash charges to earnings and (iv) interest
and financing fees and expenses which were previously capitalized and which are
amortized to cost of sales, minus (b) all other non-cash items (other than the
receipt of notes receivable) increasing such Consolidated Net Income.

          “Consolidated Fixed Charge Coverage Ratio” means, with respect to any
determination date, the ratio of (x) Consolidated Cash Flow Available for Fixed
Charges for the prior four full fiscal quarters (the “Four Quarter Period”) for
which financial results have been reported immediately preceding the
determination date (the “Transaction Date”), to (y) the aggregate Consolidated
Interest Incurred for the Four Quarter Period. For purposes of this
definition, “Consolidated Cash Flow Available for Fixed Charges” and
“Consolidated Interest Incurred” shall be calculated after giving effect on a
pro forma basis for the period of such calculation to (i) the incurrence or the
repayment, repurchase, defeasance or other discharge or the assumption by
another Person that is not an Affiliate (collectively, “repayment”) of any
Indebtedness of the Company or any Restricted Subsidiary (and the application
of the proceeds thereof) giving rise to the need to make such calculation, and
any incurrence or repayment of other Indebtedness (and the application of the
proceeds thereof), at any time on or after the first day of the Four Quarter
Period and on or prior to the Transaction Date, as if such incurrence or
repayment, as the case may be (and the application of the proceeds thereof),
occurred on the first day of the Four Quarter Period, except that Indebtedness
under revolving credit facilities shall be deemed to be the average daily
balance of such Indebtedness during the Four Quarter Period (as reduced on such
pro forma basis by the application of

 

-6-

any proceeds of the incurrence of Indebtedness giving rise to the need to
make such calculation); (ii) any Asset Disposition or Asset Acquisition
(including, without limitation, any Asset Acquisition giving rise to the need
to make such calculation as a result of the Company or any Restricted
Subsidiary (including any Person that becomes a Restricted Subsidiary as a
result of any such Asset Acquisition) incurring Acquired Indebtedness at any
time on or after the first day of the Four Quarter Period and on or prior to
the Transaction Date), as if such Asset Disposition or Asset Acquisition
(including the incurrence or repayment of any such Indebtedness) and the
inclusion, notwithstanding clause (ii) of the definition of “Consolidated Net
Income,” of any Consolidated Cash Flow Available for Fixed Charges associated
with such Asset Acquisition as if it occurred on the first day of the Four
Quarter Period; provided, however, that the Consolidated Cash Flow Available
for Fixed Charges associated with any Asset Acquisition shall not be included
to the extent the net income so associated would be excluded pursuant to the
definition of “Consolidated Net Income,” other than clause (ii) thereof, as if
it applied to the Person or assets involved before they were acquired; and
(iii) the Consolidated Cash Flow Available for Fixed Charges and the
Consolidated Interest Incurred attributable to discontinued operations, as
determined in accordance with GAAP, shall be excluded. Furthermore, in
calculating “Consolidated Cash Flow Available for Fixed Charges” for purposes
of determining the denominator (but not the numerator) of this “Consolidated
Fixed Charge Coverage Ratio,” (1) interest on Indebtedness in respect of which
a pro forma calculation is required that is determined on a fluctuating basis
as of the Transaction Date (including Indebtedness actually incurred on the
Transaction Date) and which will continue to be so determined thereafter shall
be deemed to have accrued at a fixed rate per annum equal to the rate of
interest on such Indebtedness in effect on the Transaction Date; and (2)
notwithstanding clause (1) above, interest on such Indebtedness determined on a
fluctuating basis, to the extent such interest is covered by agreements
relating to Interest Protection Agreements, shall be deemed to accrue at the
rate per annum resulting after giving effect to the operation of such
agreements.

          “Consolidated Interest Expense” of the Company for any period means the
Interest Expense of the Company and the Restricted Subsidiaries for such
period, determined on a consolidated basis in accordance with GAAP.

          “Consolidated Interest Incurred” for any period means the Interest
Incurred of the Company and the Restricted Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP.

          “Consolidated Net Income” for any period means the aggregate net income
(or loss) of the Company and its Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP; provided that there will be
excluded from such net income (loss) (to the extent otherwise included
therein), without duplication: (i) the net income (or loss) of (x) any
Unrestricted Subsidiary (other than a Mortgage Subsidiary) or (y) any Person
(other than a Restricted Subsidiary) in which any Person other than the Company
or any Restricted

 

-7-

Subsidiary has an ownership interest, except, in each case, to the extent
that any such income has actually been received by the Company or any
Restricted Subsidiary in the form of cash dividends or similar cash
distributions during such period, which dividends or distributions are not in
excess of the Company’s or such Restricted Subsidiary’s (as applicable) pro
rata share of such Unrestricted Subsidiary’s or such other Person’s net income
earned during such period, (ii) except to the extent includable in Consolidated
Net Income pursuant to the foregoing clause (i), the net income (or loss) of
any Person that accrued prior to the date that (a) such Person becomes a
Restricted Subsidiary or is merged with or into or consolidated with the
Company or any of its Restricted Subsidiaries (except, in the case of an
Unrestricted Subsidiary that is redesignated a Restricted Subsidiary during
such period, to the extent of its retained earnings from the beginning of such
period to the date of such redesignation) or (b) the assets of such Person are
acquired by the Company or any Restricted Subsidiary, (iii) the net income of
any Restricted Subsidiary to the extent that (but only so long as) the
declaration or payment of dividends or similar distributions by such Restricted
Subsidiary of that income is not permitted by operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Restricted Subsidiary during such
period, (iv) the gains or losses, together with any related provision for
taxes, realized during such period by the Company or any Restricted Subsidiary
resulting from (a) the acquisition of securities, or extinguishment of
Indebtedness, of the Company or any Restricted Subsidiary or (b) any Asset
Disposition by the Company or any Restricted Subsidiary, (v) any extraordinary
gain or loss together with any related provision for taxes, realized by the
Company or any Restricted Subsidiary and (vi) any non-recurring expense
recorded by the Company or any Restricted Subsidiary in connection with a
merger accounted for as a “pooling-of-interests” transaction; provided,
further, that for purposes of calculating Consolidated Net Income solely as it
relates to clause (iii) of Section 3.03(a) hereof, clause (iv)(b) above shall
not be applicable.

          “Consolidated Net Worth” of any Person as of any date means the
stockholders’ equity (including any Preferred Stock that is classified as
equity under GAAP, other than Disqualified Stock) of such Person and its
Restricted Subsidiaries on a consolidated basis at the end of the fiscal
quarter immediately preceding such date, as determined in accordance with GAAP,
less any amount attributable to Unrestricted Subsidiaries.

          “Consolidated Tangible Assets” of the Company as of any date means the
total amount of assets of the Company and its Restricted Subsidiaries (less
applicable reserves) on a consolidated basis at the end of the fiscal quarter
immediately preceding such date, as determined in accordance with GAAP, less:
(i) Intangible Assets and (ii) appropriate adjustments on account of minority
interests of other Persons holding equity investments in Restricted
Subsidiaries.

          “Continuing Director” means a director who either was a member of the
Board of Directors of the Company on the Issue Date or who became a director of
the Company subsequent

 

-8-

to such date and whose election, or nomination for election by the
Company’s stockholders, was duly approved by a majority of the Continuing
Directors on the Board of Directors of the Company at the time of such
approval, either by a specific vote or by approval of the proxy statement
issued by the Company on behalf of the entire Board of Directors of the Company
in which such individual is named as nominee for director.

          “control”, when used with respect to any Person, means the power to direct
the management and policies of such Person, directly or indirectly, whether
through the ownership of voting securities, by contract or otherwise; and the
terms “controlling” and “controlled” have meanings correlative to the
foregoing.

          “Credit Facilities” means, collectively, each of the credit facilities of
the Company or one or more Restricted Subsidiaries in existence on the Issue
Date and one or more other facilities among or between the Company or one or
more Restricted Subsidiaries and one or more lenders pursuant to which the
Company or any Restricted Subsidiary may incur indebtedness for working capital
and general corporate purposes (including acquisitions), as any such facility
or line of credit may be amended, restated, supplemented or otherwise modified
from time to time, and includes any agreement extending the maturity of,
increasing the amount of, or restructuring, all or any portion of the
Indebtedness under any such facility or line of credit or any successor
facilities or lines of credit and includes any facility or line of credit with
one or more lenders refinancing or replacing all or any portion of the
Indebtedness under such facility or line of credit or any successor facility or
line of credit.

          “Currency Agreement” of any Person means any foreign exchange contract,
currency swap agreement or other similar agreement or arrangement designed to
protect such Person or any of its Subsidiaries against fluctuations in currency
values.

          “Custodian” means any receiver, trustee, assignee, liquidator or similar
official under any Bankruptcy Law.

          “Default” means any event, act or condition that is, or after notice or
the passage of time or both would be, an Event of Default.

          “Designation Amount” has the meaning provided in the definition of
Unrestricted Subsidiary.

          “Disqualified Stock” means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, (i) matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the option of the holder thereof, in whole or in part, on or
prior to the final maturity date of the Notes or (ii) is convertible into or
exchangeable or exercisable for (whether at the option of the issuer or the
holder thereof) (a) debt securities or (b) any Capital Stock referred to in (i)
above, in each case, at any time prior to the

 

-9-

final maturity date of the Notes provided, however, that any Capital Stock
that would not constitute Disqualified Stock but for provisions thereof giving
holders thereof (or the holders of any security into or for which such Capital
Stock is convertible, exchangeable or exercisable) the right to require the
Company to repurchase or redeem such Capital Stock upon the occurrence of a
change in control occurring prior to the final maturity date of the Notes shall
not constitute Disqualified Stock if the change in control provisions
applicable to such Capital Stock are no more favorable to such holders than
Section 3.01 hereof and such Capital Stock specifically provides that the
Company will not repurchase or redeem any such Capital Stock pursuant to such
provisions prior to the Company’s repurchase of the Notes as are required
pursuant to Section 3.01 hereof.

          “Dollars” and “$” mean United States Dollars.

          “Event of Default” means:

		
	 	     (1) the failure by the Company to pay interest on any Note when the
same becomes due and payable and the continuance of any such failure for
a period of 30 days;

		
	 	     (2) the failure by the Company to pay the principal or premium of
any Note when the same becomes due and payable at maturity, upon
acceleration or otherwise;

		
	 	     (3) the failure by the Company or any Restricted Subsidiary to
comply with any of its agreements or covenants in, or provisions of, the
Notes, the Guarantees or the Indenture and such failure continues for the
period and after the notice specified below (except in the case of a
default under Section 3.01 or 3.08, which will constitute Events of
Default with notice but without passage of time);

		
	 	     (4) the acceleration of any Indebtedness (other than Non-Recourse
Indebtedness) of the Company or any Restricted Subsidiary that has an
outstanding principal amount of $25 million or more, individually or in
the aggregate, and such acceleration does not cease to exist, or such
Indebtedness is not satisfied, in either case within 30 days after such
acceleration;

		
	 	     (5) the failure by the Company or any Restricted Subsidiary to make
any principal or interest payment in an amount of $25 million or more,
individually or in the aggregate, in respect of Indebtedness (other than
Non-Recourse Indebtedness) of the Company or any Restricted Subsidiary
within 30 days of such principal or interest becoming due and payable
(after giving effect to any applicable grace period set forth in the
documents governing such Indebtedness);

 

-10-

		
	 	     (6) a final judgment or judgments that exceed $25 million or more,
individually or in the aggregate, for the payment of money having been
entered by a court or courts of competent jurisdiction against the
Company or any of its Restricted Subsidiaries and such judgment or
judgments is not satisfied, stayed, annulled or rescinded within 60 days
of being entered;

		
	 	     (7) the Company or any Restricted Subsidiary that is a Significant
Subsidiary pursuant to or within the meaning of any Bankruptcy Law:

		
	 	     (A) commences a voluntary case,

		
	 	     (B) consents to the entry of an order for relief against it in
an involuntary case,

		
	 	     (C) consents to the appointment of a Custodian of it or for
all or substantially all of its property, or

		
	 	     (D) makes a general assignment for the benefit of its
creditors;

		
	 	     (8) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:

		
	 	     (A) is for relief against the Company or any Restricted
Subsidiary that is a Significant Subsidiary as debtor in an
involuntary case,

		
	 	     (B) appoints a Custodian of the Company or any Restricted
Subsidiary that is a Significant Subsidiary or a Custodian for all
or substantially all of the property of the Company or any
Restricted Subsidiary that is a Significant Subsidiary, or

		
	 	     (C) orders the liquidation of the Company or any Restricted
Subsidiary that is a Significant Subsidiary,

     and the order or decree remains unstayed and in effect for 60 days; or

		
	 	     (9) any Guarantee of a Guarantor which is a Significant Subsidiary
ceases to be in full force and effect (other than in accordance with the
terms of such Guarantee and the Indenture) or is declared null and void
and unenforceable or found to be invalid or any Guarantor denies its
liability under its Guarantee (other than by reason of release of a
Guarantor from its Guarantee in accordance with the terms of the
Indenture and the Guarantee).

          “Fair Market Value” means, with respect to any asset, the price (after
taking into account any liabilities relating to such assets) that would be
negotiated in an arm’s-length

 

-11-

transaction for cash between a willing seller and a willing and able
buyer, neither of which is under any compulsion to complete the transaction, as
such price is determined in good faith by the Board of Directors of the Company
or a duly authorized committee thereof, as evidenced by a resolution of such
Board or committee.

          “GAAP” means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, as in effect from time to time.

          “Guarantors” means (i) initially, each of:

          C. Richard Dobson Builders, Inc., a Virginia corporation;

          CH Investments of Texas, Inc., a Delaware corporation;

          CHI Construction Company, an Arizona corporation;

          CHTEX of Texas, Inc., a Delaware corporation;

          Continental Homes, Inc., a Delaware corporation;

          Continental Homes of Texas, L.P., a Texas limited partnership;

          Continental Residential, Inc., a California corporation;

          D.R. Horton-Emerald, Ltd., a Texas limited partnership;

          D.R. Horton, Inc.-Birmingham, an Alabama corporation;

          D.R. Horton, Inc.-Chicago, a Delaware corporation;

          D.R. Horton, Inc.-Denver, a Delaware corporation;

          D.R. Horton, Inc.-Dietz-Crane, a Delaware corporation;

          D.R. Horton, Inc.-Greensboro, a Delaware corporation;

          D.R. Horton, Inc.-Jacksonville, a Delaware
corporation;

          D.R. Horton, Inc.-Louisville, a Delaware corporation;

          D.R. Horton, Inc.-Minnesota, a Delaware corporation;

          D.R. Horton, Inc.-New Jersey, a Delaware corporation;

          D.R. Horton, Inc.-Portland, a Delaware corporation;

          D.R. Horton, Inc.-Sacramento, a California corporation;

          D.R. Horton, Inc.-Torrey, a Delaware corporation;

          D.R. Horton Los Angeles Holding Company, Inc., a California
corporation;

          D.R. Horton Management Company, Ltd., a Texas limited partnership;

          D.R. Horton Materials, Inc., a Delaware corporation
(formerly DRH Regrem III, Inc.);

          D.R. Horton San Diego Holding Company, Inc., a California
corporation;

          D.R. Horton-Schuler Homes, LLC, a Delaware limited liability
company;

          D.R. Horton-Texas, Ltd., a Texas limited partnership;

          DRH Cambridge Homes, Inc., a California corporation;

 

-12-

          DRH Cambridge Homes, LLC, a Delaware limited liability company;

          DRH Construction, Inc., a Delaware corporation;

          DRH Energy, Inc., a Colorado corporation (formerly DRH Title

          Company of Colorado, Inc.);

          DRH Regrem IV, Inc., a Delaware corporation;

          DRH Regrem V, Inc., a Delaware corporation;

          DRH Regrem VII, LP, a Texas limited partnership;

          DRH Regrem VIII, LLC, a Delaware limited liability company;

          DRH Southwest Construction, Inc., a California corporation;

          DRH Tucson Construction, Inc., a Delaware corporation;

          DRHI, Inc., a Delaware corporation;

          HPH Homebuilders 2000 L.P., a California limited partnership;

          KDB Homes, Inc., a Delaware corporation;

          Meadows I, Ltd., a Delaware corporation;

          Meadows II, Ltd., a Delaware corporation;

          Meadows VIII, Ltd., a Delaware corporation;

          Meadows IX, Inc., a New Jersey corporation;

          Meadows X, Inc., a New Jersey corporation;

          Melmort Co., a Colorado corporation;

          Melody Homes, Inc., a Delaware corporation;

          SGS Communities at Grande Quay, LLC, a New Jersey
limited liability company;

          SHA Construction LLC, a Delaware limited liability company;

          SHLR of California, Inc., a California corporation;

          SHLR of Colorado, Inc., a Colorado corporation;

          SHLR of Nevada, Inc., a Nevada corporation;

          SHLR of Utah, Inc., a Utah corporation;

          SHLR of Washington, Inc., a Washington corporation;

          SRHI LLC, a Delaware limited liability company;

          SSHI LLC, a Delaware limited liability company;

          Schuler Homes of Arizona, LLC, a Delaware limited liability
company;

          Schuler Homes of California, Inc., a California corporation;

          Schuler Homes of Oregon, Inc., an Oregon corporation;

          Schuler Homes of Washington, Inc., a Washington corporation;

          Schuler Mortgage, Inc., a Delaware corporation;

          Schuler Realty Hawaii, Inc., a Hawaii corporation;

          The Club at Pradera, Inc., a Delaware corporation (formerly DRH

          Regrem II, Inc.);

          Vertical Construction Corporation, a Delaware corporation;

          WPH-Camino Ruiz, LLC, a Delaware limited liability company;

          Western Pacific Funding, Inc., a California corporation;

          Western Pacific Housing, Inc., a Delaware corporation;

 

-13-

          Western Pacific Housing Management, Inc., a California corporation;

          Western Pacific Housing-Antigua, LLC, a Delaware limited liability
company;

          Western Pacific Housing-Aviara, L.P., a California limited
partnership;

          Western Pacific Housing-Boardwalk, LLC, a Delaware limited
liability company;

          Western Pacific Housing-Broadway, LLC, a Delaware limited liability
company;

          Western Pacific Housing Co., a California limited partnership;

          Western Pacific Housing-Canyon Park, LLC, a Delaware limited
liability company;

          Western Pacific Housing-Carmel, LLC, a Delaware limited liability
company;

          Western Pacific Housing-Carrillo, LLC, a Delaware limited liability
company;

          Western Pacific Housing-Communications Hill, LLC, a Delaware
limited liability company;

          Western Pacific Housing-Copper Canyon, LLC, a Delaware limited
liability company;

          Western Pacific Housing-Creekside, LLC, a Delaware limited
liability company;

          Western Pacific Housing-Culver City, L.P. , a California limited
partnership;

          Western Pacific Housing-Del Valle, LLC, a Delaware limited
liability company;

          Western Pacific Housing-Lomas Verdes, LLC, a Delaware limited
liability company;

          Western Pacific Housing-Lost Hills Park, LLC, a Delaware limited
liability company;

          Western Pacific Housing-McGonigle Canyon, LLC, a Delaware limited
liability company;

          Western Pacific Housing-Mountaingate, L.P., a California limited
partnership;

          Western Pacific Housing-Norco Estates, LLC, a Delaware limited
liability company;

          Western Pacific Housing-Oso, L.P., a California limited
partnership;

          Western Pacific Housing-Pacific Park II, LLC, a Delaware limited
liability company;

          Western Pacific Housing-Park Avenue East, LLC, a Delaware limited
liability company;

          Western Pacific Housing-Park Avenue West, LLC, a Delaware limited
liability company;

          Western Pacific Housing-Playa Vista, LLC, a Delaware limited
liability company;

          Western Pacific Housing-Poinsettia, L.P., a California limited
partnership;

          Western Pacific Housing-River Ridge, LLC, a Delaware limited
liability company;

 

-14-

          Western Pacific Housing-Robinhood Ridge, LLC, a Delaware limited
liability company;

          Western Pacific Housing-Santa Fe, LLC, a Delaware limited liability
company;

          Western Pacific Housing-Scripps, L.P., a California limited
partnership;

          Western Pacific Housing-Scripps II, LLC, a Delaware limited
liability company;

          Western Pacific Housing-Seacove, L.P., a California limited
partnership;

          Western Pacific Housing-Studio 528, LLC, a Delaware limited
liability company;

          Western Pacific Housing-Terra Bay Duets, LLC, a Delaware limited
liability company;

          Western Pacific Housing-Torrance, LLC, a Delaware limited liability
company;

          Western Pacific Housing-Torrey Commercial, LLC, a Delaware limited
liability company;

          Western Pacific Housing-Torrey Meadows, LLC, a Delaware limited
liability company;

          Western Pacific Housing-Torrey Multi-Family, LLC, a Delaware
limited liability company;

          Western Pacific Housing-Torrey Village Center, LLC, a Delaware
limited liability company;

          Western Pacific Housing-Vineyard Terrace, LLC, a Delaware limited
liability company;

          Western Pacific Housing-Windemere, LLC, a Delaware limited
liability company;

          Western Pacific Housing-Windflower, L.P., a California limited
partnership;

and (ii) each of the Company’s Subsidiaries which becomes a guarantor of the
Notes pursuant to the provisions of the Indenture. An Unrestricted Subsidiary
may become a Guarantor if it (x) is so designated by resolution of the Board of
Directors of the Company and (y) executes a supplemental indenture satisfactory
to the Trustee.

          “Holder” means the Person in whose name a Note is registered in the books
of the Registrar for the Notes.

          “incurrence” has the meaning set forth in Section 3.02.

          “Indebtedness” of any Person means, without duplication, (i) any liability
of such Person (a) for borrowed money or under any reimbursement obligation
relating to a letter of credit or other similar instruments (other than standby
letters of credit or similar instrument issued for the benefit of or surety,
performance, completion or payment bonds, earnest money notes or similar
purpose undertakings or indemnifications issued by, such Person in the ordinary
course of business), (b) evidenced by a bond, note, debenture or
similar instrument

 

-15-

(including a purchase money obligation) given in connection with the
acquisition of any businesses, properties or assets of any kind or with
services incurred in connection with capital expenditures (other than any
obligation to pay a contingent purchase price which, as of the date of
incurrence thereof is not required to be recorded as a liability in accordance
with GAAP), or (c) in respect of Capitalized Lease Obligations (to the extent
of the Attributable Debt in respect thereof), (ii) any Indebtedness of others
that such Person has guaranteed to the extent of the guarantee, (iii) to the
extent not otherwise included, the obligations of such Person under Currency
Agreements or Interest Protection Agreements to the extent recorded as
liabilities not constituting Interest Incurred, net of amounts recorded as
assets in respect of such agreements, in accordance with GAAP, and (iv) all
Indebtedness of others secured by a Lien on any asset of such Person, whether
or not such Indebtedness is assumed by such Person; provided, that Indebtedness
shall not include accounts payable, liabilities to trade creditors of such
Person or other accrued expenses arising in the ordinary course of business.
The amount of Indebtedness of any Person at any date shall be (a) the
outstanding balance at such date of all unconditional obligations as described
above, net of any unamortized discount to be accounted for as Interest Expense,
in accordance with GAAP, (b) the maximum liability of such Person for any
contingent obligations under clause (ii) above at such date, net of, any
unamortized discount to be accounted for as Interest Expense in accordance with
GAAP and (c) in the case of clause (iv) above, the lesser of (1) the fair
market value of any asset subject to a Lien securing the Indebtedness of others
on the date that the Lien attaches and (2) the amount of the Indebtedness
secured.

          “Indenture” has the meaning provided in the Recitals.

          “Intangible Assets” of the Company means all unamortized debt discount and
expense, unamortized deferred charges, goodwill, patents, trademarks, service
marks, trade names, copyrights, writeups of assets over their prior carrying
value (other than write-ups which occurred prior to the Issue Date and other
than, in connection with the acquisition of an asset, the write-up of the value
of such asset (within one year of its acquisition) to its fair market value in
accordance with GAAP) and all other items which would be treated as intangibles
on the consolidated balance sheet of the Company and the Restricted
Subsidiaries prepared in accordance with GAAP.

          “Interest Expense” of any Person for any period means, without
duplication, the aggregate amount of (i) interest which, in conformity with
GAAP, would be set opposite the caption “interest expense” or any like caption
on an income statement for such Person (including, without limitation, imputed
interest included in Capitalized Lease Obligations, all commissions, discounts
and other fees and charges owed with respect to letters of credit and bankers’
acceptance financing, the net costs (but reduced by net gains) associated with
Currency Agreements and Interest Protection Agreements, amortization of other
financing fees and expenses, the interest portion of any deferred payment
obligation, amortization of discount or premium, if any, and all other noncash
interest expense other than interest and other

 

-16-

charges amortized to cost of sales), and (ii) all interest actually paid
by the Company or a Restricted Subsidiary under any guarantee of Indebtedness
(including, without limitation, a guarantee of principal, interest or any
combination thereof) of any Person other than the Company or any Restricted
Subsidiary during such period; provided, that Interest Expense shall exclude
any expense associated with the complete write-off of financing fees and
expenses in connection with the repayment of any Indebtedness.

          “Interest Incurred” of any Person for any period means, without
duplication, the aggregate amount of (i) Interest Expense and (ii) all
capitalized interest and amortized debt issuance costs.

          “Interest Protection Agreement” of any Person means any interest rate swap
agreement, interest rate collar agreement, option or futures contract or other
similar agreement or arrangement designed to protect such Person or any of its
Subsidiaries against fluctuations in interest rates with respect to
Indebtedness permitted to be incurred under this Supplemental Indenture.

          “Investment Grade” shall mean BBB- or higher by S&P or Baa3 or higher by
Moody’s or the equivalent of such ratings by S&P or Moody’s.

          “Investments” of any Person means (i) all investments by such Person in
any other Person in the form of loans, advances or capital contributions, (ii)
all guarantees of Indebtedness or other obligations of any other Person by such
Person, (iii) all purchases (or other acquisitions for consideration) by such
Person of Indebtedness, Capital Stock or other securities of any other Person
and (iv) all other items that would be classified as investments in any other
Person (including, without limitation, purchases of assets outside the ordinary
course of business) on a balance sheet of such Person prepared in accordance
with GAAP.

          “Issue Date” means the date on which the Notes are originally issued under
this Supplemental Indenture.

          “Lien” means, with respect to any Property, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such
Property. For purposes of this definition, a Person shall be deemed to own,
subject to a Lien, any Property which it has acquired or holds subject to the
interest of a vendor or lessor under any conditional sale agreement, capital
lease or other title retention agreement relating to such Property.

          “Marketable Securities” means (a) equity securities that are listed on the
New York Stock Exchange, the American Stock Exchange or The Nasdaq National
Market and (b) debt securities that are rated by a nationally recognized rating
agency, listed on the New York Stock Exchange or the American Stock Exchange or
covered by at least two reputable market makers.

 

-17-

          “Moody’s” means Moody’s Investors Service, Inc. or any successor to its
debt rating business.

          “Mortgage Subsidiary” means any Subsidiary of the Company substantially
all of whose operations consist of the mortgage lending business.

          “Net Cash Proceeds” means, with respect to an Asset Disposition, cash
payments received (including any cash payments received by way of deferred
payment of principal pursuant to a note or installment receivable or otherwise
(including any cash received upon sale or disposition of such note or
receivable), but only as and when received), excluding any other consideration
received in the form of assumption by the acquiring Person of Indebtedness or
other obligations relating to the Property disposed of in such Asset
Disposition or received in any other non-cash form unless and until such
non-cash consideration is converted into cash therefrom, in each case, net of
all legal, title and recording tax expenses, commissions and other fees and
expenses incurred, and all federal, state and local taxes required to be
accrued as a liability under GAAP as a consequence of such Asset Disposition,
and in each case net of a reasonable reserve for the after-tax cost of any
indemnification or other payments (fixed and contingent) attributable to the
seller’s indemnities or other obligations to the purchaser undertaken by the
Company or any of its Restricted Subsidiaries in connection with such Asset
Disposition, and net of all payments made on any Indebtedness which is secured
by or relates to such Property, in accordance with the terms of any Lien or
agreement upon or with respect to such Property or which must by its terms or
by applicable law be repaid out of the proceeds from such Asset Disposition,
and net of all contractually required distributions and payments made to
minority interest holders in Restricted Subsidiaries or joint ventures as a
result of such Asset Disposition.

          “Non-Recourse Indebtedness” with respect to any Person means Indebtedness
of such Person for which (i) the sole legal recourse for collection of
principal and interest on such Indebtedness is against the specific property
identified in the instruments evidencing or securing such Indebtedness and such
property was acquired with the proceeds of such Indebtedness or such
Indebtedness was incurred within 90 days after the acquisition of such property
and (ii) no other assets of such Person may be realized upon in collection of
principal or interest on such Indebtedness. Indebtedness which is otherwise
Non-Recourse Indebtedness will not lose its character as Non-Recourse
Indebtedness because there is recourse to the borrower, any guarantor or any
other Person for (i) environmental warranties and indemnities, or (ii)
indemnities for and liabilities arising from fraud, misrepresentation,
misapplication or non-payment of rents, profits, insurance and condemnation
proceeds and other sums actually received by the borrower from secured assets
to be paid to the lender, waste and mechanics’ liens.

          “Notes” has the meaning provided in the Recitals.

          “Paying Agent” means the Trustee or any successor paying agent.

 

-18-

          “Permitted Indebtedness” means (i) Indebtedness under Credit Facilities
which does not exceed $1.0 billion principal amount outstanding at any one
time; (ii) Indebtedness in respect of obligations of the Company and its
Subsidiaries to the trustees under indentures for debt securities; (iii)
intercompany debt obligations of the Company to any Restricted Subsidiary and
of any Restricted Subsidiary to the Company or any other Restricted Subsidiary;
provided, however, that any Indebtedness of any Restricted Subsidiary or the
Company owed to any Restricted Subsidiary or that ceases to be a Restricted
Subsidiary shall be deemed to be incurred and shall be treated as an incurrence
for purposes of the first paragraph of the covenant described under
“Limitations on Indebtedness” at the time the Restricted Subsidiary in question
ceases to be a Restricted Subsidiary; (iv) Indebtedness of the Company or any
Restricted Subsidiary under any Currency Agreements or Interest Protection
Agreements in a notional amount no greater than the payments due (at the time
the related Currency Agreement or Interest Protection Agreement is entered
into) with respect to the Indebtedness or currency being hedged; (v) Purchase
Money Indebtedness; (vi) Capitalized Lease Obligations; (vii) obligations for,
pledge of assets in respect of, and guaranties of, bond financings of political
subdivisions or enterprises thereof in the ordinary course of business; (viii)
Indebtedness secured only by office buildings owned or occupied by the Company
or any Restricted Subsidiary, which Indebtedness does not exceed $20 million
aggregate principal amount outstanding at any one time; (ix) Indebtedness under
warehouse lines of credit, repurchase agreements and Indebtedness secured by
mortgage loans and related assets of mortgage lending Subsidiaries in the
ordinary course of a mortgage lending business; and (x) Indebtedness of the
Company or any Restricted Subsidiary which, together with all other
Indebtedness under this clause (x), does not exceed $30 million aggregate
principal amount outstanding at any one time.

          “Permitted Investment” means (i) Cash Equivalents; (ii) any Investment in
the Company or any Restricted Subsidiary or any Person that becomes a
Restricted Subsidiary as a result of such Investment or that is consolidated or
merged with or into, or transfers all or substantially all of the assets of it
or an operating unit or line of business to, the Company or a Restricted
Subsidiary; (iii) any receivables, loans or other consideration taken by the
Company or any Restricted Subsidiary in connection with any asset sale
otherwise permitted by the Indenture; (iv) Investments received in connection
with any bankruptcy or reorganization proceeding, or as a result of
foreclosure, perfection or enforcement of any Lien or any judgment or
settlement of any Person in exchange for or satisfaction of Indebtedness or
other obligations or other property received from such Person, or for other
liabilities or obligations of such Person created, in accordance with the terms
of the Indenture; (v) Investments in Currency Agreements or Interest Protection
Agreements described in the definition of Permitted Indebtedness; (vi) any loan
or advance to an executive officer or director of the Company or any Restricted
Subsidiary made in the ordinary course of business; provided, however, that any
such loan or advance exceeding $1 million shall have been approved by the Board
of Directors of the Company or a committee thereof consisting of disinterested
members; (vii) Investments in joint ventures in a Real Estate Business with
unaffiliated third parties in an aggregate

 

-19-

amount at any time outstanding not to exceed 10% of Consolidated
Tangible Assets at such time; (viii) Investments in interests in issuances of
collateralized mortgage obligations, mortgages, mortgage loan securities or
other mortgage related assets; and (ix) Investments in an aggregate amount
outstanding not to exceed $100 million.

          “Permitted Liens” means (i) Liens for taxes, assessments or governmental
or quasi-government charges or claims that (a) are not yet delinquent, (b) are
being contested in good faith by appropriate proceedings and as to which
appropriate reserves have been established or other provisions have been made
in accordance with GAAP, if required, or (c) encumber solely property abandoned
or in the process of being abandoned, (ii) statutory Liens of landlords and
carriers’, warehousemen’s, mechanics’, suppliers’, materialmen’s, repairmen’s
or other Liens imposed by law and arising in the ordinary course of business
and with respect to amounts that, to the extent applicable, either (a) are not
yet delinquent or (b) are being contested in good faith by appropriate
proceedings and as to which appropriate reserves have been established or other
provisions have been made in accordance with GAAP, if required, (iii) Liens
(other than any Lien imposed by the Employee Retirement Income Security Act of
1974, as amended) incurred or deposits made in the ordinary course of business
in connection with workers’ compensation, unemployment insurance and other
types of social security, (iv) Liens incurred or deposits made to secure the
performance of tenders, bids, leases, statutory obligations, surety and appeal
bonds, development obligations, progress payments, government contacts, utility
services, developer’s or other obligations to make on-site or off-site
improvements and other obligations of like nature (exclusive of obligations for
the payment of borrowed money but including the items referred to in the
parenthetical in clause (i)(a) of the definition of “Indebtedness”), in each
case incurred in the ordinary course of business of the Company and the
Restricted Subsidiaries, (v) attachment or judgment Liens not giving rise to a
Default or an Event of Default, (vi) easements, dedications, assessment
district or similar liens in connection with municipal or special district
financing, rights-of-way, restrictions, reservations, other similar charges,
burdens, and other similar charges or encumbrances not materially interfering
with the ordinary course of business of the Company and the Restricted
Subsidiaries, (vii) zoning restrictions, licenses, restrictions on the use of
real property or minor irregularities in title thereto, which do not materially
impair the use of such real property in the ordinary course of business of the
Company and the Restricted Subsidiaries, (viii) Liens securing Indebtedness
incurred pursuant to clause (viii) or (ix) of the definition of Permitted
Indebtedness, (ix) Liens securing Indebtedness of the Company or any Restricted
Subsidiary permitted to be incurred under the Indenture; provided, that the
aggregate amount of all consolidated Indebtedness of the Company and the
Restricted Subsidiaries (including, with respect to Capitalized Lease
Obligations, the Attributable Debt in respect thereof) secured by Liens (other
than Non-Recourse Indebtedness and Indebtedness incurred pursuant to clause
(ix) of the definition of Permitted Indebtedness) shall not exceed 40% of
Consolidated Adjusted Tangible Assets at any one time outstanding (after giving
effect to the incurrence of such Indebtedness and the use of the proceeds
thereof), (x) Liens securing Non-Recourse Indebtedness of the Company or any
Restricted Subsidiary; provided, that such

 

-20-

Liens apply only to the property financed out of the net proceeds of such
Non-Recourse Indebtedness within 90 days after the incurrence of such
Non-Recourse Indebtedness, (xi) Liens securing Purchase Money Indebtedness;
provided that such Liens apply only to the property acquired, constructed or
improved with the proceeds of such Purchase Money Indebtedness within 90 days
after the incurrence of such Purchase Money Indebtedness, (xii) Liens on
property or assets of the Company or any Restricted Subsidiary securing
Indebtedness of the Company or any Restricted Subsidiary owing to the Company
or one or more Restricted Subsidiaries, (xiii) leases or subleases granted to
others not materially interfering with the ordinary course of business of the
Company and the Restricted Subsidiaries, (xiv) purchase money security
interests (including, without limitation, Capitalized Lease Obligations);
provided, that such Liens apply only to the Property acquired and the related
Indebtedness is incurred within 90 days after the acquisition of such Property,
(xv) any right of first refusal, right of first offer, option, contract or
other agreement to sell an asset; provided, that such sale is not otherwise
prohibited under the Indenture, (xvi) any right of a lender or lenders to which
the Company or a Restricted Subsidiary may be indebted to offset against, or
appropriate and apply to the payment of such, Indebtedness any and all
balances, credits, deposits, accounts or money of the Company or a Restricted
Subsidiary with or held by such lender or lenders or its Affiliates, (xvii) any
pledge or deposit of cash or property in conjunction with obtaining surety,
performance, completion or payment bonds and letters of credit or other similar
instruments or providing earnest money obligations, escrows or similar purpose
undertakings or indemnifications in the ordinary course of business of the
Company and its Restricted Subsidiaries, (xviii) Liens for homeowner and
property owner association developments and assessments, (xix) Liens securing
Refinancing Indebtedness; provided, that such Liens extend only to the assets
securing the Indebtedness being refinanced, and (xx) Liens incurred in the
ordinary course of business as security for the obligations of the Company and
its Restricted Subsidiaries with respect to indemnification in respect of title
insurance providers.

          “Person” means any individual, corporation, partnership, limited liability
company, joint venture, incorporated or unincorporated association, joint stock
company, trust, unincorporated organization or government or any agency or
political subdivision thereof.

          “Preferred Stock” of any Person means all Capital Stock of such Person
which has a preference in liquidation or with respect to the payment of
dividends.

          “Property” of any Person means all types of real, personal, tangible,
intangible or mixed property owned by such Person, whether or not included in
the most recent consolidated balance sheet of such Person and its Subsidiaries
under GAAP.

          “Public Equity Offering” means an underwritten public offering of Common
Equity of the Company pursuant to an effective registration statement filed
under the Securities Act (excluding registration statements filed on Form S-8
or any successor form).

 

-21-

          “Purchase Money Indebtedness” means Indebtedness of the Company or any
Restricted Subsidiary incurred for the purpose of financing all or any part of
the purchase price, or the cost of construction or improvement, of any property
to be used in the ordinary course of business by the Company and the Restricted
Subsidiaries; provided, however, that (i) the aggregate principal amount of
such Indebtedness shall not exceed such purchase price or cost and (ii) such
Indebtedness shall be incurred no later than 90 days after the acquisition of
such property or completion of such construction or improvement.

          “Qualified Stock” means Capital Stock of the Company other than
Disqualified Stock.

          “Rating Agencies” shall mean (1) S&P and (2) Moody’s.

          “Real Estate Business” means homebuilding, housing construction, real
estate development or construction and related real estate activities,
including the provision of mortgage financing or title insurance.

          “Refinancing Indebtedness” means Indebtedness (to the extent not Permitted
Indebtedness) that refunds, refinances or extends any Indebtedness of the
Company or any Restricted Subsidiary (to the extent not Permitted Indebtedness)
outstanding on the Issue Date or other Indebtedness (to the extent not
Permitted Indebtedness) permitted to be incurred by the Company or any
Restricted Subsidiary pursuant to the terms of this Indenture, but only to the
extent that (i) the Refinancing Indebtedness is subordinated to the Notes or
the Guarantees, as the case may be, to the same extent as the Indebtedness
being refunded, refinanced or extended, if at all, (ii) the Refinancing
Indebtedness is scheduled to mature either (a) no earlier than the Indebtedness
being refunded, refinanced or extended or (b) after the maturity date of the
Notes, (iii) the portion, if any, of the Refinancing Indebtedness that is
scheduled to mature on or prior to the maturity date of the Notes has a
Weighted Average Life to Maturity at the time such Refinancing Indebtedness is
incurred that is equal to or greater than the Weighted Average Life to Maturity
of the portion of the Indebtedness being refunded, refinanced or extended that
is scheduled to mature on or prior to the maturity date of the Notes, and (iv)
such Refinancing Indebtedness is in an aggregate principal amount that is equal
to or less than the aggregate principal amount then outstanding under the
Indebtedness being refunded, refinanced or extended.

          “Registrar” means American Stock Transfer & Trust Company or any successor
registrar of the Notes.

          “Restricted Payment” means any of the following: (i) the declaration or
payment of any dividend or any other distribution on Capital Stock of the
Company or any Restricted Subsidiary or any payment made to the direct or
indirect holders (in their capacities as such) of Capital Stock of the Company
or any Restricted Subsidiary (other than (a) dividends or distributions payable
solely in Qualified Stock and (b) in the case of Restricted Subsidiaries,

 

-22-

dividends or distributions payable to the Company or to a Restricted
Subsidiary); (ii) the purchase, redemption or other acquisition or retirement
for value of any Capital Stock of the Company or any Restricted Subsidiary
(other than a payment made to the Company or any Restricted Subsidiary); and
(iii) any Investment (other than any Permitted Investment), including any
Investment in an Unrestricted Subsidiary (including by the designation of a
Subsidiary of the Company as an Unrestricted Subsidiary).

          “Restricted Subsidiary” means any Subsidiary of the Company which is not
an Unrestricted Subsidiary.

          “S&P” means Standard and Poor’s Ratings Group or any successor to its debt
rating business.

          “Significant Subsidiary” means any Subsidiary of the Company which would
constitute a “significant subsidiary” as defined in Rule 1-02 of Regulation S-X
under the Securities Act and the Exchange Act.

          “Subsidiary” of any Person means any corporation or other entity of which
a majority of the Capital Stock having ordinary voting power to elect a
majority of the Board of Directors or other persons performing similar
functions is at the time directly or indirectly owned or controlled by such
Person.

          “Successor” has the meaning set forth in Section 3.08.

          “Supplemental Indenture” has the meaning provided in the Preamble.

          “Trustee” means the party named as such above until a successor replaces
such party in accordance with the applicable provisions of this Indenture and
thereafter means the successor serving hereunder.

          “Unrestricted Subsidiary” means any Subsidiary of the Company so
designated by a resolution adopted by the Board of Directors of the Company or
a duly authorized committee thereof as provided below; provided that (a) the
holders of Indebtedness thereof do not have direct or indirect recourse against
the Company or any Restricted Subsidiary, and neither the Company nor any
Restricted Subsidiary otherwise has liability, for any payment obligations in
respect of such Indebtedness (including any undertaking, agreement or
instrument evidencing such Indebtedness), except, (i) in each case, to the
extent that the amount thereof constitutes a Restricted Payment permitted by
the Indenture, (ii) in the case of Non-Recourse Indebtedness, to the extent
such recourse or liability is for the matters discussed in the last sentence of
the definition of “Non-Recourse Indebtedness,” or (iii) to the extent such
Indebtedness is a guarantee by such Subsidiary of Indebtedness of the Company
or a Restricted Subsidiary and (b) no holder of any Indebtedness of such
Subsidiary shall have a right to declare a default on such Indebtedness or
cause the payment thereof to be accelerated or payable prior

 

-23-

to its stated maturity as a result of a default on any Indebtedness of the
Company or any Restricted Subsidiary. Subject to the foregoing, the Board of
Directors of the Company or a duly authorized committee thereof may designate
any Subsidiary to be an Unrestricted Subsidiary; provided, however, that (i)
the net amount (the “Designation Amount”) then outstanding of all previous
Investments by the Company and the Restricted Subsidiaries in such Subsidiary
will be deemed to be a Restricted Payment at the time of such designation and
will reduce the amount available for Restricted Payments under Section 3.03
hereof, to the extent provided therein, (ii) the Company must be permitted
under Section 3.03 hereof to make the Restricted Payment deemed to have been
made pursuant to clause (i), and (iii) after giving effect to such designation,
no Default or Event of Default shall have occurred and be continuing. In
accordance with the foregoing, and not in limitation thereof, Investments made
by any Person in any Subsidiary of such Person prior to such Person’s merger
with the Company or any Restricted Subsidiary (but not in contemplation or
anticipation of such merger) shall not be counted as an Investment by the
Company or such Restricted Subsidiary if such Subsidiary of such Person is
designated as an Unrestricted Subsidiary. The Board of Directors of the
Company or a duly authorized committee thereof may also redesignate an
Unrestricted Subsidiary to be a Restricted Subsidiary; provided, however, that
(i) the Indebtedness of such Unrestricted Subsidiary as of the date of such
redesignation could then be incurred under Section 3.02 hereof and (ii)
immediately after giving effect to such redesignation and the incurrence of any
such additional Indebtedness, the Company and the Restricted Subsidiaries could
incur $1.00 of additional Indebtedness under Section 3.02(a) hereof. Any such
designation or redesignation by the Board of Directors of the Company or a
committee thereof will be evidenced to the Trustee by the filing with the
Trustee of a certified copy of the resolution of the Board of Directors of the
Company or a committee thereof giving effect to such designation or
redesignation and an Officers’ Certificate certifying that such designation or
redesignation complied with the foregoing conditions and setting forth the
underlying calculations of such Officers’ Certificate. The designation of any
Person as an Unrestricted Subsidiary shall be deemed to include a designation
of all Subsidiaries of such Person as Unrestricted Subsidiaries; provided,
however, that the ownership of the general partnership interest (or a similar
member’s interest in a limited liability company) by an Unrestricted Subsidiary
shall not cause a Subsidiary of the Company of which more than 95% of the
equity interest is held by the Company or one or more Restricted Subsidiaries
to be deemed an Unrestricted Subsidiary.

          “Weighted Average Life to Maturity” means, when applied to any
Indebtedness or portion thereof at any date, the number of years obtained by
dividing (i) the sum of the products obtained by multiplying (a) the amount of
each then remaining installment, sinking fund, serial maturity or other
required payment of principal, including, without limitation, payment at final
maturity, in respect thereof, by (b) the number of years (calculated to the
nearest one-twelfth) that will elapse between such date and the making of such
payment by (ii) the sum of all such payments described in clause (i)(a) above.

 

-24-

ARTICLE THREE

Covenants

Section 3.01. Repurchase of Notes upon Change of Control.

          (a) In the event that there shall occur a Change of Control, each Holder
of Notes shall have the right, at such Holder’s option, to require the Company
to purchase all or any part of such Holder’s Notes on a date (the “Repurchase
Date”) that is no later than 90 days after notice of the Change of Control, at
101% of the principal amount thereof plus accrued interest to the Repurchase
Date.

          (b) On or before the thirtieth day after any Change of Control, the
Company is obligated to mail, or cause to be mailed, to all Holders of record
of Notes a notice regarding the Change of Control and the repurchase right.
The notice shall state the Repurchase Date, the date by which the repurchase
right must be exercised, the price for the Notes and the procedure which the
Holder must follow to exercise such right. Substantially simultaneously with
mailing of the notice, the Company shall cause a copy of such notice to be
published in a newspaper of general circulation in the Borough of Manhattan,
The City of New York. To exercise such right, the Holder of such Note must
deliver at least ten days prior to the Repurchase Date written notice to the
Company (or an agent designated by the Company for such purpose) of the
Holder’s exercise of such right, together with the Note with respect to which
the right is being exercised, duly endorsed for transfer; provided, however,
that if mandated by applicable law, a Holder may be permitted to deliver such
written notice nearer to the Repurchase Date than may be specified by the
Company.

          (c) The Company will comply with applicable law, including Section 14(e)
of the Exchange Act and Rule 14e-1 thereunder, if applicable, if the Company is
required to give a notice of right of repurchase as a result of a Change of
Control.

Section 3.02. Limitations on Indebtedness.

          (a) Until the Notes are rated Investment Grade by both Rating Agencies
(after which time the following covenant will no longer be in effect), the
Company will not, and will not cause or permit any Restricted Subsidiary,
directly or indirectly, to, create, incur, assume, become liable for or
guarantee the payment of (collectively, an “incurrence”) any Indebtedness
(including Acquired Indebtedness) unless, after giving effect thereto and the
application of the proceeds therefrom, the Consolidated Fixed Charge Coverage
Ratio on the date thereof would be at least 2.0 to 1.0.

          (b) Notwithstanding the foregoing, the provisions of this Supplemental
Indenture will not prevent the incurrence of: (i) Permitted Indebtedness, (ii)
Refinancing Indebtedness, (iii) Non-Recourse Indebtedness, (iv) any Guarantee
of Indebtedness of the Company

 

-25-

represented by the Notes and (v) any guarantee of Indebtedness incurred
under Credit Facilities in compliance with this Indenture.

          (c) For purposes of determining compliance with this covenant, in the
event that an item of Indebtedness may be incurred through the first paragraph
of this covenant or by meeting the criteria of one or more of the types of
Indebtedness described in the second paragraph of this covenant (or the
definitions of the terms used therein), the Company, in its sole discretion,
(i) may classify such item of Indebtedness under and comply with either of such
paragraphs (or any of such definitions), as applicable, (ii) may classify and
divide such item of Indebtedness into more than one of such paragraphs (or
definitions), as applicable, and (iii) may elect to comply with such paragraphs
(or definitions), as applicable, in any order.

          (d) The Company will not, and will not cause or permit any Guarantor to,
directly or indirectly, in any event incur any Indebtedness that purports to be
by its terms (or by the terms of any agreement governing such Indebtedness)
subordinated to any other Indebtedness of the Company or of such Guarantor, as
the case may be, unless such Indebtedness is also by its terms (or by the terms
of any agreement governing such Indebtedness) made expressly subordinated to
the Notes or the Guarantee of such Guarantor, as the case may be, to the same
extent and in the same manner as such Indebtedness is subordinated to such
other Indebtedness of the Company or such Guarantor, as the case may be.

Section 3.03. Limitations on Restricted Payments.

          (a) Until the Notes are rated Investment Grade by both Rating Agencies
(after which time the following covenant will no longer be in effect), the
Company will not, and will not cause or permit any Restricted Subsidiary to,
directly or indirectly, make any Restricted Payment unless:

		
	 	     (i) no Default or Event of Default shall have occurred and be
continuing at the time of or immediately after giving effect to such
Restricted Payment;
	 
	 	     (ii) immediately after giving effect to such Restricted Payment, the
Company could incur at least $1.00 of Indebtedness pursuant to Section
3.02(a) hereof; and
	 
	 	     (iii) immediately after giving effect to such Restricted Payment,
the aggregate amount of all Restricted Payments (including the Fair
Market Value of any non-cash Restricted Payment) declared or made after
the Issue Date does not exceed the sum of (a) 50% of the Consolidated Net
Income of the Company on a cumulative basis during the period (taken as
one accounting period) from and including April 1, 1998 and ending on the
last day of the Company’s fiscal quarter immediately preceding the date
of such Restricted Payment (or in the event such Consolidated Net Income
shall be a deficit, minus 100% of such deficit), plus (b) 100% of the
aggregate net cash pro-

 

 

-26-

		
	 	ceeds of and the fair market value of Property received by the
Company from (1) any capital contribution to the Company after June 9,
1997 or any issue or sale after June 9, 1997 of Qualified Stock (other
than to any Subsidiary of the Company) and (2) the issue or sale after
June 9, 1997 of any Indebtedness or other securities of the Company
convertible into or exercisable for Qualified Stock of the Company that
have been so converted or exercised, as the case may be, plus (c) $86.0
million, which is equal to the aggregate principal amount of the
Company’s 6-7/8% Convertible Subordinated Notes due 2002 that were
converted into the Company’s Common Equity prior to the Issue Date, plus
(d) in the case of the disposition or repayment of any Investment
constituting a Restricted Payment made after the June 9, 1997, an amount
(to the extent not included in the calculation of the Consolidated Net
Income referred to in (a)) equal to the lesser of (x) the return of
capital with respect to such Investment (including by dividend,
distribution or sale of Capital Stock) and (y) the amount of such
Investment that was treated as a Restricted Payment, in either case, less
the cost of the disposition or repayment of such Investment (to the
extent not included in the calculation of the Consolidated Net Income
referred to in (a)), plus (e) with respect to any Unrestricted Subsidiary
that is redesignated as a Restricted Subsidiary after June 9, 1997 in
accordance with the definition of Unrestricted Subsidiary (so long as the
designation of such Subsidiary as an Unrestricted Subsidiary was treated
as a Restricted Payment made after June 9, 1997 and only to the extent
not included in the calculation of the Consolidated Net Income referred
to in (a)), an amount equal to the lesser of (x) the proportionate
interest of the Company or a Restricted Subsidiary in an amount equal to
the excess of (I) the total assets of such Subsidiary, valued on an
aggregate basis at the lesser of book value and Fair Market Value
thereof, over (II) the total liabilities of such Subsidiary, determined
in accordance with GAAP, and (y) the Designation Amount at the time of
such Subsidiary’s designation as an Unrestricted Subsidiary, plus (f) $50
million minus (g) the aggregate amount of all Restricted Payments (other
than Restricted Payments referred to in clause (C) of the immediately
succeeding paragraph) made after June 9, 1997 through the Issue Date.

          (b) Clauses (ii) and (iii) of paragraph (a) will not prohibit: (A) the
payment of any dividend within 60 days of its declaration if such dividend
could have been made on the date of its declaration without violation of the
provisions of this Indenture; (B) the repurchase, redemption or retirement of
any shares of Capital Stock of the Company in exchange for, or out of the net
proceeds of the substantially concurrent sale (other than to a Subsidiary of
the Company) of, other shares of Qualified Stock; and (C) the purchase,
redemption or other acquisition, cancellation or retirement for value of
Capital Stock, or options, warrants, equity appreciation rights or other rights
to purchase or acquire Capital Stock, of the Company or any Subsidiary held by
officers or employees or former officers or employees of the Company or any
Subsidiary (or their estates or beneficiaries under their estates) not to
exceed $20 million in the aggregate since the Issue Date; provided, however,
that each Restricted Payment described in clauses (A) and (B) of this sentence
shall be taken into account for pur-

 

 

-27-

poses of computing the aggregate amount of all Restricted Payments
pursuant to clause (iii) of paragraph (a).

          (c) For purposes of determining the aggregate and permitted amounts of
Restricted Payments made, the amount of any guarantee of any Investment in any
Person that was initially treated as a Restricted Payment and which was
subsequently terminated or expired, net of any amounts paid by the Company or
any Restricted Subsidiary in respect of such guarantee, shall be deducted.

          (d) In determining the “fair market value of Property” for purposes of
clause (iii) of the paragraph (a), Property other than cash, Cash Equivalents
and Marketable Securities shall be deemed to be equal in value to the “equity
value” of the Capital Stock or other securities issued in exchange therefor.
The “equity value” of such Capital Stock or other securities shall be equal to
(i) the number of shares of Common Equity issued in the transaction (or
issuable upon conversion or exercise of the Capital Stock or other securities
issued in the transaction) multiplied by the closing sale price of the Common
Equity on its principal market on the date of the transaction (less, in the
case of Capital Stock or other securities which require the payment of
consideration at the time of conversion or exercise, the aggregate
consideration payable thereupon) or (ii) if the Common Equity is not then
traded on the New York Stock Exchange, American Stock Exchange or Nasdaq
National Market, or if the Capital Stock or other securities issued in the
transaction do not consist of Common Equity (or Capital Stock or other
securities convertible into or exercisable for Common Equity), the value of
such Capital Stock or other securities as determined by a nationally recognized
investment banking firm retained by the Board of Directors of the Company.

Section 3.04. Limitations on Transactions with Affiliates.

          (a) Until the Notes are rated Investment Grade by both Rating Agencies
(after which time the following covenant will no longer be in effect), the
Company will not, and will not cause or permit any Restricted Subsidiary to,
make any loan, advance, guarantee or capital contribution to, or for the
benefit of, or sell, lease, transfer or otherwise dispose of any property or
assets to, or for the benefit of, or purchase or lease any property or assets
from, or enter into or amend any contract, agreement or understanding with, or
for the benefit of, any Affiliate of the Company or any Affiliate of any of the
Company’s Subsidiaries or any holder of 10% or more of the Common Equity of the
Company (including any Affiliates of such holders), in a single transaction or
series of related transactions (each, an “Affiliate Transaction”), except for
any Affiliate Transaction the terms of which are at least as favorable as the
terms which could be obtained by the Company or such Restricted Subsidiary, as
the case may be, in a comparable transaction made on an arm’s length basis with
Persons who are not such a holder, an Affiliate of such a holder or an
Affiliate of the Company or any of the Company’s Subsidiaries.

 

 

-28-

          (b) In addition, the Company will not, and will not cause or permit any
Restricted Subsidiary to, enter into an Affiliate Transaction unless (i) with
respect to any such Affiliate Transaction involving or having a value of more
than $10 million, the Company shall have (x) obtained the approval of a
majority of the Board of Directors of the Company and (y) either obtained the
approval of a majority of the Company’s disinterested directors or obtained an
opinion of a qualified independent financial advisor to the effect that such
Affiliate Transaction is fair to the Company or such Restricted Subsidiary, as
the case may be, from a financial point of view and (ii) with respect to any
such Affiliate Transaction involving or having a value of more than $50
million, the Company shall have (x) obtained the approval of a majority of the
Board of Directors of the Company and (y) delivered to the Trustee an opinion
of a qualified independent financial advisor to the effect that such Affiliate
Transaction is fair to the Company or such Restricted Subsidiary, as the case
may be, from a financial point of view.

          (c) Notwithstanding the foregoing, an Affiliate Transaction will not
include (i) any contract, agreement or understanding with, or for the benefit
of, or plan for the benefit of employees of the Company or its Subsidiaries
generally (in their capacities as such) that has been approved by the Board of
Directors of the Company, (ii) Capital Stock issuances to directors, officers
and employees of the Company or its Subsidiaries pursuant to plans approved by
the stockholders of the Company, (iii) any Restricted Payment otherwise
permitted under Section 3.03, (iv) any transaction between or among the Company
and one or more Restricted Subsidiaries or between or among Restricted
Subsidiaries (provided, however, no such transaction shall involve any other
Affiliate of the Company (other than an Unrestricted Subsidiary to the extent
the applicable amount constitutes a Restricted Payment permitted by this
Indenture)) and (v) any transaction between one or more Restricted Subsidiaries
and one or more Unrestricted Subsidiaries where all of the payments to, or
other benefits conferred upon, such Unrestricted Subsidiaries are substantially
contemporaneously dividended, or otherwise distributed or transferred without
charge, to the Company or a Restricted Subsidiary.

Section 3.05. Limitations on Dispositions of Assets.

          Until the Notes are rated Investment Grade by both Rating Agencies (after
which time the following covenant will no longer be in effect), the Company
will not, and will not cause or permit any Restricted Subsidiary to, make any
Asset Disposition unless (x) the Company (or such Restricted Subsidiary, as the
case may be) receives consideration at the time of such Asset Disposition at
least equal to the Fair Market Value thereof, and (y) not less than 70% of the
consideration received by the Company (or such Restricted Subsidiary, as the
case may be) is in the form of cash, Cash Equivalents and Marketable
Securities. The amount of any Indebtedness (other than any Indebtedness
subordinated to the Notes) of the Company or any Restricted Subsidiary that is
actually assumed by the transferee in such Asset Disposition shall be deemed to
be consideration required by clause (y) above for purposes of determining the
percentage of such consideration received by the Company or the
Restricted Sub-

 

 

-29-

sidiaries. The Net Cash Proceeds of an Asset Disposition shall, within
one year, at the Company’s election, (a) be used by the Company or a Restricted
Subsidiary in the business of the construction and sale of homes conducted by
the Company and the Restricted Subsidiaries or any other business of the
Company or a Restricted Subsidiary existing at the time of such Asset
Disposition or (b) to the extent not so used, be applied to make a Net Cash
Proceeds Offer for the Notes and, if the Company or a Restricted Subsidiary
elects or is required to do so, repay, purchase or redeem any other
unsubordinated Indebtedness (on a pro rata basis if the amount available for
such repayment, purchase or redemption is less than the aggregate amount of (i)
the principal amount of the Notes tendered in such Net Cash Proceeds Offer and
(ii) the lesser of the principal amount, or accreted value, of such other
unsubordinated Indebtedness, plus, in each case accrued interest to the date of
repayment, purchase or redemption) at 100% of the principal amount or accreted
value thereof, as the case may be, plus accrued interest to the date of
repurchase or repayment. Notwithstanding the foregoing, (A) the Company will
not be required to apply such Net Cash Proceeds to the repurchase of Notes in
accordance with clause (b) of the preceding sentence except to the extent that
such Net Cash Proceeds, together with the aggregate Net Cash Proceeds of prior
Asset Dispositions (other than those so used) which have not been applied in
accordance with this provision and as to which no prior Net Cash Proceeds Offer
shall have been made, exceed 5% of Consolidated Tangible Assets and (B) in
connection with any Asset Disposition, the Company and the Restricted
Subsidiaries will not be required to comply with the requirements of clause (y)
of the first sentence of this paragraph to the extent that the aggregate
non-cash consideration received in connection with such Asset Disposition,
together with the sum of all non-cash consideration received in connection with
all prior Asset Dispositions that has not yet been converted into cash, does
not exceed 5% of Consolidated Tangible Assets; provided, however, that when any
non-cash consideration is converted into cash, such cash shall constitute Net
Cash Proceeds and be subject to the preceding sentence.

Section 3.06. Limitations on Liens.

          The Company will not, and will not cause or permit any Restricted
Subsidiary to, create, incur, assume or suffer to exist any Liens, other than
Permitted Liens, on any of its Property, or on any shares of Capital Stock or
Indebtedness of any Restricted Subsidiary, unless contemporaneously therewith
or prior thereto all payments due under this Indenture and the Notes are
secured on an equal and ratable basis with the obligation or liability so
secured until such time as such obligation or liability is no longer secured by
a Lien.

Section 3.07. Limitations on Restrictions Affecting Restricted Subsidiaries.

          The Company will not, and will not cause or permit any Restricted
Subsidiary to, create, assume or otherwise cause or suffer to exist or become
effective any consensual encumbrance or restriction (other than encumbrances or
restrictions imposed by law or by judicial or regulatory action or by
provisions of leases and other agreements that restrict the as-

 

 

-30-

signability thereof) on the ability of any Restricted Subsidiary to (i)
pay dividends or make any other distributions on its Capital Stock or any other
interest or participation in, or measured by, its profits, owned by the Company
or any other Restricted Subsidiary, or pay interest on or principal of any
Indebtedness owed to the Company or any other Restricted Subsidiary, (ii) make
loans or advances to the Company or any other Restricted Subsidiary, or (iii)
transfer any of its properties or assets to the Company or any other Restricted
Subsidiary, except for (a) encumbrances or restrictions existing under or by
reason of applicable law, (b) covenants or restrictions contained in
Indebtedness in effect on the Issue Date as such covenants or restrictions are
in effect on such date, (c) any restrictions or encumbrances arising under
Acquired Indebtedness; provided, that such encumbrance or restriction applies
only to either the assets that were subject to the restriction or encumbrance
at the time of the acquisition or the obligor on such Indebtedness and its
Subsidiaries, (d) any restrictions or encumbrances arising in connection with
Refinancing Indebtedness; provided, however, that any restrictions and
encumbrances of the type described in this clause (d) that arise under such
Refinancing Indebtedness shall not be materially more restrictive than those
under the agreement creating or evidencing the Indebtedness being refunded,
refinanced, replaced or extended, (e) any Permitted Lien, or any other
agreement restricting the sale or other disposition of property, securing
Indebtedness permitted by this Indenture if such Permitted Lien or agreement
does not expressly restrict the ability of a Subsidiary of the Company to pay
dividends or make or repay loans or advances prior to default thereunder, (f)
reasonable and customary borrowing base covenants set forth in agreements
evidencing Indebtedness otherwise permitted by this Indenture, (g) customary
provisions restricting subletting or assignment of any lease governing a
leasehold interest of the Company or any Restricted Subsidiary, and (h) any
restriction with respect to a Restricted Subsidiary imposed pursuant to an
agreement entered into for the sale or disposition of all or substantially all
of the Capital Stock or assets of such Restricted Subsidiary pending the
closing of such sale or disposition.

Section 3.08. Limitations on Mergers, Consolidations and Sales of Assets.

          Neither the Company nor any Guarantor will consolidate or merge with or
into, or sell, lease, convey or otherwise dispose of all or substantially all
of its assets (including, without limitation, by way of liquidation or
dissolution), or assign any of its obligations under the Notes, the Guarantees
or this Indenture (as an entirety or substantially in one transaction or in a
series of related transactions), to any Person (in each case other than in a
transaction in which the Company or a Restricted Subsidiary is the survivor of
a consolidation or merger, or the transferee in a sale, lease, conveyance or
other disposition) unless: (i) the Person formed by or surviving such
consolidation or merger (if other than the Company or the Guarantor, as the
case may be), or to which such sale, lease, conveyance or other disposition or
assignment will be made (collectively, the “Successor”), is a corporation or
other legal entity organized and existing under the laws of the United States
or any state thereof or the District of Columbia, and the Successor assumes by
supplemental indenture in a form reasonably satisfactory to the Trustee all of
the obligations of the Company or the Guarantor, as the case may be, under

 

 

-31-

the Notes or a Guarantee, as the case may be, and the Indenture, (ii)
immediately after giving effect to such transaction, no Default or Event of
Default has occurred and is continuing, (iii) immediately after giving effect
to such transaction and the use of any net proceeds therefrom, on a pro forma
basis, the Consolidated Net Worth of the Company or the Successor (in the case
of a transaction involving the Company), as the case may be, would be at least
equal to the Consolidated Net Worth of the Company immediately prior to such
transaction (exclusive of any adjustments to Consolidated Net Worth
attributable to transaction costs) less any amount treated as a Restricted
Payment in connection with such transaction in accordance with this Indenture
and (iv) unless prior to such transaction the Notes are rated Investment Grade
by both Rating Agencies (after which this clause (iv) shall not apply),
immediately after giving effect to such transaction, the Company could incur at
least $1.00 of Indebtedness pursuant to Section 3.02(a) hereof. The foregoing
provisions shall not apply to (i) a transaction involving the sale or
disposition of Capital Stock of a Guarantor, or the consolidation or merger of
a Guarantor, or the sale, lease, conveyance or other disposition of all or
substantially all of the assets of a Guarantor, that in any such case results
in such Guarantor being released from its Guarantee pursuant to the Indenture
or (ii) a transaction the purpose of which is to change the state of
incorporation of the Company or any Guarantor.

Section 3.09. Reports to Holders of Notes.

          The Company will file with the Commission the annual reports and the
information, documents and other reports required to be filed pursuant to
Section 13 or 15(d) of the Exchange Act. The Company will file with the
Trustee and mail to each Holder of record of Notes such reports, information
and documents within 15 days after it files them with the Commission. In the
event that the Company is no longer subject to these periodic requirements of
the Exchange Act, it will nonetheless continue to file reports with the
Commission and the Trustee and mail such reports to each Holder of Notes as if
it were subject to such reporting requirements. Regardless of whether the
Company is required to furnish such reports to its stockholders pursuant to the
Exchange Act, the Company will cause its consolidated financial statements and
a “Management’s Discussion and Analysis of Results of Operations and Financial
Condition” written report, similar to those that would have been required to
appear in annual or quarterly reports, to be delivered to Holders of Notes.

ARTICLE FOUR

Miscellaneous

Section 4.01. Governing Law.

          The laws of the State of New York shall govern this Supplemental
Indenture, the Securities of each Series and the Guarantees.

 

 

-32-

Section 4.02. No Adverse Interpretation of Other Agreements.

          This Supplemental Indenture may not be used to interpret another
indenture, loan or debt agreement of the Company or a Subsidiary. Any such
indenture, loan or debt agreement may not be used to interpret this
Supplemental Indenture.

Section 4.03. No Recourse Against Others.

          All liability described in paragraph 13 of the Notes of any director,
officer, employee or stockholder, as such, of the Company or any Guarantor is
waived and released.

Section 4.04. Successors and Assigns.

          All covenants and agreements of the Company and the Guarantors in this
Supplemental Indenture and the Notes shall bind its successors and assigns.
All agreements of the Trustee in this Supplemental Indenture shall bind its
successors and assigns.

Section 4.05. Duplicate Originals.

          The parties may sign any number of copies of this Supplemental Indenture.
Each signed copy shall be an original, but all of them together represent the
same agreement.

Section 4.06. Severability.

          In case any one or more of the provisions contained in this Supplemental
Indenture or in the Notes shall for any reason be held to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions of this Supplemental
Indenture or of the Notes.

 

 

SIGNATURES

     IN WITNESS WHEREOF, the parties have caused this Supplemental Indenture to
be duly executed, all as of the date first above written.

	 	 	 	 	 
	 	 	D.R. HORTON, INC.
	 	 	 	 	 
	 	 	
By:
	 	/s/ Samuel R. Fuller
	 	 	 	 	

	 	 	 	 	Samuel R. Fuller
	 	 	 	 	Senior Executive Vice President

 

 

	 
	GUARANTORS:
	

	C. RICHARD DOBSON BUILDERS,
INC.
	CHTEX OF TEXAS, INC.
	CONTINENTAL RESIDENTIAL, INC.
	D.R. HORTON, INC. - BIRMINGHAM
	D.R. HORTON, INC. - CHICAGO
	D.R. HORTON, INC. - DENVER
	D.R. HORTON, INC. - GREENSBORO
	D.R. HORTON, INC. - JACKSONVILLE
	D.R. HORTON, INC. - LOUISVILLE
	D.R. HORTON, INC. - MINNESOTA
	D.R. HORTON, INC. - NEW JERSEY
	D.R. HORTON, INC. - PORTLAND
	D.R. HORTON, INC. - SACRAMENTO
	D.R. HORTON, INC. - TORREY
	D.R. HORTON LOS ANGELES
HOLDING COMPANY, INC.
	D.R. HORTON MATERIALS, INC.
	D.R. HORTON SAN DIEGO HOLDING
COMPANY, INC.
	DRH CAMBRIDGE HOMES, INC.
	DRH ENERGY, INC. (formerly DRH TITLE COMPANY OF COLORADO, INC.)
	DRH REGREM IV, INC.
	DRH REGREM V, INC.
	MEADOWS I, LTD.
	MEADOWS VIII, LTD.
	MEADOWS IX, INC.
	MEADOWS X, INC.
	MELMORT CO.
	SCHULER HOMES OF CALIFORNIA,
INC.
	SCHULER HOMES OF OREGON, INC.
	SCHULER HOMES OF WASHINGTON,
INC.
	SCHULER MORTGAGE, INC.
	SCHULER REALTY HAWAII, INC.
	SHLR OF CALIFORNIA, INC.
	SHLR OF COLORADO, INC.
	SHLR OF NEVADA, INC.
	SHLR OF UTAH, INC.
	SHLR OF WASHINGTON, INC.
	THE CLUB AT PRADERA, INC.
	VERTICAL CONSTRUCTION CORPORATION
	WESTERN PACIFIC FUNDING, INC.

 

 

	 	 	 	 	 
	 	 	WESTERN PACIFIC HOUSING, INC.
	 	 	 	 	 
	 	 	
By:
	 	/s/ Samuel R. Fuller
	 	 	 	 	

	 	 	 	 	Samuel R. Fuller
	 	 	 	 	Treasurer

 

 

	 	 	 	 	 
	 	 	CH INVESTMENTS OF TEXAS, INC.
	 	 	MEADOWS II, LTD.
	 	 	 	 	 
	 	 	
By:
	 	/s/ Robert E. Coltin
	 	 	 	 	

	 	 	 	 	Robert E. Coltin
	 	 	 	 	Vice President, Secretary and Treasurer

 

 

	 	 	 	 	 	 	 	 	 
	 	 	CHI CONSTRUCTION COMPANY
	 	 	CONTINENTAL HOMES, INC.
	 	 	D.R.
HORTON, INC. - DIETZ-CRANE
	 	 	DRH CONSTRUCTION, INC.
	 	 	DRH SOUTHWEST CONSTRUCTION, INC.
	 	 	DRH TUCSON CONSTRUCTION, INC.
	 	 	DRHI, INC.
	 	 	KDB HOMES, INC.
	 	 	MELODY HOMES, INC.
	 	 	WESTERN PACIFIC HOUSING MANAGEMENT, INC.
	 	 	 	 	 	 	 	 	 
	 	 	By:	 	/s/ Samuel R. Fuller

Samuel R. Fuller	 	 
	 	 	 	 	Senior Executive Vice President	 	 
	 	 	 	 	 	 	 	 	 
	 	 	CONTINENTAL HOMES OF TEXAS, L.P.
	 	 	 	 	 	 	 	 	 
	 	 	By:	 	CHTEX of Texas, Inc.,	 	 
	 	 	 	 	its General Partner	 	 
	 	 	 	 	 	 	 	 	 
	 	 	
 
	 	By:
	 	/s/ Samuel R. Fuller	 	 
	 	 	 	 	 	 	
	 	 
	 	 	 	 	 	 	Samuel R. Fuller	 	 
	 	 	 	 	 	 	Treasurer	 	 
	 	 	 	 	 	 	 	 	 
	 	 	D.R. HORTON MANAGEMENT COMPANY, LTD.
	 	 	D.R.
HORTON - EMERALD, LTD.
	 	 	D.R.
HORTON - TEXAS, LTD.
	 	 	DRH REGREM VII, LP
	 	 	 	 	 	 	 	 	 
	 	 	By:	 	Meadows I, Ltd.,	 	 
	 	 	 	 	its General Partner	 	 
	 	 	 	 	 	 	 	 	 
	 	 	
 
	 	By:
	 	/s/ Samuel R. Fuller	 	 
	 	 	 	 	 	 	
	 	 
	 	 	 	 	 	 	Samuel R. Fuller	 	 
	 	 	 	 	 	 	Treasurer	 	 

 

 

	 	 	 	 	 	 	 	 	 
	 	 	SGS COMMUNITIES AT GRANDE QUAY, LLC
	 	 	 	 	 	 	 	 	 
	 	 	By:	 	Meadows IX, Inc.,	 	 
	 	 	 	 	a Member	 	 
	 	 	 	 	 	 	 	 	 
	 	 	 	 	By:
	 	/s/ Samuel R. Fuller	 	 
	 	 	 	 	 	 	
	 	 
	 	 	 	 	 	 	Samuel R. Fuller	 	 
	 	 	 	 	 	 	Treasurer	 	 
	 	 	 	 	 	 	 	 	 
	 	 	
and	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 
	 	 	By:	 	Meadows X, Inc.,	 	 
	 	 	 	 	a Member	 	 
	 	 	 	 	 	 	 	 	 
	 	 	 	 	By:
	 	/s/ Samuel R. Fuller	 	 
	 	 	 	 	 	 	
	 	 
	 	 	 	 	 	 	Samuel R. Fuller	 	 
	 	 	 	 	 	 	Treasurer	 	 
	 	 	 	 	 	 	 	 	 
	 	 	DRH CAMBRIDGE HOMES, LLC
	 	 	DRH REGREM VIII, LLC
	 	 	 	 	 	 	 	 	 
	 	 	By:	 	D.R.
Horton, Inc. - Chicago,	 	 
	 	 	 	 	its Member	 	 
	 	 	 	 	 	 	 	 	 
	 	 	 	 	By:
	 	/s/ Samuel R. Fuller	 	 
	 	 	 	 	 	 	
	 	 
	 	 	 	 	 	 	Samuel R. Fuller	 	 
	 	 	 	 	 	 	Treasurer	 	 

 

 

	 
	HPH HOMEBUILDERS 2000 L.P.
	WESTERN PACIFIC HOUSING CO.
	WESTERN PACIFIC HOUSING-ANTIGUA, LLC
	WESTERN PACIFIC HOUSING-AVIARA, L.P.
	WESTERN PACIFIC HOUSING-BOARDWALK, LLC
	WESTERN PACIFIC HOUSING-BROADWAY, LLC
	WESTERN PACIFIC HOUSING-CANYON PARK, LLC
	WESTERN PACIFIC HOUSING-CARMEL, LLC
	WESTERN PACIFIC HOUSING-CARRILLO, LLC
	WESTERN PACIFIC HOUSING-COMMUNICATIONS HILL, LLC
	WESTERN PACIFIC HOUSING-COPPER CANYON, LLC
	WESTERN PACIFIC HOUSING-CREEKSIDE, LLC
	WESTERN PACIFIC HOUSING-CULVER CITY, L.P.
	WESTERN PACIFIC HOUSING-DEL VALLE, LLC
	WESTERN PACIFIC HOUSING-LOMAS VERDES, LLC
	WESTERN PACIFIC HOUSING-LOST HILLS PARK, LLC
	WESTERN PACIFIC HOUSING-MCGONIGLE CANYON, LLC
	WESTERN PACIFIC HOUSING-MOUNTAINGATE, L.P.
	WESTERN PACIFIC HOUSING-NORCO ESTATES, LLC
	WESTERN PACIFIC HOUSING-OSO, L.P.
	WESTERN PACIFIC HOUSING-PACIFIC PARK II, LLC
	WESTERN PACIFIC HOUSING-PARK AVENUE EAST, LLC
	WESTERN PACIFIC HOUSING-PARK AVENUE WEST, LLC
	WESTERN PACIFIC HOUSING-PLAYA VISTA, LLC
	WESTERN PACIFIC HOUSING-POINSETTIA, L.P.
	WESTERN PACIFIC HOUSING-RIVER RIDGE, LLC
	WESTERN PACIFIC HOUSING-ROBINHOOD RIDGE, LLC
	WESTERN PACIFIC HOUSING-SANTA FE, LLC
	WESTERN PACIFIC HOUSING-SCRIPPS, L.P.
	WESTERN PACIFIC HOUSING-SCRIPPS II, LLC
	WESTERN PACIFIC HOUSING-SEACOVE, L.P.
	WESTERN PACIFIC HOUSING-STUDIO 528, LLC
	WESTERN PACIFIC HOUSING-TERRA BAY DUETS, LLC
	WESTERN PACIFIC HOUSING-TORRANCE, LLC
	WESTERN PACIFIC HOUSING-TORREY COMMERCIAL, LLC
	WESTERN PACIFIC HOUSING-TORREY MEADOWS, LLC
	WESTERN PACIFIC HOUSING-TORREY MULTI-FAMILY, LLC
	WESTERN PACIFIC HOUSING-TORREY VILLAGE CENTER, LLC

 

 

	 	 	 	 	 	 	 	 	 
	 	 	WESTERN PACIFIC HOUSING-VINEYARD TERRACE, LLC
	 	 	WESTERN PACIFIC HOUSING-WINDEMERE, LLC
	 	 	WESTERN PACIFIC HOUSING-WINDFLOWER, L.P.
	 	 	WPH-CAMINO RUIZ, LLC
	 	 	 	 	 	 	 	 	 
	 	 	By:	 	Western Pacific Housing Management, Inc.,	 	 
	 	 	 	 	its Manager, Member or General Partner	 	 
	 	 	 	 	 	 	 	 	 
	 	 	 	 	By:
	 	/s/ Samuel R. Fuller	 	 
	 	 	 	 	 	 	
	 	 
	 	 	 	 	 	 	Samuel R. Fuller	 	 
	 	 	 	 	 	 	Senior Executive Vice President	 	 

 

 

	 	 	 	 	 	 	 	 	 
	 	 	SCHULER HOMES OF ARIZONA LLC
	 	 	SHA CONSTRUCTION LLC
	 	 	 	 	 
	 	 	
By:
	 	SRHI LLC,
	 	 	 	 	its Member
	 	 	 	 	 	 	 	 	 
	 	 	 	 	
By:
	 	SHLR of Nevada, Inc.,
	 	 	 	 	 	 	its Member
	 	 	 	 	 
	 	 	 	 	 	 	By:
	 	/s/ Samuel R. Fuller
	 	 	 	 	 	 	 	 	

	 	 	 	 	 	 	 	 	Samuel R. Fuller
	 	 	 	 	 	 	 	 	Treasurer
	 	 	 	 	 
	 	 	D.R. HORTON-SCHULER HOMES, LLC
	 	 	 	 	 	 	 	 	 
	 	 	By:	 	Vertical Construction Corporation,
	 	 	 	 	its Manager
	 	 	 	 	 	 	 	 	 
	 	 	 	 	By:
	 	/s/ Samuel R. Fuller
	 	 	 	 	 	 	

	 	 	 	 	 	 	Samuel R. Fuller
	 	 	 	 	 	 	Treasurer
	 	 	SRHI LLC	 	 
	 	 	 	 	 	 	 	 	 
	 	 	By:	 	SHLR of Nevad a, Inc.,
	 	 	 	 	its Member	 	 
	 	 	 	 	 	 	 	 	 
	 	 	 	 	By:
	 	/s/ Samuel R. Fuller
	 	 	 	 	 	 	

	 	 	 	 	 	 	Samuel R. Fuller
	 	 	 	 	 	 	Treasurer
	 	 	SSHI LLC	 	 
	 	 	 	 	 	 	 	 	 
	 	 	By:	 	SHLR of Washington, Inc.,
	 	 	 	 	its Member	 	 
	 	 	 	 	 	 	 	 	 
	 	 	 	 	By:
	 	/s/ Samuel R. Fuller
	 	 	 	 	 	 	

	 	 	 	 	 	 	Samuel R. Fuller
	 	 	 	 	 	 	Treasurer

 

 

	 	 	 
	AMERICAN STOCK TRANSFER & TRUST
	COMPANY, as Trustee
	 	 	 
	By:	 	
    /s/ Herbert J. Lemmer
	 	 	

	 	 	
Herbert J. Lemmer
	 	 	
Vice President

 

 

Exhibit A

     THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF
THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE
NAME OF A DEPOSITORY OR A NOMINEE OF A DEPOSITORY OR A
SUCCESSOR DEPOSITORY. THIS SECURITY IS NOT EXCHANGEABLE FOR
SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE
DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES
DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS SECURITY
(OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE
DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF
THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE
DEPOSITORY) MAY BE REGISTERED EXCEPT IN THE LIMITED
CIRCUMSTANCES DESCRIBED IN THE INDENTURE.

     UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK
CORPORATION (“DTC”), TO THE ISSUER OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR
IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO.
OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.

A-1

 

D.R. HORTON, INC.

5.0% SENIOR NOTES DUE 2009

	 	 	 
	No.	 	
CUSIP No.:

D.R. Horton, Inc., a Delaware corporation, promises to pay to _________________________

	 	 	 
	or registered assigns	 	 
	the principal sum of	 	
Dollars on January 15, 2009

Interest Payment Dates: January 15 and July 15 commencing July 15, 2004

Interest Record Dates: January 1 and July 1

	 	 	 	 	 
	 	 	Dated:
	 	 	 	 	 
	 	 	D.R. HORTON, INC.
	 	 	 	 	 
	 	 	
By:
	 	

	 	 	 	 	Name:
	 	 	 	 	Title:
	 	 	 	 	 
	 	 	
By:
	 	

	 	 	 	 	Name:
	 	 	 	 	Title:

American Stock Transfer & Trust

Company, as Trustee, certifies that

this is one of the Securities referred

to in the within mentioned Indenture.

	 	 	 
	Date:

	 	 	 
	By:	 	

	 	 	
Authorized Signatory

A-2

 

D.R. HORTON, INC.

5.0% Senior Notes due 2009

1. Interest.

          D.R. HORTON, INC. (the “Company”), a Delaware corporation, promises to pay
interest on the principal amount of this Security at the rate per annum shown
above. The Company will pay interest semiannually on January 15 and July 15 of
each year, commencing July 15, 2004, until the principal is paid or made
available for payment. Interest on the Securities will accrue from the most
recent date to which interest has been paid or duly provided for or, if no
interest has been paid, from the date of original issuance, provided that, if
there is no existing default in the payment of interest, and if this Security
is authenticated between a record date referred to on the face hereof and the
next succeeding interest payment date, interest shall accrue from such interest
payment date. Interest will be computed on the basis of a 360-day year of
twelve 30-day months.

2. Method of Payment.

          The Company will pay interest on the Securities (except defaulted
interest, if any, which will be paid on such special payment date to Holders of
record on such special record date as may be fixed by the Company) to the
persons who are registered Holders of Securities at the close of business on
the January 1 and July 1 immediately preceding the interest payment date.
Holders must surrender Securities to a Paying Agent to collect principal
payments. The Company will pay principal and interest in money of the United
States that at the time of payment is legal tender for payment of public and
private debts.

3. Paying Agent and Registrar.

          Initially, American Stock Transfer & Trust Company (the “Trustee”) will
act as Paying Agent and Registrar. The Company may change or appoint any
Paying Agent, Registrar or co-Registrar without notice. The Company or any of
its Subsidiaries or any of their Affiliates may act as Paying Agent, Registrar
or co-registrar.

4. Indenture.

          The Company issued the Securities under an Indenture dated as of June 9,
1997 among the Company, the Guarantors and the Trustee, as supplemented (the
“Indenture”). The terms of the Securities and the Guarantees include those
stated in the Indenture and those made part of the Indenture by reference to
the Trust Indenture Act of 1939 (“TIA”) as in effect on the date of the
Indenture. The Securities and the Guarantees are subject to all

A-3

 

 such terms,
and Holders are referred to the Indenture and the Act for a statement of them. Capitalized terms not defined herein have the meanings given to
those terms in the Indenture.

          The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture and the applicable Authorizing Resolution or
supplemental indenture. Requests may be made to: D.R. Horton, Inc., 1901
Ascension Blvd., Suite 100, Arlington, Texas 76006, Attention: Chief Financial
Officer.

5. Optional Redemption

          Except as set forth in the following sentence, the Securities will not be
redeemable. At any time and from time to time on or before January 15, 2007,
the Company may redeem Securities with the net cash proceeds of one or more
Public Equity Offerings by the Company, at a redemption price equal to 105.0%
of the principal amount of such Securities, plus accrued and unpaid interest
thereon, if any, to the date of redemption; provided, that at least 65% of the
aggregate principal amount of Securities, excluding any Securities held by the
Company or any of its Affiliates, remains outstanding immediately after the
occurrence of such redemption. Notice of any such redemption must be given
within 60 days after the date of the closing of the relevant Public Equity
Offering.

6. Selection and Notice of Redemption

          Selection of the Securities or portions thereof for redemption pursuant to
the foregoing shall be made by the Trustee only on a pro rata basis or on as
nearly a pro rata basis as is practicable (subject to the procedures of The
Depository Trust Company), unless such method is otherwise prohibited. Notice
of redemption will be mailed at least 30 days but not more than 60 days before
the redemption date to each Holder whose Securities are to be redeemed at the
registered address of such Holder. Securities in denominations larger than
$1,000 may be redeemed in part. On and after the redemption date, interest
ceases to accrue on the Securities or portions thereof called for redemption,
provided that if the Company shall default in the payment of such Securities at
the redemption price together with accrued interest, interest shall continue to
accrue at the rate borne by the Securities.

7. Denominations, Transfer, Exchange.

          The Securities are in registered form only without coupons in
denominations of $1,000 and integral multiples of $1,000. A Holder may
transfer or exchange Securities by presentation of such Securities to the
Registrar or a co-Registrar with a request to register the transfer or to
exchange them for an equal principal amount of Securities of other
denominations. The Registrar may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and to pay any taxes
and fees required by law or permitted by the Indenture. The Registrar need not
transfer or exchange any Security selected for redemption, except the
unredeemed part thereof if the Security is redeemed in part, or
transfer

A-4

 

or exchange any Securities for a period of 15 days
before a selection of Securities to be redeemed.

8. Persons Deemed Owners.

          The registered Holder of this Security shall be treated as the owner of it
for all purposes.

9. Unclaimed Money.

          If money for the payment of principal or interest remains unclaimed for
two years, the Trustee or Paying Agent will pay the money back to the Company
at its request. After that, Holders entitled to the money must look to the
Company for payment unless an abandoned property law designates another person.

10. Amendment, Supplement, Waiver.

          Subject to certain exceptions, the Indenture or the Securities may be
amended or supplemented with the consent of the Holders of at least a majority
in principal amount of the outstanding Securities and any past default or
compliance with any provision relating to the Securities may be waived in a
particular instance with the consent of the Holders of a majority in principal
amount of the outstanding Securities. Without the consent of any Holder, the
Company and the Trustee may amend or supplement the Indenture or the Securities
to cure any ambiguity, defect or inconsistency, to provide for uncertificated
Securities in addition to or in place of certificated Securities, to create a
Series and establish its terms, to remove a Guarantor which, in accordance with
the terms of the Indenture, ceases to be liable in respect of its Guarantee, or
to make any other change, provided such action does not adversely affect the
rights of any Holder.

11. Successor Corporation.

          When a successor corporation assumes all the obligations of its
predecessor under the Securities and the Indenture, the predecessor corporation
will be released from those obligations.

12. Trustee Dealings With Company.

          American Stock Transfer & Trust Company, the Trustee under the Indenture,
in its individual or any other capacity, may make loans to, accept deposits
from, and perform services for the Company or its affiliates, and may otherwise
deal with the Company or its affiliates, as if it were not Trustee.

A-5

 

13. No Recourse Against Others.

          A director, officer, employee or stockholder, as such, of the Company
shall not have any liability for any obligations of the Company under the
Securities or the Indenture or for any claim based on, in respect of or by
reason of, such obligations or their creation. Each Holder by accepting a
Security waives and releases all such liability. The waiver and release are
part of the consideration for the issue of the Securities.

14. Discharge of Indenture.

          The Indenture contains certain provisions pertaining to defeasance, which
provisions shall for all purposes have the same effect as if set forth herein.

15. Authentication.

          This Security shall not be valid until the Trustee signs the certificate
of authentication on the other side of this Security.

16. Abbreviations.

          Customary abbreviations may be used in the name of a Holder or an
assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= custodian), and U/G/M/A (= Uniform Gift to Minors
Act).

A-6

 

ASSIGNMENT FORM

               If you the Holder want to assign this Security, fill in the form below:

               I or we assign and transfer this Security to

               

(Insert assignee’s social security or tax ID number)

(Print or type assignee’s name, address, and zip code)

and irrevocably appoint

agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.

	 	 	 	 	 
	Date:

	 	
Your signature: 

	 	 	(Sign exactly as your name appears on the other
	 	 	
side of this Security)	 	 

	 	 	 
	Signature Guarantee:	 	 
	 	 	

	 	 	
Signature must be guaranteed by participant in a recognized Signature
Guarantee Medallion Program (or other signature guarantor program reasonably acceptable to the Trustee)

A-7

 

[FORM OF NOTATION ON SECURITY RELATING TO GUARANTEE]

GUARANTEE

          The undersigned (the “Guarantors”) have unconditionally guaranteed,
jointly and severally (such guarantee by each Guarantor being referred to
herein as the “Guarantee”) (i) the due and punctual payment of the principal of
and interest on the Securities, whether at maturity, by acceleration or
otherwise, the due and punctual payment of interest on the overdue principal
and interest, if any, on the Securities, to the extent lawful, and the due and
punctual performance of all other obligations of the Company to the Holders or
the Trustee all in accordance with the terms set forth in Article Nine of the
Indenture and (ii) in case of any extension of time of payment or renewal of
any Securities or any of such other obligations, that the same will be promptly
paid in full when due or performed in accordance with the terms of the
extension or renewal, whether at stated maturity, by acceleration or otherwise.

          No past, present or future stockholder, officer, director, employee or
incorporator, as such, of any of the Guarantors shall have any liability under
the Guarantee by reason of such person’s status as stockholder, officer,
director, employee or incorporator. Each holder of a Security by accepting a
Security waives and releases all such liability. This waiver and release are
part of the consideration for the issuance of the Guarantees.

          Each holder of a Security by accepting a Security agrees that any
Guarantor named below shall have no further liability with respect to its
Guarantee if such Guarantor otherwise ceases to be liable in respect of its
Guarantee in accordance with the terms of the Indenture.

A-8

 

          The Guarantee shall not be valid or obligatory for any purpose until the
certificate of authentication on the Securities upon which the Guarantee is
noted shall have been executed by the Trustee under the Indenture by the manual
signature of one of its authorized officers.

	 	 	 	 	 
	 	 	[Guarantors]
	 	 	 	 	 
	 	 	
By:	 	 
	 	 	 	 	

	 	 	 	 	Title:

A-9

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