Document:

Exhibit 4.2

 

EXECUTION COPY

 

 

 

 

THE RYLAND GROUP, INC.,

 

as Issuer,

 

THE SUBSIDIARY GUARANTORS NAMED HEREIN

 

and

 

THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A.

(as successor to JPMorgan Chase Bank, N.A. f/k/a
Chemical Bank),

 

as Trustee

 

 

SIXTH SUPPLEMENTAL INDENTURE

 

DATED AS OF APRIL 29, 2010

 

TO INDENTURE

 

DATED AS OF JUNE 28, 1996

 

 

Relating To

 

6.625% Senior Notes Due 2020

 

 

SIXTH SUPPLEMENTAL INDENTURE

 

SIXTH SUPPLEMENTAL INDENTURE,
dated as of April 29, 2010 (the “Supplemental Indenture”), to the
Indenture (defined below) among The Ryland Group, Inc. (the “Company”),
a Maryland corporation, each of the Subsidiary Guarantors named herein (the “Subsidiary
Guarantors”), and The Bank of New York Mellon Trust Company, N.A. (as
successor to JPMorgan Chase Bank, N.A. f/k/a Chemical Bank), as trustee (the “Trustee”).

 

RECITALS

 

WHEREAS, the Company has
heretofore executed and delivered to the Trustee an Indenture, dated as of June
28, 1996 (the “Base Indenture”), providing for the issuance from time to
time of its notes and other evidences of senior debt securities, to be issued
in one or more series as therein provided (“Securities”);

 

WHEREAS, pursuant
to the terms of the Base Indenture, the Company desires to provide for the
establishment of a new series of its Securities to be known as its 6.625% Senior Notes due 2020 (the “Notes”),
the form and substance of such Notes and the terms, provisions and conditions
thereof to be set forth as provided in the Base Indenture and this Supplemental
Indenture (together, the “Indenture”);

 

WHEREAS, pursuant to the terms
of the Notes, the Subsidiary Guarantors will fully and unconditionally
guarantee the obligations of the Company under the Notes and the Indenture, on
a senior and unsubordinated basis (the “Subsidiary Guarantees”); and

 

WHEREAS, the
Company has requested that the Trustee execute and deliver this Supplemental
Indenture and all requirements necessary to make this Supplemental Indenture a
valid instrument in accordance with its terms, and to make the Notes, when
executed by the Company and authenticated and delivered by the Trustee, the
valid obligations of the Company, and to make the Subsidiary Guarantees, when
executed by the Subsidiary Guarantors and authenticated and delivered by the
Trustee, the valid obligations of the Subsidiary Guarantors, and all acts and
things necessary have been done and performed to make this Supplemental
Indenture enforceable in accordance with its terms, and the execution and
delivery of this Supplemental Indenture has been duly authorized in all
respects.

 

WITNESSETH:

 

NOW, THEREFORE, for and in
consideration of the premises contained herein, each party agrees for the
benefit of each other party and for the equal and ratable benefit of the
Holders of the Notes, as follows:

 

ARTICLE ONE

 

DEFINITIONS

 

Section 1.01.     Capitalized
terms used but not defined in this Supplemental Indenture shall have the
meanings ascribed to them in the Base Indenture.

 

1

 

Section 1.02.     References
in this Supplemental Indenture to article and section numbers shall be deemed
to be references to article and section numbers of this Supplemental Indenture
unless otherwise specified.

 

Section 1.03.     For
purposes of this Supplemental Indenture, the following terms have the meanings
ascribed to them as follows:

 

“Attributable Debt” means, in respect of a Sale and Leaseback
Transaction, the present value (discounted at the weighted average effective
interest cost per annum of the outstanding debt securities of all series,
compounded semiannually) of the obligation of the lessee for rental payments
during the remaining term of the lease included in such transaction, including
any period for which such lease has been extended or may, at the option of the
lessor, be extended or, if earlier, until the earliest date on which the lessee
may terminate such lease upon payment of a penalty (in which case the
obligation of the lessee for rental payments shall include such penalty), after
excluding all amounts required to be paid on account of maintenance and
repairs, insurance, taxes, assessments, water and utility rates and similar
charges.

 

“Base Indenture” has the meaning provided in the recitals.

 

“Beneficial Owner” has the meaning provided in Section
2.03.

 

“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
generally accepted accounting principles, and the amount of such obligations
will be the capitalized amount thereof determined in accordance with generally
accepted accounting principles.

 

“Change of Control Offer” has the meaning provided in Section 3.05.

 

“Change of Control Payment” has the meaning provided in Section 3.05.

 

“Change of Control Payment Date” has the meaning provided in Section
3.05.

 

“Consolidated Net Tangible Assets” means the total amount of
assets which would be included on a combined balance sheet of the Restricted
Subsidiaries (not including the Company) together with the total amount of
assets that would be included on the Company’s balance sheet, not including its
subsidiaries, under generally accepted accounting principles (less applicable
reserves and other properly deductible items) after deducting therefrom:

 

(1)          all short-term
liabilities, except for liabilities payable by their terms more than one year
from the date of determination (or renewable or extendible at the option of the
obligor for a period ending more than one year after such date) and liabilities
in respect of retiree benefits other than pensions for which the Restricted
Subsidiaries are required to accrue pursuant to Statement of Financial
Accounting Standards No. 106;

 

(2)          investments in
subsidiaries that are not Restricted Subsidiaries; and

 

2

 

(3)          all goodwill, trade
names, trademarks, patents, unamortized debt discount, unamortized expense
incurred in the issuance of debt and other tangible assets.

 

“Covenant Defeasance” has the meaning provided in Article Eight.

 

“Depositary” has the meaning provided in Section 2.03.

 

“Exchange Act” has the meaning provided in Section 3.05.

 

“Financial Services Segment” means the business segment of the
Company and its Subsidiaries engaged in mortgage banking (including mortgage
origination, loan servicing, mortgage brokerage and title and escrow
businesses), master servicing and related activities, including, without
limitation, a Subsidiary which facilitates the financing of mortgage loans and
mortgage-backed securities and the securitization of mortgage-backed bonds and
other related activities, which segment currently consists principally of the
activities of Ryland Mortgage Company and its Subsidiaries but excludes the
Limited Purpose Subsidiaries.

 

“Financial Services Subsidiary” means a Subsidiary engaged in
mortgage banking (including mortgage origination, loan servicing, mortgage
brokerage and title and escrow businesses), master servicing and related
activities, including, without limitation, a Subsidiary which facilitates the
financing of mortgage loans and mortgage-backed securities and the
securitization of mortgage-backed bonds and other related activities.

 

“Guaranteed Obligations” has the meaning provided in Section 6.01.

 

“Holder” means a Person in whose name a Note is registered on
the Security Registrar’s books.

 

“Homebuilding Segment” means the business segment of the Company
and its Subsidiaries engaged in the construction and sale of single-family
attached and unattached dwellings and related activities, including all
activities of the Company outside the Financial Services Segment but excluding
the Limited-Purpose Subsidiaries.

 

“Homebuilding Subsidiaries” means Subsidiaries of the Company
included within the Homebuilding Segment.

 

“Indebtedness” means (1) any liability of any person (A) for
borrowed money, or (B) evidenced by a bond, note, debenture or similar
instrument (including a purchase money obligation) given in connection with the
acquisition of any businesses, properties or assets of any kind (other than a
trade payable or a current liability arising in the ordinary course of
business), or (C) for the payment of money relating to a Capitalized Lease
Obligation or (D) for all Redeemable Capital Stock valued at the greater of its
voluntary or involuntary liquidation preference plus accrued and unpaid
dividends; (2) any liability of others described in the preceding clause (1) that
such person has guaranteed or that is otherwise its legal liability; (3) all
Indebtedness referred to in (but not excluded from) clauses (1) and (2) above
of other persons and all dividends of other persons, the payment of which is
secured by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Security Interest upon or in
property (including, without limitation, accounts and contract rights) 

 

3

 

owned by such person, even though such person has not
assumed or become liable for the payment of such Indebtedness; and (4) any
amendment, supplement, modification, deferral, renewal, extension or refunding
or any liability of the types referred to in clauses (1), (2) and (3) above.

 

“Indenture” has the meaning provided in the recitals.

 

“Interest Payment Date” has the meaning provided in Section 2.04.

 

“Legal Defeasance” has the meaning provided in Article Eight.

 

“Limited-Purpose Subsidiaries” means subsidiaries of the Company
included within the Limited-Purpose Subsidiaries Segment.

 

“Limited-Purpose Subsidiaries Segment” means the business
segment of the Company and its Subsidiaries which facilitates, through
special-purpose entities created or existing solely for such purpose, the
financing of mortgage loans and mortgage-backed securities and the
securitization of mortgage loans and other related activities.

 

“Maximum Liability” has the meaning provided in Section 6.08.

 

“Non-Paying Guarantor” has the meaning provided in Section 6.08.

 

“Non-Recourse Indebtedness” means the Company’s or any of the
Company’s Subsidiaries’ Indebtedness or other obligations secured by a lien on
property to the extent that the liability for the Indebtedness or other
obligations is limited to the security of the property without liability for
any deficiency, including liability by reason of any agreement between the
Company or any Subsidiary to provide additional capital or maintain the
financial condition of or otherwise support the credit of the Subsidiary
incurring the Indebtedness.

 

“Non-Recourse Land Financing” means any Indebtedness of the
Company or any Restricted Subsidiary for which the holder of such Indebtedness
has no recourse, directly or indirectly, to the Company or such Restricted
Subsidiary for the principal of, premium, if any, and interest on such
Indebtedness, and for which the Company or such Restricted Subsidiary is not,
directly or indirectly, obligated or otherwise liable for the principal of,
premium, if any, and interest on such Indebtedness, except pursuant to
mortgages, deeds of trust or other Security Interests or other recourse
obligations or liabilities in respect of specific land or other real property
interests of the Company or such Restricted Subsidiary; provided that recourse
obligations or liabilities of the Company or such Restricted Subsidiary solely
for indemnities, covenants or breach of any warranty, representation or
covenant in respect of any Indebtedness will not prevent Indebtedness from
being classified as Non-Recourse Land Financing.

 

“Notes” has the meaning provided in the recitals.

 

“Paying Guarantor” has the meaning provided in Section 6.08.

 

4

 

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

 

“Pro Rata Share” has the meaning provided in Section 6.08.

 

“Redeemable Capital Stock” means any capital stock of the
Company or any Subsidiary that, either by its terms, by the terms of any
security into which it is convertible or exchangeable or otherwise, (1) is or
upon the happening of an event or passage of time would be required to be
redeemed on or prior to the final stated maturity of the securities or (2) is
redeemable at the option of the holder thereof at any time prior to such final
stated maturity or (3) is convertible into or exchangeable for debt securities
at any time prior to such final stated maturity.

 

“Restricted Subsidiary” means any Subsidiary of the Company that
is not a Financial Services Subsidiary.

 

“Sale and Leaseback Transaction” means a sale or transfer made
by the Company or a Restricted Subsidiary (except a sale or transfer made to
the Company or another Restricted Subsidiary) of any property which is either (1)
a manufacturing facility, office building or warehouse whose book value equals
or exceeds 1% of Consolidated Net Tangible Assets as of the date of
determination or (2) another property (not including a model home) which
exceeds 5% of Consolidated Net Tangible Assets as of the date of determination,
if such sale or transfer is made with the agreement, commitment or intention of
leasing such property to the Company or a Restricted Subsidiary.

 

“Secured Debt” means any Indebtedness which is secured by (1) a
Security Interest in any of the Company’s property or the property of any
Restricted Subsidiary or (2) a Security Interest in shares of stock owned
directly or indirectly by the Company or a Restricted Subsidiary in a
corporation or in equity interests owned by the Company or a Restricted
Subsidiary in a partnership or other entity not organized as a corporation or
in the Company’s rights or the rights of a Restricted Subsidiary in respect of
Indebtedness of a corporation, partnership or other entity in which the Company
or a Restricted Subsidiary has an equity interest; provided that “Secured Debt”
shall not include Non-Recourse Land Financing that consists exclusively of “land
under development,” “land held for future development” or “improved lots and
parcels,” as such categories of assets are determined in accordance with
generally accepted accounting principles. The securing in the foregoing manner
of any such Indebtedness which immediately prior thereto was not Secured Debt
shall be deemed to be the creation of Secured Debt at the time security is
given.

 

“Securities” has the meaning provided in the recitals.

 

“Security Interest” means any mortgage, pledge, lien,
encumbrance or other security interest which secures the payment or performance
of an obligation.

 

“Senior Indebtedness” means the principal of (and premium, if
any, on) and interest on (including interest accruing after the occurrence of
an Event of Default or after the filing of a petition initiating any proceeding
pursuant to any bankruptcy law whether or not such interest is an allowable
claim in any such proceeding) and other amounts due on or in connection with
any 

 

5

 

of the Company’s Indebtedness, whether outstanding on
the date hereof or hereafter created, incurred or assumed, unless, in the case
of any particular Indebtedness, the instrument creating or evidencing the same
or pursuant to which the same is outstanding expressly provides that such
Indebtedness shall not be senior in right of payment to the debt securities.
Notwithstanding the foregoing, “Senior Indebtedness” shall not include (1) the
Company’s Indebtedness that is expressly subordinated in right of payment to
any of the Company’s Senior Indebtedness, (2) the Company’s Indebtedness that
by operation of law is subordinate to any of the Company’s general unsecured
obligations, (3) the Company’s Indebtedness to any Subsidiary, (4) Indebtedness
incurred in violation of the restrictions set forth in Sections 3.01 and
3.02, (5) to the extent it might constitute Indebtedness, any liability
for federal, state or local taxes or other taxes, owed or owing by the Company,
and (6) to the extent it might constitute Indebtedness, trade account payables
owed or owing by the Company.

 

“Subsidiary” means any corporation of which at the time of
determination by the Company, directly and/or indirectly through one or more
Subsidiaries, owns more than 50% of the shares of Voting Stock.

 

“Subsidiary Guarantees” has the meaning provided in the
recitals.

 

“Subsidiary Guarantor” means (a) each direct and indirect Wholly
Owned Subsidiary of the Company that is a Homebuilding Subsidiary in existence
on the date of the Indenture and (b) any Restricted Subsidiary created or
acquired by the Company after the date of this Supplemental Indenture, subject,
in the case of either (a) or (b), to the terms of this Supplemental Indenture.

 

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

 

“Voting Stock” means any class or classes of capital stock
pursuant to which the holders thereof have the general voting power under
ordinary circumstances to elect at least a majority of the board of directors,
managers or trustees of any person (irrespective of whether or not, at the
time, stock of any other class or classes shall have, or might have, voting
power by reason of the happening of any contingency).

 

“Wholly Owned Subsidiary” of a Person means (i) any Subsidiary
all of the outstanding voting securities of which shall at the time be owned or
controlled, directly or indirectly, any such Person or one or more Wholly Owned
Subsidiaries of such Person, or by such Person and one or more Wholly Owned
Subsidiaries of such Person, or (ii) any partnership, limited liability
company, association, joint venture or similar business organization all of the
ownership interests (having ordinary voting power) of which shall at the time
be owned or controlled, directly or indirectly, any such Person or one or more
Wholly Owned Subsidiaries of such Person, or by such Person and one or more
Wholly Owned Subsidiaries of such Person.

 

6

 

ARTICLE TWO

 

GENERAL TERMS AND CONDITIONS OF
THE NOTES

 

Section 2.01.     Designation
and Principal Amount.

 

The Notes are hereby authorized and are designated the 6.625% Senior Notes due 2020,
unlimited in aggregate principal amount. 
The Notes issued on the date hereof pursuant to the terms of this
Indenture will be in an aggregate principal amount of $300,000,000, which
amount shall be set forth in the written order of the Company for the
authentication and delivery of the Notes pursuant to Section 303 of the
Indenture.  In addition, the Company may
issue, from time to time in accordance with the provisions of this Indenture,
additional Notes ranking equally and ratably with the Notes issued hereunder in
all respects (or in all respects except for the payment of interest following
the Issue Date of such further Notes), so that such further Notes shall be
consolidated and form a single series with the Notes and shall be governed by
the terms of this Indenture.

 

Section 2.02.     Maturity.

 

The principal amount of the Notes will be payable on May 1, 2020.

 

Section 2.03.     Form and
Payment.

 

The Notes will be issued as global notes, in fully registered
book-entry form without coupons in denominations of $2,000 and integral
multiples of $1,000 in excess of $2,000.

 

Principal, premium, if any, and/or interest, if any, on the global
notes representing the Notes will be made to The Depository Trust Company (the “Depositary”).

 

The global notes representing the Notes will be deposited with, or on
behalf of, the Depositary and will be registered in the name of the Depositary
or a nominee of the Depositary.  No
global note may be transferred except as a whole by a nominee of the Depositary
to the Depositary or to another nominee of the Depositary, or by the Depositary
or such nominee to a successor of the Depositary or a nominee of such
successor.

 

So long as the Depositary or its nominee is the registered owner of a
global note, the Depositary or its nominee, as the case may be, will be the
sole Holder of the Notes represented thereby for all purposes under the
Indenture.  Except as otherwise provided
herein, each actual purchaser of each Note represented by a global note (“Beneficial
Owner”) will not be entitled to receive physical delivery of certificated
Notes and will not be considered the holders thereof for any purpose under the
Indenture, and no global note representing the Notes shall be exchangeable or
transferable.  Accordingly, each
Beneficial Owner must rely on the procedures of the Depositary and, if such
Beneficial Owner is not a participant, on the procedures of the participant
through which such Beneficial Owner owns its interest in order to exercise any
rights of a Holder under such global note or the Indenture.

 

The global notes representing the Notes will be exchangeable for
certificated Notes of like tenor and terms and of differing authorized
denominations aggregating a like principal 

 

7

 

amount, only if (i) the Depositary notifies the
Company that it is unwilling or unable to continue as Depositary for the global
debt securities, (ii) the Depositary ceases to be a clearing agency registered
under the Exchange Act and a successor to the Depository is not appointed by
the Company within 90 days, (iii) the Company in its sole discretion determines
that the global notes shall be exchangeable for certificated Notes and notifies
the Trustee in writing of such determination or (iv) there shall have occurred
and be continuing an Event of Default under the Indenture with respect to the
Notes.  Upon any such exchange, the
certificated Notes shall be registered in the names of the Beneficial Owners of
the global notes representing the Notes, which names shall be provided by the
Depositary’s relevant participants (as identified by the Depositary) to the
Trustee.  In such event the Company will
execute, and subject to Section 303 of the Indenture, the Trustee, upon receipt
of an Officer’s Certificate evidencing such determination by the Company, will
authenticate and deliver the Notes in definitive registered form without
coupons, in authorized denominations, and in an aggregate principal amount
equal to the principal amount of the global notes in exchange for such global
notes.  Upon the exchange of the global
notes for such Notes in definitive registered form without coupons, in authorized
denominations, the global notes shall be cancelled by the Trustee.  Such Notes in definitive registered form
issued in exchange for the global notes shall be registered in such names and
in such authorized denominations as the Depositary, pursuant to instructions
from its direct or indirect participants or otherwise, shall instruct the
Trustee in writing.  The Trustee shall
deliver such Notes to the Depositary for delivery to the Persons in whose names
such Notes are so registered.

 

Section 2.04.     Interest.

 

The Notes shall bear interest at a rate equal to 6.625% per year.  Interest on the Notes shall accrue from April
29, 2010, or from the most recent interest payment date to which interest has
been paid or duly provided upon for the Notes, as the case may be.  Interest on the Notes shall be payable
semiannually in arrears on May 1 and November 1, commencing November 1, 2010
(each an “Interest Payment Date”), to the persons in whose names the
Notes are registered at the close of business on April 15 and October 15
(whether or not a Business Day), as the case may be, preceding such Interest
Payment Date.

 

ARTICLE THREE

 

ADDITIONAL COVENANTS

 

Section 3.01.     Restrictions
on Secured Debt.

 

The Company will not, and will not cause or permit a Restricted
Subsidiary to, create, incur, assume or guarantee any Secured Debt unless the
Notes will be secured equally and ratably with (or prior to) such Secured Debt,
with certain exceptions. This restriction does not prohibit the creation,
incurrence, assumption or guarantee of Secured Debt that is secured by:

 

(i)           Security
Interests on model homes, homes held for sale, homes that are under contract
for sale, contracts for the sale of homes, land (improved or unimproved),
manufacturing plants, warehouses or office buildings and fixtures and equipment
located thereat, or thereon;

 

8

 

(ii)         Security
Interests on property at the time of its acquisition by the Company or a
Restricted Subsidiary, which Security Interests secure obligations assumed by
the Company or a Restricted Subsidiary, or on the property of a corporation or
other entity at the time it is merged into or consolidated with the Company or
a Restricted Subsidiary (other than Secured Debt created in contemplation of
the acquisition of such property or the consummation of such a merger or where
the Security Interest attaches to or affects the Company’s property or the
property of a Restricted Subsidiary prior to such transaction);

 

(iii)        Security
Interests arising from conditional sales agreements or title retention
agreements with respect to property acquired by the Company or a Restricted
Subsidiary; and

 

(iv)         Security
Interests securing Indebtedness of a Restricted Subsidiary owing to the Company
or to another Restricted Subsidiary that is a Wholly Owned Subsidiary by the
Company.

 

Additionally, such permitted Secured Debt includes any amendment,
restatement, supplement, renewal, replacement, extension, refinancing or
refunding, in whole or in part, of Secured Debt permitted at the time of the
original incurrence thereof.

 

The Company and its Restricted Subsidiaries may create, incur, assume
or guarantee Secured Debt, without equally or ratably securing the Notes, if
immediately thereafter the sum of (i) the aggregate principal amount of all
Secured Debt outstanding (excluding Secured Debt permitted under clauses (i) through
(iv) above and any Secured Debt in relation to which the Notes have been
secured equally and ratably (or prior to)) and (ii) all Attributable Debt in
respect of Sale and Leaseback Transactions (excluding Attributable Debt in
respect of Sale and Leaseback Transactions satisfying the conditions set forth
in clauses (i), (ii) and (iii) of Section 3.02 as of the date of
determination would not exceed 20% of Consolidated Net Tangible Assets.

 

The provisions described above with respect to limitations on Secured
Debt are not applicable to Non-Recourse Land Financing by virtue of the
definition of Secured Debt, and will not restrict or limit the Company’s or its
Restricted Subsidiaries’ ability to create, incur, assume or guarantee any
unsecured Indebtedness, or the ability of any subsidiary which is not a
Restricted Subsidiary to create, incur, assume or guarantee any secured or
unsecured Indebtedness.

 

Section 3.02.     Restrictions
on Sale and Leaseback Transactions.

 

The Company will not, and will not permit any Restricted Subsidiary to,
enter into any Sale and Leaseback Transaction, unless:

 

(i)            notice is promptly
given to the Trustee in writing of the Sale and Leaseback Transaction;

 

(ii)           fair
value is received by the Company or the relevant Restricted Subsidiary for the
property sold (as determined in good faith pursuant to a resolution of the
board of directors of the Company delivered to the Trustee); and

 

9

 

(iii)        the Company or a Restricted Subsidiary, within
365 days after the completion of the Sale and Leaseback Transaction, apply an
amount equal to the net proceeds therefrom either:

 

(x)          to
the redemption, repayment or retirement of debt securities of any series under
the Indenture (including the cancellation by the Trustee of any debt securities
of any series delivered by the Company to the Trustee) or Senior Indebtedness
of the Company, or

 

(y)          to
the purchase by the Company or any Restricted Subsidiary of property
substantially similar to the property sold or transferred.

 

The Company and its Restricted Subsidiaries may enter into a Sale and
Leaseback Transaction if immediately thereafter the sum of (1) the aggregate
principal amount of all Secured Debt outstanding (excluding Secured Debt
permitted under clauses (i) through (iv) of Section 3.01 or Secured Debt
in relation to which the Notes have been secured equally and ratably (or prior
to)) and (2) all Attributable Debt in respect of Sale and Leaseback Transactions
(excluding Attributable Debt in respect of Sale and Leaseback Transactions
satisfying the conditions set forth in clauses (i), (ii) and (iii) in the
preceding paragraph) as of the date of determination would not exceed 20% of
Consolidated Net Tangible Assets.

 

Section 3.03.     Future
Subsidiaries.

 

The Company shall promptly secure the execution and delivery to the
Trustee of a Subsidiary Guarantee in substantially the form of Exhibit A
hereto with respect to the Notes, from each Subsidiary whether now existing or
formed and organized after the date hereof, if such Subsidiary (a) is a Wholly
Owned Subsidiary of the Company, (b) is included in the Homebuilding Segment
and (c) guarantees any indebtedness of the Company, or guarantees obligations
of any other Subsidiary as a guarantor of any indebtedness of the Company; provided that a Subsidiary whose sole
purpose is to serve as a joint venturer, partner, member or shareholder in a
joint venture, partnership, limited liability company or corporation that
include one or more joint venturers, partners, members or shareholders that are
not Affiliates of the Company shall not be required to deliver a Subsidiary
Guarantee.  Each such Subsidiary that
does not deliver a Subsidiary Guarantee on the date hereof shall execute and
deliver a Subsidiary Guarantee in accordance with Section 6.02 within 30
days after it meets the criteria set forth in the preceding sentence and the
Company shall furnish to the Trustee an Officers’ Certificate stating that all
conditions precedent, if any, provided for in the Base Indenture and this
Supplemental Indenture relating to the proposed action have been complied with,
and an Opinion of Counsel stating that, in the opinion of such counsel, all
such conditions precedent have been complied with.  Thereafter, such Subsidiary shall (unless
released in accordance with the terms hereof) be a Subsidiary Guarantor for all
purposes hereof with respect to the Notes.

 

Section 3.04.     Homebuilding
Subsidiaries.

 

The Company shall not cause or permit the voting securities or other
ownership interests of any Homebuilding Subsidiary to be less than 100% owned
and controlled, directly or 

 

10

 

indirectly, by the Company except for a legitimate business
purpose unrelated to whether such Subsidiary is required to be a Subsidiary
Guarantor hereunder.

 

Section 3.05.     Change
of Control Offer.

 

Upon the occurrence of a Change of Control Triggering
Event (as defined herein), unless the Company has exercised its option to
redeem the Notes by notifying the noteholders to that effect as provided in Article
Five hereof, the Company shall make an offer (a “Change of Control Offer”)
to each Holder to repurchase all or any part (equal to $1,000 or integral
multiples of that amount) of such Holder’s Notes on the terms set forth in the
Notes. In a Change of Control Offer, the Company shall offer payment in cash
equal to 101% of the aggregate principal amount of the Notes repurchased, plus
accrued and unpaid interest, if any, on the Notes repurchased to the date of
repurchase (a “Change of Control Payment”). Within 30 days following any
Change of Control Triggering Event or, at the Company’s option, prior to any
Change of Control (as defined herein), but after public announcement of the
transaction that constitutes or may constitute such Change of Control, a notice
will be mailed to Holders of the Notes, describing the transaction that
constitutes or may constitute the Change of Control Triggering Event and
offering to repurchase the Notes on the date specified in the notice, which
date will be no earlier than 30 days and no later than 60 days from the date
that notice is mailed, other than as may be required by law (a “Change of
Control Payment Date”). The notice shall, if mailed prior to the date of
consummation of the Change of Control, state that the Change of Control Offer
is conditioned on the Change of Control Triggering Event occurring on or prior
to the applicable Change of Control Payment Date.

 

On
each Change of Control Payment Date, the Company shall, to the extent lawful:

 

(i)           accept
for payment all Notes or portions of Notes properly tendered pursuant to the
Change of Control Offer;

 

(ii)          deposit
with the Trustee, as paying agent, an amount equal to the Change of Control
Payment in respect of all Notes or portions of Notes properly tendered; and

 

(iii)        deliver or cause to be delivered to the Trustee
the Notes properly accepted together with an Officers’ Certificate stating the
aggregate principal amount of Notes or portions of Notes being repurchased and
that all conditions precedent provided for in the Indenture to the Change of
Control Offer and to the repurchase by the Company of Notes pursuant to the
Change of Control Offer have been complied with.

 

The Company shall not be required to make a Change of
Control Offer upon the occurrence of a Change of Control Triggering Event if a
third party makes such an offer in the manner, at the times and otherwise in
compliance with the requirements for an offer made by the Company and the third
party repurchases all Notes properly tendered and not withdrawn under its
offer.

 

The Company shall comply with the requirements of Rule
14e-1 under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), and any other securities laws and 

 

11

 

regulations thereunder to
the extent those laws and regulations are applicable in connection with the
repurchase of the Notes as a result of a Change of Control Triggering Event. To
the extent that the provisions of any such securities laws or regulations
conflict with the Change of Control Offer provisions of the Notes, the Company
shall comply with those securities laws and regulations and will not be deemed
to have breached the Company’s obligations under the Change of Control Offer
provisions of the Notes by virtue of any such conflict.

 

For purposes of this Section 3.05, the following terms
shall be applicable:

 

“Change of Control” means the occurrence of any
of the following: (1) the direct or indirect sale, lease, transfer, conveyance
or other disposition (other than by way of merger or consolidation), in one or
a series of related transactions, of all or substantially all of the Company’s
assets and the assets of its subsidiaries, taken as a whole, to any person,
other than the Company or one of its subsidiaries; (2) the consummation of any
transaction (including, without limitation, any merger or consolidation) the
result of which is that any person becomes the beneficial owner (as defined in Rules
13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of more than
50% of the Company’s outstanding Voting Stock or other Voting Stock into which
the Company’s Voting Stock is reclassified, consolidated, exchanged or changed,
measured by voting power rather than number of shares; (3) the Company
consolidates with, or merge with or into, any person, or any person
consolidates with, or merges with or into, the Company, in any such event
pursuant to a transaction in which any of the Company’s outstanding Voting
Stock or the Voting Stock of such other person is converted into or exchanged
for cash, securities or other property, other than any such transaction where
the shares of the Company’s Voting Stock outstanding immediately prior to such
transaction constitute, or are converted into or exchanged for, a majority of
the Voting Stock of the surviving person or any direct or indirect parent
company of the surviving person immediately after giving effect to such
transaction; (4) the first day on which a majority of the members of the
Company’s board of directors are not Continuing Directors (as defined herein);
or (5) the adoption of a plan relating to the Company’s liquidation or
dissolution.

 

Notwithstanding the foregoing, a transaction (or
series of related transactions) will not be deemed to involve a Change of
Control under clause (2) above if the Company becomes a direct or indirect
wholly-owned subsidiary of a holding company and (a) the direct or indirect
holders of the Voting Stock of such holding company immediately following that
transaction are substantially the same as the holders of the Company’s Voting
Stock immediately prior to that transaction or (b) the shares of the Company’s
Voting Stock outstanding immediately prior to such transaction are converted
into or exchanged for a majority of the Voting Stock of such holding company
immediately after giving effect to such transaction.

 

The term “person,” as used in this definition,
has the meaning given thereto in Section 13(d)(3) of the Exchange Act.

 

“Change of Control Triggering Event” means the
occurrence of both a Change of Control and a Rating Event (as defined herein).

 

“Continuing Directors” means, as of any date of
determination, any member of the Company’s board of directors who (1) was a
member of the Company’s board of directors on the 

 

12

 

date the Notes were
initially issued or (2) was nominated for election, elected or appointed to the
Company’s board of directors with the approval of a majority of the Continuing
Directors who were members of the Company’s board of directors at the time of
the nomination, election or appointment (either by a specific vote or by
approval of the Company’s proxy statement in which that member was named as a
nominee for election as a director, without objection to the nomination).

 

“Investment Grade Rating” means a rating equal
to or higher than Baa3 (or the equivalent) by Moody’s, BBB- (or the equivalent)
by S&P, and the equivalent investment grade credit rating from any
replacement rating agency or rating agencies selected by the Company.

 

“Moody’s” means Moody’s Investors Service, Inc.
and its successors.

 

“Rating Agencies” means (1) each of Moody’s and
S&P; and (2) if either of Moody’s or S&P ceases to rate the applicable
Notes or fails to make a rating of the applicable Notes publicly available for
reasons beyond the Company’s control, a “nationally recognized statistical
rating organization” within the meaning of Rule 15c3-1(c)(2)(vi)(F) under the
Exchange Act selected by the Company (as certified by a resolution of the
Company’s board of directors) as a replacement agency for Moody’s or S&P,
or all of them, as the case may be.

 

“Rating Event” means the rating on the Notes is
lowered by each of the Rating Agencies and the Notes are rated below an
Investment Grade Rating by each of the Rating Agencies, in any case on any day
during the period (which period will be extended so long as the rating of the
Notes is under publicly announced consideration for a possible downgrade by any
of the Rating Agencies) commencing 60 days prior to the earlier of (i) the
first public notice of the occurrence of a Change of Control or (ii) the first
public notice of the Company’s intention to effect a Change of Control and
ending 60 days following consummation of such Change of Control.

 

“S&P” means Standard & Poor’s Rating
Services, a division of The McGraw-Hill Companies, Inc., and its successors.

 

“Voting Stock” means, with respect to any
specified “person” (as that term is used in Section 13(d)(3) of the Exchange
Act) as of any date, the capital stock of that person that is at the time
entitled to vote generally in the election of the board of directors of that
person.

 

ARTICLE FOUR

 

CONSOLIDATION, MERGER AND SALE OF
ASSETS

 

The Company will not consolidate or merge into or sell, assign,
transfer or lease all or substantially all of its assets to another person
unless:

 

(i)            the Person is a
corporation organized under the laws of the United States of America or any
state thereof;

 

(ii)          the
Person assumes by supplemental indenture all the obligations of the Company
relating to the Notes; and

 

13

 

(iii)         immediately after the transaction no event of
default with respect to the Notes exists.

 

Upon any such consolidation, merger, sale, assignment or transfer, the
successor corporation will be substituted for the Company under the Indenture.
The successor corporation may then exercise every power and right of the
Company under the Indenture, and the Company will be released from all of the
Company’s liabilities and obligations in respect of the Notes and the
Indenture. If the Company leases all or substantially all of its assets, the
lessee corporation will be the successor to the Company and may exercise every
power and right of the Company under the Indenture, but the Company will not be
released from its obligations to pay the principal of and premium, if any, and
interest, if any, on the Notes.

 

ARTICLE FIVE

 

REDEMPTION OF THE NOTES

 

Section 5.01.     Optional
Redemption.

 

The Company may, at its option, redeem the Notes in whole at any time
or in part from time to time, on at least 30 but not more than 60 days’ prior
notice, at a Redemption Price equal to the greater of:

 

(i)            100% of the principal
amount of the Notes being redeemed, and

 

(ii)         the
sum of the present values of the Remaining Scheduled Payments on the Notes
being redeemed, discounted to the Redemption Date, on a semiannual basis, at
the Treasury Rate plus 50 basis points (0.50%).

 

The Company shall also pay accrued interest on the Notes being redeemed
to the Redemption Date.  In determining
the Redemption Price and accrued interest, interest will be calculated on the
basis of a 360-day year consisting of twelve 30-day months.

 

If money sufficient to pay the Redemption Price of and accrued interest
on the Notes to be redeemed is deposited with the Trustee on or before the
Redemption Date, on and after the Redemption Date interest will cease to accrue
on the Notes (or such portions thereof) called for redemption and such Notes
will cease to be Outstanding.

 

If less than all of the Notes are to be redeemed, not more than 60 days
prior to the Redemption Date, the Trustee will select the Notes to be redeemed
by such method as the Trustee shall deem fair and appropriate.  The Trustee may select for redemption Notes
and portions of the Notes in amounts of $2,000 or integral multiples of $1,000
in excess of $2,000, although no note of $2,000 in original principal amount or
less shall be redeemed in part.

 

“Comparable Treasury Issue” means the United States Treasury
security selected by the Reference Treasury Dealer as having a maturity
comparable to the remaining term of the Notes to be redeemed that would be utilized,
at the time of selection and in accordance with customary financial practice,
in pricing new issues of corporate debt securities of comparable maturity to
the remaining term of the Notes.

 

14

 

“Comparable Treasury Price” means, with respect to any
Redemption Date, (1) the average of the Reference Treasury Dealer Quotations
for such Redemption Date, after excluding the highest and lowest Reference
Treasury Dealer Quotations, or (2) if fewer than four such Reference Treasury
Dealer Quotations are provided to the Trustee, the average of all such
quotations.

 

“Reference
Treasury Dealer” means J.P. Morgan Securities Inc. and its
successors; provided, however, that, if the foregoing ceases to be a primary
U.S. Government securities dealer in the United States (a “Primary Treasury
Dealer”), the Company will substitute another Primary Treasury Dealer.

 

“Reference Treasury Dealer Quotation” means, with respect to the
Reference Treasury Dealer and any Redemption Date, the average, as determined
by the Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Trustee by the Reference Treasury Dealer at 5:00 p.m., New York
City time, on the third Business Day preceding such Redemption Date.

 

“Remaining Scheduled Payments” means, with respect to any Note,
the remaining scheduled payments of the principal (or of the portion) thereof
to be redeemed and interest thereon that would be due after the related
Redemption Date but for such redemption; provided, however, that, if such
Redemption Date is not an Interest Payment Date with respect to such Note, the
amount of the next succeeding scheduled interest payment thereon will be
reduced by the amount of interest accrued thereon to such Redemption Date.

 

“Treasury Rate” means, with respect to any Redemption Date, the
rate per annum equal to the semiannual equivalent yield to maturity of the
Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue
(expressed as a percentage of its principal amount) equal to the Comparable
Treasury Price for such Redemption Date.

 

Section 5.02.     No
Sinking Fund.

 

The Notes are not entitled to the benefit of any sinking fund.

 

ARTICLE SIX

 

GUARANTEE OF NOTES

 

Section 6.01.     Guarantee.

 

Subject to Section 6.08, each of the Subsidiary Guarantors
hereby jointly and severally, absolutely and unconditionally guarantees, as
primary obligor and not as surety, the full and punctual payment (whether at
stated maturity, upon acceleration or early termination or otherwise, and at
all times thereafter, at the time and place and in the manner provided for
herein and in the Indenture) and performance of each series of the Notes and
all other amounts due from the Company under the Indenture to each Holder and
to the Trustee (collectively with respect to each series of Notes, the “Guaranteed
Obligations”).  Upon failure by the
Company to pay punctually any such amount, each of the Subsidiary Guarantors
agrees that it shall forthwith on demand pay to the Trustee for the benefit of
the Holders of the applicable series of Notes, the 

 

15

 

amount not so paid at the place and in the manner
specified herein and in the Indenture. 
This Article Six is a continuing guaranty of payment and not of
collection.  Each of the Subsidiary
Guarantors waives any right to require any of the Holders to sue the Company,
any other guarantor, or any other Person obligated for all or any part of the
Guaranteed Obligations, or otherwise to enforce its payment against any
collateral securing all or any part of the Guaranteed Obligations.

 

Section 6.02.     Execution
and Delivery of Guarantee.

 

To further evidence the Subsidiary Guarantee set forth in Section 6.01,
each Subsidiary Guarantor hereby agrees to execute and deliver to the Trustee a
Subsidiary Guarantee in substantially the form of Exhibit A hereto with
respect to each series of the Notes. 
Such Subsidiary Guarantee shall be executed on behalf of each Subsidiary
Guarantor by either manual or facsimile signature of an officer of each
Subsidiary Guarantor, each of whom, in each case, shall have been duly
authorized to so execute by all requisite corporate action.  The validity and enforceability of any
Subsidiary Guarantee shall not be affected by the fact that it is not affixed
to any Note or Notes.

 

Section 6.03.     Guarantee Unconditional.

 

Subject to Section 6.08, the obligations of each of the
Subsidiary Guarantors hereunder shall be unconditional and absolute and,
without limiting the generality of the foregoing, shall not be released,
discharged or otherwise affected by: (1) any extension, renewal, settlement,
compromise, waiver or release in respect of any of the Guaranteed Obligations,
by operation of law or otherwise, or any obligation of any other guarantor of
any of the Guaranteed Obligations, or any default, failure or delay, willful or
otherwise, in the payment or performance of the Guaranteed Obligations; (2) any
modification or amendment of or supplement hereto or to the Indenture; (3)  any change in the corporate existence,
structure or ownership of the Company or any other guarantor of any of the
Guaranteed Obligations, or any insolvency, bankruptcy, reorganization or other
similar proceeding affecting the Company, or any other guarantor of the
Guaranteed Obligations, or its assets or any resulting release or discharge of
any obligation of the Company or any other guarantor of any of the Guaranteed
Obligations; (4) the existence of any claim, setoff or other rights which the
Subsidiary Guarantors may have at any time against the Company or any other
guarantor of any of the Guaranteed Obligations, whether in connection herewith
or any unrelated transactions; (5) any invalidity or unenforceability relating
to or against the Company, or any other guarantor of any of the Guaranteed
Obligations, for any reason related hereto or to the Indenture or any provision
of applicable law or regulation purporting to prohibit the payment by the
Company, or any other guarantor of the Guaranteed Obligations, of the principal
of or interest on any Note or any other amount payable by the Company hereunder
or under the Indenture; (6) any law, regulation or order of any jurisdiction,
or any other event affecting any term of any Guaranteed Obligation or any
Holder’s rights with respect thereto; or (7) any other act or omission to act
or delay of any kind by the Company, any other Subsidiary Guarantor of the
Guaranteed Obligations or any other circumstance whatsoever which might, but
for the provisions of this paragraph, constitute a legal or equitable discharge
of any Subsidiary Guarantor’s obligations hereunder.

 

16

 

Section 6.04.     Discharge, Release and Reinstatement of Guarantee In Certain
Circumstances.

 

(1)          Subject to
Sections 6.04(2) and (3), each of the Subsidiary Guarantor’s
obligations hereunder with respect to any series of Notes shall remain in full
force and effect until all Guaranteed Obligations with respect to such series
of Notes shall have been indefeasibly paid in full.  If at any time any payment of the principal
of or interest on any Note or any other amount payable by the Company or any
other party hereunder or under the Indenture is rescinded or must be otherwise
restored or returned upon the insolvency, bankruptcy or reorganization of the
Company or otherwise, each of the Subsidiary Guarantor’s obligations hereunder
with respect to such payment shall be reinstated as though such payment had
been due but not made at such time.

 

(2)          In the
event a Subsidiary Guarantor is sold or disposed of (whether by merger,
consolidation, the sale of its capital stock or the sale of all or
substantially all of its assets (other than by lease)) and whether or not the
Subsidiary Guarantor is the surviving corporation in such transaction to a
Person which is not the Company or a Restricted Subsidiary of the Company, such
Subsidiary Guarantor will be released from its obligations under its guarantee if:

 

(i)            the sale or other
disposition is in compliance with the Indenture; and

 

(ii)          all
the obligations of such Subsidiary Guarantor under any agreements relating to
any other Indebtedness of the Company or its Restricted Subsidiaries terminate
upon consummation of such transaction.

 

(3)          In the
event that any Subsidiary Guarantor ceases to be a Restricted Subsidiary of the
Company in the Homebuilding Segment, such Subsidiary Guarantor shall be
released and discharged from all obligations under this Article Six
without any further action required on the part of the Trustee or any Holder;
provided that at the time of and immediately after such Subsidiary Guarantor
ceases to be a Restricted Subsidiary of the Company in the Homebuilding
Segment, no Default or Event of Default shall have occurred and be continuing
with respect to any series of Notes.

 

The Trustee shall, at the sole cost and expense of the Company and upon
receipt an Opinion of Counsel that the provisions of Sections 6.04(2) or
(3) have been complied with, deliver an appropriate instrument
evidencing such release upon receipt of a request by the Company accompanied by
an Officers’ Certificate certifying as to the compliance with Sections 6.04(2)
or (3).  Any Subsidiary Guarantor
not so released remains liable for the full amount of principal of and interest
on the Notes and the other obligations of the Company hereunder as provided in
this Article Six.

 

Section 6.05.     Waivers.

 

Each of the Subsidiary Guarantors irrevocably waives acceptance hereof,
presentment, demand, protest and, to the fullest extent permitted by law, any
notice not provided for herein, as well as any requirement that at any time any
action be taken by any Person against the Company, any other guarantor of any
of the Guaranteed Obligations, or any other Person.

 

17

 

Section 6.06.     Subordination; Subrogation.

 

Each of the Subsidiary Guarantors hereby subordinates to the Guaranteed
Obligations all Indebtedness or other liabilities of the Company or of any
other Subsidiary Guarantor to such Subsidiary Guarantor.  Each of the Subsidiary Guarantors hereby
further agrees not to assert any right, claim or cause of action, including,
without limitation, a claim for subrogation, reimbursement, indemnification or
otherwise, against the Company arising out of or by reason of this Article Six
or the obligations hereunder, including, without limitation, the payment or
securing or purchasing of any of the Guaranteed Obligations by any of the
Subsidiary Guarantors unless and until the Guaranteed Obligations are
indefeasibly paid in full.

 

Section 6.07.     Stay of Acceleration.

 

If acceleration of the time for payment of any of the Guaranteed
Obligations is stayed upon the insolvency, bankruptcy or reorganization of the
Company, all such amounts otherwise subject to acceleration under the terms
hereof or the Indenture shall nonetheless be payable by each of the Subsidiary
Guarantors hereunder forthwith on demand by the Holders.

 

Section 6.08.     Limitation on Obligations.

 

(1)          The
provisions of this Article Six are severable, and in any action or
proceeding involving any state corporate law, or any state, federal or foreign
bankruptcy, insolvency, reorganization or other law affecting the rights of
creditors generally, if the obligations of any Subsidiary Guarantor under this Article
Six would otherwise be held or determined to be avoidable, invalid or
unenforceable on account of the amount of such Subsidiary Guarantor’s liability
under this Article Six, then, notwithstanding any other provision of
this Article Six to the contrary, the amount of such liability shall,
without any further action by the Subsidiary Guarantors or the Holders, be
automatically limited and reduced to the highest amount that is valid and enforceable
as determined in such action or proceeding (such highest amount determined
hereunder being the relevant Subsidiary Guarantor’s “Maximum Liability”).  This Section 6.08(1) with respect to
the Maximum Liability of the Subsidiary Guarantors is intended solely to
preserve the rights of the Holders to the maximum extent not subject to
avoidance under applicable law, and neither the Subsidiary Guarantor nor any
other person or entity shall have any right or claim under this Section 6.08(1)
with respect to the Maximum Liability, except to the extent necessary so that
the obligations of the Subsidiary Guarantors hereunder shall not be rendered
voidable under applicable law.

 

(2)          Each of
the Subsidiary Guarantors agrees that the Guaranteed Obligations may at any
time and from time to time exceed the Maximum Liability of each Subsidiary
Guarantor, and may exceed the aggregate Maximum Liability of all other
Subsidiary Guarantors, without impairing this Article Six or affecting
the rights and remedies of the Holders hereunder.  Nothing in this Section 6.08(2) shall
be construed to increase any Subsidiary Guarantor’s obligations hereunder
beyond its Maximum Liability.

 

(3)          In the
event any Subsidiary Guarantor (a “Paying Guarantor”) shall make any
payment or payments under this Article Six or shall suffer any loss as a
result of any realization upon any collateral granted by it to secure its
obligations under this Article Six, each other 

 

18

 

Subsidiary Guarantor (each a “Non-Paying Guarantor”)
shall contribute to such Paying Guarantor an amount equal to such Non-Paying
Guarantor’s “Pro Rata Share” of such payment or payments made, or losses
suffered, by such Paying Guarantor.  For
the purposes hereof, each Non-Paying Guarantor’s “Pro Rata Share” with
respect to any such payment or loss by a Paying Guarantor shall be determined
as of the date on which such payment or loss was made by reference to the ratio
of (i) such Non-Paying Guarantor’s Maximum Liability as of such date (without
giving effect to any right to receive, or obligation to make, any contribution
hereunder) or, if such Non-Paying Guarantor’s Maximum Liability has not been
determined, the aggregate amount of all monies received by such Non-Paying
Guarantor from the Company after the date hereof (whether by loan, capital
infusion or by other means) to (ii) the aggregate Maximum Liability of all
Subsidiary Guarantors hereunder (including such Paying Guarantor) as of such
date (without giving effect to any right to receive, or obligation to make, any
contribution hereunder), or to the extent that a Maximum Liability has not been
determined for any Subsidiary Guarantors, the aggregate amount of all monies
received by such Subsidiary Guarantors from the Company after the date hereof
(whether by loan, capital infusion or by other means).  Nothing in this Section 6.08(3) shall
affect any Subsidiary Guarantor’s several liability for the entire amount of
the Guaranteed Obligations (up to such Subsidiary Guarantor’s Maximum
Liability).  Each of the Subsidiary
Guarantors covenants and agrees that its right to receive any contribution
under this Article Six from a Non-Paying Guarantor shall be subordinate
and junior in right of payment to all the Guaranteed Obligations.  The provisions of this Section 6.08(3)
are for the benefit of both the Holders and the Subsidiary Guarantors and may
be enforced by any one, or more, or all of them in accordance with the terms
hereof.

 

Section 6.09.     Default
and Enforcement.

 

If any Subsidiary Guarantor fails to pay in accordance with Section 6.01,
the Trustee may proceed in its name as trustee hereunder in the enforcement of
the guarantee of any such Subsidiary Guarantor and such Subsidiary Guarantor’s
obligations thereunder and hereunder by any remedy provided by law, whether by
legal proceedings or otherwise, and to recover from such Subsidiary Guarantor
the obligations.

 

Section 6.10.     Amendment,
Etc.

 

No amendment, modification or waiver of any provision of this
Supplemental Indenture relating to any Subsidiary Guarantor or consent to any
departure by any Subsidiary Guarantor or any other Person from any such
provision will in any event be effective unless it is signed by such Subsidiary
Guarantor and the Trustee.

 

Section 6.11.     Acknowledgment.

 

Each Subsidiary Guarantor hereby acknowledges communication of the
terms of this Supplemental Indenture, the Base Indenture and the Notes and
consents to and approves of the same.

 

Section 6.12.     Costs
and Expenses.

 

Each Subsidiary Guarantor shall pay on demand by the Trustee any and
all costs, fees and expenses (including, without limitation, legal fees and
disbursements) incurred by the Trustee, its

 

19

 

agents, advisors and counsel or any of the Holders in
enforcing any of their rights under any Subsidiary Guarantee.

 

Section 6.13.    No Merger or Waiver; Cumulative Remedies.

 

No Subsidiary Guarantee shall operate by way of merger of any of the
obligations of a Subsidiary Guarantor under any other agreement, including,
without limitation, this Supplemental Indenture.  No failure to exercise and no delay in
exercising, on the part of the Trustee or the Holders, any right, remedy, power
or privilege hereunder or under the Indenture or the Notes, shall operate as a
waiver thereof; nor shall any single or partial exercise of any right, remedy,
power or privilege hereunder or under the Indenture or the Notes preclude any
other or further exercise thereof or the exercise of any other right, remedy,
power or privilege.  The rights,
remedies, powers and privileges in the Subsidiary Guarantee and under this
Supplemental Indenture, the Notes and any other document or instrument between
a Subsidiary Guarantor and/or the Company and the Trustee are cumulative and
not exclusive of any rights, remedies, powers and privileges provided by law.

 

Section 6.14.    Guarantee in Addition to Other
Obligations.

 

The obligations of each Subsidiary Guarantor under its Subsidiary
Guarantee and this Supplemental Indenture are in addition to and not in
substitution for any other obligations to the Trustee or to any of the Holders
in relation to this Supplemental Indenture or the Notes and any guarantees or
security at any time held by or for the benefit of any of them.

 

Section 6.15.    Severability.

 

Any provision of this Article Six which is prohibited or
unenforceable in any jurisdiction shall not invalidate the remaining provisions
and any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction
unless its removal would substantially defeat the basic intent, spirit and
purpose of this Supplemental Indenture and this Article Six.

 

Section 6.16.    Successors and Assigns.

 

Each Subsidiary Guarantee shall be binding upon and inure to the
benefit of each Subsidiary Guarantor and the Trustee and the other Holders and
their respective successors and permitted assigns, except that no Subsidiary
Guarantor may assign any of its obligations hereunder or thereunder.

 

Section 6.17.    Acknowledgement under the Trust Indenture
Act.

 

Each Subsidiary Guarantor acknowledges that, by virtue of its
Subsidiary Guarantee, it is becoming an “obligor” on indenture securities under
the Trust Indenture Act.

 

20

 

ARTICLE SEVEN

 

EVENTS OF DEFAULT

 

In addition to the Events of Default set out in Section 501 of the
Indenture, the Notes shall also be subject to the following Events of Default:

 

(i)           the
occurrence of any event that results in the acceleration of any of the Company’s
or its Restricted Subsidiaries’ Indebtedness, other than Non-Recourse
Indebtedness, that has an outstanding principal amount of $10 million or more
in the aggregate; and

 

(ii)          a default
in the payment of any principal or interest in respect of any of the Company’s
or its Restricted Subsidiaries’ Indebtedness, other than Non-Recourse
Indebtedness, that has an outstanding principal amount of $20 million or more
and the continuation of that default for ten Business Days from the date the
principal or interest payment became due and payable, after giving effect to
any applicable grace period provided for in the documents governing the
indebtedness.

 

ARTICLE EIGHT

 

DEFEASANCE AND DISCHARGE

 

In addition to the defeasance and discharge provisions set out in Section
403 of the Indenture, the following defeasance provision shall apply to the
Notes:

 

The Company may, at its option and at any time (including the exercise
by the Company of a Covenant Defeasance (as defined herein)), elect to have its
obligations discharged with respect to the Notes (“Legal Defeasance”).  In the event of a Legal Defeasance with
respect to the Notes, the Company shall be deemed to have paid and discharged
the entire indebtedness on all outstanding Notes and the provisions of this
Indenture as it relates to such Outstanding Notes (except to (A) the rights of
Holders of such Outstanding Notes to receive from the trust funds described in
subparagraph (i) below, payment of the principal of (and premium, if any) or
interest, if any, on such Notes on the Stated Maturity of such principal of
(and premiums, if any) or interest or any mandatory sinking fund payments or
analogous payments applicable to the Notes on the day on which such payments
are due and payable in accordance with the terms of the Indenture and of such
Notes, (B) the Company’s obligations with respect to such Notes under Sections
304, 305, 306, 1002 and 1003 of the Indenture, (C) the rights, powers, trusts,
duties and immunities of the Trustee under the Indenture, including without
limitation Section 607 of the Indenture and (D) Article Four of the Base
Indenture, which in each case shall survive until otherwise terminated or
discharged hereunder) shall no longer be in effect, and the Trustee, at the
expense of the Company, shall, upon Company Request, execute proper instruments
acknowledging the same, provided that the conditions set out below have been
satisfied.

 

In addition, the Company may, at its option and at any time, elect to
have the obligations of the Company with respect to the Notes be released with
respect to covenants provided with respect to the Notes under Sections 301(14)
or 901(2) of the Indenture (“Covenant Defeasance”), 

 

21

 

and the Trustee, at the expense of the Company, shall,
upon Company Request, execute proper instruments acknowledging the same,
provided that the conditions set out below have been satisfied.  In the event of Covenant Defeasance, those
events described under Section 501 of the Base Indenture and Article Seven of
this Supplemental Indenture will no longer constitute an Event of Default.

 

In order to exercise either Legal Defeasance or Covenant Defeasance:

 

(i)         the
Company has deposited or caused to be deposited with the Trustee (or another
corporate trustee appointed by the Company satisfying the requirements of Section
609 of the Indenture who shall have agreed to comply with the provisions of Article
Four of the Base Indenture applicable to it), irrevocably (irrespective of
whether the conditions in Subsections (ii), (iii), (iv), (v), (vi) and (vii) below
have been satisfied, but subject to the provisions of Section 402(c) and the
last paragraph of Section 1003 of the Indenture), as trust funds in trust,
specifically pledged as security for, and dedicated solely to, the benefit of
the Holders of the Notes, with reference to this provision, (A) moneys in an
amount, or (B) U.S. Government Obligations the scheduled principal of and
interest on which in accordance with their terms will provide, not later than
the due date of any payment moneys in an amount, or (C) a combination thereof,
sufficient, in the case of (B) or (C) in the opinion of a nationally recognized
firm of independent public accountants expressed in a written certification
thereof delivered to the Trustee, to pay and discharge, and which shall be
applied by the Trustee (or such other corporate trustee, as the case may be) to
pay and discharge, at maturity or upon redemption, the principal of, any
mandatory sinking fund payments or analogous payments applicable to Notes (and
premium, if any) and interest, if any, on such Outstanding Notes on the stated
date for payment thereof or on the applicable redemption date, as the case may
be;

 

(ii)        the conditions in
Subsections (2), (3) and (5) of Section 403 of the Indenture have been
satisfied;

 

(iii)       in the case of Legal
Defeasance, the Company has delivered to the Trustee an Opinion of Counsel
confirming that (A) the Company has received from, or there has been published
by, the Internal Revenue Service a ruling or (B) since the date of the
Indenture, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such Opinion of Counsel shall
confirm that, the Holders of the Notes will not recognize income, gain or loss
for Federal income tax purposes as a result of such Legal Defeasance and will
be subject to federal income tax on the same amounts and in the same manner and
at the same times, as would have been the case if such Legal Defeasance had not
occurred;

 

(iv)       in the case of Covenant
Defeasance, the Company has delivered to the Trustee an Opinion of Counsel
confirming that the Holders of the Notes will not recognize income, gain or
loss for Federal income tax purposes as a result of such Covenant Defeasance
and will be subject to federal income tax on the same amounts and in the same
manner and at the same times, as would have been the case if such Covenant
Defeasance had not occurred;

 

22

 

(v)        the Company has
delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel,
each stating that all conditions precedent provided for relating to the Legal
Defeasance or the Covenant Defeasance, as the case may be, have been complied
with;

 

(vi)       if such Notes are to be
redeemed prior to final maturity (other than from mandatory sinking fund
payments or analogous payments), notice of such redemption shall have been duly
given pursuant to the Indenture or provision therefor satisfactory to the
Trustee shall have been made; and

 

(vii)      if
such deposit is to be made with a trustee, other than the Trustee, pursuant to
subparagraph (i) above, such other trustee shall have delivered to the Trustee
a certificate satisfactory in form to the Trustee stating that such deposit has
been made in accordance with the provisions of Article Four of the Base
Indenture  and that such other
trustee agrees to comply with the provisions of Article Four of the Base
Indenture  and the last paragraph
of Section 1003 applicable to it, and the Trustee shall be fully protected in
relying upon such certificate.

 

In the event that any other trustee is appointed by the Company
pursuant to Subsection (i) above, the Trustee shall have no responsibility with
respect to the performance by such other trustee of its duties or with respect
to any monies or U.S. Government Obligations deposited with such other trustee.

 

Additionally, all references in the Indenture to Section 403 shall,
vis-à-vis the Notes, be deemed to include amounts set aside as provided herein
for a Legal Defeasance or a Covenant Defeasance.

 

ARTICLE NINE

 

MISCELLANEOUS

 

Section 9.01.    Form of Notes.

 

The Notes and the Trustee’s Certificates of Authentication to be
endorsed thereon are to be substantially in the form of Exhibit B, which
form is hereby incorporated in and made a part of this Supplemental Indenture.

 

The terms and provisions contained in the Notes shall constitute, and
are hereby expressly made, a part of this Supplemental Indenture, and the
Company and the Trustee, by their execution and delivery of this Supplemental
Indenture, expressly agree to such terms and provisions and to be bound
thereby.

 

Section 9.02.    Ratification of Base Indenture.

 

The Base Indenture, as supplemented by this Supplemental Indenture, is
in all respects ratified and confirmed, and this Supplemental Indenture shall
be deemed part of the Base Indenture in the manner and to the extent herein and
therein provided.

 

23

 

Section 9.03.    Trust Indenture Act Controls.

 

If any provision hereof limits, qualifies or conflicts with the duties
imposed by Section 310 through 317 of the Trust Indenture Act, the imposed
duties shall control.

 

Section 9.04.    Conflict with Indenture.

 

To the extent
not expressly amended or modified by this Supplemental Indenture, the Base
Indenture shall remain in full force and effect.  If any provision of this Supplemental Indenture
relating to the Notes is inconsistent with any provision of the Base Indenture,
the provision of this Supplemental Indenture shall control.

 

Section 9.05.    Governing Law.

 

THIS
SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK.  The
Company and each of the Subsidiary Guarantors submits to the jurisdiction of
the courts of the State of New York sitting in the Borough of Manhattan, City
of New York, and of the United States District Court for the Southern District
of New York, in any action or proceeding to enforce any of their obligations
under this Supplemental Indenture, and agrees not to seek a transfer of any
such action or proceeding on the basis of inconvenience of the forum or
otherwise (but neither the Company nor any of the Subsidiary Guarantors shall
be prevented from removing any such action or proceeding from a state court to
the United States District Court for the Southern District of New York).  The Company and each of the Subsidiary
Guarantors agree that process in any such action or proceeding may be served
upon it by registered mail or in any other manner permitted by the rules of the
court in which the action or proceeding is brought.

 

Section 9.06.    Successors.

 

All
agreements of the Company in the Base Indenture, this Supplemental Indenture
and the Notes shall bind its successors. 
All agreements of the Subsidiary Guarantors in this Supplemental
Indenture and in the Subsidiary Guarantee shall bind their successors.  All agreements of the Trustee in the Base
Indenture and this Supplemental Indenture shall bind its successors.

 

Section 9.07.    Counterparts.

 

This
instrument may be executed in any number of counterparts, each of which so
executed shall be deemed to be an original, but all such counterparts shall
together constitute but one and the same instrument.

 

Section 9.08.  Waiver of Jury Trial.

 

EACH
OF THE COMPANY AND THE TRUSTEE HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL
PROCEEDING ARISING OUT OF OR RELATING TO THIS SUPPLEMENTAL INDENTURE, THE NOTES
OR THE TRANSACTION CONTEMPLATED HEREBY.

 

24

 

Section 9.09. Force
Majeure.

 

In no event
shall the Trustee be responsible or liable for any failure or delay in the
performance of its obligations hereunder arising out of or caused by, directly
or indirectly, forces beyond its control, including, without limitation,
strikes, work stoppages, accidents, acts of war or terrorism, civil or military
disturbances, nuclear or natural catastrophes or acts of God, and
interruptions, loss or malfunctions of utilities, communications or computer
(software and hardware) services; it being understood that the Trustee shall
use reasonable efforts which are consistent with accepted practices in the
banking industry to resume performance as soon as practicable under the
circumstances.  In no event shall the
Trustee be responsible or liable for special, indirect, or consequential loss
or damage of any kind whatsoever (including, but not limited to, loss of
profit) irrespective of whether the Trustee has been advised of the likelihood
of such loss or damage and regardless of the form of action.

 

25

 

IN
WITNESS WHEREOF, the parties to this Supplemental Indenture
have caused it to be duly executed as of the day and year first above written.

 

 

	
   

  	
  THE RYLAND GROUP, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
       /s/
  Gordon A. Milne

  	
   

  
	
   

  	
   

  	
  Name: 

  	
  Gordon A. Milne

  
	
   

  	
   

  	
  Title:

  	
  Executive Vice
  President and

  
	
   

  	
   

  	
   

  	
  Chief Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  THE BANK OF NEW YORK
  MELLON

  TRUST COMPANY, N.A., as Trustee

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
       /s/
  Alex Briffett

  	
   

  
	
   

  	
   

  	
  Name:  John A. (Alex) Briffett

  
	
   

  	
   

  	
  Title:  Authorized Signatory

  
					

 

26

 

GUARANTORS:

 

MOORE’S ORCHARD, LLC (1)

RH BUILDERS OF INDIANA,
INC. (2)

RH INVESTMENT OF INDIANA,
INC. (2)

RH OF INDIANA, L.P. (3)

RH OF TEXAS LIMITED
PARTNERSHIP (4)

RH ORGANIZATION, INC. (2)

RYLAND COMMUNITIES, INC.
(2)

RYLAND GOLF COURSE AT THE
COLONY, INC. (2)

RYLAND HOMES
INVESTMENT-TEXAS, INC. (2)

RYLAND HOMES NEVADA, LLC
(5)

RYLAND HOMES OF TEXAS,
INC. (2)

RYLAND HOMES OF ARIZONA,
INC. (2)

RYLAND HOMES OF
CALIFORNIA, INC. (2)

RYLAND ORGANIZATION
COMPANY (2)

RYLAND VENTURES II, INC.
(2)

RYLAND VENTURES III, INC.
(2)

THE REGENCY ORGANIZATION,
INC. (2)

THE RYLAND CORPORATION
(2)

 

27

 

	
  (1)

  	
  By:

  	
  Ryland Ventures III, Inc.

  
	
   

  	
   

  	
  Its: General Manager

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
      /s/ Kimberly G. Nelson

  	
   

  
	
   

  	
   

  	
   

  	
  Name: Kimberly G.
  Nelson

  
	
   

  	
   

  	
   

  	
  Title: Treasurer

  
	
   

  	
   

  	
   

  	
   

  
	
  (2)

  	
  By:

  	
    /s/ Kimberly G. Nelson

  	
   

  	
   

  
	
   

  	
   

  	
  Name: Kimberly G.
  Nelson

  	
   

  	
   

  
	
   

  	
   

  	
  Title: Treasurer

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (3)

  	
  By:

  	
  RH Builders of Indiana,
  Inc.

  	
   

  	
   

  
	
   

  	
   

  	
  Its: General Partner

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
      /s/ Kimberly G. Nelson

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Name: Kimberly G.
  Nelson

  	
   

  
	
   

  	
   

  	
   

  	
  Title: Treasurer

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (4)

  	
  By:

  	
  Ryland Homes of Texas, Inc.

  	
   

  
	
   

  	
   

  	
  Its: General Partner

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
      /s/ Kimberly G. Nelson

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Name: Kimberly G.
  Nelson

  	
   

  
	
   

  	
   

  	
   

  	
  Title: Treasurer

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (5)

  	
  By:

  	
  The Ryland Group, Inc.

  	
   

  
	
   

  	
   

  	
  Its: Sole Member

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
      /s/ Kimberly G. Nelson

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Name: Kimberly G.
  Nelson

  	
   

  
	
   

  	
   

  	
   

  	
  Title: Treasurer

  	
   

  

 

28

 

EXHIBIT A

 

GUARANTEE

 

For value received, each of
the undersigned hereby fully and unconditionally guarantees, on a senior and
unsubordinated basis, as principal obligor and not only as a surety, to the
Holders of the 6.625% Senior Notes due
2020 (the “Notes”) issued pursuant to the indenture dated as of June 28,
1996 (the “Indenture”) by and between The Ryland Group, Inc. (the “Company”)
and The Bank of New York Mellon Trust Company, N.A. (as successor to JPMorgan
Chase Bank, N.A. f/k/a Chemical Bank), as trustee (the “Trustee”), as
supplemented by the Sixth Supplemental Indenture, dated as of April 29,
2010, among the Company, the Guarantors named therein and the Trustee, as
amended or supplemented (the “Supplemental Indenture”), cash payments in
United States Dollars of any amounts due with respect to the Notes in the
amounts and at the times when due and interest on all overdue amounts, if
lawful, and the payment or performance of all other obligations of the Company
under the Supplemental Indenture (as defined below), the Indenture or the
Notes, to the Holders of Notes and the Trustee, all in accordance with and
subject to the terms and limitations of the Notes, the Indenture, the
Supplemental Indenture and this Guarantee. 
This Guarantee will become effective in accordance with Article Six
of the Supplemental Indenture and its terms shall be evidenced therein.  The validity and enforceability of any
Guarantee shall not be affected by the fact that it is not affixed to any
particular Note.

 

Capitalized terms used but
not defined herein shall have the meanings ascribed to them in the Sixth
Supplemental Indenture or the Indenture, as the case may be.

 

The obligations of each of
the undersigned to the Holders of Notes and to the Trustee pursuant to this
Guarantee are expressly set forth in Article Six of the Supplemental
Indenture and reference is hereby made to the Supplemental Indenture for the
precise terms of the provisions of the Indenture to which this Guarantee
relates.

 

THIS GUARANTEE SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK.  Each of the Guarantors submit to
the jurisdiction of the courts of the State of New York sitting in the Borough
of Manhattan, City of New York, and of the United States District Court for the
Southern District of New York, in any action or proceeding to enforce any of
their obligations under this Guarantee, and agree not to seek a transfer of any
such action or proceeding on the basis of inconvenience of the forum or
otherwise (but the Guarantors shall not be prevented from removing any such
action or proceeding from a state court to the United States District Court for
the Southern District of New York).  Each
of the Guarantors agree that process in any such action or proceeding may be
served upon it by registered mail or in any other manner permitted by the rules of
the court in which the action or proceeding is brought.

 

This Guarantee is subject to
release upon the terms set forth in the Supplemental Indenture.

 

A-1

 

The undersigned acknowledges
that this Guarantee is subject to the Trust Indenture Act and the undersigned
agrees to discharge its duties under the Trust Indenture Act.

 

A-2

 

 

IN WITNESS WHEREOF, each
Guarantor has caused this Guarantee to be duly executed.

 

Dated:  April 29, 2010

 

GUARANTORS:

 

MOORE’S ORCHARD, LLC (1)

RH BUILDERS OF INDIANA, INC. (2)

RH INVESTMENT OF INDIANA, INC. (2)

RH OF INDIANA, L.P. (3)

RH OF TEXAS LIMITED PARTNERSHIP (4)

RH ORGANIZATION, INC. (2)

RYLAND COMMUNITIES, INC. (2)

RYLAND GOLF COURSE AT THE COLONY, INC. (2)

RYLAND HOMES INVESTMENT-TEXAS, INC. (2)

RYLAND HOMES NEVADA, LLC (5)

RYLAND HOMES OF TEXAS, INC. (2)

RYLAND HOMES OF ARIZONA, INC. (2)

RYLAND HOMES OF CALIFORNIA, INC. (2)

RYLAND ORGANIZATION COMPANY (2)

RYLAND VENTURES II, INC. (2)

RYLAND VENTURES III, INC. (2)

THE REGENCY ORGANIZATION, INC. (2)

THE RYLAND CORPORATION (2)

 

A-3

 

	
   

  	
  (1)

  	
  By:

  	
  Ryland
  Ventures III, Inc.

  
	
   

  	
   

  	
   

  	
  Its:
  General Manager

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Name:
  Kimberly G. Nelson

  
	
   

  	
   

  	
   

  	
   

  	
  Title:
  Treasurer

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (2)

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
  Name:
  Kimberly G. Nelson

  
	
   

  	
   

  	
   

  	
  Title:
  Treasurer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (3)

  	
  By:

  	
  RH
  Builders of Indiana, Inc.

  
	
   

  	
   

  	
   

  	
  Its:
  General Partner

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Name:
  Kimberly G. Nelson

  
	
   

  	
   

  	
   

  	
   

  	
  Title:
  Treasurer

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (4)

  	
  By:

  	
  Ryland
  Homes of Texas, Inc.

  
	
   

  	
   

  	
   

  	
  Its:
  General Partner

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Name:
  Kimberly G. Nelson

  
	
   

  	
   

  	
   

  	
   

  	
  Title:
  Treasurer

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (5)

  	
  By:

  	
  The
  Ryland Group, Inc.

  
	
   

  	
   

  	
   

  	
  Its:
  Sole Member

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Name:
  Kimberly G. Nelson

  
	
   

  	
   

  	
   

  	
   

  	
  Title:
  Treasurer

  

 

A-4

 

EXHIBIT B

 

THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A
NOMINEE OF A DEPOSITARY.  THIS SECURITY
IS EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN
THE DEPOSITARY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
INDENTURE AND MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY
TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO ANOTHER
NOMINEE OF THE DEPOSITARY OR TO THE DEPOSITARY OR BY ANY SUCH NOMINEE TO A
SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITORY.

 

UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (“DTC”), TO THE COMPANY OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY SECURITY
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR 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 IN AS MUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

 

THE RYLAND GROUP, INC.

 

6.625%  Senior Notes due 2020

 

CUSIP 783764AP8

ISIN US783764AP81

 

	
  No. R-1

  	
   

  	
  $300,000,000

  

 

THE RYLAND GROUP, INC., a Maryland
corporation (herein called the “Company,” which term includes any successor
Person under the Indenture hereinafter referred to), for value received, hereby
promises to pay to Cede & Co., or registered assigns, the principal
sum of Three Hundred Million Dollars on May 1, 2020, at the office or
agency of the Company referred to below, and to pay interest thereon, accruing
from April 29, 2010, on November 1, 2010 and semi-annually thereafter
on May 1 and November 1 in each year, at the rate of 6.625% per annum until the principal
hereof is paid or made available for payment. 
The interest so payable, and punctually paid or duly provided for, on
any Interest Payment Date will, as provided in such Indenture, be paid to the
Person in whose name this Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such
interest, which shall be April 15 or October 15 (whether or not a
Business Day), as the case may be, next preceding such Interest Payment
Date.  Any such interest not so
punctually paid or duly provided for will forthwith cease to be payable to the
Holder on such Regular Record Date and may either be paid to the Person in
whose name this Security (or one or more Predecessor Securities) is registered
at the close of business on a Special Record Date for the payment of such
Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to
Holders of the Securities of this series not less than 10 days prior to such
Special Record Date, or be paid at any time in any other lawful manner not
inconsistent with the requirements of any securities exchange on which the
Securities of this series may be listed, and upon such notice as may be
required by such exchange, all as more fully provided in said Indenture.

 

B-1

 

Payment of the principal of, and interest on,
this Security will be made at the office appointed by the Company in such coin
or currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts; provided, however, that at the
option of the Company payment of interest may be made (i) by check mailed
to the address of the Person entitled thereto as such address shall appear in
the Security Register or (ii) by wire transfer to an account maintained by
the Person entitled thereto.

 

Reference is hereby made to the further
provisions of this Security set forth on the reverse hereof, which further
provisions shall for all purposes have the same effect as if set forth at this
place.

 

Unless the certificate of authentication
hereon has been executed by the Trustee referred to on the reverse hereof by
manual signature, this Security shall not be entitled to any benefit under the
Indenture or be valid or obligatory for any purpose.

 

B-2

 

IN WITNESS WHEREOF, the Company has caused
this instrument to be duly executed under its corporate seal.

 

	
  Dated:  April 29, 2010

  	
  THE
  RYLAND GROUP, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Gordon
  A Milne

  
	
   

  	
   

  	
  Executive
  Vice President and Chief Financial Officer

  
	
   

  	
   

  	
   

  

Attest:

 

 

	
   

  	
   

  
	
  Timothy J. Geckle

  
	
  Secretary

  

 

TRUSTEE’S CERTIFICATE OF
AUTHENTICATION

 

This is one of the
Securities of the series designated therein referred to in the within-mentioned
Indenture.

 

The Bank of New York Mellon Trust Company,
N.A. (as successor to JPMorgan Chase Bank, N.A. f/k/a as Chemical Bank), as
Trustee

 

	
  By:      

  	
   

  	
   

  
	
   

  	
  Authorized Officer

  	
   

  

 

B-3

 

REVERSE OF SECURITY

 

This Security is one of a
duly authorized issue of securities of the Company (herein called the “Securities”),
issued and to be issued in one or more series under an Indenture, dated as of June 28,
1996 (herein called the “Indenture”), between the Company and The Bank of New
York Mellon Trust Company, N.A. (as successor to JPMorgan Chase Bank, N.A.
f/k/a as Chemical Bank), as Trustee, herein called the “Trustee” (which term
includes any successor trustee under the Indenture), to which Indenture and all
indentures supplemental thereto reference is hereby made for a statement of the
respective rights, limitations of rights, obligations, duties and immunities
thereunder of the Company, the Trustee and the Holders of the Securities and of
the terms upon which the Securities are, and are to be, authenticated and
delivered.  The terms of this Security
include the covenants and terms established by the Sixth Supplemental
Indenture, dated as of April 29, 2010, among the Company, the Guarantors named
therein and the Trustee, pursuant to the authority granted under the Indenture
(such terms and covenants shall be referred to herein collectively with the
terms and covenants set out in the Indenture that are applicable to the
Securities of this series as the “Indenture Terms”).  Defined terms used herein that are not
otherwise defined shall have the meanings given such terms in the Indenture
Terms.  This Security is one of the
series designated on the face hereof, in an aggregate principal amount of 300,000,000.  The Company may subsequently issue additional
securities as part of this series of Securities under the Indenture.

 

The Company may, at its
option, redeem the Securities in whole at any time or in part from time to
time, on at least 30 but not more than 60 days’ prior notice, at a Redemption
Price equal to the greater of (A) 100% of the principal amount of the
Securities being redeemed and (B) the sum of the present values of the
Remaining Scheduled Payments (as defined below) on the Securities being
redeemed, discounted to the Redemption Date, on a semiannual basis, at the
Treasury Rate (as defined below) plus 50 basis points (0.50%).

 

The Company will also pay
accrued interest on the Securities being redeemed to the Redemption Date.  In determining the Redemption Price and
accrued interest, interest will be calculated on the basis of a 360-day year
consisting of twelve 30-day months.

 

If money sufficient to pay
the Redemption Price of and accrued interest on the Securities to be redeemed
is deposited with the Trustee on or before the Redemption Date, on and after
the Redemption Date interest will cease to accrue on the Securities (or such
portions thereof) called for redemption and such Securities will cease to be
Outstanding.

 

“Comparable Treasury Issue” means the United States Treasury
security selected by the Reference Treasury Dealer as having a maturity
comparable to the remaining term of the Securities to be redeemed that would be
utilized, at the time of selection and in accordance with customary financial
practice, in pricing new issues of corporate debt securities of comparable
maturity to the remaining term of the Securities.

 

“Comparable Treasury Price” means, with respect to any
Redemption Date, (1) the average of the Reference Treasury Dealer
Quotations for such Redemption Date, after excluding the highest and lowest
Reference Treasury Dealer Quotations, or (2) if fewer than four such
Reference Treasury Dealer Quotations are provided to the Trustee, the average
of all such quotations.

 

“Reference Treasury Dealer” means J.P. Morgan Securities Inc.
and its successors; provided, however, that, if the foregoing ceases to be a
primary U.S. Government securities dealer in the United States (a “Primary
Treasury Dealer”), the Company will substitute another Primary Treasury
Dealer.

 

B-4

 

“Reference Treasury Dealer Quotations” means, with respect to
the Reference Treasury Dealer and any Redemption Date, the average, as
determined by the Trustee, of the bid and asked prices for the Comparable
Treasury Issue (expressed in each case as a percentage of its principal amount)
quoted in writing to the Trustee by the Reference Treasury Dealer at 5:00 p.m.,
New York City time, on the third Business Day preceding such Redemption Date.

 

“Remaining Scheduled Payments” means, with respect to any
Security, the remaining scheduled payments of the principal (or of the portion)
thereof to be redeemed and interest thereon that would be due after the related
Redemption Date but for such redemption; provided,
however, that, if such Redemption Date is not an Interest Payment
Date with respect to such Security, the amount of the next succeeding scheduled
interest payment thereon will be reduced by the amount of interest accrued
thereon to such Redemption Date.

 

“Treasury Rate” means, with respect to any Redemption Date,
the rate per annum equal to the semiannual equivalent yield to maturity of the
Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue
(expressed as a percentage of its principal amount) equal to the Comparable
Treasury Price for such Redemption Date.

 

The Indenture Terms contain
provisions for defeasance at any time of the entire Indebtedness of this
Security upon compliance with certain conditions set forth therein.

 

Upon a Change of Control
Triggering Event, and subject to certain conditions set forth in the Indenture
Terms, the Company will be required to offer to purchase all of the outstanding
Securities at a purchase price equal to 101% of the principal amount thereof,
plus any accrued and unpaid interest to, but not including, the date of
repurchase.

 

The following constitute
Events of Default:  default for a period
of 30 days in payment of any interest on any Security when due; default in
payment of principal of, or premium, if any, on, any Security when due; default
in performance of any other covenant in the Indenture with respect to the
Securities or in the Securities which continues for 60 days after written
notice to the Company by the Trustee or by the Holders of at least 25% in
principal amount of the Securities of this series; the occurrence of any event
that results in the acceleration of any of the Company or its Restricted
Subsidiaries’ Indebtedness, other than Non-Recourse Indebtedness, of the
Company or any of its Restricted Subsidiaries, that has an Outstanding
principal amount of $10,000,000 or more in the aggregate; default in the
payment of any principal or interest in respect of any Indebtedness of the
Company or its Restricted Subsidiaries, other than Non-Recourse Indebtedness,
that has an Outstanding principal amount of $20,000,000 or more and the
continuation of such default for ten Business Days from the date such principal
or interest payment became due and payable, after giving effect to any
applicable grace period set forth in the documents governing such Indebtedness;
and certain events of bankruptcy, insolvency or reorganization as provided in
the Indenture Terms.  If any Event of
Default occurs and is continuing, the Trustee or the Holders of at least 25% in
principal amount of the Outstanding Securities of this series may declare the
principal of all of the Securities of this series to be due and payable
immediately.  Holders of Securities may
not enforce the Indenture or the Securities except as provided in the
Indenture.  The Trustee may require
indemnity satisfactory to it before it enforces the Indenture or the
Securities.  Subject to certain
limitations, Holders of a majority in principal amount of the Securities of
this series may direct the Trustee in its exercise of any trust or power
conferred upon the Trustee with respect to such Securities.  The Trustee may withhold from Holders of the
Securities of this series notice of any continuing default (except a default in
payment of principal or interest) if it determines that withholding notice is
in their interests.  The Company must
furnish an annual compliance certificate to the Trustee.

 

B-5

 

The Indenture permits, with
certain exceptions as therein provided, the amendment thereof and the
modification of the rights and obligations of the Company and the rights of the
Holders of the Securities of each series to be affected under the Indenture at
any time by the Company and the Trustee with the consent of the Holders of a
majority in principal amount of the Securities at the time Outstanding of each
series to be affected.  Without the
consent of any Holder of Securities, the Indenture or the Securities may be
amended to cure any ambiguity, omission, defect or inconsistency or to make any
change that does not adversely affect the rights of any Holder of Securities in
any material respect.  The Indenture also
contains provisions permitting the Holders of specified percentages in
principal amount of the Securities of each series at the time Outstanding, on
behalf of the Holders of all Securities of such series, to waive compliance by
the Company with certain provisions of the Indenture and certain past defaults
under the Indenture and their consequences. 
Any such consent or waiver by the Holders of this Security shall be
conclusive and binding upon such Holder and upon all future Holders of this
Security and of any Security issued upon the registration of transfer hereof or
in exchange or in lieu hereof, whether or not notation of such consent or
waiver is made upon this Security.

 

No reference herein to the
Indenture Terms and no provision of this Security or of the Indenture shall
alter or impair the obligation of the Company, which is absolute and
unconditional, to pay the principal of and any premium and interest on this
Security at the times, places and rates, and in the coin or currency, herein
prescribed.

 

As provided in the Indenture
Terms and subject to certain limitations therein set forth, the transfer of
this Security is registrable in the Security Register, upon surrender of this
Security for registration of transfer at the office or agency appointed by the
Company in any place where the principal of and any premium and interest on
this Security are payable, duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Company and the Security
Registrar duly executed by, the Holder thereof or his attorney duly authorized
in writing, and thereupon one or more new Securities of this series and of like
tenor, of authorized denominations and for the same aggregate principal amount,
will be issued to the designated transferee or transferees.

 

The Securities of this
series are issuable only in registered form without coupons in denominations of
$2,000.00 and integral multiples of $1,000.00 in excess of $2,000.00.  As provided in the Indenture Terms and
subject to certain limitations set forth therein, Securities of this series are
exchangeable for a like aggregate principal amount of Securities of this series
and of like tenor of a different authorized denomination, as requested by the
Holder surrendering the same.

 

No service charge shall be
made for any such registration of transfer or exchange, but the Company may
require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith.

 

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 Terms or
for any claim based on, in respect of or by reason of such obligations or their
creation.  Each Holder of Securities of
this series by accepting a Security waives and releases all such
liability.  The waiver and release are
part of the consideration for the issuance of the Securities of this series.

 

Prior to due presentment of
this Security for registration of transfer, the Company, the Trustee and any
agent of the Company or the Trustee may treat the Person in whose name this
Security is registered as the owner hereof for all purposes, whether or not
this Security is overdue, and neither the Company, the Trustee nor any such
agent shall be affected by notice to the contrary.

 

B-6

 

No recourse shall be had for
the payment of the principal of (and premium, if any) or interest on this
Security, or for any claim based hereon, or otherwise in respect hereof, or
based on or in respect of the Indenture Terms or any indenture supplemental
thereto, against any incorporator, stockholder, officer or director, as such,
past, present or future, of the Company or of any successor corporation,
whether by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise, all such liability
being, by the acceptance hereof and as part of the consideration for the issue
hereof, expressly waived and released.

 

The Bank of New York Mellon
Trust Company, N.A. (as successor to JPMorgan Chase Bank, N.A.), the Trustee
under the Indenture, or any banking institution serving as successor Trustee
thereunder, 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.

 

The Company will furnish to
any Holder of the Securities of this series upon written request and without
charge a copy of the Indenture.  Requests
may be made to: The Ryland Group, Inc., 24025 Park Sorrento, Suite 400,
Calabasas, California 91302, Attention: Treasurer.

 

B-7exhibit10-1.htm

  

 

Exhibit 10.1   

 

AETNA INC.

2000 STOCK INCENTIVE PLAN

MARKET STOCK UNIT TERMS OF AWARD

Pursuant to its 2000 Stock Incentive Plan (the "Plan"), Aetna Inc. (the "Company") hereby grants Market Stock Units on the terms and conditions hereinafter set forth.  The number of Market Stock Units awarded is included in the website of the designated broker, currently UBS Financial Services, Inc., and in the Notice of the Market Stock Unit Grant Acknowledgement and Acceptance Form.  All capitalized terms used herein which are not otherwise defined herein shall have the meaning specified in the Plan.

ARTICLE I

DEFINITIONS

	
(a)

	
“Affiliate" means an entity at least a majority of the total voting power of the then-outstanding voting securities of which is held, directly or indirectly, by the Company and/or one or more other Affiliates.

	
(b)

	
    "Board" means the Board of Directors of Aetna Inc.

(c)         "Change in Control" means the happening of any of the following:

	
(i)  

	
When any "person" as defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and as used in Sections 13(d) and 14(d) thereof, including a "group" as defined in Section 13(d) of the Exchange Act but excluding the Company and any Subsidiary thereof and any employee benefit plan sponsored or maintained by the Company or any Subsidiary (including any trustee of such plan acting as trustee), directly or indirectly, becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act, as amended from time to time), of securities of the Company representing 20 percent or more of the combined voting power of the Company's then outstanding securities;

	
(ii)  

	
When, during any period of 24 consecutive months, the individuals who, at the beginning of such period, constitute the Board (the "Incumbent Directors") cease for any reason other than death to constitute at least a majority thereof, provided that a director who was not a director at the beginning of such 24-month period shall be deemed to have satisfied such 24-month requirement (and be an Incumbent Director) if such director was elected by, or on the recommendation of or with the approval of, at least two-thirds of the directors who then qualified as Incumbent Directors either actually (because they were directors at the beginning of such 24-month period) or by prior operation of this paragraph (ii); or

	
  

	
      (iii)

	
The occurrence of a transaction requiring stockholder approval for the acquisition of the Company by an entity other than the Company or a Subsidiary through purchase of assets, or by merger, or otherwise.

	
  

	 

	
  

	
Notwithstanding the foregoing, in no event shall a “Change in Control” be deemed to have occurred (i) as a result of the formation of a Holding Company, or (ii) with respect to Grantee, if Grantee is part of a “group,” within the meaning of Section 13(d)(3) of the Exchange Act as 

 

 

 

  

1

  

 

 

	
 

	
in effect on the effective date, which consummates the Change in Control transaction.  In addition, for purposes of the definition of “Change in Control” a person engaged in business as an underwriter of securities shall not be deemed to be the “Beneficial Owner” of, or to “beneficially own,” any securities acquired through such person’s participation in good faith in a firm commitment underwriting until the expiration of forty days after the date of such acquisition.

 

	
(d)

	
"Committee" means the Board's Committee on Compensation and Organization or any successor thereto.

	
(e)

	
"Common Stock" means the Company's Common Shares, $.01 par value per share.

	
(f)

	
"Company" means Aetna Inc.

	
(g)

	
"Effective Date" means the date of grant of this award of Market Stock Units.

	
(h)

	
“Fair Market Value" means the closing price of the Common Stock as reported by the Consolidated Tape of the New York Stock Exchange Listed Shares on the date such value is to be determined, or, if no shares were traded on such date, on the next day on which the Common Stock is traded.

	
(i)

	
“Fundamental Corporate Event” shall mean any stock dividend, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination, exchange of shares, warrants or rights offering to purchase Common Stock at a price substantially below fair market value, or similar event.

	
(j)

	
"Grantee" means the person to whom this award has been granted.

	
(k)

	
“Holding Company” means an entity that becomes a holding company for the Company or its businesses as a part of any reorganization, merger, consolidation or other transaction, provided that the outstanding shares of common stock of such entity and the combined voting power of the then outstanding voting securities of such entity entitled to vote generally in the election of directors is, immediately after such reorganization, merger, consolidation or other transaction, beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the voting stock outstanding immediately prior to such reorganization, merger, consolidation or other transaction in substantially the same proportions as their ownership, immediately prior to such reorganization, merger, consolidation or other transaction, of such outstanding voting stock.

	
(l)

	
"Long Term Disability" means long-term disability as defined under the terms of the Company's applicable long-term disability plans or policies.

	
(m)

	
“Net Shares” means the number of shares of Common Stock which will be deposited in a brokerage account in the Grantee’s name at the Company’s designated broker after shares have been withheld to satisfy applicable tax and withholding requirements upon vesting of the Market Stock Units.

 

 

  

2

  

 

 

	
(n)

	
“Performance Period” means the two-year period following the Effective Date.

	
(o)

	
“Market Stock Units” means the number of units awarded that will convert to a number of shares of Common Stock based on the operation of Article II of this Agreement, or such other amount as may result by operation of Article III of this Agreement.

	
(p)

	
“Plan” means the Aetna Inc. 2000 Stock Incentive Plan.

	
(q)

	
"Retirement" means the termination of employment of a Grantee from active service with the Company, a Subsidiary or Affiliate provided the Grantee’s age and completed years of service total 65 or more points at termination of employment.

	
(r)

	
“Section 162(m)” means Section 162(m) of the Internal Revenue Code of 1986, as amended, and the regulation issued thereunder, as may be amended from time to time.

	
(s)

	
“Section 409A” means Section 409A of the Internal Revenue Code of 1986, as amended, and the regulation issued thereunder, as may be amended from time to time.

	
(t)

	
“Shares of Stock” or “Stock” means the Common Stock.

	
(u)

	
"Subsidiary" means an entity of which, at the time such subsidiary status is to be determined, at least 50% of the total combined voting power of all classes of stock of such entity is held by the Company and/or one or more other subsidiaries.

	
(v)

	
"Successor" means the legal representative of the estate of a deceased Grantee or the person or persons who shall acquire the right to the Market Stock Units by bequest or inheritance or by reason of the death of the Grantee.

	
(w)

	
“Vest Date” means the date on which this award of Market Stock Units shall vest in accordance with the terms of this Agreement and in the Notice of Market Stock Unit Grant.

	
(x)

	
“Vest Date Fair Market Value” means the average closing price of the Common Stock as reported by the Consolidated Tape of the New York Stock Exchange Listed Shares for the 29 trading days prior to the Vest Date and the Vest Date, or, if no shares were traded on such Vest Date, for the 30 trading days prior to the Vest Date.

 

 

ARTICLE II

PERFORMANCE PERIOD & AWARD CONVERSION

Subject to the terms of this Agreement, the Market Stock Units will vest, as of the Vest Date, in accordance with the terms of the Plan and this Terms of Award Agreement, or on such earlier date as provided in Article IV.   On the Vest Date the Grantee shall vest in a number of shares of Common Stock for each vested Market Stock Unit based on the formula below, net of applicable taxes and withholding.  Such Net Shares will be delivered to the Company’s designated broker, in a brokerage account established in the Grantee’s name after the Vest Date.  To the extent Section 162(m) is applicable to a Grantee, for shares to vest the Committee must also determine that the performance goal set forth on Exhibit A is met.  If the Committee determines that the performance goal is not met at the minimum level, as applicable, no shares will vest.

 

 

 

  

3

  

 

The number of shares of Common Stock that each Market Stock Unit will convert and be awarded to you on the Vest Date, net of applicable taxes, shall be determined in accordance with the following formula:

(Number of Market Stock Units granted)

Multiplied by

((the Vest Date Fair Market Value) divided by (the Grant Date Fair Market Value))

Up to a maximum of 1.5 shares of Common Stock per Market Stock Unit.

Any social security calculation or other adjustments discovered after the payment of Net Shares will be settled in cash, not in Common Stock.

 

 

ARTICLE III

CAPITAL CHANGES

In the event that the Committee shall determine that any Fundamental Corporate Event affects the Common Stock such that an adjustment is required to preserve, or to prevent enlargement of, the benefits or potential benefits made available under this Plan, then the Committee shall, in such manner as the Committee may deem equitable, adjust the number and kind of shares subject to the award of Market Stock Units.  Additionally, the Committee may make provision for cash payment to a Grantee or the Successor of the Grantee to the extent permitted under Section 409A.  However, the number of Market Stock Units shall always be a whole number.

 

 

ARTICLE IV

CHANGE IN CONTROL

Notwithstanding any other provision of this Agreement to the contrary, upon the occurrence of a Change in Control, the Market Stock Units not previously forfeited pursuant to this Terms of Award Agreement shall become immediately vested and convert to a number of shares of Common Stock based on the formula in Article II but such formula shall use the Fair Market Value on the date on which the Change in Control occurs rather than the Vest Date Fair Market Value.  Net Shares will be payable on the Vest Date, provided however, if within the 24 month period following the Change in Control the Company terminates Grantee’s employment without cause, the Net Shares will become payable as of such termination of employment date.  If an award is considered deferred compensation subject to Section 409A, the award will vest but the Change in Control will not accelerate the payment of the Market Stock Units unless the Change in Control also meets the definition of change in control set forth in Treasury Regulation Section 1.409A-3(i)(5).

 

  

4

 

 

 

ARTICLE V

TERMINATION OF EMPLOYMENT

 

(a)  Except a provided in (c) below, if, during the Performance Period, Grantee shall cease to be employed by the Company, its Subsidiaries or Affiliates, for reason of death, Long-term Disability, Retirement or involuntary termination of employment by the Company, the portion of the Market Stock Units that may vest on the Vest Date, if any, shall be calculated in accordance with the following formula:  (i) the number of completed months employed commencing on the first day of the Performance Period divided by the number of months in the Performance Period; multiplied by (ii) the number of Market Stock Units that otherwise would have vested under the term of this Agreement had the Grantee remained actively employed through the Vest Date.

 

(b)     Except as provided in (a) above, any Market Stock Unit not vested as of the date Grantee terminates employment shall be forfeited at the time of cessation of employment; provided, however, that if Grantee's employment is terminated by the Company other than for cause and Grantee has not previously, or does not subsequently, vest to any portion of the Market Stock Unit in accordance with its terms, then upon the forfeiture of the entire Market Stock Unit, the Company will pay Grantee an amount equal to the value of a single share of Common Stock, whether or not the forfeited Market Stock Unit related to more than a single share of Common Stock, calculated as of the cessation of employment, if requested by Grantee, within 30 days of such cessation of employment.

 

(c)     No Market Stock Unit will vest after the Company has terminated the employment of the Grantee for cause, unless the Committee, in its sole discretion, deems a payment to be warranted under the particular circumstances. In addition, the Market Stock Units will not vest if Grantee has willfully engaged in gross misconduct or other serious impropriety which the Company determines is likely to be damaging or detrimental to the Company, any Subsidiary or Affiliate.

 

(d)     Employment for purposes of determining the vesting rights of the Grantee and the expiration of the grant under this Article V shall mean continuous active full-time salaried employment with the Company, a Subsidiary or an Affiliate, except that the period during which the Grantee is on vacation, sick leave, or other pre-approved leave of absence (provided there is no actual termination of employment), shall not interrupt the continuous employment of the Grantee.  Employment shall also include service with Aetna Foundation, Inc.  Notwithstanding any period during which Grantee receives salary continuation or severance shall not be considered as part of the continuous employment of the Grantee.

 

 

ARTICLE VI

EMPLOYEE COVENANTS

	
 (a)

	
As consideration for this grant of Market Stock Units, without prior written consent of the Company:

	
  

	 	
(i)

	
Grantee will not (except to the extent required by an order of a court having competent jurisdiction or under subpoena from an appropriate government agency) use or disclose to any third person, whether during or subsequent to Grantee’s employment, any trade secrets, confidential information and proprietary materials, which may include, but are not limited to, the following categories of information and materials: customer lists and identities; provider lists and identities; employee lists and identities; product development and related information; marketing 

 

 

 

  

5

  

 

 

	 	 	
 

	
plans and related information; sales plans and related information; premium or other pricing information; operating policies and manuals; research; payment rates; methodologies; procedures; contractual forms; business plans; financial records; computer programs; database; or other financial, commercial, business or technical information related to the Company or any Subsidiary or Affiliate unless such information has been previously disclosed to the public by the Company or has become public knowledge other than by a breach of this Agreement; provided, however, that this limitation shall not apply to any such use or disclosure made while Grantee is employed by the Company, any Subsidiary or Affiliate if such disclosure occurred in connection with the performance of Grantee’s job as an employee of the Company, any Subsidiary or Affiliate;

 

	
  

	 	
(ii)

	
Grantee will not, during and for a period of 12 months or 24 months for executive tier employees (the executive tier status determined as of the effective date of this grant) following Grantee’s termination of Employment, directly or indirectly induce or attempt to induce any employee to be employed or perform services elsewhere;

	
  

	 

	
  

	 	
(iii)

	
Grantee will not, during and for a period of 12 months or 24 months for executive tier employees (the executive tier status determined as of the effective date of this grant) following Grantee's termination of Employment, directly or indirectly, induce or attempt to induce any agent or agency, broker, supplier or health care provider of the Company or any Subsidiary to cease or curtail providing services to the Company or any Subsidiary; and

	
  

	 	
(iv)

	
Grantee will not, during and for a period of 12 months or 24 months for executive tier employees (the executive tier status determined as of the effective date of this grant) following Grantee’s termination of Employment, directly or indirectly solicit or attempt to solicit the trade of any individual or entity which, at the time of such solicitation, is a customer of the Company, any Subsidiary or Affiliate, or which the Company, any Subsidiary or Affiliate is undertaking reasonable steps to procure as a customer at the time of or immediately preceding termination of Employment; provided, however, that this limitation shall only apply to any product or service which is in competition with a product or service of the Company, any Subsidiary or Affiliate and shall apply only with respect to a customer or prospective customer with whom the Grantee has been directly or indirectly involved.

	
  

	
In addition:

	 	
(v)    

	
Following the termination of Grantee’s Employment, Grantee shall provide assistance to and shall cooperate with the Company or a Subsidiary or Affiliate, upon its reasonable request and without additional compensation, with respect to matters within the scope of Grantee’s duties and responsibilities during Employment, provided that any reasonable out-of-pocket expenses Grantee incurs in connection with any assistance Grantee has been requested to provide under this provision for items including, but not limited to, transportation, meals, lodging and telephone, shall be reimbursed by the Company.  The Company agrees and acknowledges that it shall, to the maximum extent possible under the then prevailing circumstances, coordinate, or cause a Subsidiary or Affiliate to coordinate, any such request with Grantee’s other commitments and responsibilities to minimize the degree to which such request interferes with such commitments and responsibilities; and

	
  

	
 (vi)

	
Grantee shall promptly notify the Company’s General Counsel if Grantee is contacted by a regulatory or self-regulatory agency with respect to matters pertaining to the Company or by an 

 

 

  

6

  

 

 

	
  

	
 

	
attorney or other individual who informs the Grantee that he/she has filed, intends to file, or is considering filing a claim or complaint against the Company.

 

	
  

	
 (vii)

	
Grantee acknowledges that all original works of authorship that are created by Grantee (solely or jointly with others) within the scope of Grantee’s employment which are protectable by copyright are “works made for hire” as that term is defined in the United States Copyright Act (17 U.S.C., Section 101).  Grantee further acknowledges that while employed by the Company, Grantee may develop ideas, inventions, discoveries, innovations, procedures, methods, know-how or other works which relate to the Company’s current or are reasonably expected to relate to the Company’s future business that may be patentable or subject to trade secret protection.  Grantee agrees that all such works of authorship, ideas, inventions, discoveries, innovations, procedures, methods, know-how and other works shall belong exclusively to the Company, and the Grantee hereby assigns all right, title, and interest therein to the Company.

 

	
  

	
 

	
To the extent any of the foregoing works may be patentable, Grantee agrees that the Company may file and prosecute any application for patents for such works and that the Grantee will, on request, execute assignments to the Company relating to (and take all such further steps as may be reasonably necessary to perfect the Company’s sole and exclusive ownership of) any such application and any patents resulting therefrom.

 

	
(b)

	
If any provision of Article VI (a) is determined by a court of competent jurisdiction not to be enforceable in the manner set forth herein, the Company and Grantee agree that it is the intention of the parties that such provision should be enforceable to the maximum extent possible under applicable law and that such court shall reform such provision to make it enforceable in accordance with the intent of the parties.

	
(c)       

	
Grantee acknowledges that a material part of the inducement for the Company to grant the Market Stock Units is Grantee’s covenants set forth in Article VI (a) and that the covenants and obligations of Grantee with respect to nondisclosure, non-solicitation and cooperation relate to special, unique and extraordinary matters and that a violation of any of the terms of such covenants and obligations will cause the Company irreparable injury for which adequate remedies are not available at law.  Therefore, Grantee agrees that, if Grantee shall breach any of those covenants or obligations, Grantee shall not be entitled to vest in the Market Stock or be entitled to retain any income therefrom and the Company shall be entitled to an injunction, restraining order or such other equitable relief (without the requirement to post bond) restraining Grantee from committing any violation of the covenants and obligations contained in Article VI.  The remedies in the preceding sentence are cumulative and are in addition to any other rights and remedies the Company may have at law or in equity as a court or arbitrator shall reasonably determine.

	
(d) 

	
Employment Dispute Arbitration Program - Mandatory Binding Arbitration of Employment Disputes.

	
(i)    

	
Except as otherwise specified in this Agreement, the Grantee and the Company agree that all employment-related legal disputes between them will be submitted to and resolved by binding arbitration, and neither the Grantee nor the Company will file or participate as an individual party or member of a class in a lawsuit in any court against the other with respect to such matters.  This shall apply to claims brought on or after the date the Grantee accepts this Agreement, even if the facts and circumstances relating to the claim occurred prior to that date and regardless of whether the Grantee or the Company previously filed a complaint/charge with a government agency concerning the claim.

 

 

 

  

7

  

 

For purposes of Article VI (d) of this Agreement, “the Company” includes Aetna Inc., its Subsidiaries and Affiliates, their predecessors, successors and assigns, and those acting as representatives or agents of those entities.  THE GRANTEE UNDERSTANDS THAT, WITH RESPECT TO CLAIMS SUBJECT TO THE ARBITRATION REQUIREMENT, ARBITRATION REPLACES THE RIGHT OF THE GRANTEE AND THE COMPANY TO SUE OR PARTICIPATE IN A LAWSUIT.  THE GRANTEE ALSO UNDERSTANDS THAT IN ARBITRATION, A DISPUTE IS RESOLVED BY AN ARBITRATOR INSTEAD OF A JUDGE OR JURY, AND THE DECISION OF THE ARBITRATOR IS FINAL AND BINDING.

	
  

	
(ii)

	
THE GRANTEE UNDERSTANDS THAT THE ARBITRATION PROVISIONS OF THIS AGREEMENT AFFECT THE LEGAL RIGHTS OF THE GRANTEE AND THE COMPANY AND ACKNOWLEDGES THAT THE GRANTEE HAS BEEN ADVISED TO, AND HAS BEEN GIVEN THE OPPORTUNITY TO, OBTAIN LEGAL ADVICE BEFORE SIGNING THIS AGREEMENT.

	
  

	
(iii)

	
Article VI (d) of this Agreement does not apply to workers’ compensation claims, unemployment compensation claims, and claims under the Employee Retirement Income Security Act of 1974 (“ERISA”) for employee benefits.  A dispute as to whether Article VI (d) of this Agreement applies must be submitted to the binding arbitration process set forth in this Agreement.

	
  

	
(iv)

	
The Grantee and/or the Company may seek emergency or temporary injunctive relief from a court (including with respect to claims arising out of Article VI (a) in accordance with applicable law).  However, except as provided in Article VI (c) of this Agreement, after the court has issued a ruling concerning the emergency or temporary injunctive relief, the Grantee and the Company shall be required to submit the dispute to binding arbitration pursuant to this Agreement.

	
  

	
(v)

	
Unless otherwise agreed, the arbitration will be administered by the American Arbitration Association (the “AAA”) and will be conducted pursuant to the AAA’s Employment Arbitration Rules and Mediation Procedures (the “Rules”), as modified in this Agreement, in effect at the time the request for arbitration is filed.  The AAA’s Rules are available on the AAA’s website at www.adr.org. THE GRANTEE ACKNOWLEDGES THAT THE COMPANY HAS ENCOURAGED THE GRANTEE TO READ THESE RULES PROMPTLY AND CAREFULLY AND THAT THE GRANTEE HAS BEEN AFFORDED SUFFICIENT OPPORTUNITY TO DO SO.

	
  

	
(vi)

	
If the Company initiates a request for arbitration, the Company will pay all of the administrative fees and costs charged by the AAA, including the arbitrator’s compensation and charges for hearing room rentals, etc.  If the Grantee initiates a request for arbitration or submits a counterclaim to the Company’s request for arbitration, the Grantee shall be required to contribute One Hundred Dollars ($100.00) to those administrative fees and costs, payable to the AAA at the time the Grantee's request for arbitration or counterclaim is submitted.  The Company may increase the contribution amount in the future without amending this Agreement, but not to exceed the maximum permitted under the AAA rules then in effect. In all cases, the Grantee and the Company shall be responsible for payment of any fees assessed by the arbitrator as a result of that party’s delay, request for postponement, failure to comply with the arbitrator’s rulings and for other similar reasons.

 

 

 

  

8

  

 

	
  

	
(vii)

	
The Grantee and the Company may choose to be represented by legal counsel in the arbitration process and shall be responsible for their own legal fees, expenses and costs.  However, the arbitrator shall have the same authority as a court to order the Grantee or the Company to pay some or all of the other’s legal fees, expenses and costs, in accordance with applicable law.

	
  

	
(viii)

	
Unless otherwise agreed, there shall be a single arbitrator, selected by the Grantee and the Company from a list of qualified neutrals furnished by the AAA.  If the Grantee and the Company cannot agree on an arbitrator, one will be selected by the AAA.

	
  

	
(ix)

	
Unless otherwise agreed, the arbitration hearing will take place in the city where the Grantee works or last worked for the Company.  If the Grantee and the Company disagree as to the proper locale, the AAA will decide.

	
  

	
(x)

	
The Grantee and the Company shall be entitled to conduct limited pre-hearing discovery.  Each may take the deposition of one person and anyone designated by the other as an expert witness.  The party taking the deposition shall be responsible for all associated costs, such as the cost of a court reporter and the cost of an original transcript.  Each party also has the right to submit one set of ten written questions (including subparts) to the other party, which must be answered under oath, and to request and obtain all documents on which the other party relies in support of its answers to the written questions.  Additional discovery may be permitted by the arbitrator upon a showing that it is necessary for that party to have a fair opportunity to present a claim or defense.

	
  

	
(xi)

	
The arbitrator shall apply the same substantive law that would apply if the matter were heard by a court and shall have the authority to order the same remedies (but no others) as would be available in a court proceeding.  The time limits for requesting arbitration or submitting a counterclaim and the administrative prerequisites for filing an arbitration claim or counterclaim are the same as they would be in a court proceeding.  The arbitrator shall consider and decide any dispositive motions (motions seeking a decision on some or all of the claims or counterclaims without an arbitration hearing) filed by any party.

	
  

	
(xii)

	
All proceedings, including the arbitration hearing and decision, are private and confidential, unless otherwise required by law.  Arbitration decisions may not be published or publicized without the consent of both the Grantee and the Company.

	
  

	
(xiii)    Unless otherwise agreed, the arbitrator’s decision will be in writing with a brief summary of the arbitrator’s opinion.

	
  

	
(xiv)

	
The arbitrator’s decision is final and binding on the Grantee and the Company.  After the arbitrator’s decision is issued, the Grantee or the Company may obtain an order of judgment from a court and may obtain a court order enforcing the decision.  The arbitrator’s decision may be appealed to the courts only under the limited circumstances provided by law.

	
  

	
(xv)

	
If the Grantee previously signed an agreement, including but not limited to an employment agreement, containing arbitration provisions, those provisions are superseded by the arbitration provisions of this Agreement.

	
  

	
(xvi)

	
If any provision of Article VI (d) is found to be void or otherwise unenforceable, in whole or in part, this shall not affect the validity of the remainder of Article VI (d) and the remainder of the Agreement.  All other provisions shall remain in full force and effect.

 

  

9

  

 

For purposes of this Article VI, the term “Employment” shall refer to active employment with the Company, any Subsidiary or Affiliate, and shall not include salary continuation or severance periods.

ARTICLE VII

OTHER TERMS

	
(a)

	
Nothing in this Agreement shall interfere with or limit in any way the right of the Company or any Subsidiary or Affiliate to terminate the Grantee’s employment at any time.  Neither the execution and delivery hereof nor the granting of the Award shall constitute or be evidence of any agreement or understanding, express or implied, on the part of the Company or any of its Subsidiaries to employ or continue the employment of the Grantee for any period.

	
(b)

	
Until the Market Stock Units have become vested, Grantee shall not have any rights as a stockholder (including the right to payment of dividends) by virtue of this grant of Market Stock Units.

	
(c)

	
During the Performance Period, the Market Stock Units shall be nontransferable and non-assignable except by will or the laws of descent and distribution.

	
(d)

	
The award, when vested, will be settled on a net basis.  Prior to issuing any Common Shares, the Company will withhold an amount sufficient to satisfy federal, state, local, social security and Medicare withholding tax requirements relating to award.  Any social security calculation or other adjustments discovered after net share payment will be settled in cash, not in Shares of Common Stock.  Vesting will result in taxable compensation reportable on the Grantee’s W-2 in year of vesting.

	
(e)

	
The Company may from time to time adopt stock ownership requirements applicable to Grantees who are senior managers of the Company.  In connection with and for the purpose of implementing those ownership requirements, the Company may adopt certain restrictions on the ability of a Grantee to sell shares issued under this Agreement when such ownership requirements have not been satisfied.  Any such restriction on sale will be communicated generally to affected Grantees and the restriction may be modified by the Company from time to time, at its discretion.  Neither the Company nor its Board of Directors shall have any obligation or liability to a Grantee in connection with any such restriction.

	
(f)

	
This Market Stock Unit is an unfunded obligation of the Company and nothing in this Agreement shall be construed to create any claim against particular assets or require the Company to segregate or otherwise set aside any assets or create any fund to meet its obligations hereunder.

	
(g)

	
Anything herein to the contrary notwithstanding, a Grantee whose Market Stock Units have been forfeited as a result of termination of employment due to U.S. Military Service and who is later re-employed (in a full-time active status) after discharge within the time period set in 38 U.S.C. Section 4312 will be eligible to have the forfeited Market Stock Units reinstated as follows: (i) if such Grantee is re-employed during the Performance Period, all forfeited Market Stock Units shall be reinstated; or (ii) if such Grantee is re-employed after the Performance Period, a cash payment will be 

 

 

 

  

10

  

 

 

	
 

	made to the Grantee, minus applicable taxes, for the value of the forfeited Market Stock Units on the Vest Date pursuant to procedures established by the Company for this purpose.

 

	
(h)

	
It is the intention of the Company and Grantee that this Agreement not result in unfavorable tax consequences to Grantee under Section 409A and the Agreement shall be interpreted as to so comply.  Notwithstanding anything to the contrary herein, the Company and Grantee agree to the provisions set forth below in order to comply with the requirements of Section 409A.

	
  

	
(i)

	
If Grantee is a “specified employee” (within the meaning of Section 409A) with respect to the Company, any non-qualified deferred compensation otherwise payable to or in respect of Grantee in connection with Grantee’s termination of employment shall be delayed until the earliest date upon which such amounts may be paid without being subject to taxation under Section 409A.  Any amount, the payment or benefit of which is delayed by application of the preceding sentence, shall be paid as soon as possible following the expiration of such period.

	
  

	
(ii)

	
Unless deferred pursuant to this agreement, all payments shall be paid to Grantee, to the extent earned, in no event later than the last day of the “applicable 2 1⁄2 month period,” as such term is defined in Treasury Regulation Section 1.409A-1(b)(4)(i)(A) with respect to such payment’s treatment as a “short-term deferral” for purposes of Section 409A.

	
  

	
(iii)

	
The Company and Grantee agree to cooperate in good faith in an effort to comply with Section 409A.  Under no circumstances shall the Company be responsible for any taxes, penalties, interest or other losses or expenses incurred by the Grantee due to any failure to comply with Section 409A.

	
(i)

	
This Agreement is subject to the 2000 Stock Incentive Plan heretofore adopted by the Company and approved by its shareholders.  The terms and provisions of the Plan (including any subsequent amendments thereto) are hereby incorporated herein by reference.  In the event of a conflict between any term or provision contained herein and a term or provision of the Plan, the applicable terms and provisions of the Plan will govern and prevail.

(j)         At such times and upon such terms and conditions as the Company shall determine, the Company may permit eligible Grantees to elect to defer the distribution of an Award otherwise payable to the

      Grantee under this Agreement until termination of the Grantee’s Employment or such other date the Company shall permit.

 

 

 

  

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