Document:

Amendment to Exec. Deferred Compensation Program

 

Exhibit 10.37

AMENDMENT TO

AMERITRADE HOLDING CORPORATION

EXECUTIVE DEFERRED COMPENSATION PROGRAM

(As Amended Through February 2001)

          WHEREAS, Ameritrade Holding Corporation (the “Company”) maintains
Ameritrade Holding Corporation Executive Deferred Compensation Program (the
“Program”);

          WHEREAS, pursuant to the provisions of Section 13 of the Program, the
Compensation Committee of the Board of Directors of the Company has the
authority to amend the Program, subject to certain restrictions;

          WHEREAS, amendment of the Program is now considered desirable; and

          NOW, THEREFORE, IT IS RESOLVED that the Program be, and its hereby is,
amended effective as of September 9, 2002, in the following particulars:

          1. By substituting the following for Section 9 of the Program:

     "9. Payment of Deferred Stock Accounts. As soon as practicable after the
date elected by the Participant pursuant to his Deferral Election (as
determined in accordance with uniform rules established by the Plan
Administrator), that number of shares of Stock equal to the total whole number
of Stock Unit Credits and Dividend Credits to be distributed to the Participant
as of such date shall be distributed to the Participant (or in the event of his
death, his beneficiary); provided, however, that if the Participant has elected
installment payments, the number of shares of Stock to be distributed as of the
first distribution date and each subsequent installment shall be equal to that
number of Stock Unit Credits and Dividend Credits then credited to the
Participant’s Deferred Stock Account divided by the number of installment
payments remaining (rounded down to whole shares). Such shares of Stock shall
be distributed from shares reserved for issuance under the Incentive Plan. If
a Participant dies before receiving all distributions to which he is entitled
under the Program, the Plan Administrator must be notified in writing. To be
effective, any beneficiary designation by a Participant must be in writing,
delivered and accepted by the Plan Administrator prior to the Participant’s
death. In default of an effective beneficiary designation, the Participant’s
estate shall be treated as his beneficiary for purposes of the Program.”KB Home, Form 8-K

 

EXHIBIT 4.22

OFFICERS’ CERTIFICATE PURSUANT TO THE

INDENTURE IDENTIFIED BELOW

               The undersigned Kelly M. Allred, Vice President and Treasurer of KB HOME,
a Delaware corporation (the “Issuer”), and Kimberly N. King, Corporate
Secretary and Vice President, Corporate Legal Affairs of the Issuer:

		
	 	     (a) Each hereby certifies that he or she has read and is familiar
with the provisions of Article Two of the Indenture referred to below
relating to the issuance of Securities (as defined in the Indenture)
thereunder; that he or she is generally familiar with the other
provisions of the Indenture and with the affairs of the Issuer and its
corporate acts and proceedings; that, in his or her opinion, he or she
has made such examination or investigation as is necessary to enable him
or her to express an informed opinion as to whether or not the covenants
and conditions have been complied with and that all covenants or
conditions provided for in the Indenture relating to the establishment of
$50,000,000 aggregate principal amount of Additional Notes (as such term
is defined in the Initial Officers’ Certificate referred to below) and
the form and terms of such Additional Notes and the issuance,
authentication and delivery of such Additional Notes have been complied
with;

		
	 	     (b) Acting pursuant to Article Two of the Indenture referred to
below, do hereby authorize, adopt and approve the following terms for
these Additional Notes which are of the same series of Securities under
the Indenture as the $250,000,000 aggregate principal amount of the
Issuer’s 7 3/4% Senior Subordinated Notes due 2010 (the “Initial
Notes”), the form and terms of which were established by that certain
Officers’ Certificate, dated January 27, 2003 (the “Initial Officers’
Certificate”), and which were issued on January 27, 2003 under the Senior
Subordinated Debt Indenture, dated as of November 19, 1996 (the
“Indenture”, which term as used herein, includes the form and terms of
the Additional Notes and the Initial Notes established by this Officers’
Certificate and the Initial Officers’ Certificate), between the Issuer
and SunTrust Bank, as successor to SunTrust Bank, Atlanta, as Trustee;

          (1) Form and terms of the Additional Notes authorized hereby:

		
	 	Except as set forth below, the form and terms of the $50,000,000
aggregate principal amount of Additional Notes authorized hereby are
identical to the form and terms of the Initial Notes established in or
pursuant to the Initial Officers’ Certificate, which is attached hereto
as Appendix A and is incorporated herein by reference.

          (2) Limit on the aggregate principal amount of Notes (as defined in the
Initial Officers’ Certificate) (except for Notes authenticated and delivered
upon registration of transfer, or in exchange for, or in lieu of, other Notes
pursuant to Section 2.8, 2.9, 2.11, 8.5 or 12.3 of the Indenture or Section 10
of the Initial Officers’ Certificate or pursuant to any provision of the
Indenture providing for redemption, repayment or repurchase of Notes in whole
or in part):

		
	 	$50,000,000 aggregate principal amount of Additional Notes are to be
authenticated and delivered upon issuance on February 7, 2003. These
Additional Notes, together with the

 

 

		
	 	Initial Notes, constitute one series of Securities under the Indenture.
Nothing in this Officers’ Certificate shall limit the ability of the
Issuer to issue other Additional Notes from time to time in the future
subject to the terms and provisions of the Initial Officers’ Certificate
and the Indenture.

          (3) Sale price of the Notes:

		
	 	On February 7, 2003, the Issuer will sell these Additional Notes to the
underwriter for 98.444% of the principal amount thereof, plus accrued
interest from January 27, 2003.

          (4) Each of the undersigned hereby further certifies, pursuant to Section
2.4(3) of the Indenture, that the form and terms of the Additional Notes
authorized hereby have been established pursuant to Sections 2.1 and 2.3 of the
Indenture and comply with the Indenture.

[Remainder of Page Intentionally Left Blank]

 

 

               IN WITNESS WHEREOF, we have executed this Certificate on behalf of the
Issuer this 7th day of February, 2003.

[SEAL]

	 	 	 
	 	 	

Name: Kelly M. Allred

Title: Vice President and Treasurer
	 	 	 
	 	 	

Name: Kimberly N. King

Title: Corporate Secretary and Vice President,
          Corporate
Legal Affairs

 

 

Appendix A

Officers’ Certificate dated January 27, 2003

See Attached.

 

 

OFFICERS’ CERTIFICATE PURSUANT TO THE

INDENTURE IDENTIFIED BELOW

     The undersigned Kelly M. Allred, Vice President and Treasurer of KB HOME,
a Delaware corporation (the “Issuer”), and Kimberly N. King, Corporate
Secretary and Vice President, Corporate Legal Affairs of the Issuer:

		
	 	     (a) Each hereby certifies that he or she has read and is familiar
with the provisions of Article Two of the Indenture referred to below
relating to the issuance of Securities thereunder; that he or she is
generally familiar with the other provisions of the Indenture and with
the affairs of the Issuer and its corporate acts and proceedings; that,
in his or her opinion, he or she has made such examination or
investigation as is necessary to enable him or her to express an informed
opinion as to whether or not the covenants and conditions have been
complied with and that all covenants or conditions provided for in the
Indenture relating to the establishment of the series of Securities
referred to below and the form and terms of such series and the issuance,
authentication and delivery of such Securities have been complied with.

		
	 	     (b) Acting pursuant to Article Two of the Indenture referred to
below, do hereby authorize, adopt and approve the following terms for a
series of Securities to be issued under the Senior Subordinated Debt
Indenture dated as of November 19, 1996 (the “Indenture”, which term, as
used herein, includes the form and terms of the Notes established by this
Officers’ Certificate), between the Issuer and SunTrust Bank, as
successor to SunTrust Bank, Atlanta, as Trustee:

     (1)  Designation of Securities of the series:

		
	 	     7 3/4% Senior Subordinated Notes due 2010.

     (2)  Limit on the aggregate principal amount of Notes (except for Notes
authenticated and delivered upon registration of transfer, or in exchange for,
or in lieu of, other Notes pursuant to Section 2.8, 2.9, 2.11, 8.5 or 12.3 of
the Indenture, or Section 10 of this Officers’ Certificate or pursuant to any
provision of the Indenture providing for redemption, repayment or repurchase of
Notes in whole or in part):

		
	 	     $250,000,000 aggregate principal amount are to be authenticated and
delivered upon original issuance on the Closing Date and, subject to the
covenants applicable to the Notes set forth in the Indenture (including
the covenants set forth in this Officers’ Certificate) and applicable
law, an additional unlimited aggregate principal amount of Notes may be
authenticated and delivered upon original issuance, at any time and from
time to time after the Closing Date, upon the delivery to the Trustee of
an Issuer Order, accompanied by a Board Resolution, and an Officers’
Certificate pursuant to Section 2.3 of the Indenture (which Officers’
Certificate may incorporate any provisions from or otherwise refer to
this Officers’ Certificate); provided that any Additional Notes issued
after the Closing Date shall have the same form and terms (other than
date of issuance),

 

 

		
	 	and carry the same right to receive accrued and unpaid interest, as
the Notes originally issued on the Closing Date and may (but need not)
provide that interest thereon shall begin to accrue from a different date
than the date set forth in the Notes originally issued on the Closing
Date; and provided, further, that, notwithstanding the foregoing, no
Additional Notes may be issued if the Issuer has effected satisfaction
and discharge of the Indenture with respect to the Notes pursuant to
Section 10.1(A) of the Indenture or has effected defeasance of the Notes
pursuant to Section 10.1(B) of the Indenture or has effected covenant
defeasance of the Notes pursuant to Section 10.1(C) of the Indenture.
All of the Notes issued on the Closing Date, together with any Additional
Notes which may be originally issued after the Closing Date, shall
constitute one series of Securities under the Indenture.

     (3)  Date on which the principal of Notes is payable at maturity:

		
	 	     February 1, 2010.

     (4)  Interest on the Notes:

	 	 	 	 	 
	 	 	
(a)
	 	The rate of interest on the Notes and the method of calculation thereof:
	 	 	 	 	 
	 	 	 	 	7 3/4% per annum calculated on the basis of a 360-day year
of twelve 30-day months.
	 	 	 	 	 
	 	 	
(b)
	 	The date from which such interest shall accrue:
	 	 	 	 	January 27, 2003.
	 	 	 	 	 
	 	 	
(c)
	 	Interest payment dates:
	 	 	 	 	 
	 	 	 	 	February 1 and August 1, commencing August 1, 2003.
	 	 	 	 	 
	 	 	
(d)
	 	Record dates:
	 	 	 	 	 
	 	 	 	 	January 15 and July 15 (in each case whether or not a
Business Day), as the case may be, next preceding each
February 1 and August 1, respectively.

     (5)  Place or places where Notes shall be payable:

		
	 	     The principal of and interest on the Notes shall be payable, and the
Notes may be presented for registration of transfer and exchange, in the
Borough of Manhattan, The City of New York at an office or agency
maintained by the Issuer for such purpose pursuant to Section 3.2 of the
Indenture. Such office or agency shall initially be the agent of the
Trustee in The City of New York, which on the date hereof is
Computershare Trust Company of New York, Wall Street Plaza, 88 Pine
Street, 19th Floor, New York, New York 10005. In addition, so long as
the Trustee shall act as trustee with respect to the Notes, the principal
of and interest on the Notes shall be payable, and the Notes may be

2

 

		
	 	     presented for registration of transfer and exchange, at the office
of the Trustee in Atlanta, Georgia designated for such purpose.

     (6)  Redemption of Notes at the option of the Issuer; absence of sinking
fund:

		
	 	     (a) Except as set forth in subsection (b) of this Section 6 and in
Section 12 below, the Notes will not be redeemable at the Issuer’s
option. The Notes will not be entitled to the benefit of any sinking
fund.

		
	 	     (b) The Notes will be redeemable at the Issuer’s option, in whole or
from time to time in part, on any date on or after February 1, 2007 and
prior to maturity, upon not less than 30 nor more than 60 days’ notice
given in accordance with the provisions of the Indenture, at the
redemption prices (expressed as percentages of principal amount thereof)
set forth below, together with accrued interest to the date fixed for
redemption (provided that payments of interest becoming due on or prior
to a date fixed for redemption of the Notes shall be payable to the
Holders of the Notes registered as such at the close of business on the
relevant record dates, subject to the terms and provisions of the
Indenture), if redeemed during the 12-month period beginning February 1
of the years indicated below:

	 	 	 	 	 
	 	 	Redemption
	Year	 	Price
	
	 	

	2007
	 	 	103.875	%
	2008
	 	 	101.938	%
	2009 and thereafter
	 	 	100.000	%

     (7)  Repurchase of Notes at option of the Holders upon Change of Control:

		
	 	     (a) If at any time there occurs a Change of Control with respect to
the Issuer, each Holder of Notes will have the right, at such Holder’s
option, to require the Issuer to repurchase all of such Holder’s Notes,
or a portion thereof which is in a principal amount of $1,000 or any
integral multiple thereof, on the date (the “Change of Control Repurchase
Date”) that is 30 Change of Control Business Days after the date of the
Change of Control at a price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest to the Change of Control
Repurchase Date (the “Change of Control Repurchase Price”).
	 
	 	     (b) Within 15 Change of Control Business Days after the occurrence
of a Change of Control, the Issuer or, at the request of the Issuer, the
Trustee will give notice (the “Change of Control Notice”), in the manner
provided in Section 11.4 of the Indenture, to all Holders of the Notes of
the occurrence of such Change of Control and of the Issuer’s offer to
repurchase Notes pursuant to the repurchase right arising as a result
thereof and will cause a copy of such notice to be published in an
Authorized Newspaper in The City of New York. If such Change of Control
Notice is given by the Issuer, the Issuer shall also deliver a copy
thereof to the Trustee. Such Change of Control Notice shall contain all
instructions and (except in the case of the published notice) materials
necessary to enable Holders of Notes to surrender their Notes to the
Issuer for repurchase

3

 

		
	 	(including (except in the case of the published notice), without
limitation, a form of Change of Control Repurchase Notice (as defined
below)) and, without limitation to the foregoing, shall state:

		
	 	     (i) that the Issuer is offering to repurchase all of the Notes
as a result of a Change of Control pursuant to this Section 7, and
shall state the events causing such Change of Control and the date
of such Change of Control;
	 
	 	     (ii) the Change of Control Repurchase Date;
	 
	 	     (iii) the Change of Control Repurchase Price;
	 
	 	     (iv) that a Holder electing to have a Note (or any portion
thereof which is a principal amount of $1,000 or any integral
multiple thereof) repurchased will be required to surrender the
Note, duly endorsed by, or accompanied by a written instrument or
instruments of transfer executed by, the Holder or his attorney
duly authorized in writing, together with a duly completed Change
of Control Repurchase Notice, at an address specified in
subparagraph (v) below prior to the Change of Control Repurchase
Date (such notice shall specify the information which the Holder
must set forth in such Change of Control Repurchase Notice, and
shall indicate that copies of the form of Change of Control
Repurchase Notice are available at the office of the Trustee and at
each other office or agency specified in subparagraph (v) below),
or, in the case of any Note represented by a Global Note (as
defined in Section 15(a) of this Officers’ Certificate) registered
in the name of a Depositary or its nominee, that a Holder electing
to have such Note (or any portion thereof which is a principal
amount of $1,000 or any integral multiple thereof) repurchased will
be required to surrender such Note prior to the Change of Control
Repurchase Date in accordance with the procedures of the Depositary
as then in effect;
	 
	 	     (v) the address of the Trustee where Notes may be surrendered
for repurchase pursuant to such Change of Control, and the name and
address of each other office or agency where Notes may be
surrendered for repurchase pursuant to such Change of Control,
which shall include the office or agency in the Borough of
Manhattan, The City of New York maintained with respect to the
Notes pursuant to Section 3.2 of the Indenture;
	 
	 	     (vi) that the Change of Control Repurchase Price for any Note
which has been duly surrendered, together with a duly completed
Change of Control Repurchase Notice (or, in the case of a Note
represented by a Global Note, any similar notice required pursuant
to the procedures of the Depositary as then in effect), and not
withdrawn will be paid on the Change of Control Repurchase Date;
	 
	 	     (vii) that any Note repurchased by the Issuer on the Change of
Control Repurchase Date shall cease to accrue interest on the
Change of Control Repurchase Date unless the Issuer defaults in
making payment in full of the

4

 

		
	 	Change of Control Repurchase Price, and that any Note which is
not surrendered for repurchase or which is surrendered and
thereafter withdrawn shall continue to accrue interest;
	 
	 	     (viii) that Holders who have surrendered Notes for repurchase
will be entitled to withdraw such Notes (or any portion thereof in
a principal amount of $1,000 or any integral multiple thereof) if
the Trustee or any office or agency referred to in clause (v)
above, as the case may be, receives, prior to the Change of Control
Repurchase Date, a telegram, telex, facsimile transmission, letter
or hand delivery notice setting forth the name of the Holder, the
certificate number and the principal amount of the Note (which may
be all or a portion of such principal amount which is $1,000 or an
integral multiple thereof) with respect to which such notice of
withdrawal is being submitted and the principal amount, if any, of
the Note which is not being withdrawn (provided that, in the case
of Notes represented by one or more Global Notes registered in the
name of a Depositary or its nominee, Holders who have surrendered
such Notes for repurchase will be entitled to withdraw such Notes
(or any portion thereof in a principal amount of $1,000 or any
integral multiple thereof) at any time prior to the Change of
Control Repurchase Date in accordance with the procedures of the
Depositary as then in effect);
	 
	 	     (ix) that Holders whose Notes are repurchased only in part
will be issued new Notes equal in principal amount to the
unrepurchased portion of the Notes surrendered, and that Holders
surrendering Notes for repurchase in part may specify the
denomination or denominations (which must be $1,000 or an integral
multiple of $1,000) of the Note or Notes to be issued for the
unrepurchased portion of the Notes being surrendered and that, in
the absence of any such specification, one Note will be issued for
the portion not repurchased; and
	 
	 	     (x) any other procedures the Holder must follow to exercise
its rights under this Section 7, including a general statement to
the effect that owners of Notes represented by Global Notes will be
required to effect delivery of such Notes through book-entry
transfers and therefore should contact the broker or dealer through
which they hold those Notes in order to surrender those Notes for
repurchase or to withdraw Notes that have been so surrendered.

		
	 	     (c) “Change of Control Repurchase Notice” means a written notice
(which may be the form thereof provided by the Issuer pursuant to Section
7(b) or any other written notice which sets forth the information
described below), signed by the Holder or his attorney duly authorized in
writing, stating:

		
	 	     (i) the name and address of the Holder and the certificate
number of the Note which the Holder is delivering to be
repurchased;

5

 

		
	 	     (ii) if the Note is surrendered for repurchase in part, the
portion of the principal amount of the Note which the Holder is
delivering to be repurchased, which portion must be $1,000 or an
integral multiple thereof;
	 
	 	     (iii) if the Note is surrendered for repurchase in part, the
denomination or denominations (which must be $1,000 or any integral
multiple thereof) of the Note or Notes to be issued to the Holder
for the unrepurchased portion of the Note being surrendered,
provided that the failure so to specify such denomination or
denominations shall not constitute a defect in the Change of
Control Repurchase Notice and, in such event, one Note will be
issued for such unrepurchased portion of the Note being
surrendered; and
	 
	 	     (iv) that such Holder is electing to have such Note (or
portion thereof) repurchased by the Issuer on the Change of Control
Repurchase Date.

		
	 	     The delivery of a Note, by hand, by mail or otherwise, prior to the
Change of Control Repurchase Date to the Trustee or to an office or
agency referred to in Section 7(b)(v) above shall be a condition to the
receipt by the Holder of the Change of Control Repurchase Price therefor.

		
	 	     (d) Anything in this Officers’ Certificate, the Notes or the
Indenture to the contrary notwithstanding, in the case of any Notes in
book-entry form represented by one or more Global Notes registered in the
name of a Depositary or its nominee, the surrender and withdrawal of such
Notes in connection with a Change of Control may be effected by
book-entry transfer in accordance with the Depositary’s procedures as in
effect from time to time and the Change of Control Repurchase Notice, any
notice of withdrawal or any other notice contemplated by Section 7, 8, 9
or 10 of this Officers’ Certificate with respect to such Notes may be
given electronically or otherwise in accordance with the procedures of
the Depositary as in effect from time to time, and the information
specified in such Change of Control Repurchase Notice, notice of
withdrawal or other notice may differ from that contemplated by Section
7, 8, 9 or 10 of this Officers’ Certificate so long as such information
is in accordance with the Depositary’s procedures as in effect from time
to time.

     (8)  Effect of Change of Control Repurchase Notice; Right of Withdrawal:

		
	 	     Upon surrender by a Holder of a Note for repurchase pursuant to
Section 7, together with a duly completed Change of Control Repurchase
Notice (or, in the case of Notes represented by one or more Global Notes,
any similar notice required pursuant to the procedures of the Depositary
as then in effect), such Holder shall (unless such Note is withdrawn as
specified in the following paragraph) thereafter be entitled to receive,
on the Change of Control Repurchase Date, the Change of Control
Repurchase Price with respect to such Note. On the Change of Control
Repurchase Date, the Issuer will pay or cause the Trustee or a paying
agent to pay the Holders of Notes which have been duly surrendered for
repurchase and not withdrawn the Change of Control Repurchase Price for
such Notes.

6

 

		
	 	     A Holder who has surrendered a Note for repurchase on a Change of
Control Repurchase Date will be entitled to withdraw such Note (or any
portion thereof in a principal amount of $1,000 or any integral multiple
thereof) if the Trustee or any office or agency referred to in Section
7(b)(v) receives, prior to the Change of Control Repurchase Date, a
telegram, telex, facsimile transmission, letter or hand delivery notice
setting forth the information specified in Section 7(b)(viii).

		
	 	     If any Note is withdrawn in whole, the Issuer shall cause such Note
promptly to be mailed or otherwise delivered to the Holder thereof.
	 
	 	     If any Note surrendered for repurchase shall not be so paid in full
on the relevant Change of Control Repurchase Date, the principal thereof
(including the premium thereon) shall, until paid, bear interest from
such Change of Control Repurchase Date at the rate of interest borne by
the Notes, and the Issuer shall cause such Note promptly to be mailed or
otherwise delivered to the Holder thereof.
	 
	 	     The Issuer shall publicly announce the results of an offer made
following a Change of Control on or promptly after the Change of Control
Repurchase Date.

     (9)  Deposit of Change of Control Repurchase Price:

		
	 	     On or prior to the Change of Control Repurchase Date, the Issuer
shall deposit with the Trustee or with a paying agent for the Notes (or,
if the Issuer is acting as its own paying agent, shall set aside,
segregate and hold in trust as provided in Section 3.4 of the Indenture)
an amount of cash sufficient to pay the aggregate Change of Control
Repurchase Price for all Notes or portions thereof which have been duly
surrendered for repurchase and not withdrawn.
	 
	 	     Anything in this Officers’ Certificate, the Notes or the Indenture
to the contrary notwithstanding, interest payable on Notes duly
surrendered for repurchase on a Change of Control Repurchase Date shall
be paid with and in the same manner as the principal of such Notes
payable on such Change of Control Repurchase Date.

     (10)  Notes repurchased in part:

		
	 	     In the case of any Note which is repurchased only in part, the
Issuer shall execute and the Trustee shall authenticate and deliver to
the Holder of such Note, without service charge, a new Note or Notes, of
any authorized denominations as specified by such Holder (or, if the
Holder shall fail to specify any such denominations, a single Note in an
authorized denomination), in aggregate principal amount equal to, and in
exchange for, the portion of the principal amount of the Note so
surrendered which is not repurchased.
	 
	 	     Provisions of this Officers’ Certificate and the Indenture that
apply to the repurchase of all of a Note pursuant to Section 7 also apply
to the repurchase of a portion of such Note.

     (11)  Covenant to comply with securities laws upon repurchase of Notes:

7

 

		
	 	     In connection with any offer to purchase Notes under Section 7, the
Issuer will conduct such offer in compliance with applicable securities
laws and regulations, including Section 14(e) of the Exchange Act and
Rule 14e-1 thereunder, to the extent applicable.

     (12)  Redemption of the Notes at the option of the Issuer with Net Cash
Proceeds of Equity Offerings.

		
	 	     At any time prior to February 1, 2006, the Issuer at its option may
redeem Notes in an aggregate principal amount equal to up to 35% of the
original aggregate principal amount of the Notes (including any
Additional Notes) with the Net Cash Proceeds of one or more Equity
Offerings, at any time or from time to time, at a redemption price equal
to 107.75% of the principal amount plus accrued interest to the date
fixed for redemption (provided that payments of interest becoming due on
or prior to a date fixed for redemption of the Notes will be payable to
the Holders of the Notes registered as such at the close of business on
the relevant record dates, subject to the terms and provisions of the
Indenture); provided that Notes (including any Additional Notes) with an
aggregate principal amount equal to at least $162,500,000 remain
outstanding after each such redemption; and provided, further, that
notice of any such redemption is mailed within 60 days after the closing
date of the applicable Equity Offering and, in any event, not less than
30 nor more than 60 days prior to the applicable redemption date, all in
accordance with the requirements of the Indenture.

     (13)  Denominations in which Notes are issuable, if other than $1,000 and
any integral multiples thereof:

     Not Applicable.

     (14)  If other than the principal amount thereof, the portion of the
principal amount of Notes payable on declaration of acceleration:

     Not Applicable.

     (15)  Whether Notes are issuable as Registered Securities, Unregistered
Securities (with or without interest coupons), or any combination thereof:

		
	 	     (a) The Notes will be issued as Registered Securities without
Coupons. The Notes will initially be issued in book-entry form and
represented by one or more Registered Global Securities (the “Global
Notes”). The initial Depositary for the Global Notes will be The
Depository Trust Company, New York, New York (“DTC”). The Global Notes
will initially be deposited with, or on behalf of DTC and registered in
the name of Cede & Co., the nominee of DTC. Unless and until it is
exchanged for individual certificates evidencing Notes, as provided
below, a Global Note may not be transferred except as a whole by the
Depositary to its nominee or by a nominee to the Depositary or another
nominee of the Depositary, or by the Depositary or its nominee to a
successor Depositary or to a nominee of the successor Depositary.

8

 

		
	 	     (b) In addition to the events specified in Section 2.8 of the
Indenture under which one or more Notes in definitive form will be issued
in exchange for Global Notes, if at any time an Event of Default under
the Indenture has occurred and is continuing with respect to the Notes,
then the Issuer’s election pursuant to Section 2.3 of the Indenture that
the Notes be represented by one or more Global Notes shall no longer be
effective and the Issuer will execute, and the Trustee, upon receipt of
an Officers’ Certificate for the authentication and delivery of Notes in
definitive registered form, will authenticate and deliver, Notes in
definitive registered form, in any authorized denominations, in an
aggregate principal amount equal to the principal amount of the Global
Notes, in exchange for such Global Notes.
	 
	 	     (c) Any Note in definitive form issued in exchange for a beneficial
interest in a Global Note will be registered in such name or names as the
Depositary shall instruct the Trustee. The Depositary may surrender
Global Notes in exchange in whole or in part for Notes in definitive
registered form on such terms as are acceptable to the Issuer and the
Depositary.

     (16)  Any other terms of Notes:

     The Issuer covenants and agrees for the benefit of the Holders of the
Notes as follows:

		
	 	     (a) Limitation on Incurrence of Additional Indebtedness

		
	 	     The Issuer will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guarantee, extend the maturity of or in any other manner become liable
with respect to, or otherwise become responsible for the payment of
(collectively, “incur”), any Indebtedness unless after giving effect to
the incurrence thereof and the receipt and application of the net
proceeds therefrom either:

		
	 	     (1) the Consolidated Fixed Charge Coverage Ratio of the Issuer
(determined on a pro forma basis for the last four fiscal quarters
of the Issuer for which financial statements are available at the
date of determination) is at least 2.0 to 1 or
	 
	 	     (2) the ratio of Indebtedness of the Issuer and its Restricted
Subsidiaries to Consolidated Net Worth of the Issuer is less than
3.5 to 1.

		
	 	     Notwithstanding the foregoing, the Issuer and its Restricted
Subsidiaries may incur:

		
	 	     (1) Refinancing Indebtedness;
	 
	 	     (2) Non-Recourse Indebtedness incurred for the acquisition or
improvement of real property and secured by mortgage Liens on such
real property or improvements;
	 
	 	     (3) Indebtedness to the Issuer or to Restricted Subsidiaries;

9

 

		
	 	     (4) Indebtedness under the 2000 Revolving Credit Facility
included in the Existing Credit Facilities in an aggregate
principal amount at any one time of not more than $739,100,000; and
	 
	 	     (5) Excluded Debt.

		
	 	     (b) Limitation on Restrictions on Distributions from Restricted
Domestic Subsidiaries

		
	 	     The Issuer will not, and will not permit any of its Restricted
Domestic Subsidiaries to, directly or indirectly, create, assume or
otherwise cause or permit to exist or to become effective any consensual
encumbrance or restriction on the ability of any Restricted Domestic
Subsidiary to:

		
	 	     (1) pay dividends or make any other distributions on its
Capital Stock or on any other interest or participation in, or
measured by, its profits, owned by the Issuer or any of its other
Restricted Subsidiaries, or pay interest on or principal of any
Indebtedness owed to the Issuer or any of its other Restricted
Subsidiaries;

		
	 	     (2) make loans or advances to the Issuer or any of its other
Restricted Subsidiaries; or

		
	 	     (3) transfer any of its properties or assets to the Issuer or
any of its other Restricted Subsidiaries,

	 	 	except for (i) encumbrances or restrictions on the payment of cash by any
Restricted Domestic Subsidiary which do not exceed $10,000 in the
aggregate and (ii) encumbrances or restrictions existing or created under
or by reason of:

		
	 	     (a) applicable law;

		
	 	     (b) covenants or restrictions contained in Existing
Indebtedness;

		
	 	     (c) customary provisions restricting subletting or
assignment of any contract or of any lease governing a
leasehold interest of the Issuer or any Restricted Domestic
Subsidiary;

		
	 	     (d) restrictions under any instrument creating or
evidencing any Acquired Indebtedness that was permitted to be
incurred pursuant to the Indenture and the Notes and which
(I) only apply to assets that were subject to such
restrictions and encumbrances prior to the acquisition of
such assets by the Issuer or its Restricted Domestic
Subsidiaries and (II) were not created in connection with, or
in contemplation of, such acquisition;

10

 

		
	 	     (e) restrictions replacing those permitted by clause (b)
or (d) which are not more restrictive than, and do not extend
to any Persons or assets other than the Persons or assets
subject to, the restrictions and encumbrances so replaced;

		
	 	     (f) restrictions under any instrument creating or
evidencing any Refinancing Indebtedness which are not more
restrictive than those under, and do not extend to any
Persons or assets other than the Persons or assets subject
thereto under, the instrument creating or evidencing the
Indebtedness being refunded, extended or refinanced by such
Refinancing Indebtedness;

		
	 	     (g) any Permitted Lien or any agreement restricting the
sale or other disposition of property securing Indebtedness
permitted by the Indenture and the Notes if such Permitted
Lien or agreement, as the case may be, does not by its terms
expressly restrict the ability of a Restricted Domestic
Subsidiary of the Issuer to make any of the dividends,
payments, distributions, loans, advances or transfers
referred to in clauses (1), (2) or (3) above;

		
	 	     (h) reasonable and customary borrowing base covenants
set forth in credit agreements evidencing Indebtedness
otherwise permitted by the Indenture and the Notes, which
covenants restrict or limit the distribution of revenues or
sale proceeds from real estate or a real estate project based
upon the amount of Indebtedness outstanding on such real
estate or real estate project and the value of some or all of
the remaining real estate or the project’s remaining assets;

		
	 	     (i) customary agreements entered into in the ordinary
course of business restricting the ability of the joint
venture to make distributions or payments of cash or property
to participants in such joint venture; or

		
	 	     (j) the Existing Credit Facilities or a Substitute
Credit Facility but only so long as no such encumbrance or
restriction under the Existing Credit Facilities or a
Substitute Credit Facility by its terms expressly restricts
the ability of a Restricted Domestic Subsidiary of the Issuer
to make any of the dividends, payments, distributions, loans,
advances or transfers referred to in clauses (1), (2) or (3)
above (it being understood that covenants requiring or having
the effect of requiring the maintenance of a specified level
of net worth which do not by their terms expressly restrict
the ability of a Restricted Domestic Subsidiary of the Issuer
to make any such dividends, payments, distributions, loans,
advances or transfers referred to in clauses (1), (2) or (3)
above shall be permitted under this clause (j)).

11

 

		
	 	     (c) Limitation on Restricted Payments

		
	 	     The Issuer will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, make any Restricted Payment if,
after giving effect thereto,

		
	 	     (1) a Default or an Event of Default shall have occurred and
be continuing; or

		
	 	     (2) the aggregate amount of Restricted Payments (the amount of
any Restricted Payment, if other than in cash, to be determined by
the Board of Directors of the Issuer, whose reasonable
determination shall be conclusive and evidenced by a Board
Resolution certified by an Officers’ Certificate and filed with the
Trustee) made by the Issuer and its Restricted Subsidiaries from
and after the date of the Indenture would exceed the sum of (a) 50%
of the Consolidated Net Income of the Issuer accrued on a
cumulative basis for the period commencing on September 1, 1996
(the “Commencement Date”) and ending on the last day (the
“Reference Day”) of the Issuer’s last fiscal quarter ending prior
to the date of such proposed Restricted Payment (or, in the event
such Consolidated Net Income as so determined on a cumulative basis
shall be a deficit, minus 100% of such deficit), (b) the aggregate
net proceeds, including the fair market value of property other
than cash (such fair market value to be determined by a majority of
the disinterested members of the full Board of Directors of the
Issuer, whose reasonable determination shall be conclusive and
evidenced by a Board Resolution certified by an Officers’
Certificate and filed with the Trustee), received by the Issuer
from any Person (other than a Restricted Subsidiary) after the
Commencement Date and on or prior to the Reference Date from the
issue or sale of Qualified Capital Stock of the Issuer, or any
options, warrants or other rights (other than convertible or
exchangeable debt securities except as provided below) to purchase
Qualified Capital Stock of the Issuer, or from the issuance or sale
of debt securities of the Issuer which are converted into or
exchanged for Qualified Capital Stock of the Issuer, and (c)
$100,000,000; or

		
	 	     (3) the Issuer would be unable to incur an additional $1.00 of
Indebtedness pursuant to the first paragraph of the covenant set
forth in Section 16(a) of this Officers’ Certificate;

	 	 	provided, however, that the foregoing provisions shall not prevent (a)
the payment of any dividend or distribution within 60 days after the date
of declaration thereof, if the payment would have complied with the
foregoing provisions on the date of such declaration or (b) the
repurchase or redemption of shares of Capital Stock from any officer,
director or employee of the Issuer or its Restricted Subsidiaries whose
employment has been terminated or who has died or become disabled in an
aggregate amount not to exceed $5,000,000 for any fiscal year of the
Issuer; provided that amounts paid pursuant to this clause (b) shall
reduce amounts available for future Restricted Payments.

12

 

		
	 	     (d) Limitations on Transactions with Officers, Directors and
Employees

		
	 	     The Issuer will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly,

		
	 	     (1) make any loan, advance, guarantee or capital contribution
to, or for the benefit of, or

		
	 	     (2) sell, lease, transfer or otherwise dispose of any of its
properties or assets to, or for the benefit of, or

		
	 	     (3) purchase or lease any property or assets from, or

		
	 	     (4) enter into or amend any contract, agreement or
understanding with, or for the benefit of,

		
	 	     (a) any officer, director or employee of the Issuer,

		
	 	     (b) any officer, director or employee of a Subsidiary of
the Issuer (provided that clause (4) above shall not apply
with respect to this clause (b)) or

		
	 	     (c) any former officer or director of the Issuer or any
of its Subsidiaries who owns, directly or indirectly, 7.5% or
more of the voting power of the Common Stock of the Issuer

	 	 	(each an “Affiliate Transaction”), except on terms that are no less
favorable to the Issuer or the relevant Restricted Subsidiary, as the
case may be, than those that could have been obtained in a comparable
transaction on an arm’s length basis from a Person that is not such an
officer, director or employee.

		
	 	     Notwithstanding the foregoing, the term “Affiliate Transaction”
shall not include any transaction with an officer, director or employee
of the Issuer or of any Subsidiary of the Issuer in their capacity as
officer, director or employee entered into in the ordinary course of
business or which is consistent with past practice (including
compensation and employee benefit arrangements with any officer, director
or employee of the Issuer or of any Subsidiary of the Issuer) and shall
not include the acquisition by any officer, director or employee of the
Issuer of any securities of the Issuer in the open market in arm’s length
transactions.

		
	 	     (e) Limitation on Investments in Restricted Foreign Subsidiaries,
Unrestricted Subsidiaries and Equity Method Persons

		
	 	     The Issuer will not, and will not permit any of its Restricted
Domestic Subsidiaries to, directly or indirectly, make any Investment in
any Restricted Foreign Subsidiary, Unrestricted Subsidiary or Equity
Method Person (each, a “Subject Entity”) if, after giving effect thereto,
the aggregate amount of all such Investments made after the date of the
Indenture would exceed the sum of:

13

 

		
	 	     (1) $110,000,000,

		
	 	     (2) the aggregate amount of cash dividends and distributions
received by the Issuer after the date of the Indenture from Subject
Entities,

		
	 	     (3) in the case of any such Investment made after the date of
the Indenture as a loan or advance to, or purchase (or other
acquisition for consideration) of Indebtedness or other debt
securities of, a Subject Entity, the amount of all cash repayments
of principal of such loans, advances, Indebtedness or debt
securities paid to the Issuer or any of its Restricted Domestic
Subsidiaries (or to a Person designated by the Issuer or any of its
Restricted Domestic Subsidiaries, which Person is not a Subsidiary
or Affiliate of the Issuer) by such Subject Entity,

		
	 	     (4) in the case of any such Investment made after the date of
the Indenture as a capital contribution to, or purchase (or other
acquisition for consideration) of Capital Stock or other equity
securities of, a Subject Entity, the aggregate cash amount paid to
the Issuer or any of its Restricted Domestic Subsidiaries (or to a
Person designated by the Issuer or any of its Restricted Domestic
Subsidiaries, which Person is not a Subsidiary or Affiliate of the
Issuer) by such Subject Entity as a return of such capital or to
repurchase such Capital Stock or other equity securities (not to
exceed the respective amount paid to purchase such Capital Stock or
equity securities), and

		
	 	     (5) in the case of any other such Investment made in a Subject
Entity after the date of the Indenture, the cash amount paid to
the Issuer or any of its Restricted Domestic Subsidiaries (or to a
Person designated by the Issuer or any of its Restricted Domestic
Subsidiaries, which Person is not a Subsidiary or Affiliate of the
Issuer) by such Subject Entity as a repayment or reimbursement of
such Investment.

		
	 	     (f) Corporate Existence

		
	 	     Subject to Article Nine of the Indenture (as modified by Section
24(h) of this Officers’ Certificate), the Issuer will do or cause to be
done all things necessary to preserve and keep in full force and effect
its corporate existence and its rights (charter and statutory) and
franchises; provided, however, that the Issuer shall not be required to
preserve any such right or franchise if the Board of Directors shall
determine that the preservation thereof is no longer desirable in the
conduct of the business of the Issuer and its Subsidiaries taken as a
whole.

		
	 	     (g) Payment of Taxes

		
	 	     The Issuer will pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, all taxes, assessments and
governmental charges levied or imposed upon the Issuer or any Restricted
Significant Subsidiary or upon the income, profits or property of the
Issuer or any Restricted Significant Subsidiary; provided that the Issuer
shall not be required to pay or discharge or cause to be paid or
discharged any

14

 

		
	 	such tax, assessment or charge whose amount, applicability or
validity is being contested in good faith by appropriate proceedings;
provided, further, that the Issuer shall not be required to pay or cause
to be paid (i) any such delinquent taxes, assessments or charges until
the aggregate amount thereof at any time outstanding shall exceed
$10,000,000 or (ii) any such tax, assessment or charge levied on any
property of the Issuer or any Restricted Significant Subsidiary that is
without recourse to the Issuer or any Restricted Significant Subsidiary.

		
	 	     (h) Waiver of Stay, Extension or Usury Laws

		
	 	     The Issuer covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay or extension law or
any usury law or other law which would prohibit or forgive the Issuer
from paying all or any portion of the principal of or interest on the
Notes as contemplated herein and in the Indenture, wherever enacted, now
or at any time hereafter in force, or which may affect the covenants or
the performance of this Officers’ Certificate or the Indenture and (to
the extent that it may lawfully do so) the Issuer hereby expressly waives
all benefit or advantage of any such law and covenants that it will not
hinder, delay or impede the execution of any power granted to the
Trustee, but will suffer and permit the execution of every such power as
though no such law had been enacted.

     (17)  Initial public offering price of Notes:

     In the case of Notes to be issued on the Closing Date, the Issuer will
sell such Notes to underwriters for 98.444% of the principal amount thereof.
In the case of any Additional Notes originally issued after the Closing Date,
the Issuer may sell such Additional Notes to such Persons and at such prices as
the Issuer may determine from time to time.

     (18)  Underwriting discount as a percentage of the principal amount of
Notes:

     Not applicable.

     (19)  If other than Dollars, the coin or currency in which payment of
principal of and interest on the Notes shall be payable and in which the Notes
shall be denominated.

     Not applicable.

     (20)  Terms defined for purposes of this Officers’ Certificate and the
issuance of the Notes:

     All references in the Indenture to the Secretary of the Issuer shall be
deemed to include a reference to the Corporate Secretary of the Issuer.

     “2000 Revolving Credit Facility” means the 2000 Revolving Loan Agreement,
dated as of October 3, 2000, among the Issuer, the banks party thereto, Bank of
America, N.A., as administrative agent, Credit Lyonnais Los Angeles Branch, as
syndication agent, Bank One, NA,

15

 

 as documentation agent, and Banc of America Securities LLC, as lead
arranger and sole book manager, and any credit facility which is an extension,
renewal or replacement thereof.

     “Acquired Indebtedness” means:

		
	 	     (1) with respect to any Person (except a Person formed or organized
by or on behalf of the Issuer for purposes other than to act as an
acquisition vehicle) that becomes a Subsidiary of the Issuer after the
date of the Indenture, Indebtedness of such Person and its Subsidiaries
existing at the time such Person becomes a Subsidiary of the Issuer that
was not incurred in connection with, or in contemplation of, such Person
becoming a Subsidiary of the Issuer, and

		
	 	     (2) with respect to the Issuer or any of its Subsidiaries, any
Indebtedness incurred by the Issuer or any of its Subsidiaries in
connection with the acquisition of an asset from another Person after the
date of the Indenture that was not incurred in connection with, or in
contemplation of, such acquisition.

     “Additional Notes” means Notes, if any, originally issued under the
Indenture after the Closing Date and which are of the same series as the Notes
issued on the Closing Date.

     “Associate” shall have the meaning ascribed to such term in Rule 12b-2 of
the General Rules and Regulations under the Exchange Act, as in effect on
February 8, 2001.

     “Capital Stock” of any Person means any and all shares, interests,
participations or other equivalents (however designated) in or of the equity
(which includes, but is not limited to, common stock, preferred stock and
partnership and joint venture interests) of such Person.

     “Capitalized Lease Obligation” means an obligation under a Capital Lease
and the amount of Indebtedness represented by such obligation shall be the
capitalized amount of such obligation determined in accordance with GAAP.

     A “Change of Control” shall be deemed to have occurred at such time as
either of the following events shall occur:

		
	 	     (1) there shall be consummated any consolidation or merger of the
Issuer in which the Issuer is not the continuing or surviving corporation
or pursuant to which the Issuer’s Voting Stock would be converted into
cash, securities or other property, other than a merger of the Issuer in
which the holders of the Issuer’s Voting Stock immediately prior to the
merger have the same or greater proportionate ownership, directly or
indirectly, of the Voting Stock of the surviving corporation immediately
after such merger as they had of the Issuer’s Voting Stock immediately
prior to such merger; or

		
	 	     (2) there is a report filed by any Person, including its Affiliates
and Associates, on Schedule 13D or TO (or any successor schedule, form or
report) pursuant to the Exchange Act, disclosing that such Person (for
the purposes of this definition only, the term “Person” shall include a
“person” within the meaning of Section 13(d)(3) or Section 14(d)(2) of
the Exchange Act or any successor provision to either of the foregoing)
has become the beneficial owner (as the term “beneficial owner” is
defined

16

 

		
	 	under Rule 13d-3 or any successor rule or regulation promulgated
under the Exchange Act) of 50% or more of the voting power of the
Issuer’s Voting Stock then outstanding;

provided, however, that a Person shall not be deemed beneficial owner of, or to
own beneficially,

		
	 	     (A) any securities tendered pursuant to a tender or exchange offer
made by or on behalf of such Person or any of such Person’s Affiliates or
Associates until such tendered securities are accepted for purchase or
exchange thereunder, or

		
	 	     (B) any securities if such beneficial ownership (x) arises solely as
a result of a revocable proxy delivered in response to a proxy or consent
solicitation made pursuant to, and in accordance with, the applicable
rules and regulations under the Exchange Act, and (y) is not also then
reportable on Schedule 13D (or any successor schedule, form or report)
under the Exchange Act.

     Notwithstanding the foregoing, a Change of Control shall not be deemed to have
occurred if at any time the Issuer, any Subsidiary of the Issuer, any employee
stock ownership plan or any other employee benefit plan of the Issuer or any
Subsidiary of the Issuer, or any Person holding the Issuer’s Voting Stock for
or pursuant to the terms of any such employee benefit plan, files or becomes
obligated to file a report under or in response to Schedule 13D or Schedule TO
(or any successor schedule, form or report) under the Exchange Act disclosing
beneficial ownership by it of shares of Voting Stock, whether in excess of 50%
or otherwise.

     “Change of Control Business Day” means a day on which banking institutions
are not authorized or required by law or regulation to close in The City of New
York.

     “Closing Date” means January 27, 2003.

     “Common Stock” of any Person means all Capital Stock of such Person that
is generally entitled to:

		
	 	     (1) vote in the election of directors of such Person or

		
	 	     (2) if such Person is not a corporation, vote or otherwise
participate in the selection of the governing body, partners, managers or
others that will control the management and policies of such Person.

     “Consolidated Adjusted Net Income” of the Issuer means, for any period,
the Consolidated Net Income of the Issuer and its Restricted Subsidiaries for
such period, provided that

		
	 	     (1) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded and

		
	 	     (2) the Net Income of any Person which is not a Restricted
Subsidiary or is an Equity Method Person shall be included only to the
extent of the amount of cash dividends or distributions paid by it to the
Issuer or a Restricted Subsidiary during such period.

17

 

     “Consolidated Fixed Charge Coverage Ratio” means, for any period, the
ratio of:

		
	 	     (1) the sum, without duplication, of Consolidated Adjusted Net
Income, Consolidated Interest Expense (but only to the extent that such
Consolidated Interest Expense reduces such Consolidated Adjusted Net
Income for such period), Consolidated Tax Expense, depreciation and
amortization (including, without limitation, previously capitalized
interest amortized to cost of sales), in each case for such period, of
the Issuer and its Restricted Subsidiaries (determined on a consolidated
basis in accordance with GAAP) to

		
	 	     (2) Consolidated Interest Expense of the Issuer and its Restricted
Subsidiaries for such period;

provided, however, that in making such computation, the Consolidated Interest
Expense attributable to interest on any Indebtedness computed on a pro forma
basis and bearing a floating interest rate shall be computed as if the rate in
effect on the date of computation had been the applicable rate for the entire
period unless such interest rate has been fixed by hedging or other similar
contracts or agreements, in which case such interest rate shall be deemed to be
equal to such fixed rate of interest.

     “Consolidated Interest Expense” means, for any period, the aggregate
amount of interest which, in conformity with GAAP, would be set forth opposite
the caption “interest expense” or any like caption on a consolidated income
statement of the Issuer and its Restricted Subsidiaries (including, but not
limited to, imputed interest on Capitalized Lease Obligations, all commissions,
discounts and other fees and charges owed with respect to letters of credit and
bankers’ acceptance financing, the net costs associated with hedging
obligations, amortization of other financing fees and expenses, the interest
portion of any deferred payment obligation, amortization of discount or
premium, if any, and all other non-cash interest expense (other than previously
capitalized interest amortized to cost of sales)) plus, without duplication,
all capitalized interest of the Issuer and its Restricted Subsidiaries for such
period and all interest incurred or paid by the Issuer or any of its Restricted
Subsidiaries under any guarantee of Indebtedness (including a guarantee of
principal, interest or any combination thereof) of the Issuer for such period,
in each case determined on a consolidated basis in accordance with GAAP.

     “Consolidated Net Income” of the Issuer means, for any period, the
consolidated Net Income of the Issuer and its Restricted Subsidiaries for such
period, determined in accordance with GAAP.

     “Consolidated Net Worth” means the consolidated shareholders’ equity of
the Issuer; provided that, for purposes of computing Consolidated Net Worth,
all Subsidiaries of the Issuer whose accounts are consolidated with those of
the Issuer under GAAP shall be treated as if they were Wholly Owned
Subsidiaries of the Issuer, whether or not they are in fact Wholly Owned
Subsidiaries of the Issuer.

18

 

     “Consolidated Tax Expense” of the Issuer means, for any period, the
consolidated federal, state, local and foreign tax expense of the Issuer and
its Restricted Subsidiaries for such period, determined in accordance with
GAAP.

     “Default” means any event or condition which is or, with notice or lapse
of time or both, would be an Event of Default.

     “Disqualified Capital Stock” means any Capital Stock that, by its terms
(or by the terms of any security into which it is convertible or for which it
is exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable other than solely for Qualified Capital Stock, pursuant to a sinking
fund obligation or otherwise, or is redeemable or required to be repurchased or
repaid at the option of the holder thereof for consideration other than solely
for Qualified Capital Stock, in whole or in part, on or prior to the final
maturity date of the Notes; provided that, in the case of any Restricted
Domestic Subsidiary through which the Issuer conducts any real estate joint
venture, the fact that any participant in such joint venture who holds Capital
Stock of such Restricted Domestic Subsidiary may have the right, pursuant to a
“buy-sell” agreement or similar arrangement, to require that the Issuer or any
other Subsidiary of the Issuer purchase such Capital Stock from such joint
venturer, shall not cause such Capital Stock to be deemed Disqualified Capital
Stock.

     “Equity Method Person” means, as of any date of determination, any Person
(other than a Subsidiary of the Issuer) which is or is required to be accounted
for by the Issuer by the equity method of accounting in the Issuer’s
consolidated financial statements in accordance with GAAP.

     “Equity Offering” means any public or private sale of Common Stock of the
Issuer (excluding Disqualified Capital Stock), other than public offerings with
respect to Common Stock of the Issuer registered on Form S-8 (or any successor
form).

     “Event of Default”, when used with respect to the Notes, has the meaning
specified in the Section 24(a) of this Officers’ Certificate.

     “Exchange Act” means the Securities Exchange Act of 1934, as amended.

     “Excluded Debt” means any Indebtedness of the Issuer or its Restricted
Subsidiaries which is:

		
	 	     (1) subordinated (subject to the rights of holders of Senior
Indebtedness) in right of payment to the Notes (upon liquidation or
otherwise) at least to the extent that the Notes are subordinated to the
Senior Indebtedness and

		
	 	     (2) matures after, and is not redeemable mandatorily or at the
option of the holder thereof prior to, the final maturity date of the
Notes.

     “Existing Credit Facilities” means the 2000 Revolving Credit Facility and
the 2000 Term Loan Agreement, dated as of October 3, 2000 among the Issuer, the
banks party thereto, Bank of America N.A., as administrative agent, Credit
Lyonnais Los Angeles Branch, as syndication agent, Bank One, NA, as
documentation agent, and Banc of America Securities LLC, as lead

19

 

 arranger and sole book manager, and any credit facility which is an
extension or renewal thereof (including, in each case, any increase in the
amount of credit available thereunder).

     “Existing Indebtedness” means all Indebtedness of the Issuer and its
Restricted Subsidiaries that is outstanding on the Closing Date.

     “GAAP” means generally accepted accounting principles as in effect and
implemented by the Issuer from time to time.

     A “guarantee” by any Person means any obligation, contingent or otherwise,
of such Person directly or indirectly guaranteeing any Indebtedness of any
other Person including, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person to
purchase or pay principal of or interest on (or advance or supply funds or
pledge assets for the purchase or payment of or payment of interest on)
Indebtedness of such other Person (whether by agreement to provide additional
capital or to maintain financial condition or other similar agreement).

     “incur” has the meaning set forth in Section 16(a) of this Officers’
Certificate.

     “Indebtedness” means:

		
	 	     (1) any liability of any Person (a) for borrowed money or for the
deferred purchase price of property or services (other than current
liabilities, including Trade Payables, arising in the ordinary course of
business) or which is evidenced by a note, bond, debenture or similar
instrument, and which would appear as a liability upon a balance sheet of
such Person prepared on a consolidated basis in accordance with GAAP, or
(b) for the payment of money relating to a Capitalized Lease Obligation;

		
	 	     (2) any liability of such Person in respect of letters of credit or
other similar instruments (or reimbursement obligations with respect
thereto), but this clause (2) does not include letters of credit provided
in the ordinary course of business and securing performance (and not
financial) obligations and performance, completion, surety or similar
bonds or obligations provided in the ordinary course of business;

		
	 	     (3) any liability or obligation of others described in clause (1) or
(2) with respect to which such Person has made a guarantee or similar
arrangement, directly or indirectly (to the extent of such guarantee or
arrangement), but this clause (3) does not include obligations in respect
of banker’s acceptances and performance, completion, surety or similar
bonds or obligations provided in the ordinary course of business; and

		
	 	     (4) all Indebtedness of others secured by a Lien (other than
assessment district and similar Liens arising in connection with
municipal financings) on any asset of such Person, whether or not such
Indebtedness is assumed by such Person.

The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations described above and the
maximum liability of such Person for any such contingent obligations at such
date. To the extent such Person guarantees the obligation of another Person to
pay interest on Indebtedness owed by such other Person, then a

20

 

designated percentage of the interest guaranteed or the principal amount of the
underlying Indebtedness, as the case may be, shall be deemed Indebtedness of
the referent Person. For purposes of this definition, the amount of such deemed
Indebtedness of the referent Person shall be equal to the lesser of (a) the
aggregate principal amount of the underlying Indebtedness relating to such
interest guarantee and (b) the aggregate amount of interest due and payable
over the term of such Indebtedness (or the term of the Notes, if shorter)
determined based upon the rate of interest in effect as of the date of such
determination, together with the maximum prepayment premium or penalty which
could become due or payable with respect to such Indebtedness if such
Indebtedness were prepaid prior to the maturity of the Notes.

     “Investment” of any Person means:

		
	 	     (1) all investments by such Person in any other Person in the form
of loans, advances or capital contributions,

		
	 	     (2) all payments of Indebtedness or other obligations of any other
Person by such Person,

		
	 	     (3) all purchases (or other acquisitions for consideration) by such
Person of Indebtedness, Capital Stock or other securities of any other
Person, and

		
	 	     (4) all other items that would be classified as investments
(including, without limitation, purchases of assets outside the ordinary
course of business) on a balance sheet of such Person prepared in
accordance with GAAP.

     “Lien” means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or other similar encumbrance of any kind in respect
of such asset, whether or not filed, recorded or otherwise perfected under
applicable law (including, without limitation, any conditional sale or other
title retention agreement and any lease in the nature thereof, any option or
other agreement to sell, and any filing of, or agreement to give, any financing
statement under the Uniform Commercial Code (or equivalent statute) of any
jurisdiction).

     “Mortgage Finance Subsidiary” means KB Home Mortgage Company, an Illinois
corporation.

     “Net Cash Proceeds” means the cash proceeds received by the Issuer from
any Equity Offering, net of attorney’s fees, accountants’ fees, underwriters’
or placement agents’ fees, discounts or commissions and brokerage, consultant
and other fees incurred in connection with such issuance or sale and net of
taxes paid or payable as a result thereof.

     “Net Income” means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP, excluding, however,

		
	 	     (1) any gain (but not loss) realized upon the sale or other
disposition (including, without limitation, dispositions pursuant to sale
and leaseback transactions) of any real property or equipment of such
Person which is not sold or otherwise disposed of in the ordinary course
of business, and

21

 

		
	 	     (2) any gain (but not loss) realized upon the sale or other
disposition of any Capital Stock of such Person or any of its Restricted
Subsidiaries owned by such Person.

     “Non-Recourse Indebtedness” means Indebtedness secured by a Lien on
property to the extent that the liability for such Indebtedness (and any
interest thereon) is limited to the security of such property without liability
on the part of the Issuer or any of its Subsidiaries for any deficiency,
including liability by reason of any agreement by the Issuer or any of its
Subsidiaries to provide additional capital or maintain the financial condition
of or otherwise support the credit of the Person incurring such Indebtedness.

     “Notes” means the 7 3/4% Senior Subordinated Notes due 2010 of the
Issuer issued under the Indenture, including, without limitation, any
Additional Notes which may be issued.

     “Permitted Liens” means:

		
	 	     (1) Liens for taxes, assessments or governmental charges or claims
that either (a) are not yet delinquent or (b) are being contested in good
faith by appropriate proceedings and as to which appropriate reserves
have been established or other provisions have been made in accordance
with GAAP;

		
	 	     (2) statutory Liens of landlords and carriers’, warehousemen’s,
mechanics’, suppliers’, materialmen’s, repairmen’s or other Liens imposed
by law and arising in the ordinary course of business and with respect to
amounts that, to the extent applicable, either (a) are not yet delinquent
or (b) are being contested in good faith by appropriate proceedings and
as to which appropriate reserves have been established or other
provisions have been made in accordance with GAAP;

		
	 	     (3) Liens (other than any Lien imposed by the Employee Retirement
Income Security Act of 1974, as amended) incurred or deposits made in the
ordinary course of business in connection with workers’ compensation,
unemployment insurance and other types of social security;

		
	 	     (4) Liens incurred or deposits made to secure the performance of
tenders, bids, leases, statutory obligations, surety and appeal bonds,
progress payments, government contracts and other obligations of like
nature (exclusive of obligations for the payment of borrowed money), in
each case incurred in the ordinary course of business;

		
	 	     (5) judgment and other similar Liens arising in connection with
court proceedings, provided that either (A) the execution or enforcement
of each such Lien is effectively stayed and the claims secured thereby
are being contested in good faith by appropriate proceedings timely
commenced and diligently prosecuted or (B) the aggregate amount of the
claims secured thereby does not exceed $10,000,000 at any time;

		
	 	     (6) easements, rights-of-way, restrictions and other similar charges
or encumbrances not materially interfering with the ordinary conduct of
the business of the Issuer and its Subsidiaries;

22

 

		
	 	     (7) leases or subleases granted to others not materially interfering
with the ordinary conduct of the business of the Issuer and its
Subsidiaries;

		
	 	     (8) Liens securing Refinancing Indebtedness, provided that such
Liens only extend to the property or assets securing the Indebtedness
being refinanced, such refinanced Indebtedness was previously secured by
similar Liens on such property or assets and the Indebtedness and other
obligations secured by such Liens are not increased;

		
	 	     (9) Liens existing on the Closing Date, provided that the
Indebtedness secured by such Liens is not increased (except pursuant to
the terms of such Indebtedness as in effect on the Closing Date) and that
no such Lien extends to any property or assets of the Issuer or any
Subsidiary other than the property or assets subject to such Lien on the
Closing Date;

		
	 	     (10) any contract to sell an asset provided such sale is otherwise
permitted under the Indenture and the Notes;

		
	 	     (11) Liens existing on property or assets of any entity (except an
entity formed or organized by or on behalf of the Issuer for purposes
other than to act as an acquisition vehicle) at the time it becomes a
Restricted Domestic Subsidiary, which Liens were not created or assumed
in contemplation of, or in connection with, such entity becoming a
Restricted Domestic Subsidiary and which extend only to such property or
assets, provided that the Indebtedness secured by such Liens is not
increased (except pursuant to the terms of such Indebtedness as in effect
on the date such entity becomes a Restricted Domestic Subsidiary, so long
as such terms are not altered, in connection with or in contemplation of
such transaction, to provide for an increase in such Indebtedness);

		
	 	     (12) Liens existing on property or assets of any entity (except an
entity formed or organized by or on behalf of the Issuer for purposes
other than to act as an acquisition vehicle) at the time it is merged or
consolidated with or into the Issuer or any of its Restricted Domestic
Subsidiaries, which Liens were not created or assumed in contemplation
of, or in connection with, such transaction and which extend only to such
property or assets, provided that the Indebtedness secured by such Liens
is not increased (except pursuant to the terms of such Indebtedness as in
effect on the date of such transaction, so long as such terms are not
altered, in connection with or in contemplation of such transaction, to
provide for an increase in such Indebtedness);

		
	 	     (13) Liens existing on property or assets at the time of the
acquisition thereof by the Issuer or any of its Restricted Domestic
Subsidiaries, which Liens were not created or assumed in contemplation
of, or in connection with, such acquisition and which extend only to such
property or assets, provided that the Indebtedness secured by such Liens
is not increased (except pursuant to the terms of such Indebtedness as in
effect on the date of such acquisition, so long as such terms are not
altered, in connection with or in contemplation of such acquisition, to
provide for an increase in such Indebtedness);

23

 

		
	 	     (14) Liens on real property and improvements securing Indebtedness
of the Issuer or any of its Restricted Subsidiaries incurred to finance
the acquisition or improvement after the Closing Date of such real
property, which Liens are either existing at the time of such acquisition
or at the time of completion of such improvement or created within six
months after such acquisition or improvement;

		
	 	     (15) Liens securing Indebtedness in an aggregate amount at any time
outstanding not to exceed 10% of the sum of (A) the Issuer’s Consolidated
Net Worth at such time plus (B) the consolidated minority interests of
the Issuer (determined in accordance with GAAP) at such time;

		
	 	     (16) Liens arising as the result of the rights of a third party to
receive, or the granting, pledging or transferring to a third party of
rights to receive, payments from any Restricted Foreign Subsidiary in
return for payments made by or on behalf of such third party to the
Issuer or a Restricted Subsidiary of the Issuer (or to a Person
designated by the Issuer or a Restricted Subsidiary of the Issuer, which
Person is not a Subsidiary or Affiliate of the Issuer) in an
approximately equal amount (after giving effect to adjustments reflecting
the time value of money);

		
	 	     (17) Liens securing Indebtedness owed to the Issuer or any
Restricted Domestic Subsidiary by another Restricted Domestic Subsidiary;

		
	 	     (18) rights of banks arising by operation of law to set off deposits
against debts owed to said banks; and

		
	 	     (19) any interest or title of a lessor in property subject to any
Capitalized Lease Obligation (other than in property owned by the Issuer
or any of its Restricted Domestic Subsidiaries on the Closing Date and
not, as of such date, subject to any such Capitalized Lease Obligation),
which Capitalized Lease Obligation is entered into within six months of
the acquisition of such property by the Issuer or such Restricted
Domestic Subsidiary.

     “Qualified Capital Stock” means Capital Stock other than Disqualified
Capital Stock.

     “Refinancing Indebtedness” means Indebtedness that solely refunds,
refinances or extends, and is incurred within six months of the scheduled
maturity date or a mandatory repurchase date or optional redemption date of,
any Notes, Existing Indebtedness (excluding any Existing Indebtedness repaid
with the proceeds from the sale of the Notes) or other Indebtedness incurred by
the Issuer or its Restricted Subsidiaries pursuant to the terms of the
Indenture and the Notes, but only to the extent that:

		
	 	     (1) if the Indebtedness being refunded, refinanced or extended is
subordinated to the Notes, the Refinancing Indebtedness is also
subordinated to the Notes at least to the extent and in the manner as
such Indebtedness,

		
	 	     (2) if the Indebtedness being refunded, refinanced or extended is
subordinated to the Notes, the Refinancing Indebtedness (a) is scheduled
to mature either no earlier than the Indebtedness being refunded,
refinanced or extended or after the scheduled maturity date of the Notes
and (b) has a Weighted Average Life to Maturity at the time

24

 

		
	 	such Refinancing Indebtedness is incurred that is equal to or
greater than the Weighted Average Life to Maturity of the Indebtedness
being refunded, refinanced or extended,

		
	 	     (3) such Refinancing Indebtedness is in an aggregate principal
amount that is equal to or less than the aggregate principal amount then
outstanding under the Indebtedness being refunded, refinanced or extended
and

		
	 	     (4) such Refinancing Indebtedness is incurred by the same Person
that initially incurred the Indebtedness being refunded, refinanced or
extended except that (a) the Issuer may incur Refinancing Indebtedness to
refund, refinance or extend Indebtedness of any Restricted Subsidiary and
(b) any Restricted Subsidiary may incur Refinancing Indebtedness to
refund, refinance or extend Indebtedness of any other Restricted
Subsidiary.

     “Restricted Domestic Subsidiary” means, as of any date of determination, a
Restricted Subsidiary

		
	 	     (1) that is organized under the laws of the United States of America
or any state thereof or the District of Columbia and

		
	 	     (2) the majority of the assets of which (as reflected on a balance
sheet of such Subsidiary prepared in accordance with GAAP) is located in
the United States of America.

     “Restricted Foreign Subsidiary” means, as of any date of determination, a
Restricted Subsidiary that is not a Restricted Domestic Subsidiary.

     “Restricted Payment” means, with respect to any Person,

		
	 	     (1) the declaration or payment of any dividend or the making of any
other payment or distribution of cash, securities or other property in
respect of such Person’s Capital Stock or in respect of any warrants,
options or other rights (other than convertible or exchangeable debt
securities of such Person) to purchase or acquire such Person’s Capital
Stock (except that a dividend payable solely in Qualified Capital Stock
of the Issuer shall not constitute a Restricted Payment),

		
	 	     (2) any payment on account of the purchase, redemption, retirement
or other acquisition for value of such Person’s Capital Stock or any
warrants, options or other rights (other than convertible or exchangeable
debt securities of such Person) to purchase or acquire such Person’s
Capital Stock, or any other payment or distribution made in respect
thereof, either directly or indirectly, or

		
	 	     (3) any principal payment, redemption, repurchase, defeasance or
other acquisition or retirement, prior to scheduled principal payment or
scheduled maturity, of Indebtedness (other than collateralized mortgage
obligations issued by Subsidiaries of the Mortgage Finance Subsidiary) of
the Issuer or any of its Subsidiaries which is subordinated in right of
payment to the Notes;

25

 

provided, however, that with respect to the Issuer and its Restricted
Subsidiaries, Restricted Payments shall not include:

		
	 	     (a) any payment described in clause (1) or (2) above made to the
Issuer or any of its Restricted Subsidiaries by any of the Issuer’s other
Restricted Subsidiaries,

		
	 	     (b) any exchange offer, but only to the extent the Issuer exchanges
solely Capital Stock of the Issuer (other than Disqualified Capital
Stock) for Indebtedness of the Issuer or a Restricted Subsidiary in such
exchange offer or

		
	 	     (c) any redemption, repurchase or retirement of Indebtedness (the
Indebtedness being so redeemed, repurchased or retired being hereinafter
called “Subject Indebtedness”) described in clause (3) above if made from
the proceeds of Indebtedness which (x) is subordinated to the Notes to
the same extent as the Subject Indebtedness, (y) is scheduled to mature
either no earlier than the Subject Indebtedness or after the scheduled
maturity date of the Notes and (z) has a Weighted Average Life to
Maturity at the time such Indebtedness is incurred that is equal to or
greater than the Weighted Average Life to Maturity of the Subject
Indebtedness.

     “Restricted Significant Subsidiary” means any Restricted Subsidiary which
is a “significant subsidiary” as defined in Rule 1-02 of Regulation S-X under
the Securities Act of 1933, as amended, and the Exchange Act (as such
Regulation S-X was in effect on June 1, 1996).

     “Restricted Subsidiary” means a Subsidiary of the Issuer which is not, as
of the determination date, an Unrestricted Subsidiary.

     “Subsidiary” of any Person means:

		
	 	     (1) any corporation at least a majority of the aggregate voting
power of the Common Stock of which is owned by such Person, directly or
through one or more other Subsidiaries of such Person, and

		
	 	     (2) any entity other than a corporation at least a majority of the
Common Stock of which is owned by such Person, directly or through one or
more other Subsidiaries of such Person.

     “Substitute Credit Facility” means any credit facility of the Issuer which
is created subsequent to the Closing Date and which replaces all or part of the
Existing Credit Facilities or a Substitute Credit Facility (and which may
provide for an increase in the amount of credit available thereunder), so long
as the Issuer is the borrower under such Substitute Credit Facility.

     “Unrestricted Subsidiary” means:

		
	 	     (a) the Mortgage Finance Subsidiary,

		
	 	     (b) any Subsidiary of the Mortgage Finance Subsidiary on the Closing
Date,

26

 

		
	 	     (c) any other Subsidiary of the Issuer which is designated as an
Unrestricted Subsidiary by the Issuer’s Board of Directors, as provided
below, and

		
	 	     (d) any Subsidiary of an Unrestricted Subsidiary;

provided that, in each case referred to in clause (a), (b), (c) or (d), the
creditors of such Subsidiary have no direct or indirect recourse (including,
but not limited to, recourse with respect to the payment of principal of or
interest on Indebtedness of such Subsidiary) to the Issuer or any of its
Restricted Subsidiaries.

The Board of Directors of the Issuer may designate an Unrestricted Subsidiary
to be a Restricted Subsidiary; provided that no such designation shall result
in any Restricted Subsidiary becoming a Subsidiary of any Unrestricted
Subsidiary; and provided, further that:

		
	 	     (1) any such designation shall be deemed to be an incurrence by the
Issuer and its Restricted Subsidiaries, as of the date of such
designation, of the consolidated Indebtedness (if any) of such designated
Subsidiary and its Subsidiaries (if any) which are or are being
designated as Restricted Subsidiaries, determined in accordance with
GAAP, for purposes of the covenant set forth in Section 16(a) of this
Officers’ Certificate,

		
	 	     (2) immediately after giving effect to such designation and the
deemed incurrence of any such additional Indebtedness (A) no Default or
Event of Default shall have occurred and shall be continuing, (B) the
Issuer could incur $1.00 of additional Indebtedness pursuant to the first
paragraph of the covenant set forth in Section 16(a) of this Officers’
Certificate and (C) without limitation to clause (A) above, such
designated Subsidiary and its Subsidiaries (if any) which are or are
being designated as Restricted Subsidiaries are in compliance with the
covenant set forth in Section 16(b) of this Officers’ Certificate.

Subject to the foregoing, the Board of Directors of the Issuer also may
designate any Restricted Subsidiary (together with its Subsidiaries (if any))
to be an Unrestricted Subsidiary; provided that:

		
	 	     (1) the consolidated shareholders’ equity (determined in accordance
with GAAP) of such designated Subsidiary and its Subsidiaries (if any) at
the time of such designation shall be deemed to be an Investment by the
Issuer in an Unrestricted Subsidiary at the time of such designation and
shall reduce the amount of Investments which the Issuer and its
Restricted Domestic Subsidiaries shall be permitted to make under the
covenant set forth in Section 16(e) of this Officers’ Certificate and

		
	 	     (2) immediately after giving effect to such designation and
reduction of amounts available for Investments under such covenant, (A)
no Default or Event of Default shall have occurred and shall be
continuing, (B) the Issuer could incur $1.00 of additional Indebtedness
pursuant to the first paragraph of the covenant set forth in Section
16(a) of this Officers’ Certificate and (C) the Issuer could make $1.00
of additional Investments in Unrestricted Subsidiaries pursuant to the
covenant set forth in Section 16(e) of this Officers’ Certificate.

27

 

Any designation by the Board of Directors described above shall be evidenced to
the Trustee by the filing with the Trustee of a certified copy of the
resolution of the Issuer’s Board of Directors giving effect to such designation
and an Officers’ Certificate certifying that such designation complied with the
foregoing conditions and setting forth the underlying calculations supporting
such certification. As of the date of this Officers’ Certificate, the only
Unrestricted Subsidiaries are the Mortgage Finance Subsidiary and its
Subsidiaries.

     “Voting Stock” means, with respect to any Person, the Capital Stock of
such Person having general voting power under ordinary circumstances to elect
at least a majority of the board of directors, managers or trustees of such
Person (irrespective of whether or not at the time Capital Stock of any other
class or classes shall have or might have voting power by reason of the
happening of any contingency).

     “Weighted Average Life to Maturity” means, when applied to any
Indebtedness or portion thereof at any date, the number of years obtained by
dividing:

		
	 	     (1) the then outstanding principal amount of such Indebtedness or
portion thereof, as the case may be, into

		
	 	     (2) the sum of the products obtained by multiplying (a) the amount
of each then remaining installment, sinking fund, serial maturity or
other required payment of principal of such Indebtedness or portion
thereof, as the case may be, including payment at final maturity, in
respect thereof, by (b) the number of years (calculated to the nearest
one-twelfth) that will elapse between such date and the making of such
payment.

     “Wholly Owned” means, with respect to any Subsidiary of any Person, the
ownership of all of the outstanding Capital Stock of such Subsidiary (other
than any directors’ qualifying shares or Investments by foreign nationals
mandated by applicable law) by such Person or one or more other Wholly Owned
Subsidiaries of such Person.

     (21)  The Notes will be in substantially the form attached hereto as
Exhibit A (with such changes in such form as may be approved by any officer of
the Issuer executing any such Note, such approval to be conclusively evidenced
by the execution thereof by such officer), and the terms of the Notes as set
forth in Exhibit A are hereby incorporated by reference in and shall be deemed
to be a part of this Officers’ Certificate and the Indenture.

     (22)  SunTrust Bank, as successor to SunTrust Bank, Atlanta, shall be the
Trustee and the initial paying agent, transfer agent and registrar for the
Notes and shall be empowered so to act through its agent in the Borough of
Manhattan, The City of New York.

     (23)  Terms, whether or not capitalized, used in this Officers’ Certificate
and not defined herein which are defined in the Indenture (other than terms
defined in another Officers’ Certificate establishing the form or terms of
another series of Securities under the Indenture) shall have the respective
meanings given them in the Indenture. In addition, the terms “Event of
Default” and “Subsidiary”, when used in the Indenture with respect to the
Notes, shall have the respective meanings set forth in this Officers’
Certificate rather than the respective meanings set forth in Section 1.1 of the
Indenture.

28

 

     (24)  Any deletions from, modifications of or additions to the defined
terms, Events of Default, covenants and other provisions of the Indenture with
respect to the Notes:

		
	 	     (a) Section 5.1 of the Indenture is hereby amended and restated, but
only insofar as it relates to the Notes, to read in full as follows:

		
	 	     “SECTION 5.1 Event of Default Defined; Acceleration of
Maturity; Waiver of Default. “Event of Default” with respect to
the Notes, wherever used herein, means each one of the following
events which shall have occurred and be continuing (whatever the
reason for such Event of Default and whether it shall be voluntary
or involuntary or be effected by operation of law or pursuant to
any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):

		
	 	     (a) default in the payment of any installment of
interest upon any of the Notes as and when the same shall
become due and payable, and continuance of such default for a
period of 30 days; or

		
	 	     (b) default in the payment of all or any part of the
principal of any of the Notes as and when the same shall
become due and payable, either at maturity, upon any
redemption at the option of the Issuer or repurchase at the
option of the Holders, by declaration of acceleration or
otherwise; or

		
	 	     (c) failure on the part of the Issuer duly to observe or
perform any of the covenants or agreements on the part of the
Issuer contained in this Indenture (other than a covenant or
agreement in respect of the Notes a default in the
performance or breach of which is elsewhere in this Section
5.1 specifically dealt with or which has expressly been
included in this Indenture solely for the benefit of one or
more series of Securities other than the Notes) or in the
Notes for a period of 60 days (or for 10 days in the case of
any of the covenants or agreements (other than a covenant or
agreement in respect of the Notes a default in the
performance or breach of which is elsewhere in this Section
5.1 specifically dealt with) set forth in Section 7, 8, 9,10
or 11 of the Officers’ Certificate dated the Closing Date
establishing the form and terms of the Notes) after the date
on which written notice specifying such failure, stating that
such notice is a “Notice of Default” hereunder and demanding
that the Issuer remedy the same, shall have been given by
registered or certified mail, return receipt requested, or by
overnight courier or by hand delivery with evidence of the
receipt of such overnight courier or hand delivery by the
Issuer, to the Issuer by the Trustee or to the Issuer and the
Trustee by the Holders of at least 25% in aggregate principal
amount of the Notes then Outstanding; or

		
	 	     (d) a court having jurisdiction in the premises shall
enter a decree or order for relief in respect of the Issuer
or any of its Restricted Significant Subsidiaries in an
involuntary case under any applicable

29

 

		
	 	bankruptcy, insolvency or other similar law now or
hereafter in effect, or appointing a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or similar
official) of the Issuer or any of its Restricted Significant
Subsidiaries or for any substantial part of the property of
the Issuer or any of its Restricted Significant Subsidiaries
or ordering the winding up or liquidation of the affairs of
the Issuer or any of its Restricted Significant Subsidiaries,
and such decree or order shall remain unstayed and in effect
for a period of 60 consecutive days; or

		
	 	     (e) the Issuer or any of its Restricted Significant
Subsidiaries shall commence a voluntary case under any
applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or consent to the entry of an order for
relief in an involuntary case under any such law, or consent
to the appointment or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or
similar official) of the Issuer or any of its Restricted
Significant Subsidiaries or for any substantial part of the
property of the Issuer or any of its Restricted Significant
Subsidiaries, or make any general assignment for the benefit
of creditors; or

		
	 	     (f) a default under any mortgage, indenture or other
instrument or agreement (including this Indenture with
respect to any other series of Securities) under which there
may be issued or by which there may be secured or evidenced
any Indebtedness (other than Non-Recourse Indebtedness) of
the Issuer or any Restricted Subsidiary, whether such
Indebtedness existed on the Closing Date or shall be created
thereafter, if (a) such default results from the failure to
pay any such Indebtedness when due (provided that no such
failure to pay Indebtedness when due shall be deemed to have
occurred so long as the Issuer or such Restricted Subsidiary,
as the case may be, shall be contesting whether such
Indebtedness is due in good faith by appropriate proceedings)
or as a result of such default the maturity of such
Indebtedness has been accelerated prior to its expressed
maturity and (b) the sum of (x) the principal amount of such
Indebtedness plus (y) the aggregate principal amount of all
other such Indebtedness in default for failure to pay any
such Indebtedness when due or the maturity of which has been
so accelerated, equals $20,000,000 or more, individually, or
$40,000,000 or more, in the aggregate, without such
Indebtedness having been discharged or such acceleration
having been rescinded or annulled within a period of 30 days
after notice thereof shall have been given to the Issuer by
the Trustee or to the Issuer and the Trustee by the Holders
of at least 25% in aggregate principal amount of the Notes
then Outstanding.

		
	 	     “If an Event of Default occurs and is continuing, then, and in
each and every such case, either the Trustee or the Holders of not
less than 25% in aggregate principal amount of the Notes then
Outstanding hereunder, by notice in writing to the Issuer (and to
the Trustee if given by Holders of the Notes), may

30

 

		
	 	declare the entire principal of all Notes then Outstanding and
interest accrued thereon to be due and payable immediately and,
upon any such declaration, the same shall become immediately due
and payable.

		
	 	     “The foregoing provisions, however, are subject to the
condition that if, at any time after the principal of the Notes
shall have been so declared due and payable, and before any
judgment or decree for the payment of the moneys due shall have
been obtained or entered as hereinafter provided, the Issuer shall
pay or shall deposit with the Trustee a sum sufficient to pay all
matured installments of interest upon all the Notes and the
principal of any and all of the Notes which shall have become due
otherwise than by acceleration (with interest upon such principal
and, to the extent that payment of such interest is enforceable
under applicable law, on overdue installments of interest, at the
same rate as the rate of interest borne by the Notes to the date of
such payment or deposit) and such amount as shall be sufficient to
cover reasonable compensation to the Trustee and each predecessor
Trustee, its agents, attorneys and counsel, and all other expenses
and liabilities incurred, and all advances made, by the Trustee and
each predecessor Trustee except as a result of negligence or bad
faith, and if any and all Events of Default with respect to the
Notes, other than the non-payment of the principal of Notes which
shall have become due by acceleration, shall have been cured,
waived or otherwise remedied as provided herein, then and in every
such case the Holders of a majority in aggregate principal amount
of all of the Notes then Outstanding, by written notice to the
Issuer and to the Trustee, may waive all defaults with respect to
the Notes and rescind and annul such declaration and its
consequences, but no such waiver or rescission and annulment shall
extend to or shall affect any subsequent default or shall impair
any right consequent thereon.”

		
	 	     (b) Section 5.6 of the Indenture is hereby amended and restated, but
only insofar as it relates to the Notes, to read in full as follows:

		
	 	     “SECTION 5.6 Limitations on Suits by Securityholders. No
Holder of any Notes shall have any right by virtue or by availing
of any provision of this Indenture to institute any action or
proceeding at law or in equity or in bankruptcy or otherwise upon
or under or with respect to this Indenture, or for the appointment
of a trustee, receiver, liquidator, custodian or other similar
official or for any other remedy hereunder, except (as provided in
Section 5.7 of this Indenture) actions or proceedings for payment
of overdue principal or interest, unless such Holder previously
shall have given to the Trustee written notice of default and of
the continuance thereof, and unless also the Holders of not less
than 25% in aggregate principal amount of the Notes then
Outstanding shall have made written request upon the Trustee to
institute such action or proceedings in its own name as trustee
hereunder and shall have offered to the Trustee such reasonable
indemnity as it may require against the reasonable costs, expenses
and liabilities to be incurred therein or thereby and the Trustee
for 60 days after its receipt of such notice, request and offer of
indemnity shall have failed to institute any such action or
proceeding and no direction inconsistent with such written request
by the Holders of a majority in principal amount of the Notes then
Outstanding shall

31

 

		
	 	have been given to the Trustee pursuant to Section 5.9; it
being understood and intended, and being expressly covenanted by
the taker and Holder of every Note with every other taker and
Holder of any Note and the Trustee, that no one or more Holders of
Notes shall have any right in any manner whatever by virtue or by
availing of any provision of this Indenture to affect, disturb or
prejudice the rights of any other such Holder of Notes, or to
obtain or seek to obtain priority over or preference to any other
such Holder or to enforce any right under this Indenture, except in
the manner herein provided and for the equal, ratable and common
benefit of all Holders of Notes. For the protection and
enforcement of the provisions of this Section, each and every
Holder of Notes and the Trustee shall be entitled to such relief as
can be given either at law or in equity.”

		
	 	     (c) Section 5.9 of the Indenture is hereby amended and restated, but
only insofar as it relates to the Notes, to read in full as follows:

		
	 	     “SECTION 5.9 Control by Holders of Notes. The Holders of a
majority in aggregate principal amount of the Notes at the time
Outstanding shall have the right to direct the time, method, and
place of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred on the Trustee
with respect to the Notes by this Indenture; provided that such
direction shall not be otherwise than in accordance with law and
the provisions of this Indenture and provided further that (subject
to the provisions of Section 6.1) the Trustee shall have the right
to decline to follow any such direction if the Trustee, being
advised by counsel, shall determine that the action or proceeding
so directed may not lawfully be taken or if the Trustee in good
faith by its board of directors, the executive committee, or a
trust committee of directors or Responsible Officers of the Trustee
shall determine that the action or proceedings so directed would
involve the Trustee in personal liability or if the Trustee in good
faith shall so determine that the actions or forbearances specified
in or pursuant to such direction would be unduly prejudicial to the
interests of Holders of the Notes not joining in the giving of said
direction, it being understood that (subject to Section 6.1) the
Trustee shall have no duty to ascertain whether or not such actions
or forbearances are unduly prejudicial to such Holders.

		
	 	     “Nothing in this Indenture shall impair the right of the
Trustee in its discretion to take any action deemed proper by the
Trustee and which is not inconsistent with such direction or
directions by Holders of the Notes.”

		
	 	     (d) Section 5.10 of the Indenture is hereby amended and restated,
but only insofar as it relates to the Notes, to read in full as follows:

		
	 	     “SECTION 5.10. Waiver of Past Defaults. Prior to a
declaration of the acceleration of the maturity of the Notes as
provided in Section 5.1, the Holders of not less than a majority in
aggregate principal amount of the Notes at the time Outstanding may
on behalf of the Holders of all the Notes waive any past default or
Event of Default, except a default in respect of a covenant or
provision hereof that cannot be modified or amended without the
consent of each Holder of any

32

 

		
	 	Notes affected. In the case of any such waiver, the Issuer,
the Trustee and the Holders of all Notes shall be restored to their
former positions and rights hereunder, respectively; but no such
waiver shall extend to any subsequent or other default or impair
any right consequent thereon.

		
	 	     “Upon any such waiver, such default shall cease to exist and
be deemed to have been cured and not to have occurred, and any
Event of Default arising therefrom shall be deemed to have been
cured, and not to have occurred for every purpose of this
Indenture; but no such waiver shall extend to any subsequent or
other default or Event of Default or impair any right consequent
thereon.”

		
	 	     (e) Section 5.12 of the Indenture is hereby amended and restated,
but only insofar as it relates to the Notes, to read in full as follows:

		
	 	     “SECTION 5.12. Right of Court to Require Filing of
Undertaking to Pay Costs. All parties to this Indenture agree, and
each Holder of any Note by his acceptance thereof shall be deemed
to have agreed, that any court may in its discretion require, in
any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken,
suffered or omitted by it as Trustee, the filing by any party
litigant in such suit of an undertaking to pay the costs of such
suit, and that such court may in its discretion assess reasonable
costs, including reasonable attorneys’ fees, against any party
litigant in such suit, having due regard to the merits and good
faith of the claims or defenses made by such party litigant; but
the provisions of this Section shall not apply to any suit
instituted by the Trustee, to any suit instituted by any Holder or
group of Holders holding in the aggregate more than 10% in
aggregate principal amount of the Notes then Outstanding, or to any
suit instituted by any Holder for the enforcement of the payment of
the principal of or interest on any Note on or after the due date
expressed in such Note or any date fixed for redemption or
repurchase.”

		
	 	     (f) Section 6.2(f) of the Indenture is hereby amended and restated,
but only insofar as it relates to the Notes, to read in full as follows:

		
	 	     "(f) prior to the occurrence of an Event of Default with
respect to the Notes hereunder and after the curing or waiving of
all Events of Default with respect to the Notes, 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, consent, order, approval,
appraisal, bond, debenture, note, coupon, security, or other paper
or document unless requested in writing so to do by the Holders of
not less than a majority in aggregate principal amount of the Notes
then Outstanding; provided that, if the payment within a reasonable
time to the Trustee of the costs, expenses or liabilities likely to
be incurred by it in the making of such investigation is, in the
opinion of the Trustee, not reasonably assured to the Trustee by
the security afforded to it by the terms of this Indenture, the
Trustee may require reasonable indemnity against such expenses or
liabilities as a condition to proceeding; the reasonable expenses
of

33

 

		
	 	every such investigation shall be paid by the Issuer or, if
paid by the Trustee or any predecessor Trustee, shall be repaid by
the Issuer upon demand; and"

		
	 	     (g) The first paragraph of Section 8.2 of the Indenture is hereby
amended and restated, but only insofar as it relates to the Notes, to
read in full as follows:

		
	 	     “SECTION 8.2. Supplemental Indentures With Consent of
Securityholders. With the consent (evidenced as provided in
Article Seven) of the Holders of not less than a majority in
aggregate principal amount of the Notes at the time Outstanding,
the Issuer, when authorized by a resolution of its Board of
Directors (which resolution may provide general terms or parameters
for such action and may provide that the specific terms of such
action may be determined in accordance with or pursuant to an
Issuer Order), and the Trustee may, from time to time and at any
time, enter into an indenture or indentures supplemental hereto for
the purpose of adding any provisions to or changing in any manner
or eliminating any of the provisions of this Indenture or of any
supplemental indenture insofar as such provisions relate to the
Notes or of modifying in any manner the rights of the Holders of
Notes; provided, that no such supplemental indenture shall (a)
extend the final maturity of any Note or any date on which the
Change of Control Repurchase Price of any Note is payable, or
reduce the principal amount thereof, or reduce the rate or extend
the time of payment of interest thereon, or reduce any amount
payable on redemption or repurchase thereof, or make the principal
thereof or interest thereon payable in any coin or currency other
than that provided in the Notes or in accordance with the terms
thereof, or modify the percentage of Holders of Notes required
pursuant to Section 5.1 or 5.10 to waive any default or to rescind
and annul any declaration of acceleration, or alter the provisions
of Section 11.11 or 11.12 or impair or affect the right of any
Holder of Notes to institute suit for the enforcement of any
payment on any Note when due or any right of repayment, repurchase
or redemption at the option of the Holders of Notes, in each case
without the consent of the Holder of each Note so affected, or (b)
reduce the aforesaid percentage of Notes, the consent of the
Holders of which is required for any such supplemental indenture,
without the consent of the Holders of each Note so affected.”

		
	 	     (h) Section 9.1 of the Indenture is hereby amended and restated, but
only insofar as it relates to the Notes, to read in full as follows:

		
	 	     “SECTION 9.1. Issuer May Consolidate, etc., on Certain Terms.
The Issuer covenants that it will not merge or consolidate with or
into any other Person or sell, lease or convey all or substantially
all of its assets to any other Person, unless:

		
	 	     (1) either the Issuer shall be the continuing
corporation, or the successor corporation (if other than the
Issuer) or the Person that acquires by sale, lease or
conveyance all or substantially all the assets of the Issuer
shall be a corporation organized and existing under the laws
of the United States of America or any State thereof or the
District of Columbia and

34

 

		
	 	shall expressly assume the due and punctual payment of
the principal of and interest on all the Notes, according to
their tenor, and the due and punctual performance and
observance of all of the covenants and conditions in this
Indenture and the Notes to be performed or observed by the
Issuer, by supplemental indenture satisfactory to the
Trustee, executed and delivered to the Trustee by such
corporation,

		
	 	     (2) immediately after giving effect to such transaction,
no Default or Event of Default shall have occurred and be
continuing,

		
	 	     (3) immediately after giving effect to such transaction,
the Issuer or such corporation, as the case may be, would be
able to incur at least $0.50 of additional Indebtedness
pursuant to the first paragraph of the covenant set forth in
Section 16(a) of the Officers’ Certificate dated the Closing
Date establishing the form and terms of the Notes, and

		
	 	     (4) the Issuer shall have delivered to the Trustee an
Officers’ Certificate and Opinion of Counsel, each stating
that such transaction and such supplemental indenture comply
with this Indenture and the Notes, and that all conditions
precedent relating to such transaction have been complied
with.”

		
	 	     (i) Clause (iii) of Section 10.1(A) of the Indenture (which clause
(iii) appears on page 66 of the Indenture) is hereby amended and
restated, but only insofar as it relates to the Notes, to read in full as
follows:

		
	 	     “(iii) the obligation of the Issuer to pay the principal of and
interest on the Notes and the rights of the Holders of the Notes to
receive payments of principal thereof and interest thereon, in each
case upon the original stated due dates therefor (but not upon
acceleration) or dates called for redemption,”

		
	 	     (j) Section 10.1(B)(b) of the Indenture is hereby amended, but only
insofar as it relates to the Notes, by deleting the references therein to
Sections 5.1(e) and (f) of the Indenture and replacing the same with
references to Sections 5.1(d) and (e) of the Indenture, the purpose of
such replacement being to reflect the amendment and restatement of such
Section 5.1 pursuant to Section 24(a) of this Officers’ Certificate.

		
	 	     (k) The first sentence of Section 10.1(C) is hereby amended and
restated, but only insofar as it relates to the Notes, to read in full as
follows:

		
	 	     “The Issuer shall be released from its obligations under
Section 9.1 and any other covenants which, pursuant to Section 2.3,
are expressly made subject to the provisions of this Section
10.1(C) with respect to the Securities of any series, and any
Coupons appertaining thereto Outstanding on and after the date the
conditions set forth below are satisfied (hereinafter, ‘covenant
defeasance’).”

		
	 	     (l) Section 10.1(C)(b) of the Indenture is hereby amended, but only
insofar as it relates to the Notes, by deleting the references therein to
Sections 5.1(e) and (f) of the

35

 

		
	 	Indenture and replacing the same with references to Sections 5.1(d)
and (e) of the Indenture, the purpose of such replacement being to
reflect the amendment and restatement of such Section 5.1 pursuant to
Section 24(a) of this Officers’ Certificate.

		
	 	     (m) Pursuant to Section 10.1(C) of the Indenture, it is hereby
expressly provided that Section 9.1 of the Indenture (as amended and
restated pursuant to Section 24(h) of this Officers’ Certificate) and the
covenants set forth in Sections 7, 8, 9, 10, 11 and 16 (other than
Section 16(h) and other than the covenant of the Issuer in Section 16(f)
to preserve and keep in full force and effect its corporate existence) of
this Officers’ Certificate shall be subject to covenant defeasance upon
the terms and subject to the conditions set forth in Section 10.1(C) of
the Indenture.

		
	 	     (n) To the extent that Section 5.1, 5.9, 5.10, 5.12, 6.2(f), or 8.2
of the Indenture (as set forth in the Indenture, as originally executed
and delivered, and not as amended by this Officers’ Certificate) or any
other provisions of the Indenture shall require the action or vote of two
or more series of Securities under the Indenture acting together as a
class, the Notes shall be excluded from such class for all purposes, it
being expressly understood and agreed that the Notes shall be entitled to
act alone in respect of all matters under the Indenture and that no other
series of Securities issued under the Indenture shall have any right to
participate in or vote in connection with any action, vote or other
matter relating to the Notes.

		
	 	     (o) Except as otherwise expressly provided in Section 24(n) of this
Officers’ Certificate, all references in the Notes and in the Indenture
to “the Indenture”, “this Indenture” or to terms or provisions contained
or set forth in the Indenture or the Notes (and all references of like
import) shall be deemed to mean and include the terms and provisions of
the Notes set forth in this Officers’ Certificate, which shall for all
purposes be deemed to constitute a part of the Indenture and the Notes.

		
	 	     (p) For purposes of the Indenture, as amended hereby, the term
“Notes” shall mean the series of Securities established pursuant to this
Officers’ Certificate.

     (25)  Captions and headings in this Officers’ Certificate are for
convenience of reference only and shall not affect the construction hereof.

     (26)  Each of the undersigned hereby further certifies, pursuant to Section
2.4(3) of the Indenture, that the form and terms of the Notes have been
established pursuant to Sections 2.1 and 2.3 of the Indenture and comply with
the Indenture.

     (27)  The Notes will rank pari passu with the Issuer’s 9-5/8% Senior
Subordinated Notes due 2006, 9-1/2% Senior Subordinated Notes due 2011 and
8-5/8% Senior Subordinated Notes due 2008.

     (28)  The Issuer will not under any circumstances be required to pay any
additional amounts of the nature described in Section 2.3(16) of the Indenture
on Notes held by any Persons

36

 

 who are not U.S. Persons in respect of any tax, assessment or governmental
charge withheld or deducted with respect to payments made on account of the
Notes.

[Signature page follows]

37

 

     IN WITNESS WHEREOF, we have executed this Certificate on behalf of the
Issuer this 27th day of January, 2003.

[SEAL]

	 	 	 	 	 	 
	 	 	

	 	 	
Name:
	 	Kelly M. Allred
	 	 	
Title:
	 	Vice President and Treasurer
	 	 	 	 	 
	 	 	 	 	 
	 	 	

	 	 	
Name:
	 	Kimberly N. King
	 	 	
Title:
	 	Corporate Secretary and Vice President,

Corporate Legal Affairs

38

 

EXHIBIT A

FORM OF NOTE

[FACE OF NOTE]

KB HOME

7 3/4% Senior Subordinated Note due 2010

     [This paragraph to be included in Global Notes only —THIS NOTE IS
A REGISTERED GLOBAL SECURITY UNDER THE INDENTURE DESCRIBED ON THE
REVERSE HEREOF. AS SUCH, UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR
IN PART FOR SECURITIES IN DEFINITIVE REGISTERED FORM, THIS SECURITY MAY
NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF
THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR
ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH
NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITARY.]

     [This paragraph to be included in Global Notes only — Unless this
certificate is presented by an authorized representative of The
Depository Trust Company, a New York corporation (“DTC”), to the Issuer
or its agent for registration of transfer, exchange, or payment, and any
certificate issued is registered in the name of Cede & Co. or in such
other name as is requested by an authorized representative of DTC (and
any payment is made to Cede & Co. or to such other entity as is
requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE,
OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an
interest herein.]

	 	 	 
	No. R-     	 	
$     
	 	 	
CUSIP 48666KAF6

     KB Home, a Delaware corporation (the “Issuer”, which term, as used
herein, includes its successors under the Indenture referred to on the
reverse hereof), for value received, hereby promises to pay to
              , or registered assigns, the principal sum of
               Dollars at the Issuer’s office or agency for said
purpose in the Borough of Manhattan, The City of New York, on February
1, 2010, in such coin or currency of the United States of America as at
the time of payment shall be legal tender for the payment of public and
private debts, and to pay interest, semi-annually in arrears on February
1 and August 1 of each year, commencing August 1, 2003, on said
principal sum in like coin or currency, at the rate of 7 3/4% per
annum at said office or agency from the February 1 or the August 1, as
the case may be, next preceding the date of this Note to which interest
on the Notes has been paid or duly

39

 

provided for, unless the date hereof is a date to which interest on the
Notes has been paid or duly provided for, in which case from the date of
this Note, or unless no interest has been paid or duly provided for on
the Notes, in which case from January 27, 2003, until payment of said
principal sum has been made or duly provided for. Notwithstanding the
foregoing, if the date hereof is after January 15 or July 15, as the
case may be, and before the following February 1 or August 1,
respectively, this Note shall bear interest from such February 1 or
August 1; provided, that if the Issuer shall default in the payment of
interest due on such February 1 or August 1, then this Note shall bear
interest from the next preceding February 1 or August 1 to which
interest on the Notes has been paid or duly provided for or, if no
interest has been paid or duly provided for on the Notes, from January
27, 2003. The interest so payable on any February 1 or August 1 will,
except as otherwise provided in the Indenture referred to on the reverse
hereof, be paid to the Person in whose name this Note is registered at
the close of business on the January 15 or July 15 next preceding such
February 1 or August 1, respectively, whether or not such date is a
Business Day; provided that, except as otherwise provided in the
Indenture referred to on the reverse hereof, interest may be paid, at
the option of the Issuer, by mailing a check therefor payable to the
Holder entitled thereto at his last address as it appears on the Note
register or by wire transfer.

     Reference is made to the further provisions set forth on the
reverse hereof. Such further provisions shall for all purposes have the
same effect as though fully set forth at this place.

     This Note shall not be valid or obligatory until the certificate of
authentication hereon shall have been duly signed by the Trustee acting
under the Indenture.

40

 

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

	 	 	 
	Dated:	 	 
	 
	 	 	
KB HOME
	 
	 	 	 
	 
	[SEAL]	 	 
	 
	 	 	

William R. Hollinger

Senior Vice President and Controller
	 
	 	 	 
	 
	Attest:	 	 
	 
	

Kimberly N. King

Corporate Secretary and Vice President,

Corporate Legal Affairs	 	 

TRUSTEE’S CERTIFICATE OF AUTHENTICATION

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

	 	 	 
	 	 	
SUNTRUST BANK, as Trustee
	 
	 	 	 
	 
	 	 	
By:

Authorized Officer

41

 

[REVERSE OF NOTE]

KB HOME

7 3/4% Senior Subordinated Note due 2010

     This Note is one of a duly authorized issue of 7 3/4% Senior
Subordinated Notes due 2010 (the “Notes”) of the Issuer, issued pursuant
to an indenture dated as of November 19, 1996 (as the same may be
amended or supplemented from time to time, the “Indenture”, which term
as used herein, includes the form and terms of the Notes established by
that certain Officers’ Certificate of the Issuer dated January 27,
2003), duly executed and delivered by the Issuer to SunTrust Bank, as
successor to SunTrust Bank, Atlanta, trustee (herein called, together
with any successor in such capacity, the “Trustee”). Reference is
hereby made to the Indenture and all indentures supplemental thereto for
a description of the rights, limitations of rights, obligations, duties
and immunities thereunder of the Trustee, the Issuer and the Holders of
the Notes.

     Anything in this Note or the Indenture to the contrary
notwithstanding, if any principal of or premium, if any, or interest on
the Notes is not paid when due, then such overdue principal, premium, if
any, and interest shall, to the fullest extent permitted by law, bear
interest at the rate of 7 3/4% per annum until paid.

     The indebtedness evidenced by, and the payment of the principal of
and premium, if any, and interest on, and any other amount owing in
respect of, the Notes is, to the extent and in the manner provided in
the Indenture, expressly made subordinate and subject in right of
payment to the prior payment in full of all Senior Indebtedness (as
defined in the Indenture) of the Issuer, and each Holder of this Note,
by his acceptance hereof, agrees to and shall be bound by all the
provisions of the Indenture relating to such subordination and
authorizes and directs the Trustee to take such action on his behalf as
may be necessary or appropriate to acknowledge or effectuate the
subordination of the indebtedness evidenced by this Note as provided in
the Indenture and appoints the Trustee his attorney-in-fact for any and
all such purposes.

     In case an Event of Default shall have occurred and be continuing,
the principal of and accrued interest on all the Notes may be declared
due and payable, in the manner and with the effect, and subject to the
conditions, provided in the Indenture. The Indenture provides that in
certain events such declaration and its consequences may be rescinded
and annulled by the Holders of a majority in aggregate principal amount
of the Notes then Outstanding and that, prior to any such declaration,
such Holders may waive any past default under the Indenture except a
default in the payment of principal of or premium, if any, or interest
on any of the Notes or a default in respect of another covenant or
provision of the Indenture that cannot be modified or amended without
the consent of each Holder affected and subject to certain further
exceptions. Any such waiver, rescission or annulment by the Holder of
this Note shall be conclusive and binding upon such Holder and upon all
future Holders and owners of this Note and any

42

 

Note which may be issued in exchange or substitution herefor, whether or
not any notation thereof is made upon this Note or such other Notes.

     To the extent permitted by, and as provided and subject to the
limitations in, the Indenture, the Issuer and the Trustee, with the
consent of the Holders of not less than a majority in aggregate
principal amount of the Notes then Outstanding, may execute supplemental
indentures adding any provisions to or changing in any manner or
eliminating any of the provisions of the Indenture or any supplemental
indenture or modifying in any manner the rights of the Holders.

     No reference herein to the Indenture and no provision of this Note
or of the Indenture shall alter or impair the obligation of the Issuer,
which is absolute and unconditional, to pay the principal of, and
premium, if any, and interest on this Note at the place, times and rate,
and in the coin and currency, herein prescribed.

     The Notes are issuable only as Registered Securities without
coupons in denominations of $1,000 and any integral multiple of $1,000.

     At the office or agency of the Issuer referred to on the face
hereof, and in the manner and subject to the limitations provided in the
Indenture, Notes may be exchanged for a like aggregate principal amount
of Notes of other authorized denominations.

     Upon due presentation for registration of transfer of this Note at
the above-mentioned office or agency of the Issuer, a new Note or Notes
of authorized denominations, for a like aggregate principal amount, will
be issued to the transferee as provided in the Indenture.

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

     The Notes may be redeemed at the option of the Issuer, in whole or
from time to time in part, on any date on and after February 1, 2007 and
prior to maturity, upon not less than 30 nor more than 60 days’ notice
given in accordance with the provisions of the Indenture, at the
redemption prices (expressed as percentages of the principal amount
thereof) set forth below, together with accrued and unpaid interest to
the date fixed for redemption (provided that payments of interest
becoming due on or prior to a date fixed for redemption of the Notes
shall be payable to the Holders of the Notes registered as such at the
close of business on the relevant record date, subject to the terms and
provisions of the Indenture), if redeemed during the 12-month period
beginning February 1 of the years indicated below:

	 	 	 	 	 
	 	 	Redemption
	Year	 	Price
	
	 	

	2007
	 	 	103.875	%

43

 

	 	 	 	 	 
	 	 	Redemption
	Year	 	Price
	
	 	

	2008
	 	 	101.938	%
	2009 and thereafter
	 	 	100.000	%

     At any time prior to February 1, 2006, the Issuer at its option may
redeem Notes in an aggregate principal amount equal to up to 35% of the
original aggregate principal amount of the Notes (including any
Additional Notes) with the Net Cash Proceeds of one or more Equity
Offerings, at any time or from time to time, at a redemption price equal
to 107.75% of the principal amount plus accrued interest to the date
fixed for redemption (provided that payments of interest becoming due on
or prior to a date fixed for redemption of the Notes shall be payable to
the Holders of the Notes registered as such at the close of business on
the relevant record date, subject to the terms and provisions of the
Indenture); provided that Notes (including any Additional Notes) with an
aggregate principal amount equal to at least $162,500,000 remain
outstanding after each such redemption; and provided further that notice
of any such redemption is mailed within 60 days after the closing date
of the applicable Equity Offering and, in any event, not less than 30
nor more than 60 days prior to the applicable redemption date, all in
accordance with the requirements of the Indenture.

     If less than all of the Notes are called for redemption, the
Trustee shall select, in such manner as it deems appropriate and fair,
the Notes (or portions thereof) to be redeemed.

     Subject to payment by the Issuer of a sum sufficient to pay the
amount due on redemption, interest on this Note (or portion hereof if
this Note is redeemed in part) shall cease to accrue upon the date duly
fixed for redemption of this Note (or portion hereof if this Note is
redeemed in part).

     If at any time there occurs a Change of Control with respect to the
Issuer, each Holder of Notes will have the right, at such Holder’s
option, to require the Issuer to repurchase all of such Holder’s Notes,
or a portion thereof which is a principal amount of $1,000 or any
integral multiple thereof, on the date (the “Change of Control
Repurchase Date”) that is 30 Change of Control Business Days after the
date of the Change of Control at a price equal to 101% of the principal
amount thereof, plus accrued and unpaid interest to the Change of
Control Repurchase Date, all upon the terms and subject to the
conditions set forth in the Indenture.

     The Indenture includes a number of restrictive covenants affecting
the Issuer and certain of its subsidiaries. These restrictive covenants
are subject to a number of important qualifications and exceptions and
reference is made to the Indenture for a description thereof.

     The Issuer, the Trustee, and any agent of the Issuer or the
Trustee, may deem and treat the Holder hereof as the absolute owner of
this Note (whether or not this Note shall be overdue and notwithstanding
any notation of ownership or other writing hereon), for the purpose of
receiving payment of, or on account of, the principal hereof and
premium, if any, hereon and, subject to the provisions in the Indenture,
interest hereon and for all

44

 

other purposes, and neither the Issuer nor the Trustee nor any agent of
the Issuer or the Trustee shall be affected by any notice to the
contrary.

     No recourse under or upon any obligation, covenant or agreement
contained in the Indenture or in this Note or because of any
indebtedness evidenced hereby shall be had against any incorporator, as
such, or against any past, present or future shareholder, officer or
director, as such, of the Issuer or of any successor, either directly or
through the Issuer or any successor, under any rule of law, statute or
constitutional provision or by the enforcement of any assessment or by
any legal or equitable proceeding or otherwise, all such liability being
expressly (to the extent permitted by law) waived and released by the
acceptance hereof and as part of the consideration for the issue hereof.

     Certain of the Issuer’s obligations under this Note and under the
Indenture with respect to the Notes may be terminated if the Issuer
irrevocably deposits with the Trustee money or U.S. Government
Obligations sufficient to pay and discharge the entire indebtedness on
all of the Notes, all upon the terms and subject to the conditions set
forth in the Indenture.

     This Note shall be governed by and construed in accordance with the
laws of the State of New York.

     Terms (whether or not capitalized) used in this Note and not
defined herein which are defined in the Indenture shall have the
respective meanings ascribed thereto in the Indenture.

45

 

ABBREVIATIONS

     The following abbreviations, when used in the inscription on the face of
this instrument, shall be construed as though they were written out in
full according to applicable laws or regulations.

	 	TEN COM—as tenants in common

	 	TEN ENT—as tenants by the entireties

	 	JT TEN —as joint tenants with right of survivorship and not as tenants in common

                        
UNIF GIFT MIN
ACT—                                Custodian          
                     

                                                                                
      (Cust)          
                      (Minor)

                        
under Uniform Gifts to Minors
Act                                        

               
                         
                         
                         
          (State)

     Additional abbreviations may also be used though not in the above
list.

46

 

ASSIGNMENT/TRANSFER FORM

     FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and
transfer(s) unto (Please Insert Social Security or Other Identifying
Number of Assignee)

     

     

     

the within Note and all rights thereunder, hereby irrevocably
constituting and appointing

attorney to transfer said Note on the books of the Issuer, with
full power of substitution in the premises.

     Dated:

     NOTICE: The signature to this assignment must correspond with the
name as
                                                  written upon the face of the within instrument in every
particular, without alteration or enlargement
         or any change whatever.

	 	 	 
	Signature Guaranteed:	 	 
	 
	 	 	
 
	 
	

The signature should be guaranteed by a commercial

bank or a member broker of either the New York

Stock Exchange, American Stock Exchange, Midwest

Stock Exchange or Pacific Coast Stock Exchange	 	 

47

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