Document:

<PAGE>

Exhibit 4.19

                           FORM OF GUARANTEE AGREEMENT

                               GUARANTEE AGREEMENT

                                     Between

                                D.R. HORTON, INC.

                                 (as Guarantor)

                                       and

                     AMERICAN STOCK TRANSFER & TRUST COMPANY

                                  (as Trustee)

                       Dated as of ________________, ____

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                               TABLE OF CONTENTS*

<TABLE>
<CAPTION>
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<S>                                                                                                                    <C>
ARTICLE I  DEFINITIONS..........................................................................................        1

                  Section 1.01.         Definitions.............................................................        1

ARTICLE II  TRUST INDENTURE ACT.................................................................................        3

                  Section 2.01.         Trust Indenture Act; Application........................................        3

                  Section 2.02.         Lists of Holders of Securities..........................................        4

                  Section 2.03.         Reports by the Trustee..................................................        4

                  Section 2.04.         Periodic Reports to Trustee.............................................        4

                  Section 2.05.         Evidence of Compliance with Conditions Precedent........................        5

                  Section 2.06.         Events of Default; Waiver...............................................        5

                  Section 2.07.         Event of Default; Notice................................................        5

                  Section 2.08.         Conflicting Interests...................................................        5

ARTICLE III  POWERS, DUTIES AND RIGHTS OF TRUSTEE...............................................................        6

                  Section 3.01.         Powers and Duties of the Trustee........................................        6

                  Section 3.02.         Certain Rights of Trustee...............................................        7

                  Section 3.03.         Compensation; Fees; Indemnity...........................................        8

ARTICLE IV  TRUSTEE.............................................................................................        9

                  Section 4.01.         Trustee; Eligibility....................................................        9

                  Section 4.02.         Appointment, Removal and Resignation of Trustee.........................        9

ARTICLE V  GUARANTEE............................................................................................       10

                  Section 5.01.         Guarantee...............................................................       10
</TABLE>

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*        This Table of Contents does not constitute part of the Indenture or
         have any bearing upon the interpretation of any of its terms and
         provisions.

<PAGE>

                                TABLE OF CONTENTS
                                   (CONTINUED)

<TABLE>
<CAPTION>
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<S>                                                                                                                   <C>
                  Section 5.02.         Waiver of Notice and Demand.............................................       10

                  Section 5.03.         Obligations Not Affected................................................       10

                  Section 5.04.         Rights of Holders.......................................................       11

                  Section 5.05.         Guarantee Of Payment....................................................       12

                  Section 5.06.         Subrogation.............................................................       12

                  Section 5.07.         Independent Obligations.................................................       12

ARTICLE VI  SUBORDINATION.......................................................................................       12

                  Section 6.01.         Subordination...........................................................       12

ARTICLE VII  TERMINATION........................................................................................       12

                  Section 7.01.         Termination.............................................................       12

ARTICLE VIII  MISCELLANEOUS.....................................................................................       13

                  Section 8.01.         Successors and Assigns..................................................       13

                  Section 8.02.         Amendments..............................................................       13

                  Section 8.03.         Notices.................................................................       13

                  Section 8.04.         Benefit.................................................................       14

                  Section 8.05.         Interpretation..........................................................       14

                  Section 8.06.         Governing Law...........................................................       15
</TABLE>

                                       ii

<PAGE>

                                TABLE OF CONTENTS
                                   (CONTINUED)

                             CROSS-REFERENCE TABLE*

<TABLE>
<CAPTION>
                                                                                                     Page
                                                                                              --------------------
Section of Trust Indenture Act of                                                             Section of Guarantee
         1939, as amended                                                                          Agreement
<S>                                                                                           <C>
310(a).....................................................................................        4.01(a)
310(b).....................................................................................        4.01(c), 2.08
310(c).....................................................................................        Inapplicable
311(a).....................................................................................        2.02(b)
311(b).....................................................................................        2.02(b)
311(c).....................................................................................        Inapplicable
312(a).....................................................................................        2.02(a)
312(b).....................................................................................        2.02(b)
313........................................................................................        2.03
314(a).....................................................................................        2.04
314(b).....................................................................................        Inapplicable
314(c).....................................................................................        2.05
314(d).....................................................................................        Inapplicable
314(e).....................................................................................        1.01, 2.05, 3.02
314(f).....................................................................................        2.01, 3.02
315(a).....................................................................................        3.01(d)
315(b).....................................................................................        2.07
315(c).....................................................................................        3.01
315(d).....................................................................................        3.01(d)
315(e).....................................................................................        Inapplicable
316(a).....................................................................................        5.04(i), 2.06
316(b).....................................................................................        5.03
316(c).....................................................................................        2.02
317(a).....................................................................................        Inapplicable
317(b).....................................................................................        Inapplicable
318(a).....................................................................................        2.01(b)
</TABLE>

-----------------

*        This Cross-Reference Table does not constitute part of the Guarantee
         Agreement and shall not affect the interpretation of any of its terms
         and provisions.

                                      iii

<PAGE>

                                TABLE OF CONTENTS
                                   (CONTINUED)

<TABLE>
<CAPTION>
                                                                                                    Page
                                                                                                   ------
<S>                                                                                                <C>
318(b).....................................................................................        2.01
318(c).....................................................................................        2.01(a)
</TABLE>

                                       iv
<PAGE>

                               GUARANTEE AGREEMENT

         This GUARANTEE AGREEMENT ("Guarantee Agreement"), dated as of
_________, ____ is executed and delivered by D.R. HORTON, INC., a Delaware
corporation (the "Guarantor"), and American Stock Transfer & Trust Company, a
New York corporation, as trustee (the "Trustee"), for the benefit of the Holders
(as defined herein) from time to time of the Trust Preferred Securities (as
defined herein) of DRH CAPITAL TRUST III, a Delaware statutory business trust
(the "Trust ").

         WHEREAS, pursuant to an Amended and Restated Trust Agreement (the
"Trust Agreement"), dated as of _______________, ____, among the Trustee, the
other Trustees named therein, and D.R. Horton, Inc., as Depositor, the Trust is
issuing as of the date hereof $___________ aggregate liquidation amount of its
_____% Trust Preferred Securities (the "Trust Preferred Securities")
representing preferred undivided beneficial interests in the assets of the Trust
and having the terms set forth in the Trust Agreement;

         WHEREAS, the Trust Preferred Securities will be issued by the Trust and
the proceeds thereof will be used to purchase Subordinated Debentures (as
defined in the Trust Agreement) of the Guarantor, which will be held by the
Trust as trust assets; and

         WHEREAS, as incentive for the Holders to purchase the Trust Preferred
Securities, the Guarantor desires to irrevocably and unconditionally agree, to
the extent set forth herein, to pay to the Holders the Guarantee Payments (as
defined herein) and to make certain other payments on the terms and conditions
set forth herein.

         NOW, THEREFORE, in consideration of the payment for Trust Preferred
Securities by each Holder thereof, which payment the Guarantor hereby agrees
shall benefit the Guarantor, the Guarantor executes and delivers this Guarantee
Agreement for the benefit of the Holders from time to time of the Trust
Preferred Securities.

                                    ARTICLE I

                                   DEFINITIONS

SECTION 1.01. DEFINITIONS.

         As used in this Guarantee Agreement, the terms set forth below shall,
unless the context otherwise requires, have the following meanings. Capitalized
or otherwise defined terms used but not otherwise defined herein shall have the
meanings assigned to such terms in the Trust Agreement as in effect on the date
hereof.

         "Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.

<PAGE>

         "Event of Default" means a failure by the Guarantor to perform any of
its payment obligations under this Guarantee Agreement.

         "Guarantee Payments" shall mean the following payments or
distributions, without duplication, with respect to the Trust Preferred
Securities, to the extent not paid or made by or on behalf of the Trust: (i) any
accrued and unpaid distributions that are required to be paid on such Trust
Preferred Securities but if and only if and to the extent the Trust has funds
legally and immediately available therefor to make such payment; (ii) the
redemption price, including all accrued and unpaid distributions to the date of
redemption (the "Redemption Price"), with respect to the Trust Preferred
Securities called for redemption by the Trust but if and only if and to the
extent that the Trust has funds legally and immediately available therefor
sufficient to make such payment; and (iii) upon a voluntary or involuntary
dissolution, winding-up or termination of the Trust (other than in connection
with the distribution of Subordinated Debentures to the holders of Trust
Securities or the redemption of all of the Trust Preferred Securities), the
lesser of (a) the aggregate of the liquidation amount and all accrued and unpaid
distributions on the Trust Preferred Securities to the date of payment, to the
extent the Trust has funds legally and immediately available therefor, and (b)
the amount of assets of the Trust remaining available for distribution to
Holders in liquidation of the Trust (in either case, the "Liquidation
Distribution").

         "Holder" shall mean any holder, as registered on the books and records
of the Trust, of any Trust Preferred Securities; provided, however, that in
determining whether the holders of the requisite percentage of Trust Preferred
Securities have given any request, notice, consent or waiver hereunder, "Holder"
shall not include the Guarantor or any Affiliate of the Guarantor.

         "Indenture" means the Subordinated Trust Debt Securities Indenture,
dated as of ________ __, ____, among the Guarantor, as issuer, and American
Stock Transfer & Trust Company, as trustee, as supplemented by the ___
Supplemental Indenture dated as of _______________, ____, by and between the
Guarantor and American Stock Transfer & Trust Company, as trustee.

         "Majority in liquidation amount of Trust Preferred Securities" means a
vote by Holder(s) of Trust Preferred Securities, voting separately as a class,
of more than 50% of the liquidation amount of all Trust Preferred Securities
outstanding at the time of determination.

         "Officers' Certificate" means a certificate signed by the Chairman of
the Board, the Chief Executive Officer, the President or a Vice President, and
by the Treasurer, an Assistant Treasurer, the Controller, the Secretary or an
Assistant Secretary, of the Guarantor, and delivered to the Trustee. Any
Officers' Certificate delivered with respect to compliance with a condition or
covenant provided for in this Guarantee Agreement shall include:

                  (a)      a statement that each officer signing the Officers'
Certificate has read such covenant or condition and the definitions herein
relating thereto;

                  (b)      a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained in
the Officers' Certificate are based;

                                       2

<PAGE>

                  (c)      a statement that, in the opinion of each such
officer, he has made such examination or investigation as is necessary to enable
him to express an informed opinion as to whether or not such covenant or
condition has been complied with; and

                  (d)      a statement as to whether, in the opinion of each
such officer, such condition or covenant has been complied with.

         "Person" means any individual, corporation, partnership, limited
liability company, joint venture, trust, unincorporated organization or
government or any agency or political subdivision thereof.

         "Responsible Officer" means, with respect to the Trustee, any Vice
President, any Assistant Vice President, the Secretary, any Assistant Secretary,
the Treasurer, any Assistant Treasurer, any Senior Trust Officer, Trust Officer
or Assistant Trust Officer or any other officer of the Corporate Trust
Department of the Trustee customarily performing functions similar to those
performed by any of the above designated officers and also means, with respect
to a particular corporate trust matter, any other officer to whom such matter is
referred because of that officer's knowledge of and familiarity with the
particular subject.

         "Successor Trustee" means a successor Trustee possessing the
qualifications to act as Trustee under Section 4.01.

         "Trust Common Securities" means the securities representing common
undivided beneficial interests in the assets of the Trust.

         "Trust Indenture Act" means the Trust Indenture Act of 1939, as
amended.

         "Trust Securities" means the Trust Preferred Securities and the Trust
Common Securities.

         "Trustee" means American Stock Transfer & Trust Company until a
Successor Trustee has been appointed and has accepted such appointment pursuant
to the terms of this Guarantee Agreement and thereafter means each such
Successor Trustee.

                                   ARTICLE II

                               TRUST INDENTURE ACT

SECTION 2.01. TRUST INDENTURE ACT; APPLICATION.

                  (a)      This Guarantee Agreement is subject to the provisions
of the Trust Indenture Act that are required to be part of this Guarantee
Agreement and shall, to the extent applicable, be governed by such provisions;
and

                  (b)      If and to the extent that any provision of this
Guarantee Agreement limits, qualifies or conflicts with the duties imposed by
Sections 310 to 317, inclusive, of the Trust Indenture Act, such imposed duties
shall control.

                                       3

<PAGE>

SECTION 2.02. LISTS OF HOLDERS OF SECURITIES.

                  (a)      The Guarantor shall furnish or cause to be furnished
to the Trustee (a) semiannually, not later than _____ and _____ in each year, a
list, in such form as the Trustee may reasonably require, of the names and
addresses of the Holders ("List of Holders") as of a date not more than 15 days
prior to the time such list is furnished, and (b) at such other times as the
Trustee may request in writing, within 30 days after the receipt by the
Guarantor of any such request, a List of Holders as of a date not more than 15
days prior to the time such list is furnished; provided that, the Guarantor
shall not be obligated to provide such List of Holders at any time the List of
Holders does not differ from the most recent List of Holders given to the
Trustee by the Guarantor or at any time the Trustee is the Securities Registrar
under the Trust Agreement. The Trustee may destroy any List of Holders
previously given to it on receipt of a new List of Holders.

                  (b)      The Trustee shall comply with its obligations under
Sections 311(a), 311(b) and 312(b) of the Trust Indenture Act. For purposes of
Section 311(b)(4) and (6) of the Trust Indenture Act:

                           (i)      "cash transaction" means any transaction in
         which full payment for goods or securities sold is made within seven
         days after delivery of the goods or securities in currency or in checks
         or other orders drawn upon banks or bankers and payable upon demand;
         and

                           (ii)     "self-liquidating paper" means any draft,
         bill of exchange, acceptance or obligation which is made, drawn,
         negotiated or incurred by the Depositor or the Trust (or any such
         obligor) for the purpose of financing the purchase, processing,
         manufacturing, shipment, storage or sale of goods, wares or merchandise
         and which is secured by documents evidencing title to, possession of,
         or a lien upon, the goods, wares or merchandise or the receivables or
         proceeds arising from the sale of the goods, wares or merchandise
         previously constituting the security, provided the security is received
         by the Property Trustee simultaneously with the creation of the
         creditor relationship with the Depositor or the Trust (or any such
         obligor) arising from the making, drawing, negotiating or incurring of
         the draft, bill of exchange, acceptance or obligation.

SECTION 2.03. REPORTS BY THE TRUSTEE.

         Within 60 days after May 15 of each year commencing _____, _____, the
Trustee shall provide to the Holders of the Trust Preferred Securities such
reports as are required by Section 313(a) of the Trust Indenture Act, if any, in
the form and in the manner provided by Section 313 of the Trust Indenture Act.
The Trustee shall also comply with the other requirements of Section 313 of the
Trust Indenture Act.

SECTION 2.04. PERIODIC REPORTS TO TRUSTEE.

         The Guarantor shall provide to the Trustee such documents, reports and
information as required by Section 314 of the Trust Indenture Act (if any) in
the form, in the manner and at the times required by Section 314 of the Trust
Indenture Act, and shall provide, within 120 days after the end of each fiscal
year of the Guarantor, the compliance certificate required by

                                       4

<PAGE>

Section 314(a)(4) of the Trust Indenture Act in the form and in the manner
required by such Section.

SECTION 2.05. EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT.

         The Guarantor shall provide to the Trustee such evidence of compliance
with any conditions precedent, if any, provided for in this Guarantee Agreement
that relate to any of the matters set forth in Section 314(c) of the Trust
Indenture Act. Any certificate or opinion required to be given by an officer
pursuant to Section 314(c)(1) may be given in the form of an Officers'
Certificate.

SECTION 2.06. EVENTS OF DEFAULT; WAIVER.

         The Holders of a Majority in liquidation amount of Trust Preferred
Securities may, by vote, on behalf of all of the Holders, waive any past Event
of Default and its consequences. Upon such waiver, any such Event of Default
shall cease to exist, and any Event of Default arising therefrom shall be deemed
to have been cured and not to have existed, for every purpose of this Guarantee
Agreement, but no such waiver shall extend to any subsequent or other default or
Event of Default or impair any right consequent thereon.

SECTION 2.07. EVENT OF DEFAULT; NOTICE.

                  (a)      The Trustee shall, within 90 days after the
occurrence of an Event of Default actually known to the Trustee, transmit by
mail, first class postage prepaid, to the Holders, notices of all such Events of
Default, unless such defaults have been cured before the giving of such notice,
provided that the Trustee shall be protected in withholding such notice if and
so long as the board of directors, the executive committee, or a trust committee
of directors and/or Responsible Officers of the Trustee in good faith determines
that the withholding of such notice is in the interests of the Holders.

                  (b)      The Trustee shall not be deemed to have knowledge of
any Event of Default unless the Trustee shall have received written notice, or a
Responsible Officer charged with the administration of the Trust Agreement shall
have obtained written notice, of such Event of Default.

SECTION 2.08. CONFLICTING INTERESTS.

         The Trust Agreement shall be deemed to be specifically described in
this Guarantee Agreement for the purposes of clause (i) of the first proviso
contained in Section 310(b) of the Trust Indenture Act.

                                       5

<PAGE>

                                   ARTICLE III

                      POWERS, DUTIES AND RIGHTS OF TRUSTEE

SECTION 3.01. POWERS AND DUTIES OF THE TRUSTEE.

                  (a)      This Guarantee Agreement shall be held by the Trustee
for the benefit of the Holders, and the Trustee shall not transfer this
Guarantee Agreement to any Person except the Trustee shall assign rights
hereunder to a Holder to the extent such assignment is necessary to exercise
such Holder's rights pursuant to Section 5.04 or to a Successor Trustee upon
acceptance by such Successor Trustee of its appointment to act as Successor
Trustee. The right, title and interest of the Trustee shall automatically vest
in any Successor Trustee, and such vesting and cessation of title shall be
effective whether or not conveyancing documents have been executed and delivered
pursuant to the appointment of such Successor Trustee.

                  (b)      If an Event of Default has occurred and is
continuing, the Trustee shall enforce this Guarantee Agreement for the benefit
of the Holders.

                  (c)      The Trustee, before the occurrence of any Event of
Default and after the curing or waiving of all Events of Default that may have
occurred, shall undertake to perform only such duties as are specifically set
forth in this Guarantee Agreement, and no implied covenants shall be read into
this Guarantee Agreement against the Trustee. In case an Event of Default has
occurred (that has not been cured or waived pursuant to Section 2.06), the
Trustee shall exercise such of the rights and powers vested in it by this
Guarantee Agreement, and use the same degree of care and skill in its exercise
thereof, as a prudent person would exercise or use under the circumstances in
the conduct of his or her own affairs.

                  (d)      No provision of this Guarantee Agreement shall be
construed to relieve the Trustee from liability for its own negligent action,
its own negligent failure to act, or its own willful misconduct, except that:

                           (i)      prior to the occurrence of any Event of
Default and after the curing or waiving of all such Events of Default that may
have occurred:

                                    (A)      the duties and obligations of the
                           Trustee shall be determined solely by the express
                           provisions of this Guarantee Agreement, and the
                           Trustee shall not be liable except for the
                           performance of such duties and obligations as are
                           specifically set forth in this Guarantee Agreement;
                           and

                                    (B)      in the absence of bad faith on the
                           part of the Trustee, the Trustee may conclusively
                           rely, as to the truth of the statements and the
                           correctness of the opinions expressed therein, upon
                           any certificates or opinions furnished to the Trustee
                           and conforming to the requirements of this Guarantee
                           Agreement; but in the case of any such certificates
                           or opinions that by any provision hereof are
                           specifically required to be furnished to the Trustee,
                           the Trustee shall be under a duty to examine the

                                       6

<PAGE>

                           same to determine whether or not they conform to the
                           requirements of this Guarantee Agreement;

                           (ii)     the Trustee shall not be liable for any
error of judgment made in good faith by a Responsible Officer of the Trustee,
unless it shall be proved that the Trustee was negligent in ascertaining the
pertinent facts upon which such judgment was made;

                           (iii)    the Trustee shall not be liable with respect
to any action taken or omitted to be taken by it in good faith in accordance
with the direction of the Holders of a Majority in liquidation amount of the
Trust Preferred Securities relating to the time, method and place of conducting
any proceeding for any remedy available to the Trustee, or exercising any trust
or power conferred upon the Trustee under this Guarantee Agreement; and

                           (iv)     no provision of this Guarantee Agreement
shall require the Trustee to expend or risk its own funds or otherwise incur
personal financial liability in the performance of any of its duties or in the
exercise of any of its rights or powers, if the Trustee shall have reasonable
grounds for believing that the repayment of such funds or liability is not
reasonably assured to it under the terms of this Guarantee Agreement or adequate
indemnity against such risk or liability is not reasonably assured to it.

SECTION 3.02. CERTAIN RIGHTS OF TRUSTEE.

                  (a)      Subject to the provisions of Section 3.01:

                           (i)      the Trustee may rely and shall be fully
protected in acting or refraining from acting upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture, note, other evidence of indebtedness or other paper or
document believed by it to be genuine and to have been signed, sent or presented
by the proper party or parties;

                           (ii)     any direction or act of the Guarantor
contemplated by this Guarantee Agreement shall be sufficiently evidenced by an
Officers' Certificate;

                           (iii)    whenever, in the administration of this
Guarantee Agreement, the Trustee shall deem it desirable that a matter be proved
or established before taking, suffering or omitting any action hereunder, the
Trustee (unless other evidence is herein specifically prescribed) may, in the
absence of bad faith on its part, request and rely upon an Officers' Certificate
which, upon receipt of such request, shall be promptly delivered by the
Guarantor;

                           (iv)     the Trustee may consult with counsel of its
choice, and the written advice or opinion of such counsel with respect to legal
matters shall be full and complete authorization and protection in respect of
any action taken, suffered or omitted by it hereunder in good faith and in
accordance with such advice or opinion; such counsel may be counsel to the
Guarantor or any of its Affiliates and may include any of its employees; the
Trustee shall have the right at any time to seek instructions concerning the
administration of this Guarantee Agreement from any court of competent
jurisdiction;

                                       7

<PAGE>

                           (v)      the Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this Guarantee Agreement at
the request or direction of any Holder, unless such Holder shall have provided
to the Trustee such adequate security and indemnity as would satisfy a
reasonable person in the position of the Trustee, against the costs, expenses
(including attorneys' fees and expenses) and liabilities that might be incurred
by it in complying with such request or direction, including such reasonable
advances as may be requested by the Trustee; provided that nothing contained in
this Section 3.02(a)(v) shall be taken to relieve the Trustee, upon the
occurrence of an Event of Default, of its obligation to exercise the rights and
powers vested in it by this Guarantee Agreement;

                           (vi)     the Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further inquiry or
investigation into such facts or matters as it may see fit;

                           (vii)    the Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either directly or by or
through agents or attorneys, and the Trustee shall not be responsible for any
misconduct or negligence on the part of any agent or attorney appointed with due
care by it hereunder; and

                           (viii)   whenever in the administration of this
Guarantee Agreement the Trustee shall deem it desirable to receive instructions
with respect to enforcing any remedy or right or taking any other action
hereunder, the Trustee (i) may request instructions from the Holders, (ii) may
refrain from enforcing such remedy or right or taking such other action until
such instructions are received, and (iii) shall be protected in acting in
accordance with such instructions.

                  (b)      No provision of this Guarantee Agreement shall be
deemed to impose any duty or obligation on the Trustee to perform any act or
acts or exercise any right, power, duty or obligation conferred or imposed on it
in any jurisdiction in which it shall be illegal, or in which the Trustee shall
be unqualified or incompetent in accordance with applicable law, to perform any
such act or acts or to exercise any such right, power, duty or obligation. No
permissive power or authority available to the Trustee shall be construed to be
a duty.

SECTION 3.03. COMPENSATION; FEES; INDEMNITY.

         The Guarantor agrees:

                  (a)      to pay to the Trustee from time to time reasonable
compensation for all services rendered by the Trustee hereunder (which
compensation shall not be limited by any provision of law in regard to the
compensation of a trustee of an express trust);

                  (b)      except as otherwise expressly provided herein, to
reimburse the Trustee upon request for all reasonable expenses, disbursements
and advances incurred or made by the Trustee in accordance with any provision of
this Guarantee Agreement (including the reasonable compensation and the expenses
and disbursements of its agents and counsel), except any such expense,
disbursement or advance as may be attributable to its negligence or bad faith;
and

                                       8

<PAGE>

                  (c)      to indemnify the Trustee for, and to hold the Trustee
harmless against, any and all loss, damage, claims, liability or expense
incurred without negligence or bad faith on its part, arising out of or in
connection with the acceptance or administration of this Guarantee Agreement,
including the costs and expenses of defending itself against any claim or
liability in connection with the exercise or performance of any of its powers or
duties hereunder.

         The provisions of this Section 3.03 shall survive the termination of
this Guarantee Agreement or the resignation or removal of the Trustee.

                                   ARTICLE IV

                                     TRUSTEE

SECTION 4.01. TRUSTEE; ELIGIBILITY.

                  (a)      There shall at all times be a Trustee which shall:

                           (i)      not be an Affiliate of the Guarantor; and

                           (ii)     be a corporation organized and doing
business under the laws of the United States of America or any State or
Territory thereof or of the District of Columbia, or a corporation or Person
permitted by the Securities and Exchange Commission to act as an institutional
trustee under the Trust Indenture Act, authorized under such laws to exercise
corporate trust powers, having a combined capital and surplus of at least
$10,000,000, and subject to supervision or examination by Federal, State,
Territorial or District of Columbia authority. If such corporation publishes
reports of condition at least annually, pursuant to law or to the requirements
of the supervising or examining authority referred to above, then, for the
purposes of this Section 4.01(a)(ii), the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published.

                  (b)      If at any time the Trustee shall cease to be eligible
to so act under Section 4.01(a), the Trustee shall immediately resign in the
manner and with the effect set out in Section 4.02(c).

                  (c)      If the Trustee has or shall acquire any "conflicting
interest" within the meaning of Section 310(b) of the Trust Indenture Act, the
Trustee and Guarantor shall in all respects comply with the provisions of
Section 310(b) of the Trust Indenture Act, subject to the rights of the Trustee
under the penultimate paragraph thereof.

SECTION 4.02. APPOINTMENT, REMOVAL AND RESIGNATION OF TRUSTEE.

                  (a)      Subject to Section 4.02(b), the Trustee may be
appointed or removed without cause at any time by the Guarantor.

                  (b)      The Trustee shall not be removed until a Successor
Trustee has been appointed and has accepted such appointment by written
instrument executed by such Successor Trustee and delivered to the Guarantor.

                                       9

<PAGE>

                  (c)      The Trustee appointed to office shall hold office
until a Successor Trustee shall have been appointed or until its removal or
resignation. The Trustee may resign from office (without need for prior or
subsequent accounting) by an instrument in writing executed by the Trustee and
delivered to the Guarantor, which resignation shall not take effect until a
Successor Trustee has been appointed and has accepted such appointment by
instrument in writing executed by such Successor Trustee and delivered to the
Guarantor and the resigning Trustee.

                  (d)      If no Successor Trustee shall have been appointed and
accepted appointment as provided in this Section 4.02 within 60 days after
delivery to the Guarantor of an instrument of resignation, the resigning Trustee
may petition any court of competent jurisdiction for appointment of a Successor
Trustee. Such court may thereupon, after prescribing such notice, if any, as it
may deem proper, appoint a Successor Trustee.

                                    ARTICLE V

                                    GUARANTEE

SECTION 5.01. GUARANTEE.

         The Guarantor irrevocably and unconditionally agrees to pay in full to
the Holders the Guarantee Payments (without duplication of amounts theretofore
paid by or on behalf of the Trust), as and when due, regardless of any defense,
right of set-off or counterclaim which the Guarantor may have or assert against
any person. The Guarantor's obligation to make a Guarantee Payment may be
satisfied by direct payment of the required amounts by the Guarantor to the
Holders or by causing the Trust to pay such amounts to the Holders.

SECTION 5.02. WAIVER OF NOTICE AND DEMAND.

         The Guarantor hereby waives notice of acceptance of this Guarantee
Agreement and of any liability to which it applies or may apply, presentment,
demand for payment, any right to require a proceeding first against the Trust or
any other Person before proceeding against the Guarantor, protest, notice of
nonpayment, notice of dishonor, notice of redemption and all other notices and
demands.

SECTION 5.03. OBLIGATIONS NOT AFFECTED.

         The obligation of the Guarantor to make the Guarantee Payments under
this Guarantee Agreement shall in no way be affected or impaired by reason of
the happening from time to time of any of the following:

                  (a)      the release or waiver, by operation of law or
otherwise, of the performance or observance by the Trust of any express or
implied agreement, covenant, term or condition relating to the Trust Preferred
Securities to be performed or observed by the Trust;

                  (b)      the extension of time for the payment by the Trust of
all or any portion of the Distributions, Redemption Price, Liquidation
Distribution or any other sums payable under the terms of the Trust Preferred
Securities or the extension of time for the performance of any other obligation
under, arising out of, or in connection with, the Trust Preferred Securities
(other

                                       10

<PAGE>

than an extension of time for payment of Distributions, Redemption Price,
Liquidation Distribution or other sum payable that results from the extension of
any interest payment period on the Subordinated Debentures permitted by the
Indenture);

                  (c)      any failure, omission, delay or lack of diligence on
the part of the Holders to enforce, assert or exercise any right, privilege,
power or remedy conferred on the Holders pursuant to the terms of the Trust
Preferred Securities, or any action on the part of the Trust granting indulgence
or extension of any kind;

                  (d)      the voluntary or involuntary liquidation,
dissolution, sale of any collateral, receivership, insolvency, bankruptcy,
assignment for the benefit of creditors, reorganization, arrangement,
composition or readjustment of debt of, or other similar proceedings affecting,
the Trust or any of the assets of the Trust;

                  (e)      any invalidity of, or defect or deficiency in, the
Trust Preferred Securities;

                  (f)      the settlement or compromise of any obligation
guaranteed hereby or hereby incurred; or

                  (g)      any other circumstance whatsoever that might
otherwise constitute a legal or equitable discharge or defense of a guarantor,
it being the intent of this Section 5.03 that the obligations of the Guarantor
hereunder shall be absolute and unconditional under any and all circumstances.

         There shall be no obligation of the Holders to give notice to, or
obtain consent of, the Guarantor with respect to the happening of any of the
foregoing.

SECTION 5.04. RIGHTS OF HOLDERS.

         The Guarantor expressly acknowledges that: (i) this Guarantee Agreement
will be deposited with the Trustee to be held for the benefit of the Holders;
(ii) the Trustee has the right to enforce this Guarantee Agreement on behalf of
the Holders; (iii) the Holders of a Majority in liquidation amount of the Trust
Preferred Securities have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee in respect of
this Guarantee Agreement or to direct the exercise of any trust or power
conferred upon the Trustee under this Guarantee Agreement, provided that such
direction shall not be in conflict with any rule of law or with this Guarantee
Agreement, and could not involve the Trustee in personal liability in
circumstances where reasonable indemnity would not be adequate; and (iv) any
Holder may institute a legal proceeding directly against the Guarantor to
enforce its rights under this Guarantee Agreement, without first instituting a
legal proceeding against or requesting or directing that action be taken by the
Trustee or any other person; it being understood and intended that no one or
more of such Holders shall have any right in any manner whatsoever by virtue of,
or by availing of, any provision of this Guarantee Agreement to affect, disturb
or prejudice the rights of any other of such Holders or to obtain or to seek to
obtain priority or preference over any other of such Holders or to enforce any
right under this Guarantee Agreement, except in the manner herein provided and
for the equal and ratable benefit of all of such Holders.

                                       11

<PAGE>

SECTION 5.05. GUARANTEE OF PAYMENT.

         This Guarantee Agreement creates a guarantee of payment and not of
collection. This Guarantee Agreement will not be discharged except by payment of
the Guarantee Payments in full (without duplication) or upon the distribution of
Subordinated Debentures to the Holders in exchange for all of the Trust
Preferred Securities.

SECTION 5.06. SUBROGATION.

         The Guarantor shall be subrogated to all (if any) rights of the Holders
against the Trust in respect of any amounts paid to the Holders by the Guarantor
under this Guarantee Agreement; provided, however, that the Guarantor shall not
(except to the extent required by mandatory provisions of law) be entitled to
enforce or exercise any rights which it may acquire by way of subrogation or any
indemnity, reimbursement or other agreement, in all cases as a result of payment
under this Guarantee Agreement, if, at the time of any such payment, any amounts
of Guarantee Payments are due and unpaid under this Guarantee Agreement. If any
amount shall be paid to the Guarantor in violation of the preceding sentence,
the Guarantor agrees to hold such amount in trust for the Holders and to pay
over such amount to the Holders.

SECTION 5.07. INDEPENDENT OBLIGATIONS.

         The Guarantor acknowledges that its obligations hereunder are
independent of the obligations of the Trust with respect to the Trust Preferred
Securities and that the Guarantor shall be liable as principal and as debtor
hereunder to make Guarantee Payments pursuant to the terms of this Guarantee
Agreement notwithstanding the occurrence of any event referred to in subsections
(a) through (g), inclusive, of Section 5.03 hereof.

                                   ARTICLE VI

                                  SUBORDINATION

SECTION 6.01. SUBORDINATION.

         This Guarantee Agreement will constitute an unsecured obligation of the
Guarantor and will rank (i) subordinate and junior in right of payment to all
other liabilities of the Guarantor, including the Subordinated Debentures,
except those obligations or liabilities made pari passu or subordinate by their
terms, (ii) pari passu with the most senior preferred stock now or hereafter
issued or guaranteed by the Guarantor, and (iii) senior to all common stock of
the Guarantor.

                                   ARTICLE VII

                                   TERMINATION

SECTION 7.01. TERMINATION.

         This Guarantee Agreement shall terminate and be of no further force and
effect upon: (i) full payment of the Redemption Price of all Trust Preferred
Securities, (ii) the distribution of Subordinated Debentures to the Holders in
exchange for all of the Trust Preferred Securities, or

                                       12

<PAGE>

(iii) full payment of the amounts payable in accordance with the Trust Agreement
upon liquidation of the Trust. Notwithstanding the foregoing, this Guarantee
Agreement will continue to be effective or will be reinstated, as the case may
be, if at any time any Holder must restore payment of any sums paid with respect
to Trust Preferred Securities or under this Guarantee Agreement.

                                  ARTICLE VIII

                                  MISCELLANEOUS

SECTION 8.01. SUCCESSORS AND ASSIGNS.

         All guarantees and agreements contained in this Guarantee Agreement
shall bind the successors, assigns, receivers, trustees and representatives of
the Guarantor and shall inure to the benefit of the Holders then outstanding.
Except in connection with a consolidation, merger, conveyance, transfer, or
lease involving the Guarantor that is permitted under Article Eight of the
Indenture, the Guarantor shall not assign its obligations hereunder.

SECTION 8.02. AMENDMENTS.

         Except with respect to any changes which do not materially and
adversely affect the rights of Holders (in which case no consent of Holders will
be required), this Guarantee Agreement may only be amended with the prior
approval of the Holders of not less than a majority in liquidation amount of all
the outstanding Trust Preferred Securities. The provisions of Article Six of the
Trust Agreement concerning meetings of Holders shall apply to the giving of such
approval.

SECTION 8.03. NOTICES.

         Any notice, request or other communication required or permitted to be
given hereunder shall be in writing, duly signed by the party giving such
notice, and delivered, telecopied or mailed by first class mail as follows:

                  (a)      if given to the Guarantor, to the address set forth
below or such other address as the Guarantor may give notice of to the Trustee
and the Holders:

                           D.R. Horton, Inc.
                           1901 Ascension Blvd., Suite 100
                           Arlington, Texas 76006
                           Attention: Chief Financial Officer
                           Facsimile No. (817) 856-8252

                  (b)      if given to the Trust, in care of the Trustee, or to
the Trustee at the Trust's (and the Trustee's) address set forth below or such
other address as the Trustee on behalf of the Trust may give notice of to the
Holders:

                                       13

<PAGE>

                           DRH Capital Trust III
                           c/o D.R. Horton, Inc.
                           1901 Ascension Blvd., Suite 100
                           Arlington, Texas 76006
                           Attention: Chief Financial Officer
                           Facsimile No. (817) 856-8252

with a copy, in the case of a notice to the Trust (other than a notice from the
Guarantor), to the Guarantor.

                  (c)      if given to any Holder, at the address set forth on
the books and records of the Trust.

         All notices hereunder shall be deemed to have been given when received
in person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid except that if a notice or other document is refused delivery or
cannot be delivered because of a changed address of which no notice was given,
such notice or other document shall be deemed to have been delivered on the date
of such refusal or inability to deliver.

SECTION 8.04. BENEFIT.

         This Guarantee Agreement is solely for the benefit of the Holders and,
subject to Section 3.01(a), is not separately transferable from the Trust
Preferred Securities.

SECTION 8.05. INTERPRETATION.

         In this Guarantee Agreement, unless the context otherwise requires:

                  (a)      capitalized terms used in this Guarantee Agreement
but not defined in the preamble hereto have the respective meanings assigned to
them in Section 1.01;

                  (b)      a term defined anywhere in this Guarantee Agreement
has the same meaning throughout;

                  (c)      all references to "the Guarantee Agreement" or "this
Guarantee Agreement" are to this Guarantee Agreement as modified, supplemented
or amended from time to time;

                  (d)      all references in this Guarantee Agreement to
Articles and Sections are to Articles and Sections of this Guarantee Agreement
unless otherwise specified;

                  (e)      a term defined in the Trust Indenture Act has the
same meaning when used in this Guarantee Agreement unless otherwise defined in
this Guarantee Agreement or unless the context otherwise requires;

                  (f)      a reference to the singular includes the plural and
vice versa; and

                                       14

<PAGE>

                  (g)      the masculine, feminine or neuter genders used herein
shall include the masculine, feminine and neuter genders.

SECTION 8.06. GOVERNING LAW.

         THIS GUARANTEE AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK. THE
GUARANTOR HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE UNITED STATES
DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND ANY COURT IN THE STATE
OF NEW YORK LOCATED IN THE CITY AND COUNTY OF NEW YORK IN ANY ACTION, SUIT OR
PROCEEDING BROUGHT AGAINST IT AND RELATED TO OR IN CONNECTION WITH THIS
GUARANTEE AGREEMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY, AND TO THE EXTENT
PERMITTED BY APPLICABLE LAW, THE GUARANTOR HEREBY WAIVES AND AGREES NOT TO
ASSERT BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE IN ANY SUCH SUIT, ACTION OR
PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF
SUCH COURTS, THAT THE SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT
FORUM, THAT THE VENUE OF THE SUIT, ACTION OR PROCEEDING IS IMPROPER, OR THAT
THIS GUARANTEE AGREEMENT OR ANY DOCUMENT OR ANY INSTRUMENT REFERRED TO HEREIN OR
THE SUBJECT MATTER HEREOF MAY NOT BE LITIGATED IN OR BY SUCH COURTS. THE
GUARANTOR AGREES THAT SERVICE OF PROCESS MAY BE MADE UPON IT BY CERTIFIED OR
REGISTERED MAIL TO THE ADDRESS FOR NOTICES SET FORTH IN THIS GUARANTEE AGREEMENT
OR ANY METHOD AUTHORIZED BY THE LAWS OF NEW YORK.

         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.

                      [THIS SPACE INTENTIONALLY LEFT BLANK]

                                       15

<PAGE>

         THIS GUARANTEE AGREEMENT is executed as of the day and year first above
written.

                                      D.R. HORTON, INC.

                                      By:
                                          ______________________________________
                                          Name:
                                          Title:

                                      AMERICAN STOCK TRANSFER & TRUST COMPANY
                                      as Trustee

                                      By:
                                          ______________________________________
                                           Name:
                                           Title:

                                       16<PAGE>

                                                                   EXHIBIT 10.01

                          CADENCE DESIGN SYSTEMS, INC.

                            1987 STOCK INCENTIVE PLAN

      1.    PURPOSES OF THE PLAN. The purposes of this Stock Incentive Plan are
to attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to the employees of the Company
and any parent or subsidiary corporations, and to promote the success of the
Company's business. The Plan was initially established as the 1987 Stock Option
Plan, and was most recently amended on September 16, 1999. The Plan is hereby
amended and restated in its entirety, effective upon adoption by the Company's
stockholders.

      2.    DEFINITIONS. As used herein, the following definitions shall apply:

            (a)   "BOARD" shall mean the Committee, if one has been appointed,
or the Board of Directors of the Company, if no Committee is appointed.

            (b)   "CODE" shall mean the Internal Revenue Code of 1986, as
amended.

            (c)   "COMMON STOCK" shall mean the Common Stock of the Company.

            (d)   "COMPANY" shall mean CADENCE DESIGN SYSTEMS, INC., a Delaware
corporation.

            (e)   "COMMITTEE" shall mean the Committee appointed by the Board of
Directors in accordance with paragraph (a) of Section 4 of the Plan, if one is
appointed.

            (f)   "CONSULTANT" shall mean any consultants, independent
contractors or advisers (provided that such persons render bona fide services
not in connection with the offering and sale of securities in capital raising
transactions) rendering services to the Company or a Parent or Subsidiary.

            (g)   "CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT" shall mean
the absence of any interruption of termination of service, whether as an
Employee or Consultant. Continuous Status as an Employee or Consultant shall not
be considered interrupted in the case of sick leave, military leave, or any
other leave of absence.

            (h)   "EMPLOYEE" shall mean any person, including officers and
directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a director's fee or other compensation paid solely on account of
service as a director by the Company shall not be sufficient to constitute
"employment" by the Company.

            (i)   "INCENTIVE STOCK" means shares of Common Stock granted to a
Participant pursuant to Section 10 hereof.

<PAGE>

            (j)   "INCENTIVE STOCK AGREEMENT" means a written agreement between
the Company and a holder of an award of Incentive Stock evidencing the terms and
conditions of an individual Incentive Stock grant. Each Incentive Stock
Agreement shall be subject to the terms and conditions of the Plan.

            (k)   "INCENTIVE STOCK OPTION" shall mean an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended.

            (l)   "OPTION" shall mean a stock option granted pursuant to the
Plan, which may be either an Incentive Stock Option or a "non-statutory stock
option," at the discretion of the Board and as reflected in the terms of the
Stock Option Agreement.

            (m)   "OPTIONED STOCK" shall mean the Common Stock subject to an
Option.

            (n)   "PARENT" shall mean a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Internal Revenue Code of
1986, as amended.

            (o)   "PARTICIPANT" shall mean an Employee or Consultant who
receives a Stock Award.

            (p)   "PLAN" shall mean this 1987 Stock Incentive Plan.

            (q)   "QUALIFYING PERFORMANCE CRITERIA" shall mean any one or more
of the following performance criteria as determined pursuant to an objective
formula, either individually, alternatively or in any combination, applied to
either the Company as a whole or to a business unit, segment or Subsidiary,
either individually, alternatively or in any combination, and measured over a
performance period determined by the Board, on an absolute basis or relative to
a pre-established target, to previous results or to a designated comparison
group, in each case as specified by the Board in the Stock Award: (a) cash flow
(including measures of operating or free cash flow), (b) earnings per share
(including measures of GAAP earnings per share or non-GAAP measures such as
non-GAAP earnings per-share or per-share earnings before interest, taxes,
depreciation and amortization), (c) return on equity, (d) total stockholder
return, (e) return on capital, (f) return on assets or net assets, (g) revenue,
(h) income or net income (on a GAAP basis or a non-GAAP basis), (i) operating
income or net operating income, (j) operating profit or net operating profit,
(k) operating margin, (l) return on operating revenue, (m) market share, (n)
bookings and segments of bookings such as net product bookings, (o) market
penetration, (p) technology development or proliferation, or (q) customer
loyalty or satisfaction as measured by a customer loyalty or satisfaction index
determined by an independent consultant expert in measuring such matters.

            (r)   "RULE 16b-3" shall mean Rule 16b-3 of the Securities Exchange
Act of 1934, as amended, or any successor to Rule 16b-3, as in effect when
discretion is being exercised with respect to the Plan.

                                       2
<PAGE>

            (s)   "SHARE" shall mean a share of Common Stock, as adjusted in
accordance with Section 12 of the Plan.

            (t)   "STOCK AWARD" shall mean any right granted under the Plan,
including an Option or Incentive Stock.

            (u)   "STOCK OPTION AGREEMENT" means a written agreement between the
Company and a holder of an Option award evidencing the terms and conditions of
an individual Option grant. Each Stock Option Agreement shall be subject to the
terms and conditions of the Plan.

            (v)   "SUBSIDIARY" shall mean a "subsidiary corporation," whether
now or hereafter existing, as defined in Section 424(f) of the Internal Revenue
Code of 1986, as amended.

      3.    STOCK SUBJECT TO THE PLAN.

            (a)   RESERVED SHARES. Subject to the provisions of Sections 3(b)
and 12 of the Plan, the number of shares reserved for issuance under the Plan is
seventy-one million three hundred seventy thousand one hundred (71,370,100)
shares of Common Stock; provided, however, that no more than three million
(3,000,000) shares of Common Stock authorized under the Plan may be issued
pursuant to Awards of Incentive Stock. Shares issued under the Plan may be
authorized, but unissued, or reacquired Common Stock.

            (b)   UNEXERCISABLE, FORFEITED OR TERMINATED AWARDS. If a Stock
Award should expire, become unexercisable, be forfeited or otherwise terminate
for any reason without having been exercised in full, the unpurchased or
forfeited Shares that were subject thereto shall, unless the Plan shall have
been terminated, become available for future grant under the Plan, provided,
however, that if a Stock Award is canceled, forfeited or treated as having been
canceled for purposes of Section 162(m) the canceled Stock Award shall count
against the maximum number of shares for which a Stock Award may be granted to
any person under the terms of the Plan.

      4.    ADMINISTRATION OF THE PLAN.

            (a)   PROCEDURE. The Board of Directors of the Company shall
administer the Plan. The Board of Directors may appoint a Committee consisting
of not less than two members of the Board of Directors to administer the Plan on
behalf of the Board of Directors, subject to such terms and conditions as the
Board of Directors may prescribe. The Committee shall consist of two or more
"Non-Employee Directors" (a director who is receiving no compensation from the
Company other than for service on the Board of Directors or who does not receive
such additional compensation which exceeds the limits specified in the
definition of such term under Rule 16b-3 and otherwise meets the requirement
under Rule 16b-3 for "non-employee directors") or "Outside Directors" (a
director who is not either a current or former officer of the Company nor a
current employee of the Company, and who is receiving no compensation from the
Company other than for service on the Board of Directors or who does not receive
such

                                       3
<PAGE>

additional compensation which exceeds the limits specified in the definition of
such term under Section 162(m) of the Code). Once appointed, the Committee shall
continue to serve until otherwise directed by the Board of Directors. From time
to time the Board of Directors may increase the size of the Committee and
appoint additional members thereof, remove members (with or without cause), and
appoint new members in substitution therefor, fill vacancies however caused and
remove all members of the Committee, and thereafter directly administer the
Plan. Notwithstanding anything in this Section 4 to the contrary, at any time
the Board or the Committee may delegate to a committee of one or more members of
the Board of Directors the authority to grant Options to all Employees and
Consultants or any portion or class thereof. Members of the Board who are either
eligible for Options or have been granted Options may vote on any matters
affecting the administration of the Plan or grant of any Options pursuant to the
Plan, except that no such member shall act upon the granting of an Option to
himself, but any such member may be counted in determining the existence of a
quorum at any meeting of the Board during which action is taken with respect to
the granting of Options to him.

            (b)   POWERS OF THE BOARD. Subject to the provisions of the Plan,
the Board shall have the authority, in its discretion: (i) to grant Stock Awards
under the Plan; (ii) to determine, upon review of relevant information and in
accordance with Section 8(b) of the Plan, the fair market value of the Common
Stock; (iii) to determine the exercise price per share of Options to be granted,
which exercise price shall be determined in accordance with Section 8(a) of the
Plan; (iv) to determine the Employees or Consultants to whom, and the time or
times at which, Stock Awards shall be granted, the number of shares to be
represented by each Stock Award, and the terms of such Stock Awards; (v) to
interpret the Plan; (vi) to prescribe, amend and rescind rules and regulations
relating to the Plan; (vii) to determine the terms and provisions of each Stock
Award granted (which need not be identical) in accordance with the Plan, and,
with the consent of the holder thereof with respect to any adverse change,
modify or amend each Stock Award; (viii) to accelerate or defer (the latter with
the consent of the Participant) the exercise date and vesting of any Option;
(ix) to authorize any person to execute on behalf of the Company any instrument
required to effectuate the grant of a Stock Award previously granted by the
Board; and (x) to make all other determinations deemed necessary or advisable
for the administration of the Plan.

            (c)   EFFECT OF BOARD'S DECISION. All decisions, determinations and
interpretations of the Board shall be final and binding on all Participants and
any other holders of any Stock Awards granted under the Plan.

      5.    ELIGIBILITY. Stock Awards may be granted only to Employees or
Consultants as defined in Section 2 hereof. An Employee or Consultant who has
been granted a Stock Award may, if he is otherwise eligible, be granted an
additional Stock Award.

            Incentive Stock Options may only be granted to Employees. The
aggregate fair market value (determined at the time the Option is granted) of
the stock with respect to which Incentive Stock Options are exercisable for the
first time by such individual during any calendar

                                       4
<PAGE>

year (under this Plan or under any other incentive stock option plan of the
Company or any Parent or Subsidiary of the Company) shall not exceed $100,000.
To the extent that the grant of an Option exceeds this limit, the portion of the
Option that exceeds such limit shall be treated as a non-statutory stock option.

            The Plan shall not confer upon any Participant any right with
respect to continuation of employment or consultancy by the Company, nor shall
it interfere in any way with his right or the Company's right to terminate his
employment at any time or his consultancy pursuant to the terms of the
Consultant's agreement with the Company.

            No person shall be eligible to be granted Stock Awards covering more
than 2,216,702 shares of Common Stock in any calendar year. The foregoing limit
shall be adjusted pursuant to the provisions of Section 12.

      6.    TERM OF THE PLAN. The Plan became effective upon its adoption by the
Board of Directors. Subsequently amended, the Plan shall continue in effect
until May 21, 2007 unless sooner terminated under Section 15 of the Plan.

      7.    TERM OF OPTION; VESTING PROVISIONS.

            (a)   OPTION TERM. The term of each Option shall be ten (10) years
from the date of grant thereof or such shorter term as may be provided in the
Stock Option Agreement. However, in the case of an Incentive Stock Option
granted to an Employee who immediately before the Incentive Stock Option is
granted, owns stock representing more than ten percent (10%) of the voting power
of all classes of stock of the Company or any Parent or Subsidiary, the term of
the Incentive Stock Option shall be five (5) years from the date of grant
thereof or such shorter time as may be provided in the Stock Option Agreement.

            (b)   VESTING PROVISIONS. The terms on which each Option shall vest
shall be determined by the Board in its Discretion, and shall be set forth in
Stock Option Agreement relating to each such Option. Without limiting the
discretion of the Board, vesting provisions may include time-based vesting or
vesting based on achievement of performance or other criteria. Performance
criteria may, but need not, be based on Qualifying Performance Criteria.

      8.    OPTION EXERCISE PRICE AND CONSIDERATION.

            (a)   EXERCISE PRICE. The per Share exercise price for the Shares to
be issued pursuant to exercise of an Option shall be such price as is determined
by the Board, but shall be subject to the following:

                  (i)   In the case of an Incentive Stock Option:

                        (1)   Granted to an Employee who, immediately before the
grant of such Incentive Stock Option, owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary, the per Share exercise price shall be no less than 110% of
the fair market value per Share on the date of grant.

                                       5
<PAGE>

                        (2)   Granted to any Employee, the per Share exercise
price shall be no less than 100% of the fair market value per Share on the date
of grant.

                  (ii)  In the case of an Option granted on or after the
effective date of registration of any class of equity security of the Company
pursuant to Section 12 of the Exchange Act and prior to six months after the
termination of such registration, the per Share exercise price shall be not less
than 100% of the fair market value per Share on the date of grant.

                  (iii) Notwithstanding the foregoing, an Option (whether an
Incentive Stock Option or non-statutory stock option) may be granted with an
exercise price lower than set forth in the preceding paragraphs if such Option
is granted pursuant to an assumption or substitution for another option in a
manner satisfying the provisions of Section 424(a) of the Code.

            (b)   FAIR MARKET VALUE. The fair market value shall be determined
by the Board in its discretion: provided however, that where there is a public
market for the Common Stock, the fair market value per Share shall be the
average of the high and low prices of the Common Stock on the date of grant, as
reported on the New York Stock Exchange.

            (c)   CONSIDERATION. The consideration to be paid for the Shares to
be issued upon exercise of an Option, including the method of payment, shall be
determined by the Board and may consist entirely of cash, check, promissory
note, other Shares of Common Stock having a fair market value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
option shall be exercised, or any combination of such methods of payment, or
such other consideration and method of payment for the issuance of Shares to the
extent permitted under applicable law. In making its determination as to the
type of consideration to accept, the Board shall consider if acceptance of such
consideration may be reasonably expected to benefit the Company.

      9.    EXERCISE OF OPTION.

            (a)   PROCEDURE FOR EXERCISE RIGHTS AS A SHAREHOLDER. Any Option
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Board, including performance criteria with respect to the
Company and/or the Participant, and as shall be permissible under the terms of
the Plan.

            An Option may not be exercised for a fraction of a Share.

            An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 8(c) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect

                                       6
<PAGE>

to the Optioned Stock, notwithstanding the exercise of the Option. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the stock certificate is issued, except as provided in Section 12 of
the Plan.

            Exercise of an Option in any manner shall result in a decrease in
the number of Shares that thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.

            (b)   TERMINATION OF STATUS AS AN EMPLOYEE OR CONSULTANT. If a
Participant ceases to serve as an Employee or Consultant, the Participant may,
but only within thirty (30) days (or such longer period of time as determined by
the Board) after the date Participant ceases to be an Employee or Consultant of
the Company, exercise the Option to the extent that Participant was entitled to
exercise it at the date of such termination. To the extent that Participant was
not entitled to exercise the Option at the date of such termination, or if
Participant does not exercise such Option (which Participant was entitled to
exercise) within the time specified herein, the Option shall terminate.

            (c)   DEATH OF PARTICIPANT. In the event of the death of a
Participant:

                  (i)   during the term of the Option who is at the time of
Participant's death an Employee or Consultant of the Company and who shall have
been in Continuous Status as an Employee or Consultant since the date of grant
of the Option, the Option may be exercised at any time within three (3) months
(or such longer period of time as determined by the Board) following the date of
death, by the Participant's estate or by a person who acquired the right to
exercise the Option by bequest or inheritance, but only to the extent of the
right to exercise that would have accrued had the Participant continued living
three (3) months (or such longer period of time as determined by the Board)
after the date of death; or

                  (ii)  within one (1) month (or such longer period of time as
determined by the Board) after the termination of Continuous Status as an
Employee or Consultant, the Option may be exercised, at any time within three
(3) months (or such longer period of time as determined by the Board) following
the date of death, by the Participant's estate or by a person who acquired the
right to exercise the Option by bequest or inheritance, but only to the extent
of the right to exercise that had accrued at the date of termination.

      10.   INCENTIVE STOCK.

            (a)   GENERAL. Incentive Stock is an award or issuance of shares of
Common Stock under the Plan, the grant, issuance, retention, vesting and/or
transferability of which is subject during specified periods of time to such
conditions (including continued employment or performance conditions) and terms
as the Board deems appropriate. The Board may specify that the grant, vesting or
retention of any or all Incentive Stock is intended to satisfy the requirements
for "performance-based compensation" under Section 162(m) of the Code. To the
extent that any Incentive Stock is designated by the Board as "performance-based
compensation" under Section 162(m) of the Code, (i) the performance criteria for
the grant, vesting or retention of any such Incentive Stock shall be a measure
based on one or more Qualifying Performance Criteria

                                       7
<PAGE>

selected by the Board, specified at the time the Incentive Stock is granted, and
shall be a preestablished goal under Treasury Regulation Section
1.162-27(e)(2)(i), (ii) the Board shall certify the extent to which any
Qualifying Performance Criteria has been satisfied, and the amount payable as a
result thereof, prior to payment of any Incentive Stock that is intended to
satisfy the requirements for "performance-based compensation" under Section
162(m) of the Code, and (iii) the award shall comply with all other applicable
requirements relating to "performance based compensation" under Section 162(m)
of the Code and the Treasury Regulations issued thereunder. To the extent a
performance-based award is not intended to satisfy the requirements for
"performance-based compensation" under Section 162(m) of the Code, the
performance criteria for the grant, vesting or retention of any such Incentive
Stock may be a measure based on one or more Qualifying Performance Criteria
selected by the Board, or any other criteria deemed appropriate by the Board.

            (b)   INCENTIVE STOCK AGREEMENT. Each Incentive Stock Agreement
shall contain provisions regarding (i) the number of shares of Common Stock
subject to such award or a formula for determining such, (ii) the purchase price
of the shares, if any, and the means of payment for the shares, (iii) the
performance criteria, if any, and level of achievement versus these criteria
that shall determine the number of shares granted, issued, retainable and/or
vested, (iv) such terms and conditions on the grant, issuance, vesting and/or
forfeiture of the shares as may be determined from time to time by the Board,
(v) restrictions on the transferability of the shares and (vi) such further
terms and conditions in each case not inconsistent with this Plan as may be
determined from time to time by the Board. Shares of Incentive Stock may be
issued in the name of the Participant and held by the Participant or held by the
Company, in each case as the Board may provide.

            (c)   SALES PRICE. Subject to the requirements of applicable law,
the Board shall determine the price, if any, at which shares of Incentive Stock
shall be sold or awarded to a Participant, which may vary from time to time and
among Participants and which may be below the fair market value of such shares
(as determined in Section 8(b)) at the date of grant or issuance.

            (d)   SHARE VESTING. Except as set forth herein, the grant,
issuance, retention and/or vesting of shares of Incentive Stock shall be at such
time and in such installments as determined by the Board. The Board shall have
the right to make the timing of the grant and/or the issuance, ability to retain
and/or vesting of shares of Incentive Stock subject to continued employment,
passage of time and/or such performance criteria as deemed appropriate by the
Board, provided that, in no event shall an award of Incentive Stock vest sooner
than (i) three (3) years after the date of grant, if the vesting of the
Incentive Stock is based solely on Continuous Status as an Employee or
Consultant and the grant of Incentive Stock is not a form of payment of earned
incentive compensation or other performance-based compensation, provided,
however, that notwithstanding the foregoing vesting limitations, shares of
Incentive Stock vesting under this paragraph (i) may vest in installments so
long as the vesting schedule, at any point in time, is not more favorable than
what would be vested under a monthly pro rata installment schedule (i.e., 1/36
per month for 3 years), or (ii) one (1) year after the date of grant, if the
vesting of Incentive Stock is also subject to the attainment of performance
goals. Notwithstanding the foregoing, the Board may accelerate vesting (in a
Stock Award agreement or otherwise) of any

                                       8
<PAGE>

Stock Award in the event of a Participant's termination of service as an
Employee or Consultant, a change in control of the Company or similar event,
provided that, in the case of award of Incentive Stock that is intended to
qualify as "performance based compensation" under Section 162(m), such
acceleration shall comply with the requirements set forth in Treasury Regulation
Section 1.162-27(e)(2)(iii).

            (e)   TRANSFERABILITY. Shares of Incentive Stock shall be
transferable by the Participant only upon such terms and conditions as are set
forth in the Incentive Stock Agreement, as the Board shall determine in its
discretion, so long as Incentive Stock awarded under the Incentive Stock
Agreement remains subject to the terms of the Incentive Stock Agreement.

            (f)   DISCRETIONARY ADJUSTMENTS. Notwithstanding satisfaction of any
performance goals, the number of shares granted, issued, retainable and/or
vested under an award of Incentive Stock on account of either financial
performance or personal performance evaluations may be reduced by the Board on
the basis of such further considerations as the Board shall determine, but may
not be increased. In addition, the Board may appropriately adjust any evaluation
of performance under a Qualifying Performance Criteria to exclude any of the
following events that occurs during a performance period: (i) asset write-downs,
(ii) litigation or claim judgments or settlements, (iii) the effect of changes
in tax law, accounting principles or other such laws or provisions affecting
reported results, (iv) accruals for reorganization and restructuring programs
and (v) any extraordinary non-recurring items as described in Accounting
Principles Board Opinion No. 30 and/or in management's discussion and analysis
of financial condition and results of operations appearing in the Company's
annual report to stockholders for the applicable year.

      11.   NON-TRANSFERABILITY OF OPTIONS. Except as otherwise expressly
provided in the terms of an individual Option which is a non-statutory stock
option, the Option may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Participant, only by the Participant. Notwithstanding the foregoing, the person
to whom the Option is granted may, by delivering written notice to the Company,
in a form satisfactory to the Company, designate a third party who, in the event
of the death of the Participant, shall thereafter be entitled to exercise the
Option.

      12.   ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER. Subject to any
required action by the stockholders of the Company, the number of shares of
Common Stock covered by each outstanding Stock Award, and the number of shares
of Common Stock which have been authorized for issuance under the Plan but as to
which no Stock Awards have yet been granted or which have been returned to the
Plan upon cancellation, expiration, forfeiture or other termination of a Stock
Award, as well as the price per share of Common Stock covered by each such
outstanding Stock Award, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a stock
split or the payment of a stock dividend with respect to the Common Stock or any
other increase or decrease in the number of issued shares of Common Stock
effected without receipt of consideration by the Company; provided, however,
that conversion of any convertible securities of the Company shall

                                       9
<PAGE>

not be deemed to have been "effected without receipt of consideration." Such
adjustments shall be made by the Board, whose determination in that respect
shall be final, binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to a Stock Award.

            In the event of the proposed dissolution or liquidation of the
Company, or in the event of a proposed sale of all or substantially all of the
assets of the Company, or the merger of the Company with or into another
corporation, the Stock Award will terminate immediately prior to the
consummation of such proposed action, unless otherwise provided by the Board.
The Board may, in the exercise of its sole discretion in such instances, declare
that any Stock Award shall terminate as of a date fixed by the Board and give
each Participant the right to exercise his Option as to all or any part of the
Optioned Stock or otherwise accelerate the vesting of such Stock Award. If the
Board, at its sole discretion, permits acceleration as to all or any part of a
Stock Award, the aggregate fair market value (determined at the time Stock Award
is granted) of stock with respect to which Incentive Stock Options first become
exercisable in the year of such dissolution, liquidation, sale of assets or
merger cannot exceed $100,000. Any remaining accelerated Incentive Stock Options
shall be treated as non-statutory stock options.

      13.   MISCELLANEOUS.

            (a)   ADDITIONAL RESTRICTIONS ON STOCK AWARDS. Either at the time a
Stock Award is granted or by subsequent action, the Board may, but need not,
impose such restrictions, conditions or limitations as it determines appropriate
as to the timing and manner of any resales by an Participant or other subsequent
transfers by an Participant of any shares issued under an Option, including
without limitation (a) restrictions under an insider trading policy, (b)
restrictions designed to delay and/or coordinate the timing and manner of sales
by Participants, and (c) restrictions as to the use of a specified brokerage
firm for such resales or other transfers.

            (b)   STOCKHOLDER RIGHTS. No Participant shall be deemed to be the
holder of, or to have any of the rights of a holder with respect to, any shares
of Common Stock subject to such Option unless and until such Participant has
satisfied all requirements for exercise of the Option pursuant to its terms.

            (c)   INVESTMENT ASSURANCES. The Company may require an Participant,
as a condition of exercising or acquiring Common Stock under any Stock Award,
(i) to give written assurances satisfactory to the Company as to the
Participant's knowledge and experience in financial and business matters and/or
to employ a purchaser representative reasonably satisfactory to the Company who
is knowledgeable and experienced in financial and business matters and that he
or she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of the Stock Award; and (ii) to give
written assurances satisfactory to the Company stating that the Participant is
acquiring Common Stock subject to the Stock Award for the Participant's own
account and not with any present intention of selling or otherwise distributing
the Common Stock. The foregoing requirements, and any assurances given pursuant
to such requirements, shall be inoperative if (1) the issuance of the shares of

                                       10
<PAGE>

Common Stock upon the exercise the Option or acquisition of Common Stock under
the Plan has been registered under a then currently effective registration
statement under the Securities Act or (2) as to any particular requirement, a
determination is made by counsel for the Company that such requirement need not
be met in the circumstances under the then applicable securities laws. The
Company may, upon advice of counsel to the Company, place legends on stock
certificates issued under the Plan as such counsel deems necessary or
appropriate in order to comply with applicable securities laws, including, but
not limited to, legends restricting the transfer of the Common Stock.

            (d)   WITHHOLDING OBLIGATIONS. To the extent provided by the terms
of a Stock Option Agreement or Incentive Stock Agreement, the Participant may
satisfy any federal, state or local tax withholding obligation relating to a
Stock Award by any of the following means (in addition to the Company's right to
withhold from any compensation paid to the Participant by the Company) or by a
combination of such means: (i) tendering a cash payment; (ii) authorizing the
Company to withhold shares of Common Stock from the shares of Common Stock
otherwise issuable to the Participant as a result of the Stock Award, provided,
however, that no shares of Common Stock are withheld with a value exceeding the
minimum amount of tax required to be withheld by law; or (iii) delivering to the
Company owned and unencumbered shares of Common Stock.

      14.   TIME OF GRANTING THE STOCK AWARD. The date of grant of a Stock Award
shall, for all purposes, be the date on which the Board makes the determination
granting such Stock Award. Notice of the determination shall be given to each
Employee or Consultant to whom a Stock Award is so granted within a reasonable
time after the date of such grant.

      15.   AMENDMENT AND TERMINATION OF THE PLAN.

            (a)   AMENDMENT AND TERMINATION. The Board may amend or terminate
the Plan from time to time in such respects as the Board may deem advisable;
provided that, no amendment shall be effective unless approved by the
stockholders of the Company to the extent stockholder approval is necessary for
the Plan to satisfy the requirements of Section 422 of the Code, Rule 16b-3 or
any listing requirements of any securities exchange or national market system on
which the Common Stock is traded.

            (b)   EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or
termination of the Plan shall not adversely affect Stock Awards already granted
and such Stock Awards shall remain in full force and effect as if this Plan had
not been amended or terminated, unless mutually agreed otherwise between the
Participant and the Board, which agreement must be in writing and signed by the
Participant and the Company.

      16.   CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
pursuant to a Stock Award unless the exercise of the Option, if applicable, and
the issuance and delivery of such Shares pursuant the Stock Award shall comply
with all relevant provisions of the law, including without limitation, the
Securities Act of 1933, as amended; the Securities Exchange Act of 1934, as
amended; the rules and regulations promulgated thereunder, and the requirements

                                       11
<PAGE>

of any stock exchange upon which the Shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.

      17.   LIABILITY OF COMPANY. The Company shall not be liable to an
Participant or other persons as to any tax consequence expected, but not
realized, by any Participant or other person due to the receipt, exercise or
settlement of any Stock Award granted hereunder.

      18.   RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.

            Inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.

      19.   STOCK AWARD AGREEMENT. Stock Awards shall be evidenced by written
award agreements in such form as the Board shall approve.

                                       12

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