Document:

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                                                                    Exhibit 4.17

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             CONVERTIBLE PREFERRED SECURITIES GUARANTEE AGREEMENT

                                by and between

                          IRWIN FINANCIAL CORPORATION

                                      and

                           WILMINGTON TRUST COMPANY

                        Dated as of September ___, 2000

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                               TABLE OF CONTENTS

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                                                                                      Page No.
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ARTICLE I -- DEFINITIONS AND INTERPRETATION............................................      1
    Section 1.1  Definitions and Interpretation........................................      1

ARTICLE II -- TRUST INDENTURE ACT......................................................      5
    Section 2.1   Trust Indenture Act; Application.....................................      5
    Section 2.2   Lists of Holders of Securities.......................................      5
    Section 2.3   Reports by the Guarantee Trustee.....................................      5
    Section 2.4   Periodic Reports to Guarantee Trustee................................      5
    Section 2.5   Evidence of Compliance with Conditions Precedent.....................      6
    Section 2.6   Events of Default; Waiver............................................      6
    Section 2.7   Event of Default; Notice.............................................      6
    Section 2.8   Conflicting Interests................................................      6

ARTICLE III -- POWERS, DUTIES AND RIGHTS OF GUARANTEE TRUSTEE..........................      7
    Section 3.1   Powers and Duties of the Guarantee Trustee...........................      7
    Section 3.2   Certain Rights of Guarantee Trustee..................................      8
    Section 3.3   Not Responsible for Recitals or Issuance of Guarantee................     10

ARTICLE IV -- GUARANTEE TRUSTEE........................................................     10
    Section 4.1   Guarantee Trustee; Eligibility.......................................     10
    Section 4.2   Appointment, Removal and Resignation of Guarantee Trustee............     11

ARTICLE V -- GUARANTEE.................................................................     12
    Section 5.1   Guarantee............................................................     12
    Section 5.2   Waiver of Notice and Demand..........................................     12
    Section 5.3   Obligations not Affected.............................................     12
    Section 5.4   Rights of Holders....................................................     13
    Section 5.5   Guarantee of Payment.................................................     13
    Section 5.6   Subrogation..........................................................     13
    Section 5.7   Independent Obligations..............................................     14
    Section 5.8   Conversion...........................................................     14

ARTICLE VI -- LIMITATION OF TRANSACTIONS; SUBORDINATION................................     14
    Section 6.1   Limitation of Transactions...........................................     14
    Section 6.2   Ranking..............................................................     15

ARTICLE VII -- TERMINATION.............................................................     15
    Section 7.1   Termination..........................................................     15
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ARTICLE VIII -- INDEMNIFICATION.........................................................    15
    Section 8.1   Exculpation...........................................................    15
    Section 8.2   Indemnification.......................................................    16

ARTICLE IX -- MISCELLANEOUS.............................................................    16
    Section 9.1   Successors and Assigns................................................    16
    Section 9.2   Amendments............................................................    16
    Section 9.3   Notices...............................................................    16
    Section 9.4   Benefit...............................................................    17
    Section 9.5   Governing Law.........................................................    17
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                             CROSS REFERENCE TABLE

Section of Trust                           Section of
Indenture Act of                           Guarantee
1939, as amended                           Agreement
----------------                           ---------

310(a)                                     4.1(a)
310(b)                                     4.1(c), 2.8
310(c)                                     Not Applicable
311(a)                                     2.2(b)
311(b)                                     2.2(b)
311(c)                                     Not Applicable
312(a)                                     2.2(a)
312(b)                                     2.2(b)
313                                        2.3
314(a)                                     2.4
314(b)                                     Not Applicable
314(c)                                     2.5
314(d)                                     Not Applicable
314(e)                                     1.1, 2.5, 3.2
314(f)                                     2.1, 3.2
315(a)                                     3.1(d)
315(b)                                     2.7
315(c)                                     3.1
315(d)                                     3.1(d)
316(a)                                     1.1, 2.6, 5.4
316(b)                                     5.3
317(a)                                     3.1
317(b)                                     Not Applicable
318(a)                                     2.1(a)
318(b)                                     2.1
318(c)                                     2.1(b)

         Note: This Cross-Reference Table does not constitute part
         of this Agreement and shall not affect the interpretation of
         any of its terms or provisions.

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             CONVERTIBLE PREFERRED SECURITIES GUARANTEE AGREEMENT

     THIS CONVERTIBLE PREFERRED SECURITIES GUARANTEE AGREEMENT (this "Preferred
Securities Guarantee"), dated as of September ___, 2000, is executed and
delivered by IRWIN FINANCIAL CORPORATION, an Indiana corporation (the
"Guarantor"), and WILMINGTON TRUST COMPANY, a Delaware banking corporation
organized under the laws of the State of Delaware, as trustee (the "Guarantee
Trustee"), for the benefit of the Holders (as defined herein) from time to time
of the Preferred Securities (as defined herein) of IFC Capital Trust III, a
Delaware statutory business trust (the "Trust").

                                   RECITALS

     WHEREAS, pursuant to an Amended and Restated Trust Agreement (the "Trust
Agreement"), dated as of September ___, 2000, among the trustees of the Trust
named therein, the Guarantor, as sponsor, and the holders from time to time of
undivided beneficial interests in the assets of the Trust, the Trust is issuing
on the date hereof up to 2,300,000 convertible preferred securities, having an
aggregate Liquidation Amount of up to $23,000,000 designated the _____%
Cumulative Convertible Trust Preferred Securities;

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

     NOW, THEREFORE, in consideration of the purchase by each Holder of
Preferred Securities, which purchase the Guarantor hereby agrees shall benefit
the Guarantor, the Guarantor executes and delivers this Preferred Securities
Guarantee for the benefit of the Holders.

                                   ARTICLE I
                        DEFINITIONS AND INTERPRETATION

 Section 1.1  Definitions and Interpretation.

     In this Preferred Securities Guarantee, unless the context otherwise
requires:

     (a) capitalized terms used in this Preferred Securities Guarantee but not
defined in the preamble above have the respective meanings assigned to them in
this Section 1.1;

     (b) terms defined in the Trust Agreement as at the date of execution of
this Preferred Securities Guarantee have the same meaning when used in this
Preferred Securities Guarantee, unless otherwise defined in this Preferred
Securities Guarantee;
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     (c) a term defined anywhere in this Preferred Securities Guarantee has the
same meaning throughout;

     (d) all references to "the Preferred Securities Guarantee" or "this
Preferred Securities Guarantee" are to this Preferred Securities Guarantee as
modified, supplemented or amended from time to time;

     (e) all references in this Preferred Securities Guarantee to Articles and
Sections are to Articles and Sections of this Preferred Securities Guarantee,
unless otherwise specified;

     (f) a term defined in the Trust Indenture Act has the same meaning when
used in this Preferred Securities Guarantee, unless otherwise defined in this
Preferred Securities Guarantee or unless the context otherwise requires; and

     (g) a reference to the singular includes the plural and vice versa.

     "Affiliate" has the same meaning as given to that term in Rule 405 of the
Securities Act of 1933, as amended, or any successor rule thereunder.

     "Business Day" means any day other than a Saturday, Sunday, a day on which
federal or state banking institutions in New York, New York are authorized or
required by law, executive order or regulation to close or a day on which the
Corporate Trust Office of the Guarantee Trustee is closed for business.

     "Corporate Trust Office" means the office of the Guarantee Trustee at which
the corporate trust business of the Guarantee Trustee shall, at any particular
time, be principally administered, which office at the date of execution of this
Agreement is located at Rodney Square North, 1100 North Market Street,
Wilmington, Delaware 19890-0001, Attention: Corporate Trust Administration.

     "Covered Person" means any Holder or beneficial owner of Preferred
Securities.

     "Debentures" means the ____% Convertible Junior Subordinated Debentures due
September 30, 2030, of the Debenture Issuer held by the Property Trustee of the
Trust.

     "Debenture Issuer" means Irwin Financial Corporation, issuer of the
Debentures under the Indenture.

     "Event of Default" means a default by the Guarantor on any of its payment
or other obligations under this Preferred Securities Guarantee.

     "Guarantee Payments" means the following payments or distributions, without
duplication, with respect to the Preferred Securities, to the extent not paid or
made by the Trust: (i) any accrued and unpaid Distributions that are required to
be paid on such Preferred Securities, to the extent the

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Trust shall have funds available therefor, (ii) the redemption price, including
all accrued and unpaid Distributions to the date of redemption (the "Redemption
Price"), to the extent the Trust has funds available therefor, with respect to
any Preferred Securities called for redemption by the Trust, and (iii) upon a
voluntary or involuntary dissolution, winding-up or termination of the Trust
(other than in connection with the distribution of Debentures to the Holders in
exchange for Preferred Securities as provided in the Trust Agreement), the
lesser of (a) the aggregate of the Liquidation Amount and all accrued and unpaid
Distributions on the Preferred Securities to the date of payment, to the extent
the Trust shall have funds available therefor (the "Liquidation Distribution"),
and (b) the amount of assets of the Trust remaining available for distribution
to Holders in liquidation of the Trust.

     "Guarantee Trustee" means Wilmington Trust Company, until a Successor
Guarantee Trustee has been appointed and has accepted such appointment pursuant
to the terms of this Preferred Securities Guarantee and thereafter means each
such Successor Guarantee Trustee.

     "Guarantor" means Irwin Financial Corporation, an Indiana corporation.

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

     "Indemnified Person" means the Guarantee Trustee, any Affiliate of the
Guarantee Trustee, or any officers, directors, shareholders, members, partners,
employees, representatives, nominees, custodians or agents of the Guarantee
Trustee.

     "Indenture" means the Indenture dated as of September ___, 2000, among the
Debenture Issuer and Wilmington Trust Company, as trustee, and any indenture
supplemental thereto pursuant to which the Debentures are to be issued to the
Property Trustee of the Trust.

     "Liquidation Amount" means the stated value of $10 per Preferred Security.

     "Liquidation Distribution" has the meaning provided therefor in the
definition of Guarantee Payments.

     "Majority in Liquidation Amount of the Preferred Securities" means the
holders of more than 50% of the Liquidation Amount of all of the Preferred
Securities.

     "Officers' Certificate" means, with respect to any Person, a certificate
signed by two authorized officers of such Person, at least one of whom shall be
the principal executive officer, principal financial officer, principal
accounting officer, treasurer or any vice president of such Person. Any
Officers' Certificate delivered with respect to compliance with a condition or
covenant provided for in this Preferred Securities Guarantee shall include:

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

     (b) a brief statement of the nature and scope of the examination or
investigation undertaken by each officer in rendering the Officers' Certificate;

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

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

     "Person" means a legal person, including any individual, corporation,
estate, partnership, joint venture, association, joint stock company, limited
liability company, trust, unincorporated association, or government or any
agency or political subdivision thereof, or any other entity of whatever nature.

     "Preferred Securities" means the _____% Cumulative Convertible Trust
Preferred Securities representing undivided beneficial interests in the assets
of the Trust which rank pari passu with Common Securities issued by the Trust;
provided, however, that upon the occurrence of an Event of Default, the rights
of holders of Common Securities to payment in respect of distributions and
payments upon liquidation, redemption and otherwise are subordinated to the
rights of holders of Preferred Securities.

     "Redemption Price" has the meaning provided therefor in the definition of
Guarantee Payments.

     "Responsible Officer" means, with respect to the Guarantee Trustee, any
officer within the Corporate Trust Office of the Guarantee Trustee with direct
responsibility for the administration of this Preferred Securities Guarantee,
including any vice-president, any assistant vice-president, any assistant
secretary or other officer or assistant officer of the Guarantee Trustee
customarily performing functions similar to those performed by any of the above
designated officers and also means, with respect to a particular corporate trust
matter, any other officer to whom such matter is referred because of that
officer's knowledge of and familiarity with the particular subject.

     "Successor Guarantee Trustee" means a successor Guarantee Trustee
possessing the qualifications to act as Guarantee Trustee under Section 4.1.

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

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                                  ARTICLE II
                              TRUST INDENTURE ACT

Section 2.1 Trust Indenture Act; Application.

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

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

Section 2.2 Lists of Holders of Securities.

     (a) In the event the Guarantee Trustee is not also acting in the capacity
of the Property Trustee under the Trust Agreement, the Guarantor shall cause to
be provided to the Guarantee Trustee with a list, in such form as the Guarantee
Trustee may reasonably require, of the names and addresses of the Holders of the
Preferred Securities ("List of Holders") as of the date (i) within one Business
Day after March 15, June 15, September 15 and December 15, and (ii) at any other
time within 30 days of receipt by the Guarantor of a written request for a List
of Holders as of a date no more than 15 days before such List of Holders is
given to the Guarantee Trustee; provided, that the Guarantor shall not be
obligated to provide such List of Holders at any time the List of Holders does
not differ from the most recent List of Holders caused to have been given to the
Guarantee Trustee by the Guarantor. The Guarantee Trustee may destroy any List
of Holders previously given to it on receipt of a new List of Holders.

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

Section 2.3 Reports by the Guarantee Trustee.

     On or before July 31 of each year, commencing July 31, 2001, the Guarantee
Trustee shall provide to the Holders of the Preferred Securities such reports as
are required by Section 313 of the Trust Indenture Act, if any, in the form and
in the manner provided by Section 313 of the Trust Indenture Act. The Guarantee
Trustee shall also comply with the requirements of Section 313(d) of the Trust
Indenture Act.

Section 2.4 Periodic Reports to Guarantee Trustee.

     The Guarantor shall provide to the Guarantee Trustee such documents,
reports and information as required by Section 314 (if any) and the compliance
certificate required by
                                       5
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Section 314 of the Trust Indenture Act in the form, in the manner and at the
times required by Section 314 of the Trust Indenture Act.

Section 2.5 Evidence of Compliance with Conditions Precedent.

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

Section 2.6 Events of Default; Waiver.

     The Holders of a Majority in liquidation amount of Preferred Securities
may, by vote, on behalf of the Holders of all of the Preferred Securities, waive
any past Event of Default and its consequences. Upon such waiver, any such Event
of Default shall cease to exist, and any Event of Default arising therefrom
shall be deemed to have been cured, for every purpose of this Preferred
Securities Guarantee, but no such waiver shall extend to any subsequent or other
default or Event of Default or impair any right consequent thereon.

Section 2.7 Event of Default; Notice.

     (a) The Guarantee Trustee shall, within 90 days after the occurrence of an
Event of Default, transmit by mail, first class postage prepaid, to the Holders
of the Preferred Securities, notices of all Events of Default actually known to
a Responsible Officer of the Guarantee Trustee, unless such defaults have been
cured before the giving of such notice; provided, that, except in the case of a
default by Guarantor on any of its payment obligations, the Guarantee Trustee
shall be protected in withholding such notice if and so long as a Responsible
Officer of the Guarantee Trustee in good faith determines that the withholding
of such notice is in the interests of the Holders of the Preferred Securities.

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

Section 2.8 Conflicting Interests.

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

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                                  ARTICLE III
                POWERS, DUTIES AND RIGHTS OF GUARANTEE TRUSTEE

Section 3.1 Powers and Duties of the Guarantee Trustee.

     (a) This Preferred Securities Guarantee shall be held by the Guarantee
Trustee for the benefit of the Holders of the Preferred Securities, and the
Guarantee Trustee shall not transfer this Preferred Securities Guarantee to any
Person except a Holder of Preferred Securities exercising his or her rights
pursuant to Section 5.4(b) or to a Successor Guarantee Trustee on acceptance by
such Successor Guarantee Trustee of its appointment to act as Successor
Guarantee Trustee. The right, title and interest of the Guarantee Trustee shall
automatically vest in any Successor Guarantee Trustee, and such vesting and
cessation of title shall be effective whether or not conveyancing documents have
been executed and delivered pursuant to the appointment of such Successor
Guarantee Trustee.

     (b) If an Event of Default actually known to a Responsible Officer of the
Guarantee Trustee has occurred and is continuing, the Guarantee Trustee shall
enforce this Preferred Securities Guarantee for the benefit of the Holders of
the Preferred Securities.

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

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

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

                (A) the duties and obligations of the Guarantee Trustee shall be
     determined solely by the express provisions of this Preferred Securities
     Guarantee, and the Guarantee Trustee shall not be liable except for the
     performance of such duties and obligations as are specifically set forth in
     this Preferred Securities Guarantee, and no implied covenants or
     obligations shall be read into this Preferred Securities Guarantee against
     the Guarantee Trustee; and

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                (B) in the absence of bad faith on the part of the Guarantee
     Trustee, the Guarantee Trustee may conclusively rely, as to the truth of
     the statements and the correctness of the opinions expressed therein, upon
     any certificates or opinions furnished to the Guarantee Trustee and
     conforming to the requirements of this Preferred Securities Guarantee; but
     in the case of any such certificates or opinions that by any provision
     hereof are specifically required to be furnished to the Guarantee Trustee,
     the Guarantee Trustee shall be under a duty to examine the same to
     determine whether or not they conform to the requirements of this Preferred
     Securities Guarantee;

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

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

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

Section 3.2 Certain Rights of Guarantee Trustee.

     (a)  Subject to the provisions of Section 3.1:

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

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

          (iii) whenever, in the administration of this Preferred Securities
Guarantee, the Guarantee Trustee shall deem it desirable that a matter be proved
or established before taking,

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suffering or omitting any action hereunder, the Guarantee Trustee (unless other
evidence is herein specifically prescribed) may, in the absence of bad faith on
its part, request and conclusively rely upon an Officers' Certificate which,
upon receipt of such request, shall be promptly delivered by the Guarantor;

          (iv)    the Guarantee Trustee shall have no duty to see to any
recording, filing or registration of any instrument (or any rerecording,
refiling or registration thereof);

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

          (vi)    the Guarantee Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Preferred Securities Guarantee
at the request or direction of any Holder, unless such Holder shall have
provided to the Guarantee Trustee such security and indemnity, reasonably
satisfactory to the Guarantee Trustee, against the costs, expenses (including
attorneys' fees and expenses and the expenses of the Guarantee Trustee's agents,
nominees or custodians) and liabilities that might be incurred by it in
complying with such request or direction, including such reasonable advances as
may be requested by the Guarantee Trustee; provided that, nothing contained in
this Section 3.2(a)(vi) shall be taken to relieve the Guarantee Trustee, upon
the occurrence of an Event of Default, of its obligation to exercise the rights
and powers vested in it by this Preferred Securities Guarantee;

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

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

          (ix)    no third party shall be required to inquire as to the
authority of the Guarantee Trustee to so act or as to its compliance with any of
the terms and provisions of this Preferred Securities Guarantee, both of which
shall be conclusively evidenced by the Guarantee Trustee's or its agent's taking
such action;

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<PAGE>

          (x)    whenever in the administration of this Preferred Securities
Guarantee the Guarantee Trustee shall deem it desirable to receive instructions
with respect to enforcing any remedy or right or taking any other action
hereunder, the Guarantee Trustee (i) may request instructions from the Holders
of a Majority in Liquidation Amount of the Preferred Securities, (ii) may
refrain from enforcing such remedy or right or taking such other action until
such instructions are received, and (iii) shall be protected in conclusively
relying on or acting in accordance with such instructions.

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

Section 3.3 Not Responsible for Recitals or Issuance of Guarantee.

     The Recitals contained in this Guarantee shall be taken as the statements
of the Guarantor, and the Guarantee Trustee does not assume any responsibility
for their correctness. The Guarantee Trustee makes no representation as to the
validity or sufficiency of this Preferred Securities Guarantee.

                                  ARTICLE IV
                               GUARANTEE TRUSTEE

Section 4.1 Guarantee Trustee; Eligibility.

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

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

            (ii)  be a corporation organized and doing business under the laws
of the United States of America or any state or territory thereof or of the
District of Columbia, or a corporation or Person permitted by the Securities and
Exchange Commission to act as an institutional trustee under the Trust Indenture
Act, authorized under such laws to exercise corporate trust powers, having a
combined capital and surplus of at least $50,000,000, and subject to supervision
or examination by federal, state, territorial or District of Columbia authority.
If such corporation publishes reports of condition at least annually, pursuant
to law or to the requirements of the supervising or examining authority referred
to above, then, for the purposes of this Section 4.1(a)(ii), the combined
capital and surplus of such corporation shall be deemed to be its combined
capital and surplus as set forth in its most recent report of condition so
published.

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     (b)    If at any time the Guarantee Trustee shall cease to be eligible to
so act under Section 4.1(a), the Guarantee Trustee shall immediately resign in
the manner and with the effect set out in Section 4.2(c).

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

Section 4.2 Appointment, Removal and Resignation of Guarantee Trustee.

     (a)    Subject to Section 4.2(b), the Guarantee Trustee may be appointed or
removed without cause at any time by the Guarantor.

     (b)    The Guarantee Trustee shall not be removed in accordance with
Section 4.2(a) until a Successor Guarantee Trustee has been appointed and has
accepted such appointment by written instrument executed by such Successor
Guarantee Trustee and delivered to the Guarantor.

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

     (d)    If no Successor Guarantee Trustee shall have been appointed and
accepted appointment as provided in this Section 4.2 within 60 days after
delivery to the Guarantor of an instrument of resignation, the resigning
Guarantee Trustee may petition any court of competent jurisdiction for
appointment of a Successor Guarantee Trustee. Such court may thereupon, after
prescribing such notice, if any, as it may deem proper, appoint a Successor
Guarantee Trustee.

     (e)    No Guarantee Trustee shall be liable for the acts or omissions to
act of any Successor Guarantee Trustee.

     (f)    Upon termination of this Preferred Securities Guarantee or removal
or resignation of the Guarantee Trustee pursuant to this Section 4.2, the
Guarantor shall pay to the Guarantee Trustee all fees and expenses accrued to
the date of such termination, removal or resignation.

                                       11
<PAGE>

                                   ARTICLE V
                                   GUARANTEE

Section 5.1 Guarantee.

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

Section 5.2 Waiver of Notice and Demand.

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

Section 5.3 Obligations not Affected.

     The obligations, covenants, agreements and duties of the Guarantor under
this Preferred Securities Guarantee shall in no way be affected or impaired by
reason of the happening from time to time of any of the following:

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

     (b)    the extension of time for the payment by the Trust of all or any
portion of the Distributions, Redemption Price, Liquidation Distribution or any
other sums payable under the terms of the Preferred Securities or the extension
of time for the performance of any other obligation under, arising out of, or in
connection with, the Preferred Securities (other than an extension of time for
payment of Distributions, Redemption Price, Liquidation Distribution or other
sum payable that results from the extension of any interest payment period on
the Debentures or any extension of the maturity date of the Debentures permitted
by the Indenture);

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

                                       12
<PAGE>

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

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

     (f)    any failure or omission to receive any regulatory approval or
consent required in connection with the Preferred Securities (or the common
equity securities issued by the Trust), including the failure to receive any
approval of the Board of Governors of the Federal Reserve System required for
the redemption of the Preferred Securities;

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

     (h)    any other circumstance whatsoever that might otherwise constitute a
legal or equitable discharge or defense of a guarantor, it being the intent of
this Section 5.3 that the obligations of the Guarantor hereunder shall be
absolute and unconditional under any and all circumstances.

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

Section 5.4 Rights of Holders.

     (a)    Subject to Section 5.4(b), the Holders of a Majority in liquidation
amount of the Preferred Securities have the right to direct the time, method and
place of conducting of any proceeding for any remedy available to the Guarantee
Trustee in respect of this Preferred Securities Guarantee or exercising any
trust or power conferred upon the Guarantee Trustee under this Preferred
Securities Guarantee.

     (b)    Any Holder of Preferred Securities may institute and prosecute a
legal proceeding directly against the Guarantor to enforce its rights under this
Preferred Securities Guarantee, without first instituting a legal proceeding
against the Trust, the Guarantee Trustee or any other Person.

Section 5.5 Guarantee of Payment.

     This Preferred Securities Guarantee creates a guarantee of payment and not
of collection.

Section 5.6 Subrogation.

     The Guarantor shall be subrogated to all (if any) rights of the Holders of
Preferred Securities against the Trust in respect of any amounts paid to such
Holders by the Guarantor under this Preferred Securities Guarantee; provided,
however, that the Guarantor shall not (except to the extent

                                      13
<PAGE>

required by mandatory provisions of law) be entitled to enforce or exercise any
right that it may acquire by way of subrogation or any indemnity, reimbursement
or other agreement, in all cases as a result of payment under this Preferred
Securities Guarantee, if, at the time of any such payment, any amounts are due
and unpaid under this Preferred Securities Guarantee. If any amount shall be
paid to the Guarantor in violation of the preceding sentence, the Guarantor
agrees to hold such amount in trust for the Holders and to pay over such amount
to the Holders.

Section 5.7 Independent Obligations.

     The Guarantor acknowledges that its obligations hereunder are independent
of the obligations of the Trust with respect to the Preferred Securities, and
that the Guarantor shall be liable as principal and as debtor hereunder to make
Guarantee Payments pursuant to the terms of this Preferred Securities Guarantee
notwithstanding the occurrence of any event referred to in subsections (a)
through (h), inclusive, of Section 5.3 hereof.

Section 5.8 Conversion.

     The Guarantor acknowledges and agrees to honor and perform all of its
obligations to issue and deliver the common stock of the Guarantor upon the
conversion of the Preferred Securities as provided in Article IV of the
Indenture.

                                  ARTICLE VI
                   LIMITATION OF TRANSACTIONS; SUBORDINATION

Section 6.1 Limitation of Transactions.

     So long as any Preferred Securities remain outstanding, if there shall have
occurred an Event of Default under this Preferred Securities Guarantee, an event
of default under the Trust Agreement or during an Extended Interest Payment
Period (as defined in the Indenture), then (a) the Guarantor shall not declare
or pay any dividend on, make any distributions with respect to, or redeem,
purchase, acquire or make a liquidation payment with respect to, any of its
capital stock (other than as a result of a reclassification of its capital stock
for another class of its capital stock) and (b) the Guarantor shall not make any
payment of interest or principal on or repay, repurchase or redeem any debt
securities issued by the Guarantor which rank pari passu with or junior to the
Debentures, other than payments under this Preferred Securities Guarantee.

Section 6.2 Ranking.

     This Preferred Securities Guarantee will constitute an unsecured obligation
of the Guarantor and will rank subordinate and junior in right of payment to all
Senior Debt, Subordinated Debt and Additional Senior Obligations, as defined in
the Indenture, of the Guarantor, to the extent and in the

                                       14
<PAGE>

manner set forth in the Indenture, and the applicable provisions of the
Indenture will apply, in all relevant respects, to the obligations of the
Guarantor hereunder.

                                  ARTICLE VII
                                  TERMINATION

Section 7.1 Termination.

     This Preferred Securities Guarantee shall terminate upon (i) full payment
of the Redemption Price of all Preferred Securities, (ii) upon full payment of
the amounts payable in accordance with the Trust Agreement upon liquidation of
the Trust, or (iii) upon distribution of the Debentures to the Holders of the
Preferred Securities. Notwithstanding the foregoing, this Preferred Securities
Guarantee shall continue to be effective or shall be reinstated, as the case may
be, if at any time any Holder of Preferred Securities must restore payment of
any sums paid under the Preferred Securities or under this Preferred Securities
Guarantee.

                                  ARTICLE VII
                                INDEMNIFICATION

Section 8.1 Exculpation.

     (a)    No Indemnified Person shall be liable, responsible or accountable in
damages or otherwise to the Guarantor or any Covered Person for any loss, damage
or claim incurred by reason of any act or omission performed or omitted by such
Indemnified Person in good faith in accordance with this Preferred Securities
Guarantee and in a manner that such Indemnified Person reasonably believed to be
within the scope of the authority conferred on such Indemnified Person by this
Preferred Securities Guarantee or by law, except that an Indemnified Person
shall be liable for any such loss, damage or claim incurred by reason of such
Indemnified Person's negligence or willful misconduct with respect to such acts
or omissions.

     (b)    An Indemnified Person shall be fully protected in relying in good
faith upon the records of the Guarantor and upon such information, opinions,
reports or statements presented to the Guarantor by any Person as to matters the
Indemnified Person reasonably believes are within such other Person's
professional or expert competence and who has been selected with reasonable care
by or on behalf of the Guarantor, including information, opinions, reports or
statements as to the value and amount of the assets, liabilities, profits,
losses, or any other facts pertinent to the existence and amount of assets from
which Distributions to Holders of Preferred Securities might properly be paid.

                                       15
<PAGE>

Section 8.2 Indemnification.

     The Guarantor agrees to indemnify each Indemnified Person for, and to hold
each Indemnified Person harmless against, any loss, liability or expense
incurred without negligence or bad faith on its part, arising out of or in
connection with the acceptance or administration of the trust or trusts
hereunder, including the costs and expenses (including reasonable legal fees and
expenses) of defending itself against, or investigating, any claim or liability
in connection with the exercise or performance of any of its powers or duties
hereunder. The obligation to indemnify as set forth in this Section 8.2 shall
survive the termination of this Preferred Securities Guarantee.

                                  ARTICLE IX
                                 MISCELLANEOUS

Section 9.1 Successors and Assigns.

     All guarantees and agreements contained in this Preferred Securities
Guarantee shall bind the successors, assigns, receivers, trustees and
representatives of the Guarantor and shall inure to the benefit of the Holders
of the Preferred Securities then outstanding.

Section 9.2 Amendments.

     Except with respect to any changes that do not materially adversely affect
the rights of Holders (in which case no consent of Holders will be required),
this Preferred Securities Guarantee may only be amended with the prior approval
of the Holders of at least a Majority in Liquidation Amount of the Preferred
Securities. The provisions of Article VI of the Trust Agreement with respect to
meetings of Holders of the Preferred Securities apply to the giving of such
approval.

Section 9.3 Notices.

     All notices provided for in this Preferred Securities Guarantee shall be in
writing, duly signed by the party giving such notice, and shall be delivered,
telecopied or mailed by registered or certified mail, as follows:

     (a)    If given to the Guarantee Trustee, at the Guarantee Trustee's
mailing address set forth below (or such other address as the Guarantee Trustee
may give notice of to the Holders of the Preferred Securities):

               Wilmington Trust Company
               Rodney Square North
               1100 North Market Street
               Wilmington, Delaware 19890-0001
               Attention: Corporate Trust Administrator

                                       16
<PAGE>

     (b)    If given to the Guarantor, at the Guarantor's mailing address set
forth below (or such other address as the Guarantor may give notice of to the
Holders of the Preferred Securities):

               Irwin Financial Corporation
               500 Washington Street
               Columbus, Indiana 47201
               Attention: Gregory F. Ehlinger, Chief Financial Officer

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

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

Section 9.4 Benefit.

     This Preferred Securities Guarantee is solely for the benefit of the
Holders of the Preferred Securities and, subject to Section 3.1(a), is not
separately transferable from the Preferred Securities.

Section 9.5 Governing Law.

     THIS PREFERRED SECURITIES GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF INDIANA.

                                      17
<PAGE>

     This Preferred Securities Guarantee is executed as of the day and year
first above written.

                                                 IRWIN FINANCIAL CORPORATION, as
                                                   Guarantor

                                                 _______________________________
                                                 By:  John Nash
                                                 Its: President

                                                 WILMINGTON TRUST COMPANY,
                                                   as Guarantee Trustee

                                                 _______________________________
                                                 By:____________________________
                                                 Its:___________________________

                                       18<PAGE>   1
                                                                     EXHIBIT 4.2

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

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 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.

                             THE RYLAND GROUP, INC.

                           9.75% SENIOR NOTES DUE 2010

CUSIP NO. 783764AF0

NO. R-1                                                            $150,000,000

        THE RYLAND GROUP, INC., a Maryland corporation (herein called the
"Company," which term includes any successor Person under the Indenture
hereinafter referred to), for value received, hereby promises to pay to Cede &
Co., or registered assigns, the principal sum of One Hundred Fifty Million
Dollars on September 1, 2010, at the office or agency of the Company referred to
below, and to pay interest thereon on March 1, 2001 and semi-annually thereafter
on March 1 and September 1 in each year, accruing from August 24, 2000, at the
rate of 9.75% per annum until the principal hereof is paid or made available for
payment. The interest so payable, and punctually paid or duly provided for, on
any Interest Payment Date will, as provided in such Indenture, be paid to the
Person in whose name this Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such
interest, which shall be February 15 or August 15 (whether or not a Business
Day), as the case may be, next preceding such Interest Payment Date. Any such
interest not so punctually paid or duly provided for will forthwith cease to be
payable to the Holder on such Regular Record Date and may either be paid to the
Person in whose name this Security (or one or more Predecessor Securities) is
registered at the close of business on a Special Record Date for the payment of
such Defaulted Interest to be fixed by the Trustee, notice whereof shall be
given to Holders of the Securities of this series not less than 10 days prior to
such Special Record Date, or be paid at any time in any other lawful manner not
inconsistent with the
<PAGE>   2

requirements of any securities exchange on which the Securities of this series
may be listed, and upon such notice as may be required by such exchange, all as
more fully provided in said Indenture.

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

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

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

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

Dated:  August 24, 2000                     THE RYLAND GROUP, INC.

                                            By:  /s/ GORDON A. MILNE
                                               --------------------------------
                                                Gordon A. Milne
                                                Senior Vice President and Chief
                                                Financial Officer

Attest:

/s/ TIMOTHY J. GECKLE
------------------------
Timothy J. Geckle
Secretary

                     TRUSTEE'S CERTIFICATE OF AUTHENTICATION

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

                       ----------------------------------
     The Chase Manhattan Bank (formerly known as Chemical Bank), As Trustee

               By:     /s/ P. KELLY
                       ----------------------------------
                               Authorized Officer

<PAGE>   3

                               REVERSE OF SECURITY

        This Security is one of a duly authorized issue of securities of the
Company (herein called the "Securities"), issued and to be issued in one or more
series under an Indenture, dated as of June 28, 1996 (herein called the
"Indenture"), between the Company and The Chase Manhattan Bank (formerly known
as Chemical Bank), as Trustee herein called the "Trustee", which term includes
any successor trustee under the Indenture), to which Indenture and all
indentures supplemental thereto reference is hereby made for a statement of the
respective rights, limitations of rights, obligations, duties and immunities
thereunder of the Company, the Trustee and the Holders of the Securities and of
the terms upon which the Securities are, and are to be, authenticated and
delivered. The terms of this Security include the covenants and terms
established by resolutions adopted by the Finance Committee of the Board of
Directors of the Company pursuant to the authority granted under the Indenture.
This Security is one of the series designated on the face hereof, in an
aggregate principal amount of $150,000,000.

        The Securities of this series are subject to redemption upon not less
than 30 days' nor more than 60 days' notice by mail, at any time on or after
September 1, 2005, in whole or in part, at the election of the Company, at the
following redemption prices (expressed as percentages of the principal amount)
plus accrued and unpaid interest, if any, to the date fixed for redemption. If
redeemed, the redemption price, expressed as a percentage of the principal
amount, shall be as follows for the periods shown below:

<TABLE>
<CAPTION>

                                                                                    Redemption
        Year                                                                          Price
        ----                                                                    ------------------
<S>                                                                                  <C>
        September 1, 2005 through August 14, 2006.....................................104.875%
                                                                                      -------
        September 1, 2006 through August 14, 2007.....................................103.250%
                                                                                      -------
        September 1, 2007 through August 14, 2008.....................................101.625%
                                                                                      -------
        September 1, 2008 and thereafter..............................................100.000%
                                                                                      -------
</TABLE>

        If less than all of the Securities are to be redeemed, the Trustee will
select the Securities to be redeemed on a pro rata basis. In any case where
Securities of such series are registered in the same name, the Trustee in its
discretion may treat the aggregate principal amount so registered as if it were
represented by one Security of such series. If the Securities of any series to
be redeemed consist of Securities having different Stated Maturities or
different rates of interest (or methods of computing interest), then the Company
may, by written notice to the Trustee, direct that the Securities of such series
to be redeemed shall be selected from among groups of such Securities having
specified Stated Maturities or rates of interest (or methods or computing
interest) and the Trustee shall thereafter select the particular Securities to
be redeemed in the manner set forth above from among the groups of such
Securities so specified.

        In the event of redemption of this Security in part only, a new Security
or Securities of this series and of like tenor for the unredeemed portion hereof
will be issued in the name of the Holder hereof upon the cancellation hereof.

        The Indenture contains provisions for defeasance at any time of the
entire indebtedness of this Security upon compliance with certain conditions set
forth in the Indenture.

<PAGE>   4

        The Company may not consolidate with or merge into, or transfer or lease
all or substantially all of its assets as an entirety to another person unless
the person is a corporation, such corporation assumes by a supplemental
indenture all the obligations of the Company under the Securities and the
Indenture and after giving effect to the transaction no Event of Default (as
defined in the Indenture) shall exist.

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

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

        No reference herein to the Indenture and no provision of this Security
or of the Indenture shall alter or impair the obligation of the Company, which
is absolute and unconditional, to pay the

<PAGE>   5

principal of and any premium and interest on this Security at the times, place
and rates, and in the coin or currency, herein prescribed.

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

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

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

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

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

        The Chase Manhattan Bank (formerly known as Chemical Bank), the Trustee
under the Indenture, or any banking institution serving as successor Trustee
thereunder, in its individual or any other capacity, may make loans to, accept
deposits from and perform services for the Company or its Affiliates, and may
otherwise deal with the Company or its Affiliates as if it were not Trustee.

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

<PAGE>   6

        All terms used in this Security which are defined in the Indenture shall
have the meanings assigned to them in or pursuant to the Indenture.

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