-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AAkZS4e5CNz4aNXJCf/1oYhUF1W/3sfyFRZVTg5ri0Zom1DVB3zHfQxSzFjfrWhq UPuG0hVfcnvaFdR9L7coiw== 0000950109-97-004474.txt : 19970610 0000950109-97-004474.hdr.sgml : 19970610 ACCESSION NUMBER: 0000950109-97-004474 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970401 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19970609 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HORTON D R INC /DE/ CENTRAL INDEX KEY: 0000882184 STANDARD INDUSTRIAL CLASSIFICATION: OPERATIVE BUILDERS [1531] IRS NUMBER: 752386963 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-14122 FILM NUMBER: 97620636 BUSINESS ADDRESS: STREET 1: 1901 ASCENSION BLVD STREET 2: STE 100 CITY: ARLINGTON STATE: TX ZIP: 76006 BUSINESS PHONE: 8178568200 8-K/A 1 FORM 8-K/A SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K/A Current Report Pursuant to Section 13 or 15(d) of The Securities Act of 1934 Date of Report (Date of earliest event reported) April 1, 1997 ------------- D.R. HORTON, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 1-14112 75-2386963 - -------------------------------------------------------------------------------- (State or other (Commission (I.R.S. Employer jurisdiction File Number) Identification No.) of incorporation) 1901 Ascension Boulevard, Suite 100, Arlington, Texas 76006 - -------------------------------------------------------------------------------- (Address of principal executive offices)(Zip Code) Registrant's telephone number, including area code (817) 856-8200 ------------------------------ - -------------------------------------------------------------------------------- (Former name or former address, if changed since last report.) PAGE 1 ITEM 5. OTHER EVENTS - ------- ------------ Exhibit 1.1 hereto is the Underwriting Agreement, dated June 4, 1997, among D.R. Horton, Inc., the Guarantors named therein and Donaldson, Lufkin & Jenrette Securities Corporation. Exhibit 4.1 hereto is the form of First Supplemental Indenture, dated June 9, 1997, to be executed by D.R. Horton, Inc., the Guarantors named therein and American Stock Transfer and Trust Company, as Trustee, relating to the 8 3/8% Senior Notes due 2004 of D.R. Horton, Inc. Exhibit 10.1 hereto is the Amended and Restated Master Loan and Inter-Creditor Agreement dated as of April 1, 1997, among D.R. Horton, Inc., as Borrower, NationsBank, N.A. (South), Bank of America National Trust and Savings Association, First American Bank Texas, SSB, South Trust Bank of Alabama, National Association, Comerica Bank, The First National Bank of Chicago, Bank One, Arizona, NA, Sanwa Bank California, Amsouth Bank of Alabama, Fleet National Bank, PNC Bank National Association, Societe Generale, Southwest Agency as Banks, Bank of America National Trust and Savings Association, as Documentation Agent, and NationsBank, N.A. (South), as Administrative Agent. PAGE 2 ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS EXHIBITS 1.1 Underwriting Agreement, dated June 4, 1997, among D.R. Horton, Inc., the Guarantors named therein and Donaldson, Lufkin & Jenrette Securities Corporation. 4.1 Form of First Supplemental Indenture, dated June 9, 1997, among D.R. Horton, Inc., the Guarantors named therein and American Stock Transfer and Trust Company, as Trustee, relating to the 8 3/8% Senior Notes due 2004 of D.R. Horton, Inc. 10.1 Amended and Restated Master Loan and Inter-Creditor Agreement dated as of April 1, 1997, among D.R. Horton, Inc., as Borrower, NationsBank, N.A. (South), Bank of America National Trust and Savings Association, First American Bank Texas, SSB, South Trust Bank of Alabama, National Association, Comerica Bank, The First National Bank of Chicago, Bank One, Arizona, NA, Sanwa Bank California, Amsouth Bank of Alabama, Fleet National Bank, PNC Bank National Association, Societe Generale, Southwest Agency as Banks, Bank of America National Trust and Savings Association, as Documentation Agent, and NationsBank, N.A. (South), as Administrative Agent. Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. D.R. HORTON, INC. ----------------------------------------- Registrant June 6, 1997 /s/ Charles N. Warren, General Counsel - ---------------------------- ----------------------------------------- Date Signature PAGE 3 EX-1.1 2 UNDERWRITING AGREEMENT EXHIBIT 1.1 $150,000,000 D.R. HORTON, INC. 8 3/8% Senior Notes due 2004 UNDERWRITING AGREEMENT ---------------------- June 4, 1997 DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION 277 Park Avenue New York, New York 10172 Ladies and Gentlemen: D.R. Horton, Inc., a Delaware corporation (the "Company"), proposes to ------- issue and sell $150,000,000 aggregate principal amount of its 8 3/8% Senior Notes due 2004 (the "Notes") Donaldson, Lufkin & Jenrette Securities ----- Corporation(the "Underwriter"). The Notes are to be issued pursuant to the ----------- provisions of an Indenture to be dated as of June 9, 1997, as amended and supplemented by a First Supplemental Indenture dated as of June 9, 1997 (the "Indenture"), among the Company, the subsidiaries of the Company listed on the - ---------- signature pages hereof (the "Guarantors") and the American Stock Transfer and ---------- Trust Company, as Trustee (the "Trustee"). The Company's obligations under the ------- Indenture and the Notes will be unconditionally guaranteed (the "Guarantees"), ---------- jointly and severally, by each of the Guarantors. The Company and the Guarantors are collectively referred to herein as the "Issuers," and the Notes ------- and the Guarantees are collectively referred to herein as the "Securities." ---------- 1. Registration Statement and Prospectus. The Company has prepared and ------------------------------------- filed with the Securities and Exchange Commission (the "Commission") in ---------- accordance with the provisions of the Securities Act of 1933, as amended, and the published rules and regulations of the Commission thereunder (collectively, the "Act"), a registration statement on Form S-3 (No.333-27521), including a --- base prospectus relating to the Securities. The registration statement as amended at the time it became effective on June 3, 1997, including information (if any) deemed to be part of the registration statement at the -2- time of effectiveness pursuant to Rule 430A under the Act, is hereinafter referred to as the "Registration Statement"; and the base prospectus dated June ---------------------- 3, 1997 (the "Base Prospectus"), as supplemented by the prospectus supplement --------------- relating to the Securities in the form first used to confirm sales of Notes (the "Prospectus Supplement"), is hereinafter referred to as the "Prospectus." Any --------------------- ---------- reference herein to the Registration Statement, a preliminary prospectus or the Prospectus shall be deemed to refer to and include the documents incorporated by reference therein pursuant to Item 12 of Form S-3 under the Act, as of the effective date of the Registration Statement or the date of such preliminary prospectus or the Prospectus (the "Incorporated Documents"), and, except as ---------------------- otherwise indicated, when reference is made to information "in" (including by use of the terms "set forth in," "described in" and similar terms) the Prospectus or the Registration Statement, such reference shall be deemed to include information incorporated by reference in the Prospectus or the Registration Statement, as the case may be. 2. Agreements to Sell and Purchase. The Company agrees to issue and ------------------------------- sell, and, on the basis of the representations and warranties contained in this Underwriting Agreement (the "Agreement") and subject to its terms and --------- conditions, the Underwriter agrees to purchase from the Company, all of the Notes at 98.419% of the principal amount thereof (the "Purchase Price"), plus -------------- accrued interest thereon, if any, from June 9,1997 to the date of payment and delivery. 3. Terms of Public Offering. The Issuers are advised by you that you ------------------------ propose to offer the Securities from time to time after the execution and delivery of this Agreement for sale in one or more negotiated transactions or otherwise, at market prices prevailing at the time of sale, at prices related to such market prices or at negotiated prices, as set forth in the Prospectus. 4. Delivery and Payment. Delivery to the Underwriter of and payment for -------------------- the Notes shall be made at 9:00 A.M., New York City time, on June 9, 1997 (the "Closing Date"), at such place as you shall designate. The Closing Date and the ------------- location of delivery of and the form of payment for the Notes may be varied by agreement between you and the Company. Certificates for the Notes shall be registered in such names and issued in such denominations as you shall request in writing not later than two full business days prior to the Closing Date. Such certificates shall be made available to -3- you for inspection not later than 9:30 A.M., New York City time, on the business day next preceding the Closing Date. Certificates in definitive form evidencing the Notes shall be delivered to you on the Closing Date with any transfer taxes thereon duly paid by the Company, for the account of the Underwriter, against payment of the Purchase Price therefor by wire or certified or official bank checks payable in Federal funds to the order of the Company. If the Notes will be issued in book-entry form, the Company shall deposit the global certificate(s) representing the Notes with the Depository Trust Company ("DTC"), or its designated custodian, at the Closing Date, and the Company will --- deliver such global certificate(s) to the Underwriter by causing DTC to credit the Notes to the account of the Underwriter at DTC against payment therefor as set forth above. 5. Agreements of the Issuers. The Issuers, jointly and severally, ------------------------- agree with the Underwriter as follows: (a) The Issuers will, if necessary or required by law, file an amendment to the Registration Statement or, if necessary pursuant to Rule 430A under the Act, a post-effective amendment to the Registration Statement, as soon as practicable after the execution and delivery of this Agreement, and will use their best efforts to cause the Registration Statement or such post-effective amendment to become effective at the earliest possible time. The Company will comply fully and in a timely manner with the applicable provisions of Rule 424 and Rule 430A under the Act. (b) The Issuers will advise you promptly and, if requested by you, will confirm such advice in writing: (i) of the effectiveness of any amendment to the Registration Statement; (ii) of the transmission to the Commission for filing of any supplement to the Prospectus (including any document that would as a result of such filing become an Incorporated Document) and to furnish you with copies thereof; (iii) of the receipt of any comments from the Commission that relate to the Registration Statement or of any request by the Commission for amendment of or a supplement to the Registration Statement or the Prospectus or for additional information; (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or any order preventing or suspending the use of the Prospectus or of the suspension of qualification of the Securities for offering or sale in any jurisdiction or the initiation or the threatening of -4- any proceeding for such purpose; and (v) within the period of time referred to in paragraph (e) below, of any change in the Company's condition (financial or other), business, prospects, properties, net worth or results of operations, or of the happening of any event, which makes any statement of a material fact made in the Registration Statement or the Prospectus (as then amended or supplemented) untrue or which requires the making of any additions to or changes in the Registration Statement or the Prospectus (as then amended or supplemented) in order to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading, or of the necessity to amend or supplement the Prospectus (as then amended or supplemented) to comply with the Act or any other law. If at any time any stop order suspending the effectiveness of the Registration Statement or any order preventing or suspending the use of the Prospectus or suspending any such qualification shall be issued, the Issuers will promptly use their best efforts to obtain the withdrawal of such order at the earliest possible time. (c) The Issuers will furnish to you, without charge, (i) five copies of the registration statement as originally filed with the Commission and of each amendment thereto, including all exhibits thereto, (ii) the Prospectus and any amendment or supplement thereto, (iii) such number of copies of the registration statement as originally filed and of each amendment thereto, but without exhibits, as you may request, (iv) such number of copies of the Incorporated Documents, without exhibits, as you may request, and (v) five copies of the exhibits to the Incorporated Documents. (d) The Issuers will not file any amendment to the Registration Statement or make any amendment or supplement to the Prospectus or, prior to the end of the period of time referred to in paragraph (e) below, file any document which, upon filing becomes an Incorporated Document, of which you shall not previously have been advised or to which, after you shall have received a copy of the document proposed to be filed, you shall reasonably object. (e) As soon after the execution and delivery of this Agreement as possible and thereafter from time to time for such period as in the opinion of counsel for the Underwriter a prospectus is required by the Act to be delivered in connection with sales by the Underwriter or any dealer, the Issuers will expeditiously deliver to the Underwriter -5- and each dealer, without charge, as many copies of the Prospectus (and of any amendment or supplement thereto) as you may reasonably request. The Issuers consent to the use of the Prospectus (and of any amendment or supplement thereto) in accordance with the provisions of the Act and with the securities or Blue Sky laws of the jurisdictions in which the Securities are offered by the Underwriter and by all dealers to whom Securities may be sold, both in connection with the offering and sale of the Securities and for such period of time thereafter as the Prospectus is required by the Act to be delivered in connection with sales by the Underwriter or any dealer. (f) If during the period of time referred to in paragraph (e) above any event shall occur as a result of which, in the judgment of the Issuers or in the opinion of counsel for the Underwriter, it becomes necessary to amend or supplement the Prospectus in order to make the statements therein, in the light of the circumstances when the Prospectus is delivered to a purchaser, not misleading, or if it is necessary to amend or supplement the Prospectus to comply with the Act or any other law, the Issuers will forthwith prepare and, subject to the provisions of paragraph (d) above, file with the Commission an appropriate amendment or supplement to the Prospectus so that the statements in the Prospectus, as so amended or supplemented, will not, in the light of the circumstances when it is so delivered, be misleading, or so that the Prospectus will comply with law, and to furnish to the Underwriter and to such dealers as you shall specify such number of copies thereof as the Underwriter or such dealers may reasonably request. In the event that the Issuers and you agree that the Prospectus should be amended or supplemented, the Issuers, if requested by you, will promptly issue a press release announcing or disclosing the matters to be covered by the proposed amendment or supplement. (g) The Issuers will cooperate with you and with counsel for the Underwriter in connection with the registration or qualification of the Securities for offering and sale by the Underwriter and by dealers under the securities or Blue Sky laws of such jurisdictions as you may designate and will file such consents to service of process or other documents necessary or appropriate in order to effect such registration or qualification; provided, however, that in no event shall any Issuer be -------- ------- obligated to qualify to do business in any jurisdiction where it is not now so qualified or to take any action which would subject -6- it to service of process in suits, other than those arising out of the offering or sale of the Securities, in any jurisdiction where it is not now so subject. (h) The Issuers will make generally available to its security holders a consolidated earnings statement, which need not be audited, covering a twelve-month period commencing after the date the Registration Statement is declared effective by the Commission (the "Effective Date") and ending not -------------- later than 15 months thereafter, as soon as practicable after the end of such period, which consolidated earnings statement shall satisfy the provisions of Section ll(a) of the Act and Rule 158 thereunder, and to advise you in writing when such statement has been made available. (i) During the period of five years hereafter, the Issuers will furnish to you as soon as available, a copy of all public materials furnished by the Company to its stockholders and all public reports and financial statements furnished by the Company to the principal national securities exchange upon which the Common Stock may be listed pursuant to requirements of or agreements with such exchange or to the Commission. (j) The Company will apply the net proceeds from the sale of the Notes in accordance with the description set forth in the Prospectus under the caption "Use of Proceeds." (k) Neither the Company nor any of its subsidiaries has taken, or will take, directly or indirectly, any action designed to or that might reasonably be expected to cause or result in stabilization or manipulation of the price of the Notes to facilitate the sale or resale of the Notes. (l) The Issuers will pay all costs, expenses, fees and taxes incident to (i) the preparation, printing, filing and distribution under the Act of the Registration Statement (including financial statements and exhibits), and all amendments and supplements thereto prior to or during the period specified in paragraph (e) above, (ii) the printing and delivery of the Prospectus and all amendments or supplements thereto during the period specified in paragraph (e) above, (iii) the printing and delivery of this Agreement, the Preliminary and Supplemental Blue Sky Memoranda and all other agreements, memoranda, correspon- -7- dence and other documents printed and delivered in connection with the offering of the Securities (including in each case any disbursements of counsel for the Underwriter relating to such printing and delivery), (iv) the registration or qualification of the Securities for offer and sale under the securities or Blue Sky laws of the several states (including in each case the reasonable fees and disbursements of counsel for the Underwriter relating to such registration or qualification and memoranda relating thereto), (v) filings and clearance with the National Association of Securities Dealers, Inc. in connection with the offering, (vi) the listing, if any, of the Securities on any national securities exchange, and (vii) furnishing such copies of the Registration Statement, the Prospectus and all amendments and supplements thereto as may be requested for use in connection with the offering or sale of the Securities by the Underwriter or by dealers to whom Securities may be sold. (m) The Issuers will not during the period beginning on the date hereof and continuing to and including the Closing Date, offer, sell, contract to sell or otherwise dispose of any debt securities of the Company or any warrants, options or other rights to purchase or acquire debt securities of the Company or any securities convertible into or exchangeable for debt securities of the Company (other than (i) the Securities and (ii) commercial paper issued in the ordinary course of business), without the prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation. (n) The Issuers will use their best efforts to do and perform all things required or necessary to be done and performed under this Agreement by the Issuers prior to the Closing Date and to satisfy all conditions precedent to the delivery of the Notes. 6. Representations and Warranties of the Issuers. The Issuers, jointly --------------------------------------------- and severally, represent and warrant to the Underwriter that: (a) Each preliminary prospectus included as part of the registration statement as originally filed or as part of any amendment or supplement thereto, or filed pursuant to Rule 424 under the Act, complied when so filed in all material respects with the provisions of the Act. The Commission has not issued any order preventing or suspending the use of any preliminary prospectus. -8- (b) The Registration Statement has become effective and at the date of the Prospectus (if different), including at the date of any post-effective amendment or supplement, the Registration Statement will comply in all material respects with the provisions of the Act, and will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; the Prospectus (and any supplements or amendments thereto) will at all such times comply in all material respects with the provisions of the Act and will not at any such time contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that no representation or -------- ------- warranty is made as to information contained in or omitted from the Registration Statement or the Prospectus in reliance upon and in conformity with written information furnished to the Issuers with respect to the Underwriter specifically for inclusion therein. (c) The Incorporated Documents, at the time they were filed with the Commission or, to the extent such documents were subsequently amended prior to the date hereof, at the time so amended, complied in all material respects with the requirements of the Act or the Securities Exchange Act of 1934, as amended, and the published rules and regulations of the Commission thereunder (collectively, the "Exchange Act"), as applicable, and such ------------ documents do not on the date hereof and will not on the Closing Date contain an untrue statement of a material fact and do not on the date hereof and will not on the Closing Date omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (d) The financial statements (including the related notes and supporting schedules) in the Registration Statement or the Prospectus present fairly the consolidated financial position and results of operations of the entities purported to be shown thereby, at the dates and for the periods indicated, and have been prepared in conformity with generally accepted accounting principles applied on a consistent basis throughout the periods involved. -9- (e) Ernst & Young, LLP, who have reported on the financial statements of the Company, are independent public accountants with respect to the Company and its subsidiaries as required by the Act. Wittington, McLemore, Land, Davis & White, P.C., who have reported on the financial statements of S.C. Torrey Atlanta, Ltd. and Affiliates, are independent public accountants with respect to the Company and its subsidiaries as required by the Act. (f) The pro forma financial statements and other pro forma financial information (including the notes thereto) in the Prospectus have been prepared in all material respects in accordance with applicable requirements of Regulation S-X promulgated under the Exchange Act and have been properly computed on the bases described therein. The material assumptions used in the preparation of the pro forma financial statements and other pro forma information in the Prospectus are set forth therein and were reasonable when made, and the adjustments used therein are appropriate to give pro forma effect to the transactions or circumstances referred to therein. (g) The Company and each of its subsidiaries have been duly formed and are validly existing in good standing under the laws of their respective jurisdictions of organization, are duly qualified to do business and are in good standing in each jurisdiction in which their respective ownership or lease of property or the conduct of their respective businesses requires such qualification except where the failure to so qualify, singly or in the aggregate, would not have a material adverse effect on the financial condition, results of operations, business or prospects of the Company and its subsidiaries taken as a whole (a "Material Adverse Effect"), and have ----------------------- all power and authority necessary to own or hold their respective properties and to conduct the businesses in which they are engaged. (h) The Company has an authorized capitalization as set forth in the Prospectus; and all of the issued equity interests of each subsidiary of the Company have been duly authorized and validly issued and, as to shares of capital stock of any corporation constituting a subsidiary, are fully paid and non-assessable and (except for directors' qualifying shares) are owned directly or indirectly by the Company, free and clear of all liens, encumbrances, equities or claims other than restrictions on transfer imposed by applicable securities laws. -10- (i) The execution, delivery and performance of this Agreement, the Indenture and the Securities by the Issuers, compliance by the Issuers of all the provisions hereof and thereof and the consummation of the transactions contemplated hereby will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other material agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject, nor will such actions result in any violation of the provisions of the organizational documents of the Company or any of its subsidiaries or any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any of its subsidiaries or any of their property or assets; and except for such consents, approvals, authorizations, registrations or qualifications as may be required under the Act or applicable state or foreign securities laws in connection with the purchase and distribution of the Securities by the Underwriter, no consent, approval, authorization or order of, or filing or registration with, any such court or governmental agency or body is required for the execution, delivery and performance of this Agreement, the Indenture and the Securities by the Issuers, compliance by the Issuers of all the provisions hereof and thereof and the consummation of the transactions contemplated hereby. (j) This Agreement has been duly authorized, executed and delivered by the Issuers and is a valid and binding agreement of the Issuers enforceable in accordance with its terms (except as rights to indemnity and contribution hereunder may be limited by applicable law). (k) The Indenture has been duly qualified under the Trust Indenture Act of 1939, as amended (the "TIA"), and has been duly authorized, executed and --- delivered by the Issuers and is a valid and binding agreement of the Issuers, enforceable in accordance with its terms except as (i) the enforceability thereof may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and (ii) rights of acceleration and the availability of equitable remedies may be limited by equitable principles of general applicability. -11- (l) The Notes have been duly authorized and, when executed and authenticated in accordance with the provisions of the Indenture and delivered to the Underwriter against payment therefor as provided by this Agreement, will be entitled to the benefits of the Indenture, and will be valid and binding obligations of the Company, enforceable in accordance with their terms except as (i) the enforceability thereof may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and (ii) rights of acceleration and the availability of equitable remedies may be limited by equitable principles of general applicability. (m) The Guarantees have been duly authorized and, upon endorsement on the Notes by the Guarantors, execution and authentication of the Notes in accordance with the provisions of the Indenture and delivery of the Notes to the Underwriter against payment therefor as provided by this Agreement, will be entitled to the benefits of the Indenture, and will be valid and binding obligations of the Guarantors, enforceable in accordance with their terms except as (i) the enforceability thereof may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and (ii) rights of acceleration and the availability of equitable remedies may be limited by equitable principles of general applicability. (n) The Securities and the Indenture conform to the description thereof in the Prospectus. (o) Neither the Company nor any of its subsidiaries has sustained, since the date of the latest audited financial statements in the Prospectus, any loss or interference with the business of the Company and its subsidiaries taken as a whole from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Prospectus, resulting in a Material Adverse Effect; and, since such date, there has not been any change in the capital stock or long-term debt of the Company or any of its subsidiaries or any material adverse change, or any development involving a prospective material adverse change, in or affecting the general affairs, management, financial position, stockholders' equity or results of operations of the Company and its subsidiaries taken as a whole, otherwise than as set forth or contemplated in the Prospectus. -12- (p) Other than as granted to the former stockholders of The Torrey Group of Companies and which are not applicable to the offering of the Securities, there are no contracts, agreements or understandings between the Company and any person granting such person the right to require the Company to file a registration statement under the Act with respect to any securities of the Company owned or to be owned by such person or to require the Company to include such securities in the securities registered pursuant to the Registration Statement or in any securities being registered pursuant to any other registration statement filed by the Company under the Act. (q) The Company and its subsidiaries own the items of real property and personal property purported to be owned by them which are material to the conduct of the business of the Company and its subsidiaries taken as a whole, free and clear of all liens, encumbrances and defects, except such as are described in the Prospectus or such as would not have a Material Adverse Effect. All real property held under lease by the Company and its subsidiaries are held by them under valid, subsisting and enforceable leases, with such exceptions as are described in the Prospectus or such as would not have a Material Adverse Effect. (r) Except as described in the Prospectus, there are no legal or governmental proceedings pending to which the Company or any of its subsidiaries is a party or of which any property or assets of the Company or any of its subsidiaries is the subject which are reasonably likely to have a Material Adverse Effect; and to the Issuers' knowledge, no such proceedings are threatened by governmental authorities or by others. (s) The conditions for use of Form S-3, as set forth in the General Instructions thereto, have been satisfied. (t) To the Issuers' knowledge, all real property owned (either presently or at any time in the past) or presently leased by the Company and its subsidiaries in connection with the operation of their business, including, without limitation, any subsurface soils and ground water (collectively, the "Realty"), is free of contamination from any substance ------ or material presently known to be toxic or hazardous, including, without limitation, any radioactive substance, methane, volatile hydrocarbons or industrial solvents (each a "Hazardous Substance"), which ------------------- -13- could reasonably be expected to materially impair the beneficial use thereof by the Company and its subsidiaries or constitute or cause a significant health, safety or other environmental hazard to occupants or users (except for contaminations which would not have a Material Adverse Effect); and to the Issuers' knowledge, the Realty does not contain any underground storage or treatment tanks, active or abandoned water, gas or oil wells, or any other underground improvements or structures, other than the foundations, footings or other supports for the improvements located thereon, the presence of which would have a Material Adverse Effect. Notwithstanding the foregoing, Hazardous Substances shall be deemed not to include any supplies or substances maintained, used, stored or held on the Realty which are (i) naturally occurring, (ii) installed by public utilities or (iii) used in the ordinary course of the Company's or its subsidiaries' business, provided that such supplies or substances are stored, used, maintained and held in all material respects in accordance with any applicable governmental requirements and with restrictions, conditions and standards suggested by the manufacturer and the Company's insurance carriers. (u) The Company and its subsidiaries carry, or are covered by, insurance in such amounts and covering such risks as is adequate for the conduct of their respective businesses. (v) The Company and its subsidiaries own or possess adequate rights to use all material patents, patent applications, trademarks, service marks, trade names, trademark registrations, service mark registrations, copyrights and licenses necessary for the conduct of their respective businesses the absence of which would have a Material Adverse Effect and have no reason to believe that the conduct of their respective businesses will conflict with, and have not received any notice of any claim of conflict with, any such rights of others. (w) There are no contracts or other documents which are required to be described in the Prospectus or filed as exhibits to the Registration Statement by the Act which have not been described in the Prospectus or filed as exhibits to the Registration Statement or incorporated therein by reference as permitted by the Act. (x) No labor disturbance by the employees of the Company or any of its subsidiaries exists or, to the Issuers' knowledge, is imminent which could reasonably be expected to have a Material Adverse Effect. -14- (y) The Company and its subsidiaries have filed all federal, state and local income and franchise tax returns required to be filed through the date hereof and has paid all taxes due thereon, and no tax deficiency has been determined adversely to the Company or any of its subsidiaries which has had (nor does any Issuer have any knowledge of any tax deficiency which would reasonably likely have) a Material Adverse Effect. (z) Since the date as of which information is given in the Prospectus, and except as may otherwise be disclosed in the Prospectus, neither the Company nor any of its subsidiaries has (i) entered into any material transaction not in the ordinary course of business or (ii) declared or paid any dividend on its capital stock, and, from the date of the Prospectus, neither the Company nor any of its subsidiaries has incurred any material liability other than in the ordinary course of business. (aa) The Company is in full compliance with Section 13(b)(2) of the Exchange Act. (bb) Neither the Company nor any of its subsidiaries (i) is in violation of its organizational documents, (ii) is in default in any material respect, and no event has occurred which, with notice or lapse of time or both, would constitute such a default, in the due performance or observance of any term, covenant or condition contained in any indenture, mortgage, deed of trust, loan agreement or other material agreement or instrument to which it is a party or by which it is bound or to which any of its properties or assets is subject as a result of which default there would be a Material Adverse Effect or (iii) is in violation of any law, ordinance, governmental rule, regulation or court decree to which it or its property or assets may be subject or has failed to obtain any license, permit, certificate, franchise or other governmental authorization or permit necessary to the ownership of its property or to the conduct of its business which violation or failure would have a Material Adverse Effect. (cc) Neither the Company nor any of its subsidiaries is an "investment company" or an entity "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended, and the rules and regulations of the Commission thereunder. -15- 7. Indemnification. (a) The Issuers, jointly and severally, agree to --------------- indemnify and hold harmless the Underwriter and each person, if any, who controls the Underwriter within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, from and against any and all losses, claims, damages, liabilities and judgments caused by any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or the Prospectus (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto) or any preliminary prospectus, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages, liabilities or judgments are caused by any such untrue statement or omission or alleged untrue statement or omission based upon information relating to the Underwriter furnished in writing to the Issuers by or on behalf of the Underwriter expressly for use therein; provided, however, that the foregoing indemnity agreement with respect to any - -------- ------- preliminary prospectus shall not inure to the benefit of the Underwriter or any person controlling such Underwriter asserted by a person with respect to any such losses, claims, damages and liabilities and judgments, if a copy of the Prospectus (as then amended or supplemented if the Issuers shall have furnished such amendment or supplement thereto in the requisite quantity on a timely basis to permit such sending or giving) was not sent or given by or on behalf of the Underwriter to such person, if required by law so to have been delivered, at or prior to the written confirmation of the sale of Notes to such person, and if the Prospectus (as so amended and supplemented) would have cured the defect giving rise to such loss, claim, damage, liability or judgment. Notwithstanding anything to the contrary herein, the Underwriter shall not be obligated to send or give any Incorporated Document, or any amendment or supplement thereto, to any person in order to benefit from the indemnity provisions herein or otherwise. The foregoing indemnity agreement shall be in addition to any liability that the Issuers may otherwise have. (b) In case any action shall be brought against the Underwriter or any person controlling the Underwriter, based upon any preliminary prospectus, the Registration Statement or the Prospectus or any amendment or supplement thereto and with respect to which indemnity may be sought against the Issuers, the Underwriter shall promptly notify the Issuers in writing -16- and the Issuers shall assume the defense thereof, including the employment of counsel reasonably satisfactory to such indemnified party and payment of all fees and expenses. The Underwriter or any such controlling person shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of the Underwriter or such controlling person unless (i) the employment of such counsel shall have been specifically authorized in writing by the Issuers, (ii) the Issuers shall have failed to assume the defense and employ counsel or (iii) the named parties to any such action (including any impleaded parties) include both the Underwriter or such controlling person and the Issuers and the Underwriter or such controlling person shall have been advised by such counsel that there may be one or more legal defenses available to it which are different from or additional to those available to the Issuers (in which case the Issuers shall not have the right to assume the defense of such action on behalf of the Underwriter or such controlling person, it being understood, however, that the Issuers shall not, in connection with any one such action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys (in addition to any local counsel) for the Underwriter and all such controlling persons, which firm shall be designated in writing by Donaldson, Lufkin & Jenrette Securities Corporation and that all such fees and expenses shall be reimbursed as they are incurred). The Issuers shall not be liable for any settlement of any such action effected without the Company's written consent but if settled with the written consent of the Company, the Issuers agree to indemnify and hold harmless the Underwriter and any such controlling person from and against any loss or liability by reason of such settlement. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such proceeding. (c) The Underwriter agrees to indemnify and hold harmless the Issuers, their directors, their officers who sign the Registration Statement and any person controlling the Issuers within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, to the same extent as the foregoing indem- -17- nity from the Issuers to the Underwriter but only with reference to information relating to the Underwriter furnished in writing by or on behalf of the Underwriter expressly for use in the Registration Statement, the Prospectus or any preliminary prospectus. In case any action shall be brought against the Issuers, any of its directors, any such officer or any person controlling the Issuers based on the Registration Statement, the Prospectus or any preliminary prospectus and in respect of which indemnity may be sought against the Underwriter, the Underwriter shall have the rights and duties given to the Issuers (except that if the Issuers shall have assumed the defense thereof, the Underwriter shall not be required to do so, but may employ separate counsel therein and participate in the defense thereof but the fees and expenses of such counsel shall be at the expense of the Underwriter), and the Issuers, their directors, any such officers and any person controlling the Issuers shall have the rights and duties given to the Underwriter, by Section 7(b) hereof. (d) If the indemnification provided for in this Section 7 is unavailable to an indemnified party in respect of any losses, claims, damages, liabilities or judgments referred to therein, then each indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities and judgments (i) in such proportion as is appropriate to reflect the relative benefits received by the Issuers on the one hand and the Underwriter on the other hand from the offering of the Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Issuers and the Underwriter in connection with the statements or omissions which resulted in such losses, claims, damages, liabilities or judgments, as well as any other relevant equitable considerations. The relative benefits received by the Issuers and the Underwriter shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company, and the compensation received by the Underwriter (based on discount to investors on resale), bear to the sum of such total net proceeds and such compensation. The relative fault of the Issuers and the Underwriter shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the Issuers or the Underwriter and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. -18- The Issuers and the Underwriter agree that it would not be just and equitable if contribution pursuant to this Section 7(d) were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities or judgments referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 7, the Underwriter shall not be required to contribute any amount in excess of the amount by which the total price at which the Notes underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. (e) The Underwriter confirms and the Issuers acknowledge that the statements with respect to the public offering of the Securities by the Underwriter set forth in the last two paragraphs of the cover page of the Prospectus Supplement are correct and constitute the only information concerning such Underwriter furnished in writing to the Issuers by or on behalf of the Underwriter specifically for inclusion in the Registration Statement and the Prospectus. 8. Conditions of Underwriter's Obligation. The obligation of the -------------------------------------- Underwriter to purchase the Securities under this Agreement is subject to the satisfaction of each of the following conditions: (a) All the representations and warranties of the Issuers contained in this Agreement shall be true and correct on the Closing Date with the same force and effect as if made on and as of the Closing Date. The Issuers shall have performed or complied with all of their agreements herein contained and required to be performed or complied with by them at or prior to the Closing Date. -19- (b) (i) No stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been commenced or shall be pending before or threatened by the Commission, (ii) every request for additional information on the part of the Commission shall have been complied with in all material respects, and (iii) no stop order suspending the sale of the Securities in any jurisdiction referred to in Section 6(g) shall have been issued and no proceeding for that purpose shall have been commenced or shall be pending or threatened which would, in your reasonable judgment, make it impracticable or inadvisable to market the Securities or to enforce contracts for the sale of the Securities. (c) Subsequent to the execution and delivery of this Agreement and prior to the Closing Date, there shall not have been any downgrading, nor shall any notice have been given of any intended or potential downgrading or of any review for a possible change that does not indicate the direction of the possible change, in the rating accorded any Issuer's debt by any "nationally recognized statistical rating organization," as such term is defined for purposes of Rule 436(g)(2) under the Act. (d) (i) Since the date of the latest balance sheet included in the Registration Statement and the Prospectus, there shall not have been any material adverse change, or any development involving a prospective material adverse change, in the condition, financial or otherwise, or in the earnings, affairs or business prospects, whether or not arising in the ordinary course of business, of the Company and its subsidiaries taken as a whole, (ii) since the date of the latest balance sheet included in the Registration Statement and the Prospectus there shall not have been any change, or any development involving a prospective material adverse change, in the capital stock or in the long-term debt of the Company or any of its subsidiaries from that set forth in the Registration Statement and Prospectus and (iii) the Company and its subsidiaries shall have no liability or obligation, direct or contingent, which is material to the Company and its subsidiaries, taken as a whole, other than those reflected in the Registration Statement and the Prospectus. (e) You shall have received on the Closing Date a certificate dated the Closing Date, signed by Donald R. Horton and David S. Keller, in their capacities as the -20- Chairman of the Board and Chief Financial Officer of the Company, respectively, confirming the matters set forth in paragraphs (a), (b), (c) and (d) of this Section 8. (f) You shall have received on the Closing Date an opinion (satisfactory to you and counsel for the Under-writer), dated the Closing Date, of Gibson Dunn & Crutcher LLP, special counsel for the Company, to the effect that: (i) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware, is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction in which its ownership or lease of property or the conduct of its business requires such qualification, except where the failure to be so qualified would not have a material adverse effect on the business, operations or financial condition of the Company and its subsidiaries taken as a whole, and has all corporate power and authority necessary to own or hold its properties and conduct its business as described in the Prospectus. (ii) To such counsel's knowledge and other than as described in the Prospectus, there are no legal or governmental proceedings pending to which the Company or any of its subsidiaries is a party or of which any property or assets of the Company or any of its subsidiaries is the subject which is of a character which is required to be disclosed in the Prospectus; and, to such counsel's knowledge, no such proceedings are threatened by governmental authorities or by others. (iii) The Registration Statement was declared effective under the Act as of the date and time specified in such opinion, the Prospectus was filed with the Commission pursuant to the subparagraph of Rule 424(b) under the Act on the date specified therein, and, to such counsel's knowledge, no stop order suspending the effectiveness of the Registration Statement has been issued and no proceeding for that purpose is pending or threatened by the Commission. (iv) The Registration Statement and the Prospectus and any further amendments or supplements thereto made by the Company prior to the Closing Date (other than the financial and pro forma data (and the re- -21- lated notes thereto) and statistical data and the financial statements and related schedules therein, as to which such counsel need express no opinion) appear on their face to comply as to form in all material respects with the requirements of the Act; the documents incorporated by reference in the Prospectus and any further amendment or supplement to any such incorporated document made by the Company prior to the Closing Date (other than the financial and pro forma data (and the related notes thereto) and statistical data and the financial statements, and related schedules therein, as to which such counsel need express no opinion), when they were filed with the Commission appear on their face to have been appropriately responsive in all material respects to the requirements of the Act and the Exchange Act. (v) To such counsel's knowledge, there are no contracts or other documents of a character which are required to be described in the Prospectus or filed as exhibits to the Registration Statement by the Act which have not been described or filed as exhibits to the Registration Statement or incorporated therein by reference as permitted by the Act. (vi) This Agreement has been duly authorized, executed and delivered by the Company. (vii) The execution, delivery and performance of this Agreement, the Indenture and the Securities by the Issuers and the compliance by the Issuers with all of the provisions of this Agreement and the consummation by the Issuers of the transactions contemplated hereby and thereby will not, to such counsel's knowledge, conflict with or result in a material breach or violation of any of the terms or provisions of, or constitute a material default under, any indenture, mortgage, deed of trust, loan agreement or other material agreement or instrument filed (including by incorporation by reference) by the Company as an Exhibit to its Annual Report on Form 10-K for the fiscal year ended September 30, 1996 or to any Quarterly Report on Form 10-Q or any Current Report on Form 8-K filed since September 30, 1996, nor will such actions result in any violation of the provisions of the charter or by-laws of any Issuer or any statute or, to such counsel's knowledge, any order, rule or regulation known to such counsel of any -22- court or governmental agency or body having jurisdiction over any Issuer or any of their property or assets; and, except for such consents, approvals, authorizations, registrations or qualifications as may be required under the Act and applicable state or foreign securities laws in connection with the purchase and distribution of the Securities by the Underwriter, no consent, approval, authorization or order of, or filing or registration with, any such court or governmental agency or body is required for the execution, delivery and performance of this Agreement, the Indenture and the Securities by the Issuers and the valid issuance and sale of the Securities by the Issuers. (viii) The Indenture has been duly qualified under the TIA and has been duly authorized, executed and delivered by the Issuers and is a valid and binding agreement of the Issuers, enforceable in accordance with its terms except as (a) the enforceability thereof may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and (b) rights of acceleration and the availability of equitable remedies may be limited by equitable principles of general applicability. (ix) The Notes have been duly authorized and executed by the Company and, when authenticated in accordance with the provisions of the Indenture and delivered to the Underwriter against payment therefor as provided by this Agreement, will be entitled to the benefits of the Indenture, and will be valid and binding obligations of the Company, enforceable in accordance with their terms except as (i) the enforceability thereof may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and (ii) rights of acceleration and the availability of equitable remedies may be limited by equitable principles of general applicability. (x) The Guarantees have been duly authorized and endorsed on the Notes by the Guarantors, and, upon execution and authentication of the Notes in accordance with the provisions of the Indenture and delivery thereof to the Underwriter against payment therefor as provided by this Agreement, will be entitled to the benefits of the Indenture, and will be valid and binding obligations of the Guarantors, enforce- -23- able in accordance with their terms except as (i) the enforceability thereof may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and (ii) rights of acceleration and the availability of equitable remedies may be limited by equitable principles of general applicability. (xi) The Securities and the Indenture conform in all material respects to the descriptions thereof in the Prospectus. In rendering such opinion, such counsel may state that its opinion is limited to the Federal laws of the United States of America, the laws of the States of Texas and New York and the General Corporation Law of the State of Delaware. Such counsel shall also have furnished to the Underwriter a written statement, addressed to the Underwriter and dated the Closing Date, in form and substance satisfactory to the Underwriter and counsel for the Underwriter, to the effect that (x) such counsel has acted as special counsel to the Company in connection with the preparation of the Registration Statement and during the course of the preparation of the Registration Statement and Prospectus, such counsel participated in conferences with representatives of the Company, the Company's internal counsel, and its accountants and the representatives of the Underwriter and at which conferences the contents of the Registration Statement and the Prospectus and related matters were discussed, and (y) based on the foregoing, no facts have come to the attention of such counsel which lead it to believe that (I) the Registration Statement (except as to financial and pro forma data (and related notes thereto) and statistical data and the financial statements and related schedules contained or incorporated by reference therein), as of the date the Registration Statement became effective, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading, or that the Prospectus (except as to financial and pro forma data (and related notes thereto) and statistical data and the financial statements and related schedules contained or incorporated by reference therein) contains any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading or (II) any Incorporated Document or any amendment or supplement thereto made by the Company prior to such Closing Date, when they were filed with the Commission, as the case may be, contained (except as to financial and pro forma data (and related notes -24- thereto) and statistical data and the financial statements and related schedules contained or incorporated by reference therein) an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The foregoing opinion and statement may be qualified by a statement to the effect that such counsel has not independently verified the accuracy, completeness or fairness of the statements contained in the Registration Statement or Prospectus or incorporated by reference therein, and such counsel is not passing upon and such counsel does not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Registration Statement or the Prospectus. (g) You shall have received on the Closing Date, an opinion of Charles N. Warren, Esq., General Counsel of the Company, dated the Closing Date and addressed to you, to the effect that: (i) The issue and sale of the Securities by the Issuers and the compliance by the Issuers with all of the provisions of this Agreement and the consummation by the Issuers of the transactions contemplated hereby will not, to such counsel's knowledge, conflict with or result in a material breach or violation of any of the terms or provisions of, or constitute a material default under, any indenture, mortgage, deed or trust, loan agreement or other material agreement or instrument known to such counsel to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject, nor will such actions result in any violation of the provisions of the charter or by-laws of any Issuer or any order, rule or regulation known to such counsel of any court or governmental agency or body having jurisdiction over any Issuer or any of their property or assets. (ii) Each Guarantor that is a corporation has been duly incorporated and is validly existing as a corporation in good standing under the laws of its state of incorporation, is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction in which its ownership or lease of its property or the conduct of its business re- -25- quires such qualification, except where the failure to be so qualified would not have a material adverse effect on the business, operations or financial condition of the Company and its subsidiaries taken as a whole, and has all corporate power and authority necessary to own or hold its properties and conduct its business as described in the Prospectus. The outstanding shares of capital stock of each such Guarantor is duly authorized, validly issued, fully paid and nonassessable and (except for directors' qualifying shares) are owned of record, directly or indirectly by the Company. Each Guarantor that is a limited partnership has been duly formed and is validly existing as a limited partnership in good standing under the laws of the state of its organization, is duly qualified to do business and is in good standing as a foreign limited partnership in each jurisdiction in which its ownership or lease of its property or the conduct of its business requires such qualification, except where the failure to be so qualified would not have a material adverse effect on the business, operation or financial condition of the Company and its subsidiaries taken as a whole, and has all partnership power and authority necessary to own or hold its properties and conduct its business as described in the Prospectus. (h) You shall have received on the Closing Date an opinion, dated the Closing Date, of Cahill Gordon and Reindel, counsel for the Underwriter, in form and substance satisfactory to the Underwriter. (i) You shall have received a letter on and as of the Closing Date, in form and substance satisfactory to you, from Ernst & Young, LLP, independent public accountants, with respect to the financial statements and certain financial information contained in the Registration Statement and the Prospectus and substantially in the form and substance of the letter delivered to you by Ernst & Young, LLP, on the date of this Agreement. (j) (i) Neither the Company nor any of its subsidiaries shall have sustained since the date of the latest audited financial statements in the Prospectus any loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contem- -26- plated in the Prospectus or (ii) since such date there shall not have been any change in the capital stock, net revenues, per share or total amounts of income before extraordinary income or of net income or long-term debt of the Company or any of its subsidiaries or any change, or any development involving a prospective change, in or affecting the general affairs, management, financial position, stockholders' equity or results of operations of the Company and its subsidiaries, otherwise than as set forth or contemplated in the Prospectus, the effect of which, in any such case described in clause (i) or (ii), is, in the judgment of the Underwriter, so material and adverse as to make it impracticable or inadvisable to proceed with the public offering or the delivery of the Securities being delivered on the Closing Date on the terms and in the manner contemplated in the Prospectus. (k) The Issuers shall have furnished to you such other documents and certificates as to the accuracy and completeness of any statement in the Registration Statement or the Prospectus as you reasonably may request. (l) You shall have been furnished with such additional documents and certificates as you or counsel for the Underwriter may reasonably request. All such opinions, certificates, letters and other documents will be in compliance with the provisions hereof only if they are reasonably satisfactory in form and substance to you and your counsel. Any certificate or document signed by any officer of the Issuers and delivered to you or to your counsel shall be deemed a representation and warranty by the Issuers to each Underwriter as to the statements made therein. 9. Termination. ----------- This Agreement may be terminated at any time prior to the Closing Date by you by written notice to the Issuers if any of the following has occurred: (i) since the respective dates as of which information is given in the Registration Statement and the Prospectus, any material adverse change or development involving a prospective material adverse change in the condition, financial or otherwise, of the Issuers and its subsidiaries or the earnings, affairs, or business prospects of the Issuers or any of its subsidiaries taken as a whole, whether or not arising in the ordinary course of business, which would, in -27- your judgment, make it impracticable to market the Securities on the terms and in the manner contemplated in the Prospectus, (ii) any outbreak or escalation of hostilities or other national or international calamity or crisis or change in economic conditions or in the financial markets of the United States or elsewhere that, in your judgment, is material and adverse and would, in your judgment, make it impracticable to market the Shares on the terms and in the manner contemplated in the Prospectus, (iii) the suspension or material limitation of trading in securities on the New York Stock Exchange, the American Stock Exchange or the Nasdaq National Market or limitation on prices for securities on any such exchange or National Market System, (iv) the enactment, publication, decree or other promulgation of any federal or state statute, regulation, rule or order of any court or other governmental authority which in your opinion materially and adversely affects, or will materially and adversely affect, the business or operations of the Company and its subsidiaries taken as a whole, (v) the declaration of a banking moratorium by either federal or New York State authorities or (vi) the taking of any action by any federal, state or local government or agency in respect of its monetary or fiscal affairs which in your opinion has a material adverse effect on the financial markets in the United States. 10. Miscellaneous. Notices given pursuant to any provision of this ------------- Agreement shall be addressed as follows: (a) if to the Issuers, to D.R. Horton, 1901 Ascension Blvd., Suite 100 Arlington, Texas 76006, and (b) if to the Underwriter, to Donaldson, Lufkin & Jenrette Securities Corporation, 277 Park Avenue, New York, New York 10172, Attention: Syndicate Department, or in any case to such other address as the person to be notified may have requested in writing. The respective indemnities, contribution agreements, representations, warranties and other statements of the Company, its officers and directors (in their capacities as such) and of the Underwriter set forth in or made pursuant to this Agreement shall remain operative and in full force and effect, and will survive delivery of and payment for the Notes, regardless of (i) any investigation, or statement as to the results thereof, made by or on behalf of the Underwriter or by or on behalf of the Company, the officers or directors of the Company or any controlling person of the Company (in their capacities as such), (ii) acceptance of the Notes and payment for them hereunder and (iii) termination of this Agreement. -28- If this Agreement shall be terminated by the Underwriter because of any failure or refusal on the part of any Issuer to perform any of its agreements in this Agreement or to fulfill any of the conditions of Section 8 of this Agreement, the Issuers, jointly and severally, agree to reimburse the Underwriter for all out-of-pocket expenses (including the fees and disbursements of counsel) reasonably incurred by it. Except as otherwise provided, this Agreement has been and is made solely for the benefit of and shall be binding upon the Issuers, the Underwriter, any controlling persons referred to herein and their respective successors and assigns, all as and to the extent provided in this Agreement, and no other person shall acquire or have any right under or by virtue of this Agreement. The term "successors and assigns" shall not include a purchaser of any of the Notes from the Underwriter merely because of such purchase. This Agreement shall be governed and construed in accordance with the laws of the State of New York. This Agreement may be signed in various counterparts which together shall constitute one and the same instrument. -29- Please confirm that the foregoing correctly sets forth the agreement between the Issuers and the Underwriter. Very truly yours, D.R. HORTON, INC. By: /s/David J. Keller ------------------ Name: David J. Keller Title: Treasurer GUARANTORS: DRHI, Inc. DRH Construction, Inc. DRH New Mexico Construction, Inc., D.R. Horton Denver Management Company, Inc. D.R. Horton Denver No. 10, Inc. D.R. Horton Denver No. 11, Inc. D.R. Horton Denver No. 12, Inc. D.R. Horton Denver No. 13, Inc. D.R. Horton Denver No. 14, Inc. D.R. Horton Denver No. 15, Inc. D.R. Horton Denver No. 16, Inc. D.R. Horton Denver No. 17, Inc. D.R. Horton Denver No. 18, Inc. D.R. Horton, Inc.-Albuquerque D.R. Horton, Inc.- Denver D.R. Horton, Inc.-Minnesota D.R. Horton, Inc.-New Jersey Meadows I, Ltd. Meadows II, Ltd. Meadows III, Ltd. Meadows IX, Inc. Meadows X, Inc. D.R. Horton Los Angeles Holding Company, Inc. D.R. Horton Los Angeles Management Company, Inc. D.R. Horton Los Angeles No. 9, Inc. D.R. Horton Los Angeles No. 10, Inc. D.R. Horton Los Angeles No. 11, Inc. D.R. Horton Los Angeles No. 12, Inc. D.R. Horton Los Angeles No. 13, Inc. D.R. Horton Los Angeles No. 14, Inc. -30- D.R. Horton Los Angeles No. 16, Inc. D.R. Horton Los Angeles No. 17, Inc. D.R. Horton, Inc. - Birmingham D.R. Horton, Inc. - Greensboro D.R. Horton San Diego Holding Company, Inc. D.R. Horton San Diego Management Company, Inc. D.R. Horton San Diego No. 9, Inc. D.R. Horton San Diego No. 10, Inc. D.R. Horton San Diego No. 11, Inc. D.R. Horton San Diego No. 12, Inc. D.R. Horton San Diego No. 13, Inc. D.R. Horton San Diego No. 14, Inc. D.R. Horton San Diego No. 15, Inc. D.R. Horton San Diego No. 16, Inc. D.R. Horton San Diego No. 17, Inc. D.R. Horton San Diego No. 18, Inc. D.R. Horton San Diego No. 19, Inc. D.R. Horton San Diego No. 20, Inc. D.R. Horton San Diego No. 21, Inc. D.R. Horton, Inc. - Torrey S. G. Torrey Atlanta, Ltd. By: /s/David J. Keller ------------------ Name: David J. Keller Title: Treasurer -31- SGS COMMUNITIES AT GRANDE QUAY, LLC By Meadows IX, Inc., a member By: /s/David J. Keller ------------------ Name: David J. Keller Title: Treasurer and By Meadows X, Inc., a member By: /s/David J. Keller ------------------ Name: David J. Keller Title: Treasurer D.R. HORTON MANAGEMENT COMPANY, LTD. By Meadows I, Ltd., its general partner By: /s/David J. Keller ------------------ Name: David J. Keller Title: Treasurer -32- D.R. HORTON - TEXAS, LTD. By Meadows I, Ltd., its general partner By: /s/David J. Keller ------------------ Name: David J. Keller Title: Treasurer D.R. HORTON - ROYALTY, LTD. By Meadows I, Ltd., its general partner By: /s/David J. Keller ------------------ Name: David J. Keller Title: Treasurer -33- Agreed and accepted as of the date first written above: DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION By: /s/Eric Anderson ------------------- Name: Eric Anderson Title: Managing Director EX-4.1 3 SUPPLEMENTAL INDENTURE EXHIBIT 4.1 =============================================================================== D.R. HORTON, INC. AND THE GUARANTORS PARTY HERETO 8 3/8% Senior Notes due 2004 ---------------------- First Supplemental Indenture Dated as of June 9, 1997 ---------------------- AMERICAN STOCK TRANSFER & TRUST COMPANY, Trustee =============================================================================== FIRST SUPPLEMENTAL INDENTURE dated as of June 9, 1997 ("Supplemental ------------ Indenture"), to the Indenture dated as of June 9, 1997 (as amended, modified or - --------- supplemented from time to time in accordance therewith, the "Indenture"), by and --------- among D.R. HORTON, INC., a Delaware corporation (the "Company"), each of the ------- Guarantors (as defined herein) and AMERICAN STOCK TRANSFER & TRUST COMPANY, as trustee (the "Trustee"). ------- Each party agrees as follows for the benefit of the other party and for the equal and ratable benefit of the holders of Notes (as defined herein): WHEREAS, the Company, the Guarantors and the Trustee have duly authorized the execution and delivery of the Indenture to provide for the issuance from time to time of one or more securities of senior debt securities (the "Securities") to be issued in one or more series as in the Indenture ---------- provided; WHEREAS, the Company and the Guarantors desire and have requested the Trustee to join them in the execution and delivery of this Supplemental Indenture in order to establish and provide for the issuance by the Company of a series of Securities designated as its 8 3/8% Senior Notes due 2004 in the aggregate principal amount of up to $250,000,000, substantially in the form attached hereto as Exhibit A (the "Notes"), guaranteed by the Guarantors, on the ----- terms set forth herein; WHEREAS, Section 2.01 of the Indenture provides that a supplemental indenture may be entered into by the Company, the Guarantors and the Trustee for such purpose provided certain conditions are met; WHEREAS, the conditions set forth in the Indenture for the execution and delivery of this Supplemental Indenture have been complied with; and WHEREAS, all things necessary to make this Supplemental Indenture a valid agreement of the Company, the Guarantors and the Trustee, in accordance with its terms, and a valid amendment of, and supplement to, the Indenture have been done; NOW, THEREFORE: In consideration of the premises and the purchase and acceptance of the Notes by the holder thereof the Company and the Guarantors mutually covenant and agree with the Trustee, for the equal and ratable benefit of the holders, that the In- -2- denture is supplemented and amended, to the extent expressed herein, as follows: ARTICLE ONE Scope of Supplemental Indenture; General The changes, modifications and supplements to the Indenture effected by this Supplemental Indenture shall be applicable only with respect to, and govern the terms of, the Notes, which shall be limited in aggregate principal amount to $250,000,000 in one or more series, and shall not apply to any other Securities that may be issued under the Indenture unless a supplemental indenture with respect to such other Securities specifically incorporates such changes, modifications and supplements. Pursuant to this Supplemental Indenture, there is hereby created and designated a series of Securities under the Indenture entitled "8 3/8% Senior Notes due 2004." The Notes shall be in the form of Exhibit A hereto. If required, the Notes may bear an appropriate legend - --------- regarding original issue discount for federal income tax purposes. In the event that the Company shall issue and the Trustee shall authenticate any Notes issued under this Supplemental Indenture subsequent to the Issue Date (such Notes, "Additional Securities"), the Company shall use its --------------------- best efforts to obtain the same "CUSIP" number for such Notes as is printed on the Notes outstanding at such time; provided, however, that if any series of -------- ------- Notes issued under this Supplemental Indenture subsequent to the Issue Date is determined, pursuant to an Opinion of Counsel of the Company in a form reasonably satisfactory to the Trustee, to be a different class of security than the Notes outstanding at such time for federal income tax purposes, the Company may obtain a "CUSIP" number for such Notes that is different than the "CUSIP" number printed on the Notes then outstanding. Notwithstanding the foregoing, all Notes issued under this Supplemental Indenture shall vote and consent together on all matters as one class and no series of Notes will have the right to vote or consent as a separate class on any matter. ARTICLE TWO Certain Definitions The following terms have the meanings set forth below in this Supplemental Indenture. Capitalized terms used but not -3- defined herein have the meanings ascribed to such terms in the Indenture. "Acquired Indebtedness" means (i) with respect to any Person that --------------------- becomes a Restricted Subsidiary (or is merged into the Company or any Restricted Subsidiary) after the Issue Date, Indebtedness of such Person or any of its Subsidiaries existing at the time such Person becomes a Restricted Subsidiary (or is merged into the Company or any Restricted Subsidiary) that was not incurred in connection with, or in contemplation of, such Person becoming a Restricted Subsidiary (or being merged into the Company or any Restricted Subsidiary) and (ii) with respect to the Company or any Restricted Subsidiary, any Indebtedness expressly assumed by the Company or any Restricted Subsidiary in connection with the acquisition of any assets from another Person (other than the Company or any Restricted Subsidiary), which Indebtedness was not incurred by such other Person in connection with or in contemplation of such acquisition. Indebtedness incurred in connection with or in contemplation of any transaction described in clause (i) or (ii) of the preceding sentence shall be deemed to have been incurred by the Company or a Restricted Subsidiary, as the case may be, at the time such Person becomes a Restricted Subsidiary (or is merged into the Company or any Restricted Subsidiary) in the case of clause (i) or at the time of the acquisition of such assets in the case of clause (ii), but shall not be deemed Acquired Indebtedness. "Affiliate" means, when used with reference to a specified Person, any --------- Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Person specified. "Asset Acquisition" means (i) an Investment by the Company or any ----------------- Restricted Subsidiary in any other Person if, as a result of such Investment, such Person shall become a Restricted Subsidiary or shall be consolidated or merged with or into the Company or any Restricted Subsidiary or (ii) the acquisition by the Company or any Restricted Subsidiary of the assets of any Person, which constitute all or substantially all of the assets or of an operating unit or line of business of such Person or which is otherwise outside the ordinary course of business. "Asset Disposition" means any sale, transfer, conveyance, lease or ----------------- other disposition (including, without limitation, by way of merger, consolidation or sale and leaseback or sale of shares of Capital Stock in any Subsidiary) (each, a "transaction") by the Company or any Restricted Subsidiary ----------- to -4- any Person of any Property having a fair market value in any transaction or series of related transactions of at least $1,000,000. The term "Asset ----- Disposition" shall not include (i) a transaction between the Company and any - ----------- Restricted Subsidiary or a transaction between Restricted Subsidiaries, (ii) a transaction in the ordinary course of business, including, without limitation, sales (directly or indirectly), dedications and other donations to governmental authorities, leases and sales and leasebacks of (A) homes, improved land and unimproved land and (B) real estate (including related amenities and improvements), (iii) a transaction involving the sale of Capital Stock of, or the disposition of assets in, an Unrestricted Subsidiary, (iv) any exchange or swap of assets of the Company or any Restricted Subsidiary for assets that (x) are to be used by the Company or any Restricted Subsidiary in the ordinary course of its Real Estate Business and (y) have a Fair Market Value not less than the Fair Market Value of the assets exchanged or swapped or (v) any sale, transfer, conveyance, lease or other disposition of assets and properties of the Company that is governed by Sections 3.09 hereof. "Attributable Debt" means, with respect to any Capitalized Lease ----------------- Obligations, the capitalized amount thereof determined in accordance with GAAP. "Bankruptcy Law" means title 11 of the United States Code, as amended, -------------- or any similar federal or state law for the relief of debtors. "Capital Stock" means, with respect to any Person, any and all shares, ------------- interests, participations or other equivalents (however designated) of or in such Person's capital stock or other equity interests, and options, rights or warrants to purchase such capital stock or other equity interests, whether now outstanding or issued after the Issue Date, including, without limitation, all Disqualified Stock and Preferred Stock. "Capitalized Lease Obligations" of any Person means the obligations of ----------------------------- such Person to pay rent or other amounts under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP, and the amount of such obligations will be the capitalized amount thereof determined in accordance with GAAP. "Cash Equivalents" means: (a) U.S. dollars; (b) securities issued or ---------------- directly and fully guaranteed or insured by the U.S. government or any agency or instrumentality thereof having maturities of one year or less from the date of -5- acquisition; (c) certificates of deposit and eurodollar time deposits with maturities of one year or less from the date of acquisition, bankers' acceptances with maturities not exceeding six months and overnight bank deposits, in each case with any domestic commercial bank having capital and surplus in excess of $500 million; (d) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (b) and (c) entered into with any financial institution meeting the qualifications specified in clause (c) above; (e) commercial paper rated P-1, A-1 or the equivalent thereof by Moody's Investors Service, Inc. or Standard & Poor's Ratings Group, respectively, and in each case maturing within six months after the date of acquisition; and (f) investments in money market funds substantially all of the assets of which consist of securities described in the foregoing clauses (a) through (e). "Change of Control" means (i) any sale, lease or other transfer (in one ----------------- transaction or a series of transactions) of all or substantially all of the consolidated assets of the Company and its Restricted Subsidiaries to any Person (other than a Restricted Subsidiary); provided, however, that a transaction -------- ------- where the holders of all classes of Common Equity of the Company immediately prior to such transaction own, directly or indirectly, more than 50% of all classes of Common Equity of such Person immediately after such transaction shall not be a Change of Control; (ii) a "person" or "group" (within the meaning of Section 13(d) of the Exchange Act (other than (x) the Company or (y) Donald R. Horton, Terrill J. Horton, or their respective wives, children, grandchildren and other descendants, or any trust or other entity formed or controlled by any of such individuals)) becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of Common Equity of the Company representing more than 50% of the voting power of the Common Equity of the Company; (iii) Continuing Directors cease to constitute at least a majority of the Board of Directors of the Company; or (iv) the stockholders of the Company approve any plan or proposal for the liquidation or dissolution of the Company; provided, however, -------- ------- that a liquidation or dissolution of the Company which is part of a transaction that does not constitute a Change of Control under the proviso contained in clause (i) above shall not constitute a Change of Control. "Common Equity" of any Person means Capital Stock of such Person that ------------- is generally entitled to (i) vote in the election of directors of such Person or (ii) if such Person is not a corporation, vote or otherwise participate in the selection -6- of the governing body, partners, managers or others that will control the management or policies of such Person. "Consolidated Adjusted Tangible Assets" of the Company as of any date ------------------------------------- means the Consolidated Tangible Assets of the Company and the Restricted Subsidiaries at the end of the fiscal quarter immediately preceding the date less any assets securing any Non-Recourse Indebtedness, as determined in accordance with GAAP. "Consolidated Cash Flow Available for Fixed Charges" means, for any -------------------------------------------------- period, on a consolidated basis for the Company and the Restricted Subsidiaries, Consolidated Net Income for such period plus (each to the extent deducted in calculating such Consolidated Net Income and determined in accordance with GAAP) (a) the sum for such period, without duplication, of (i) income taxes, (ii) Consolidated Interest Expense, (iii) depreciation and amortization expenses and other non-cash charges to earnings and (iv) interest and financing fees and expenses which were previously capitalized and which are amortized to cost of sales, minus (b) all other non-cash items (other than the receipt of notes receivable) increasing such Consolidated Net Income. "Consolidated Fixed Charge Coverage Ratio" means, with respect to any ---------------------------------------- determination date, the ratio of (x) Consolidated Cash Flow Available for Fixed Charges for the prior four full fiscal quarters (the "Four Quarter Period") for ------------------- which financial results have been reported immediately preceding the determination date (the "Transaction Date"), to (y) the aggregate Consolidated ---------------- Interest Incurred for the Four Quarter Period. For purposes of this definition, "Consolidated Cash Flow Available for Fixed Charges" and "Consolidated Interest Incurred" shall be calculated after giving effect on a pro forma basis for the --- ----- period of such calculation to (i) the incurrence or the repayment, repurchase, defeasance or other discharge or the assumption by another Person that is not an Affiliate (collectively, "repayment") of any Indebtedness of the Company or any --------- Restricted Subsidiary (and the application of the proceeds thereof) giving rise to the need to make such calculation, and any incurrence or repayment of other Indebtedness (and the application of the proceeds thereof), at any time on or after the first day of the Four Quarter Period and on or prior to the Transaction Date, as if such incurrence or repayment, as the case may be (and the application of the proceeds thereof), occurred on the first day of the Four Quarter Period, except that Indebtedness under revolving credit facilities shall be deemed to be the average daily balance of such Indebt- -7- edness during the Four Quarter Period (as reduced on such pro forma basis by the application of any proceeds of the incurrence of Indebtedness giving rise to the need to make such calculation); (ii) any Asset Disposition or Asset Acquisition (including, without limitation, any Asset Acquisition giving rise to the need to make such calculation as a result of the Company or any Restricted Subsidiary (including any Person that becomes a Restricted Subsidiary as a result of any such Asset Acquisition) incurring Acquired Indebtedness at any time on or after the first day of the Four Quarter Period and on or prior to the Transaction Date), as if such Asset Disposition or Asset Acquisition (including the incurrence or repayment of any such Indebtedness) and the inclusion, notwithstanding clause (ii) of the definition of "Consolidated Net Income," of any Consolidated Cash Flow Available for Fixed Charges associated with such Asset Acquisition as if it occurred on the first day of the Four Quarter Period; provided, however, that the Consolidated Cash Flow Available for Fixed Charges - -------- ------- associated with any Asset Acquisition shall not be included to the extent the net income so associated would be excluded pursuant to the definition of "Consolidated Net Income," other than clause (ii) thereof, as if it applied to the Person or assets involved before they were acquired; and (iii) the Consolidated Cash Flow Available for Fixed Charges and the Consolidated Interest Incurred attributable to discontinued operations, as determined in accordance with GAAP, shall be excluded. Furthermore, in calculating "Consolidated Cash Flow Available for Fixed Charges" for purposes of determining the denominator (but not the numerator) of this "Consolidated Fixed Charge Coverage Ratio," (1) interest on Indebtedness in respect of which a pro forma calculation is required that is determined on a fluctuating basis as of the Transaction Date (including Indebtedness actually incurred on the Transaction Date) and which will continue to be so determined thereafter shall be deemed to have accrued at a fixed rate per annum equal to the rate of interest on such Indebtedness in effect on the - --- ----- Transaction Date; and (2) notwithstanding clause (1) above, interest on such Indebtedness determined on a fluctuating basis, to the extent such interest is covered by agreements relating to Interest Protection Agreements, shall be deemed to accrue at the rate per annum resulting after giving effect to the --- ----- operation of such agreements. "Consolidated Interest Expense" of the Company for any period means the ----------------------------- Interest Expense of the Company and the Restricted Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP. -8- "Consolidated Interest Incurred" for any period means the Interest ------------------------------ Incurred of the Company and the Restricted Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP. "Consolidated Net Income" for any period means the aggregate net income ----------------------- (or loss) of the Company and its Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP; provided that there will be excluded -------- from such net income (loss) (to the extent otherwise included therein), without duplication: (i) the net income (or loss) of (x) any Unrestricted Subsidiary or (y) any Person (other than a Restricted Subsidiary) in which any Person other than the Company or any Restricted Subsidiary has an ownership interest, except, in each case, to the extent that any such income has actually been received by the Company or any Restricted Subsidiary in the form of cash dividends or similar cash distributions during such period, which dividends or distributions are not in excess of the Company's or such Restricted Subsidiary's (as applicable) pro rata share of such Unrestricted Subsidiary's or such other Person's net income earned during such period, (ii) except to the extent includable in Consolidated Net Income pursuant to the foregoing clause (i), the net income (or loss) of any Person that accrued prior to the date that (a) such Person becomes a Restricted Subsidiary or is merged with or into or consolidated with the Company or any of its Restricted Subsidiaries (except, in the case of an Unrestricted Subsidiary that is redesignated a Restricted Subsidiary during such period, to the extent of its retained earnings from the beginning of such period to the date of such redesignation) or (b) the assets of such Person are acquired by the Company or any Restricted Subsidiary, (iii) the net income of any Restricted Subsidiary to the extent that (but only so long as) the declaration or payment of dividends or similar distributions by such Restricted Subsidiary of that income is not permitted by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary during such period, (iv) the gains or losses, together with any related provision for taxes, realized during such period by the Company or any Restricted Subsidiary resulting from (a) the acquisition of securities, or extinguishment of Indebtedness, of the Company or any Restricted Subsidiary or (b) any Asset Disposition by the Company or any Restricted Subsidiary, and (v) any extraordinary gain or loss together with any related provision for taxes, realized by the Company or any Restricted Subsidiary; provided, further, that -------- ------- for purposes of calculating Consolidated Net Income solely as it relates to -9- clause (iii) of Section 3.03(a) hereof, clause (iv)(b) above shall not be applicable. "Consolidated Net Worth" of any Person as of any date means the ---------------------- stockholders' equity (including any Preferred Stock that is classified as equity under GAAP, other than Disqualified Stock) of such Person and its Restricted Subsidiaries on a consolidated basis at the end of the fiscal quarter immediately preceding such date, as determined in accordance with GAAP, less any amount attributable to Unrestricted Subsidiaries. "Consolidated Tangible Assets" of the Company as of any date means the ---------------------------- total amount of assets of the Company and its Restricted Subsidiaries (less applicable reserves) on a consolidated basis at the end of the fiscal quarter immediately preceding such date, as determined in accordance with GAAP, less: (i) Intangible Assets and (ii) appropriate adjustments on account of minority interests of other Persons holding equity investments in Restricted Subsidiaries. "Continuing Director" means a director who either was a member of the ------------------- Board of Directors of the Company on the date of this Indenture or who became a director of the Company subsequent to such date and whose election, or nomination for election by the Company's stockholders, was duly approved by a majority of the Continuing Directors on the Board of Directors of the Company at the time of such approval, either by a specific vote or by approval of the proxy statement issued by the Company on behalf of the entire Board of Directors of the Company in which such individual is named as nominee for director. "control", when used with respect to any Person, means the power to ------- direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the ----------- foregoing. "Credit Facilities" means, collectively, each of the credit facilities ----------------- and guidance lines of credit of the Company or one or more Restricted Subsidiaries in existence on the date of this Supplemental Indenture and one or more other facilities or guidance lines of credit among or between the Company or one or more Restricted Subsidiaries and one or more lenders pursuant to which the Company or any Restricted Subsidiary may incur Indebtedness for working capital and general corporate purposes (including acquisitions), as any such facility or line of credit may amended, restated, supplemented or otherwise modi- -10- fied from time to time, and includes any agreement extending the maturity of, increasing the amount of, or restructuring, all or any portion of the Indebtedness under such facility or line of credit or any successor facilities or lines of credit and includes any facility or line of credit with one or more lenders refinancing or replacing all or any portion of the Indebtedness under such facility or line of credit or any successor facility or line of credit. "Currency Agreement" of any Person means any foreign exchange contract, ------------------ currency swap agreement or other similar agreement or arrangement designed to protect such Person or any of its Subsidiaries against fluctuations in currency values. "Custodian" means any receiver, trustee, assignee, liquidator or --------- similar official under any Bankruptcy Law. "Default" means any event, act or condition that is, or after notice or ------- the passage of time or both would be, an Event of Default. "Designation Amount" has the meaning provided in the definition of ------------------ Unrestricted Subsidiary. "Disqualified Stock" means any Capital Stock that, by its terms (or by ------------------ the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, (i) matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the option of the holder thereof, in whole or in part, on or prior to the final maturity date of the Notes or (ii) is convertible into or exchangeable or exercisable for (whether at the option of the issuer or the holder thereof) (a) debt securities or (b) any Capital Stock referred to in (i) above, in each case, at any time prior to the final maturity date of the Notes provided, however, -------- ------- that any Capital Stock that would not constitute Disqualified Stock but for provisions thereof giving holders thereof (or the holders of any security into or for which such Capital Stock is convertible, exchangeable or exercisable) the right to require the Company to repurchase or redeem such Capital Stock upon the occurrence of a change in control occurring prior to the final maturity date of the Notes shall not constitute Disqualified Stock if the change in control provisions applicable to such Capital Stock are no more favorable to such holders than Section 3.01 hereof and such Capital Stock specifically provides that the Company will not repurchase or redeem any such Capital Stock pursuant to -11- such provisions prior to the Company's repurchase of the Notes as are required pursuant to Section 3.01 hereof. "Dollars" and "$" mean United States Dollars. ------- "Fair Market Value" means, with respect to any asset, the price (after ----------------- taking into account any liabilities relating to such assets) that would be negotiated in an arm's-length transaction for cash between a willing seller and a willing and able buyer, neither of which is under any compulsion to complete the transaction, as such price is determined in good faith by the Board of Directors of the Company or a duly authorized committee thereof, as evidenced by a resolution of such Board or committee. "GAAP" means generally accepted accounting principles set forth in the ---- opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession of the United States, as in effect on the date of this Supplemental Indenture. "Guarantors" means (i) initially, each of: D.R. Horton Management ---------- Company, Ltd., a Texas limited partnership; DRHI, Inc., a Delaware corporation; D.R. Horton-Royalty, Ltd., a Texas limited partnership; DRH Construction, Inc., a Delaware corporation; DRH New Mexico Construction, Inc., a Delaware corporation; D.R. Horton Denver Management Company, Inc., a Colorado corporation; D.R. Horton Denver No. 10, Inc., a Colorado corporation; D.R. Horton Denver No. 11, Inc., a Colorado corporation; D.R. Horton Denver No. 12, Inc., a Colorado corporation; D.R. Horton Denver No. 13, Inc., a Colorado corporation; D.R. Horton Denver No. 14, Inc., a Colorado corporation; D.R. Horton Denver No. 15, Inc., a Colorado corporation; D.R. Horton Denver No. 16, Inc., a Colorado corporation; D.R. Horton Denver No. 17, Inc., a Colorado corporation; D.R. Horton Denver No. 18, Inc., a Colorado corporation; D.R. Horton, Inc.-Albuquerque, a Delaware corporation; D.R. Horton, Inc.- Denver, a Delaware corporation; D.R. Horton, Inc.-Minnesota, a Delaware corporation; D.R. Horton, Inc.-New Jersey, a New Jersey corporation; Meadows I, Ltd., a Delaware corporation; Meadows II, Ltd., a Delaware corporation; Meadows III, Ltd., a Delaware corporation; Meadows IX, Inc., a New Jersey corporation; Meadows X, Inc., a New Jersey corporation; SGS Communities at Grande Quay, L.L.C., a New Jersey limited liability company; D.R. Horton Los Angeles Holding Company, Inc., a California -12- corporation; D.R. Horton Los Angeles Management Company, Inc., a California corporation; D.R. Horton Los Angeles No. 9, Inc., a California corporation; D.R. Horton Los Angeles No. 10, Inc., a California corporation; D.R. Horton Los Angeles No. 11, Inc., a California corporation; D.R. Horton Los Angeles No. 12, Inc., a California corporation; D.R. Horton Los Angeles No. 13, Inc., a California corporation; D.R. Horton Los Angeles No. 14, Inc., a California corporation; D.R. Horton Los Angeles No. 16, Inc., a California corporation; D.R. Horton Los Angeles No. 17, Inc., a California corporation; D.R. Horton, Inc. - Birmingham, a Delaware corporation; D.R. Horton, Inc. -Greensboro, a Delaware corporation; D.R. Horton San Diego Holding Company, Inc., a California corporation; D.R. Horton San Diego Management Company, Inc., a California corporation; D.R. Horton San Diego No. 9, Inc., a California corporation; D.R. Horton San Diego No. 10, Inc., a California corporation; D.R. Horton San Diego No. 11, Inc., a California corporation; D.R. Horton San Diego No. 12, Inc., a California corporation; D.R. Horton San Diego No. 13, Inc., a California corporation; D.R. Horton San Diego No. 14, Inc., a California corporation; D.R. Horton San Diego No. 15, Inc., a California corporation; D.R. Horton San Diego No. 16, Inc., a California corporation; D.R. Horton San Diego No. 17, Inc., a California corporation; D.R. Horton San Diego No. 18, Inc., a California corporation; D.R. Horton San Diego No. 19, Inc., a California corporation; D.R. Horton San Diego No. 20, Inc., a California corporation; D.R. Horton San Diego No. 21, Inc., a California corporation; D.R. Horton-Texas, Ltd., a Texas limited partnership; D.R. Horton, Inc. - Torrey, a Delaware corporation; and S. G. Torrey Atlanta, Ltd., a Georgia corporation; and (ii) each of the Company's Subsidiaries which becomes a guarantor of the Notes pursuant to the provisions of the Indenture. "Indebtedness" of any Person means, without duplication, (i) any ------------ liability of such Person (a) for borrowed money or under any reimbursement obligation relating to a letter of credit or other similar instruments (other than standby letters of credit issued for the benefit of or surety, performance, completion or payment bonds, earnest money notes or similar purpose undertakings or indemnifications issued by, such Person in the ordinary course of business), (b) evidenced by a bond, note, debenture or similar instrument (including a purchase money obligation) given in connection with the acquisition of any businesses, properties or assets of any kind or with services incurred in connection with capital expenditures (other than any obligation to pay a contingent purchase price which, as of the date of incurrence thereof is not required to be recorded as a liability in accordance with GAAP), or (c) in re- -13- spect of Capitalized Lease Obligations (to the extent of the Attributable Debt in respect thereof), (ii) any Indebtedness of others that such Person has guaranteed to the extent of the guarantee, (iii) to the extent not otherwise included, the obligations of such Person under Currency Agreements or Interest Protection Agreements to the extent recorded as liabilities not constituting Interest Incurred, net of amounts recorded as assets in respect of such agreements, in accordance with GAAP, and (iv) all Indebtedness of others secured by a Lien on any asset of such Person, whether or not such Indebtedness is assumed by such Person; provided, that Indebtedness shall not include accounts -------- payable, liabilities to trade creditors of such Person or other accrued expenses arising in the ordinary course of business. The amount of Indebtedness of any Person at any date shall be (a) the outstanding balance at such date of all unconditional obligations as described above, net of any unamortized discount to be accounted for as Interest Expense, in accordance with GAAP, (b) the maximum liability of such Person for any contingent obligations under clause (ii) above at such date, net of, any unamortized discount to be accounted for as Interest Expense in accordance with GAAP and (c) in the case of clause (iv) above, the lesser of (1) the fair market value of any asset subject to a Lien securing the Indebtedness of others on the date that the Lien attaches and (2) the amount of the Indebtedness secured. "Intangible Assets" of the Company means all unamortized debt discount ----------------- and expense, unamortized deferred charges, goodwill, patents, trademarks, service marks, trade names, copyrights, writeups of assets over their prior carrying value (other than write-ups which occurred prior to the Issue Date and other than, in connection with the acquisition of an asset, the write-up of the value of such asset (within one year of its acquisition) to its fair market value in accordance with GAAP) and all other items which would be treated as intangibles on the consolidated balance sheet of the Company and the Restricted Subsidiaries prepared in accordance with GAAP. "Interest Expense" of any Person for any period means, without ---------------- duplication, the aggregate amount of (i) interest which, in conformity with GAAP, would be set opposite the caption "interest expense" or any like caption on an income statement for such Person (including, without limitation, imputed interest included in Capitalized Lease Obligations, all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing, the net costs (but reduced by net gains) associated with Currency Agreements and Interest Protection Agreements, amortiza- -14- tion of other financing fees and expenses, the interest portion of any deferred payment obligation, amortization of discount or premium, if any, and all other noncash interest expense other than interest and other charges amortized to cost of sales), and (ii) all interest actually paid by the Company or a Restricted Subsidiary under any guarantee of Indebtedness (including, without limitation, a guarantee of principal, interest or any combination thereof) of any Person other than the Company or any Restricted Subsidiary during such period; provided, that -------- Interest Expense shall exclude any expense associated with the complete write- off of financing fees and expenses in connection with the repayment of any Indebtedness. "Interest Incurred" of any Person for any period means, without ----------------- duplication, the aggregate amount of (i) Interest Expense and (ii) all capitalized interest and amortized debt issuance costs. "Interest Protection Agreement" of any Person means any interest rate ----------------------------- swap agreement, interest rate collar agreement, option or futures contract or other similar agreement or arrangement designed to protect such Person or any of its Subsidiaries against fluctuations in interest rates with respect to Debt permitted to be incurred under this Supplemental Indenture. "Investments" of any Person means (i) all investments by such Person in ----------- any other Person in the form of loans, advances or capital contributions, (ii) all guarantees of Indebtedness or other obligations of any other Person by such Person, (iii) all purchases (or other acquisitions for consideration) by such Person of Indebtedness, Capital Stock or other securities of any other Person and (iv) all other items that would be classified as investments in any other Person (including, without limitation, purchases of assets outside the ordinary course of business) on a balance sheet of such Person prepared in accordance with GAAP. "Issue Date" means the date on which the Notes are originally issued ---------- under this Supplemental Indenture. "Lien" means, with respect to any Property, any mortgage, lien, pledge, ---- charge, security interest or encumbrance of any kind in respect of such Property. For purposes of this definition, a Person shall be deemed to own, subject to a Lien, any Property which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agree- -15- ment, capital lease or other title retention agreement relating to such Property. "Marketable Securities" means (a) equity securities that are ---------------------- listed on the New York Stock Exchange, the American Stock Exchange or The Nasdaq National Market and (b) debt securities that are rated by a nationally recognized rating agency, listed on the New York Stock Exchange or the American Stock Exchange or covered by at least two reputable market makers. "Net Cash Proceeds" means, with respect to an Asset -------------------- Disposition, cash payments received (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise (including any cash received upon sale or disposition of such note or receivable), but only as and when received), excluding any other consideration received in the form of assumption by the acquiring Person of Indebtedness or other obligations relating to the Property disposed of in such Asset Disposition or received in any other non-cash form unless and until such non-cash consideration is converted into cash therefrom, in each case, net of all legal, title and recording tax expenses, commissions and other fees and expenses incurred, and all federal, state and local taxes required to be accrued as a liability under GAAP as a consequence of such Asset Disposition, and in each case net of a reasonable reserve for the after-tax cost of any indemnification or other payments (fixed and contingent) attributable to the seller's indemnities or other obligations to the purchaser undertaken by the Company or any of its Restricted Subsidiaries in connection with such Asset Disposition, and net of all payments made on any Indebtedness which is secured by or relates to such Property, in accordance with the terms of any Lien or agreement upon or with respect to such Property or which must by its terms or by applicable law be repaid out of the proceeds from such Asset Disposition, and net of all contractually required distributions and payments made to minority interest holders in Restricted Subsidiaries or joint ventures as a result of such Asset Disposition. "Non-Recourse Indebtedness" with respect to any Person means -------------------------- Indebtedness of such Person for which (i) the sole legal recourse for collection of principal and interest on such Indebtedness is against the specific property identified in the instruments evidencing or securing such Indebtedness and such property was acquired with the proceeds of such Indebtedness or such Indebtedness was incurred within 90 days after the acquisition of such property and (ii) no other assets of such Person may be realized upon in collection of principal or interest on -16- such Indebtedness. Indebtedness which is otherwise Non-Recourse Indebtedness will not lose its character as Non-Recourse Indebtedness because there is recourse to the borrower, any guarantor or any other Person for (i) environmental warranties and indemnities, or (ii) indemnities for and liabilities arising from fraud, misrepresentation, misapplication or non-payment of rents, profits, insurance and condemnation proceeds and other sums actually received by the borrower from secured assets to be paid to the lender, waste and mechanics' liens. "Permitted Indebtedness" means (i) Indebtedness under Credit ----------------------- Facilities which does not exceed $300 million principal amount outstanding at any one time; (ii) Indebtedness in respect of obligations of the Company to the Trustee under the Indenture; (iii) intercompany debt obligations of the Company to any Restricted Subsidiary and of any Restricted Subsidiary to the Company or any other Restricted Subsidiary; provided, however, that any Indebtedness of any Restricted Subsidiary or the Company owed to any Restricted Subsidiary or to the Company that ceases to be a Restricted Subsidiary shall be deemed to be incurred and shall be treated as an incurrence for purposes of the first paragraph of the covenant described under "Limitations on Indebtedness" at the time the Restricted Subsidiary in question ceases to be a Restricted Subsidiary; (iv) Indebtedness of the Company or any Restricted Subsidiary under any Currency Agreements or Interest Protection Agreements in a notional amount no greater than the payments due with respect to the Indebtedness or currency being hedged; (v) Purchase Money Indebtedness; (vi) Indebtedness secured only by office buildings owned or occupied by the Company or any Restricted Subsidiary, which Indebtedness does not exceed $10 million aggregate principal amount outstanding at any one time; and (vii) Indebtedness of the Company or any Restricted Subsidiary which, together with all other Indebtedness under this clause (vii), does not exceed $30 million aggregate principal amount outstanding at any one time. "Permitted Investment" means (i) Cash Equivalents; (ii) any --------------------- Investment in the Company or any Restricted Subsidiary or any Person that becomes a Restricted Subsidiary as a result of such Investment or that is consolidated or merged with or into, or transfers all or substantially all of the assets of it or an operating unit or line of business to, the Company or a Restricted Subsidiary; (iii) any receivables, loans or other consideration taken by the Company or any Restricted Subsidiary in connection with any asset sale otherwise permitted by the Indenture; (iv) Investments received in connection with any -17- bankruptcy or reorganization proceeding, or as a result of foreclosure, perfection or enforcement of any Lien or any judgment or settlement of any Person in exchange for or satisfaction of Indebtedness or other obligations or other property received from such Person, or for other liabilities or obligations of such Person created, in accordance with the terms of the Indenture; (v) Investments in Currency Agreements or Interest Protection Agreements described in the definition of Permitted Indebtedness; (vi) any loan or advance to an executive officer or director of the Company or any Restricted Subsidiary made in the ordinary course of business; provided, however, that any such loan or advance exceeding $250,000 (other than a readily marketable mortgage not exceeding $500,000) shall have been approved by the Board of Directors of the Company or a committee thereof consisting of disinterested members; and (vii) Investments in an aggregate amount outstanding not to exceed $50 million. "Permitted Liens" means (i) Liens for taxes, assessments or ---------------- governmental or quasi-government 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, if required, (ii) statutory Liens of landlords and carriers', warehousemen's, mechanics', suppliers', materialmen's, repairmen's or other Liens imposed by law and arising in the ordinary course of business and with respect to amounts that, to the extent applicable, either (a) are not yet delinquent or (b) are being contested in good faith by appropriate proceedings and as to which appropriate reserves have been established or other provisions have been made in accordance with GAAP, if required, (iii) Liens (other than any Lien imposed by the Employer Retirement Income Security Act of 1974, as amended) incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, (iv) Liens incurred or deposits made to secure the performance of tenders, bids, leases, statutory obligations, surety and appeal bonds, development obligations, progress payments, government contacts and other obligations of like nature (exclusive of obligations for the payment of borrowed money but including the items referred to in the parenthetical in clause (i)(a) of the definition of "Indebtedness"), in each case incurred in the ordinary course of business of the Company and the Restricted Subsidiaries, (v) attachment or judgment Liens not giving rise to a Default or an Event of Default, (vi) easements, rights-of-way, restrictions and other similar charges or encumbrances not materially interfering with the ordinary -18- course of business of the Company and the Restricted Subsidiaries, (vii) zoning restrictions, licenses, restrictions on the use of real property or minor irregularities in title thereto, which do not materially impair the use of such real property in the ordinary course of business of the Company and the Restricted Subsidiaries, (viii) Liens securing Indebtedness permitted under clause (vi) of the definition of Permitted Indebtedness, (ix) Liens securing Indebtedness of the Company or any Restricted Subsidiary permitted to be incurred under the Indenture; provided, that the aggregate amount of all Indebtedness of the Company and the Restricted Subsidiaries (including, with respect to Capitalized Lease Obligations, the Attributable Debt in respect thereof) secured by Liens (other than Non-Recourse Indebtedness secured by Liens) shall not exceed 40% of Consolidated Adjusted Tangible Assets at any one time outstanding (after giving effect to the incurrence of such Indebtedness and the use of the proceeds thereof), (x) Liens securing Non-Recourse Indebtedness of the Company or any Restricted Subsidiary; provided that such Liens apply only to the property financed out of the net proceeds of such Non-Recourse Indebtedness within 90 days after the incurrence of such Non-Recourse Indebtedness, (xi) Liens securing Purchase Money Indebtedness; provided that such Liens apply only to the property acquired, constructed or improved with the proceeds of such Purchase Money Indebtedness within 90 days after the incurrence of such Purchase Money Indebtedness, (xii) Liens on property or assets of the Company or any Restricted Subsidiary securing Indebtedness of the Company or any Restricted Subsidiary owing to the Company or one or more Restricted Subsidiaries, (xiii) leases or subleases granted to others not materially interfering with the ordinary course of business of the Company and the Restricted Subsidiaries, (xiv) purchase money security interests (including, without limitation, Capitalized Lease Obligations); provided that such Liens apply only to the Property acquired and the related Indebtedness is incurred within 90 days after the acquisition of such Property, (xv) any option, contract or other agreement to sell an asset; provided such sale is not otherwise prohibited under the Indenture, (xvi) any right of a lender or lenders to which the Company or a Restricted Subsidiary may be indebted to offset against, or appropriate and apply to the payment of such, Indebtedness any and all balances, credits, deposits, accounts or money of the Company or a Restricted Subsidiary with or held by such lender or lenders or its Affiliates, (xvii) any pledge or deposit of cash or property in conjunction with obtaining surety, performance, completion or payment bonds and letters of credit or providing earnest money obligations, escrows or similar purpose undertakings or indemnifications in the ordinary course of business of the -19- Company and its Restricted Subsidiaries, (xviii) Liens for homeowner and property owner association developments and assessments and (xix) Liens securing Refinancing Indebtedness; provided that such Liens extend only to the assets securing the Indebtedness being refinanced. "Person" means any individual, corporation, partnership, ------ limited liability company, joint venture, incorporated or unincorporated association, joint stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Preferred Stock" of any Person means all Capital Stock of ---------------- such Person which has a preference in liquidation or with respect to the payment of dividends. "Property" of any Person means all types of real, personal, -------- tangible, intangible or mixed property owned by such Person, whether or not included in the most recent consolidated balance sheet of such Person and its Subsidiaries under GAAP. "Public Equity Offering" means an underwritten public offering ---------------------- of Common Equity of the Company pursuant to an effective registration statement filed under the Securities Act (excluding registration statements filed on Form S-8 or any successor form). "Purchase Money Indebtedness" means Indebtedness of the --------------------------- Company or any Restricted Subsidiary incurred for the purpose of financing all or any part of the purchase price, or the cost of construction or improvement, of any property to be used in the ordinary course of business by the Company and the Restricted Subsidiaries; provided, however, that (i) the aggregate principal -------- ------- amount of such Indebtedness shall not exceed such purchase price or cost and (ii) such Indebtedness shall be incurred no later than 90 days after the acquisition of such property or completion of such construction or improvement. "Qualified Stock" means Capital Stock of the Company other --------------- than Disqualified Stock. "Real Estate Business" means homebuilding, housing -------------------- construction, real estate development or construction and related real estate activities, but excluding provision of mortgage financing or title insurance. "Refinancing Indebtedness" means Indebtedness (to the extent ------------------------- not Permitted Indebtedness) that refunds, refinances or -20- extends any Indebtedness of the Company or any Restricted Subsidiary (to the extent not Permitted Indebtedness) outstanding on the Issue Date or other Indebtedness (to the extent not Permitted Indebtedness) permitted to be incurred by the Company or any Restricted Subsidiary pursuant to the terms of this Indenture, but only to the extent that (i) the Refinancing Indebtedness is subordinated to the Notes or the Guarantees, as the case may be, to the same extent as the Indebtedness being refunded, refinanced or extended, if at all, (ii) the Refinancing Indebtedness is scheduled to mature either (a) no earlier than the Indebtedness being refunded, refinanced or extended or (b) after the maturity date of the Notes, (iii) the portion, if any, of the Refinancing Indebtedness that is scheduled to mature on or prior to the maturity date of the Notes has a Weighted Average Life to Maturity at the time such Refinancing Indebtedness is incurred that is equal to or greater than the Weighted Average Life to Maturity of the portion of the Indebtedness being refunded, refinanced or extended that is scheduled to mature on or prior to the maturity date of the Notes, and (iv) such Refinancing Indebtedness is in an aggregate principal amount that is equal to or less than the aggregate principal amount then outstanding under the Indebtedness being refunded, refinanced or extended. "Restricted Payment" means any of the following: (i) the ------------------ declaration or payment of any dividend or any other distribution on Capital Stock of the Company or any Restricted Subsidiary or any payment made to the direct or indirect holders (in their capacities as such) of Capital Stock of the Company or any Restricted Subsidiary (other than (a) dividends or distributions payable solely in Qualified Stock and (b) in the case of Restricted Subsidiaries, dividends or distributions payable to the Company or to a Restricted Subsidiary); (ii) the purchase, redemption or other acquisition or retirement for value of any Capital Stock of the Company or any Restricted Subsidiary (other than a payment made to the Company or any Restricted Subsidiary); and (iii) any Investment (other than any Permitted Investment), including any Investment in an Unrestricted Subsidiary (including by the designation of a Subsidiary of the Company as an Unrestricted Subsidiary). "Restricted Subsidiary" means any Subsidiary of the Company --------------------- which is not an Unrestricted Subsidiary. "Significant Subsidiary" means any Subsidiary of the Company ----------------------- which would constitute a "significant subsidiary" as defined in Rule 1-02 of Regulation S-X under the Securities Act and the Exchange Act. -21- "Subsidiary" of any Person means any corporation or other ---------- entity of which a majority of the Capital Stock having ordinary voting power to elect a majority of the Board of Directors or other persons performing similar functions is at the time directly or indirectly owned or controlled by such Person. "Trustee" means the party named as such above until a ------- successor replaces such party in accordance with the applicable provisions of this Indenture and thereafter means the successor serving hereunder. "Unrestricted Subsidiary" means any Subsidiary of the Company ------------------------ so designated by a resolution adopted by the Board of Directors of the Company or a duly authorized committee thereof as provided below; provided that (a) the -------- holders of Indebtedness thereof do not have direct or indirect recourse against the Company or any Restricted Subsidiary, and neither the Company nor any Restricted Subsidiary otherwise has liability, for any payment obligations in respect of such Indebtedness (including any undertaking, agreement or instrument evidencing such Indebtedness), except, (i) in each case, to the extent that the amount thereof constitutes a Restricted Payment permitted by the Indenture, (ii) in the case of Non-Recourse Indebtedness, to the extent such recourse or liability is for the matters discussed in the last sentence of the definition of "Non-Recourse Indebtedness," or (iii) to the extent such Indebtedness is a guarantee by such Subsidiary of Indebtedness of the Company or a Restricted Subsidiary and (b) no holder of any Indebtedness of such Subsidiary shall have a right to declare a default on such Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity as a result of a default on any Indebtedness of the Company or any Restricted Subsidiary. Subject to the foregoing, the Board of Directors of the Company or a duly authorized committee thereof may designate any Subsidiary to be an Unrestricted Subsidiary; provided, -------- however, that (i) the net amount (the "Designation Amount") then outstanding of - ------- ------------------ all previous Investments by the Company and the Restricted Subsidiaries in such Subsidiary will be deemed to be a Restricted Payment at the time of such designation and will reduce the amount available for Restricted Payments under Section 3.03 hereof, to the extent provided therein, (ii) the Company must be permitted under Section 3.03 hereof to make the Restricted Payment deemed to have been made pursuant to clause (i), and (iii) after giving effect to such designation, no Default or Event of Default shall have occurred and be continuing. The Board of Directors of the Company or a duly authorized committee thereof may also redesignate an Unrestricted Subsidiary to be a Restricted Subsidiary; provided, -------- -22- however, that (i) the Indebtedness of such Unrestricted Subsidiary as of the - ------- date of such redesignation could then be incurred under Section 3.02 hereof, (ii) immediately after giving effect to such redesignation and the incurrence of any such additional Indebtedness, the Company and the Restricted Subsidiaries could incur $1.00 of additional Indebtedness under Section 3.02(a) hereof and (iii) the Liens of such Unrestricted Subsidiary as of the date of such redesignation could then be incurred in accordance with Section 3.07 hereof. Any such designation or redesignation by the Board of Directors of the Company or a committee thereof will be evidenced to the Trustee by the filing with the Trustee of a certified copy of the resolution of the Board of Directors of the Company or a committee thereof giving effect to such designation or redesignation and an Officers' Certificate certifying that such designation or redesignation complied with the foregoing conditions and setting forth the underlying calculations of such Officers' Certificate. The designation of any Person as an Unrestricted Subsidiary shall be deemed to include a designation of all Subsidiaries of such Person as Unrestricted Subsidiaries; provided, however, -------- ------- that the ownership of the general partnership interest (or a similar member's interest in a limited liability company) by an Unrestricted Subsidiary shall not cause a Subsidiary of the Company of which more than 95% of the equity interest is held by the Company or one or more Restricted Subsidiaries to be deemed an Unrestricted Subsidiary. "Weighted Average Life to Maturity" means, when applied to any --------------------------------- Indebtedness or portion thereof at any date, the number of years obtained by dividing (i) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payment of principal, including, without limitation, payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment by (ii) the sum of all such payments described in clause (i)(a) above. ARTICLE THREE Covenants Section 3.01. Repurchase of Notes upon Change of Control. ------------------------------------------ (a) In the event that there shall occur a Change of Control, each holder of Notes shall have the right, at such holder's option, to require the Company to purchase all or any -23- part of such holder's Notes on a date (the "Repurchase Date") that is no later --------------- than 60 days after notice of the Change of Control, at 101% of the principal amount thereof plus accrued interest to the Repurchase Date. (b) On or before the thirtieth day after any Change of Control, the Company is obligated to mail, or cause to be mailed, to all holders of record of Notes a notice regarding the Change of Control and the repurchase right. The notice shall state the Repurchase Date, the date by which the repurchase right must be exercised, the price for the Notes and the procedure which the holder must follow to exercise such right. Substantially simultaneously with mailing of the notice, the Company shall cause a copy of such notice to be published in a newspaper of general circulation in the Borough of Manhattan, The City of New York. To exercise such right, the holder of such Note must deliver at least ten days prior to the Repurchase Date written notice to the Company (or an agent designated by the Company for such purpose) of the holder's exercise of such right, together with the Note with respect to which the right is being exercised, duly endorsed for transfer; provided, however, that if mandated by applicable law, a holder may be permitted to deliver such written notice nearer to the Repurchase Date than may be specified by the Company. (c) The Company will comply with applicable law, including Section 14(e) of the Exchange Act and Rule 14e-1 thereunder, if applicable, if the Company is required to give a notice of right of repurchase as a result of a Change of Control. Section 3.02. Limitations on Indebtedness. --------------------------- (a) The Company will not, and will not cause or permit any Restricted Subsidiary, directly or indirectly, to, create, incur, assume, become liable for or guarantee the payment of (collectively, an "incurrence") any Indebtedness (including Acquired Indebtedness) unless, after giving effect thereto and the application of the proceeds therefrom, the Consolidated Fixed Charge Coverage Ratio on the date thereof would be at least 2.0 to 1.0. (b) Notwithstanding the foregoing, the provisions of this Supplemental Indenture will not prevent the incurrence of: (i) Permitted Indebtedness, (ii) Refinancing Indebtedness, (iii) Non-Recourse Indebtedness, (iv) any Guarantee of Indebtedness of the Company represented by the Notes and (v) any guarantee of Indebtedness incurred under Credit Facilities in compliance with this Indenture. -24- (c) For purposes of determining compliance with this covenant, in the event that an item of Indebtedness may be incurred through the first paragraph of this covenant or by meeting the criteria of one or more of the types of Indebtedness described in the second paragraph of this covenant (or the definitions of the terms used therein), the Company, in its sole discretion, (i) may classify such item of Indebtedness under and comply with either of such paragraphs (or any of such definitions), as applicable, (ii) may classify and divide such item of Indebtedness into more than one of such paragraphs (or definitions), as applicable, and (iii) may elect to comply with such paragraphs (or definitions), as applicable, in any order. (d) The Company will not, and will not cause or permit any Guarantor to, directly or indirectly, in any event incur any Indebtedness that purports to be by its terms (or by the terms of any agreement governing such Indebtedness) subordinated to any other Indebtedness of the Company or of such Guarantor, as the case may be, unless such Indebtedness is also by its terms (or by the terms of any agreement governing such Indebtedness) made expressly subordinated to the Notes or the Guarantee of such Guarantor, as the case may be, to the same extent and in the same manner as such Indebtedness is subordinated to such other Indebtedness of the Company or such Guarantor, as the case may be. Section 3.03. Limitations on Restricted Payments. ---------------------------------- (a) The Company will not, and will not cause or permit any Restricted Subsidiary to, directly or indirectly, make any Restricted Payment unless: i) no Default or Event of Default shall have occurred and be continuing at the time of or immediately after giving effect to such Restricted Payment; ii) immediately after giving effect to such Restricted Payment, the Company could incur at least $1.00 of Indebtedness pursuant to Section 3.02(a) hereof; and iii) immediately after giving effect to such Restricted Payment, the aggregate amount of all Restricted Payments (including the Fair Market Value of any non-cash Restricted Payment) declared or made after the Issue Date does not exceed the sum of (a) 50% of the Consolidated Net Income of the Company on a cumulative basis during the period (taken as one accounting period) from and including the fiscal quarter of the Company in which the Issue Date occurs and ending on the -25- last day of the Company's fiscal quarter immediately preceding the date of such Restricted Payment (or in the event such Consolidated Net Income shall be a deficit, minus 100% of such deficit), plus (b) 100% of the aggregate net cash proceeds of and the fair market value of Property received by the Company from (1) any capital contribution to the Company after the Issue Date or any issue or sale after the Issue Date of Qualified Stock (other than to any Subsidiary of the Company) and (2) the issue or sale after the Issue Date of any Indebtedness or other securities of the Company convertible into or exercisable for Qualified Stock of the Company that have been so converted or exercised, as the case may be, plus (c) in the case of the disposition or repayment of any Investment constituting a Restricted Payment made after the Issue Date, an amount (to the extent not included in the calculation of the Consolidated Net Income referred to in (a)) equal to the lesser of (x) the return of capital with respect to such Investment (including by dividend, distribution or sale of Capital Stock) and (y) the amount of such Investment that was treated as a Restricted Payment, in either case, less the cost of the disposition or repayment of such Investment (to the extent not included in the calculation of the Consolidated Net Income referred to in (a)), plus (d) with respect to any Unrestricted Subsidiary that is redesignated as a Restricted Subsidiary after the Issue Date in accordance with the definition of Unrestricted Subsidiary (so long as the designation of such Subsidiary as an Unrestricted Subsidiary was treated as a Restricted Payment made after the Issue Date and only to the extent not included in the calculation of the Consolidated Net Income referred to in (a)), an amount equal to the lesser of (x) the proportionate interest of the Company or a Restricted Subsidiary in an amount equal to the excess of (I) the total assets of such Subsidiary, valued on an aggregate basis at the lesser of book value and Fair Market Value thereof, over (II) the total liabilities of such Subsidiary, determined in accordance with GAAP, and (y) the Designation Amount at the time of such Subsidiary's designation as an Unrestricted Subsidiary, plus (e) $20 million. (b) Clauses (ii) and (iii) of paragraph (a) will not prohibit: (A) the payment of any dividend within 60 days of its declaration if such dividend could have been made on the date of its declaration without violation of the provisions of this Indenture; (B) the repurchase, redemption or retirement of any shares of Capital Stock of the Company in exchange for, or out of the net proceeds of the substantially concurrent sale (other than to a Subsidiary of the Company) of, other shares of Qualified Stock; and (C) the purchase, redemption or other acquisition, cancellation or retirement for value of Capital Stock, or -26- options, warrants, equity appreciation rights or other rights to purchase or acquire Capital Stock, of the Company or any Subsidiary held by officers or employees or former officers or employees of the Company or any Subsidiary (or their estates or beneficiaries under their estates) not to exceed $10 million in the aggregate since the Issue Date; provided, however, that each Restricted Payment described in clauses (A) and (B) of this sentence shall be taken into account for purposes of computing the aggregate amount of all Restricted Payments pursuant to clause (iii) of paragraph (a). (c) For purposes of determining the aggregate and permitted amounts of Restricted Payments made, the amount of any guarantee of any Investment in any Person that was initially treated as a Restricted Payment and which was subsequently terminated or expired, net of any amounts paid by the Company or any Restricted Subsidiary in respect of such guarantee, shall be deducted. (d) In determining the "fair market value of Property" for purposes of clause (iii) of the paragraph (a), Property other than cash, Cash Equivalents and Marketable Securities shall be deemed to be equal in value to the "equity value" of the Capital Stock or other securities issued in exchange therefor. The "equity value" of such Capital Stock or other securities shall be equal to (i) the number of shares of Common Equity issued in the transaction (or issuable upon conversion or exercise of the Capital Stock or other securities issued in the transaction) multiplied by the closing sale price of the Common Equity on its principal market on the date of the transaction (less, in the case of Capital Stock or other securities which require the payment of consideration at the time of conversion or exercise, the aggregate consideration payable thereupon) or (ii) if the Common Equity is not then traded on the New York Stock Exchange, American Stock Exchange or Nasdaq National Market, or if the Capital Stock or other securities issued in the transaction does not consist of Common Equity (or Capital Stock or other securities convertible into or exercisable for Common Equity), the value of such Capital Stock or other securities as determined by a nationally recognized investment banking firm retained by the Board of Directors of the Company. Section 3.04. Limitations on Transactions with Affiliates. ------------------------------------------- (a) The Company will not, and will not cause or permit any Restricted Subsidiary to, make any loan, advance, guar- -26- antee or capital contribution to, or for the benefit of, or sell, lease, transfer or otherwise dispose of any property or assets to, or for the benefit of, or purchase or lease any property or assets from, or enter into or amend any contract, agreement or understanding with, or for the benefit of, any Affiliate of the Company or any Affiliate of any of the Company's Subsidiaries or any holder of 10% or more of the Common Equity of the Company (including any Affiliates of such holders), in a single transaction or series of related transactions (each, an "Affiliate Transaction"), except for any Affiliate --------------------- Transaction the terms of which are at least as favorable as the terms which could be obtained by the Company or such Restricted Subsidiary, as the case may be, in a comparable transaction made on an arm's length basis with Persons who are not such a holder, an Affiliate of such a holder or an Affiliate of the Company or any of the Company's Subsidiaries. (b) In addition, the Company will not, and will not cause or permit any Restricted Subsidiary to, enter into an Affiliate Transaction unless (i) with respect to any such Affiliate Transaction involving or having a value of more than $5 million, the Company shall have (x) obtained the approval of a majority of the Board of Directors of the Company and (y) either obtained the approval of a majority of the Company's disinterested directors or obtained an opinion of a qualified independent financial advisor to the effect that such Affiliate Transaction is fair to the Company or such Restricted Subsidiary, as the case may be, from a financial point of view and (ii) with respect to any such Affiliate Transaction involving or having a value of more than $25 million, the Company shall have (x) obtained the approval of a majority of the Board of Directors of the Company and (y) delivered to the Trustee an opinion of a qualified independent financial advisor to the effect that such Affiliate Transaction is fair to the Company or such Restricted Subsidiary, as the case may be, from a financial point of view. (c) Notwithstanding the foregoing, an Affiliate Transaction will not include (i) any contract, agreement or understanding with, or for the benefit of, or plan for the benefit of employees of the Company or its Subsidiaries generally (in their capacities as such) that has been approved by the Board of Directors of the Company, (ii) Capital Stock issuances to directors, officers and employees of the Company or its Subsidiaries pursuant to plans approved by the stockholders of the Company, (iii) any Restricted Payment otherwise permitted under the "Limitations on Restricted Payments" covenant, (iv) any transaction between or among the Company and one or more Re- -28- stricted Subsidiaries or between or among Restricted Subsidiaries (provided, -------- however, no such transaction shall involve any other Affiliate of the Company - ------- (other than an Unrestricted Subsidiary to the extent the applicable amount constitutes a Restricted Payment permitted by this Indenture)) and (v) any transaction between one or more Restricted Subsidiaries and one or more Unrestricted Subsidiaries where all of the payments to, or other benefits conferred upon, such Unrestricted Subsidiaries are substantially contemporaneously dividended, or otherwise distributed or transferred without charge, to the Company or a Restricted Subsidiary. Section 3.05. Limitations on Dispositions of Assets. ------------------------------------- The Company will not, and will not cause or permit any Restricted Subsidiary to, make any Asset Disposition unless (x) the Company (or such Restricted Subsidiary, as the case may be) receives consideration at the time of such Asset Disposition at least equal to the Fair Market Value thereof, and (y) not less than 70% of the consideration received by the Company (or such Restricted Subsidiary, as the case may be) is in the form of cash, Cash Equivalents and Marketable Securities. The amount of any Indebtedness (other than any subordinated Indebtedness) of the Company or any Restricted Subsidiary that is actually assumed by the transferee in such Asset Disposition shall be deemed to be consideration required by clause (y) above for purposes of determining the percentage of such consideration received by the Company or the Restricted Subsidiaries. The Net Cash Proceeds of an Asset Disposition shall, within one year, at the Company's election, (a) be used by the Company or a Restricted Subsidiary in the business of the construction and sale of homes conducted by the Company and the Restricted Subsidiaries or any other business of the Company or a Restricted Subsidiary existing at the time of such Asset Disposition or (b) to the extent not so used, be applied to make a Net Cash Proceeds Offer to purchase Notes and, if the Company or a Restricted Subsidiary elects or is required to do so, repay any other unsubordinated Indebtedness (on a pro rata basis if the amount available for such repurchase and repayment is less than the aggregate amount of (i) the principal amount of the Notes tendered in such Net Cash Proceeds Offer and (ii) the lesser of the principal amount, or accreted value, of such other unsubordinated Indebtedness, plus, in each case accrued interest to the date of repurchase or repayment) at 100% of the principal amount or accreted value thereof, as the case may be, plus accrued interest to the date of repurchase or repayment. Notwithstanding the foregoing, (A) the Company will not be required to apply such Net Cash Proceeds to the repurchase of -29- Notes in accordance with clause (b) of the preceding sentence except to the extent that such Net Cash Proceeds, together with the aggregate Net Cash Proceeds of prior Asset Dispositions (other than those so used) which have not been applied in accordance with this provision and as to which no prior Net Cash Proceeds Offer shall have been made, exceed 5% of Consolidated Tangible Assets and (B) in connection with any Asset Disposition, the Company and the Restricted Subsidiaries will not be required to comply with the requirements of clause (y) of the first sentence of this paragraph to the extent that the aggregate non- cash consideration received in connection with such Asset Disposition, together with the sum of all non-cash consideration received in connection with all prior Asset Dispositions that has not yet been converted into cash, does not exceed 5% of Consolidated Tangible Assets; provided, however, that when any non-cash consideration is converted into cash, such cash shall constitute Net Cash Proceeds and be subject to the preceding sentence. Section 3.06. Limitation on Issuance of Preferred Stock of Restricted Subsidiaries. ------------------------------------------------------- The Company will not permit any Restricted Subsidiary to issue any Preferred Stock (except to the Company or a Restricted Subsidiary) or permit any Person (other than the Company or a Restricted Subsidiary) to own any Preferred Stock of any Restricted Subsidiary. Section 3.07. Limitations on Liens. -------------------- The Company will not, and will not cause or permit any Restricted Subsidiary to, create, incur, assume or suffer to exist any Liens, other than Permitted Liens, on any of its Property, or on any shares of Capital Stock or Indebtedness of any Restricted Subsidiary, unless contemporaneously therewith or prior thereto all payments due under this Indenture and the Notes are secured on an equal and ratable basis with the obligation or liability so secured until such time as such obligation or liability is no longer secured by a Lien. Section 3.08. Limitations on Restrictions Affecting Restricted Subsidiaries. ------------------------------------------------------------- The Company will not, and will not cause or permit any Restricted Subsidiary to, create, assume or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction (other than encumbrances or restrictions imposed by law or by judicial or regulatory action or by provi- -30- sions of leases and other agreements that restrict the assignability thereof) on the ability of any Restricted Subsidiary to (i) pay dividends or make any other distributions on its Capital Stock or any other interest or participation in, or measured by, its profits, owned by the Company or any other Restricted Subsidiary, or pay interest on or principal of any Indebtedness owed to the Company or any other Restricted Subsidiary, (ii) make loans or advances to the Company or any other Restricted Subsidiary, or (iii) transfer any of its properties or assets to the Company or any other Restricted Subsidiary, except for (a) encumbrances or restrictions existing under or by reason of applicable law, (b) covenants or restrictions contained in Indebtedness in effect on the date of this Indenture as such covenants or restrictions are in effect on such date, (c) any restrictions or encumbrances arising under Acquired Indebtedness; provided, that such encumbrance or restriction applies only to either the assets - -------- that were subject to the restriction or encumbrance at the time of the acquisition or the obligor on such Indebtedness and its Subsidiaries, (d) any restrictions or encumbrances arising in connection with Refinancing Indebtedness; provided, however, that any restrictions and encumbrances of the -------- ------- type described in this clause (d) that arise under such Refinancing Indebtedness shall not be materially more restrictive than those under the agreement creating or evidencing the Indebtedness being refunded, refinanced, replaced or extended, (e) any Permitted Lien, or any other agreement restricting the sale or other disposition of property, securing Indebtedness permitted by this Indenture if such Permitted Lien or agreement does not expressly restrict the ability of a Subsidiary of the Company to pay dividends or make or repay loans or advances prior to default thereunder, (f) reasonable and customary borrowing base covenants set forth in agreements evidencing Indebtedness otherwise permitted by this Indenture, (g) customary provisions restricting subletting or assignment of any lease governing a leasehold interest of the Company or any Restricted Subsidiary, and (h) any restriction with respect to a Restricted Subsidiary imposed pursuant to an agreement entered into for the sale or disposition of all or substantially all of the Capital Stock or assets of such Restricted Subsidiary pending the closing of such sale or disposition. Section 3.09. Limitations on Mergers, Consolidations and Sales of Assets. ---------------------------------------------------------- Neither the Company nor any Guarantor will consolidate or merge with or into, or sell, lease, convey or otherwise dispose of all or substantially all of its assets (including, -31- without limitation, by way of liquidation or dissolution), or assign any of its obligations under the Notes, the Guarantees or this Indenture (as an entirety or substantially in one transaction or in a series of related transactions), to any Person (in each case other than in a transaction in which the Company or a Restricted Subsidiary is the survivor of a consolidation or merger, or the transferee in a sale, lease, conveyance or other disposition) unless: (i) the Person formed by or surviving such consolidation or merger (if other than the Company or the Guarantor, as the case may be), or to which such sale, lease, conveyance or other disposition or assignment will be made (collectively, the "Successor"), is a corporation or other legal entity organized and existing --------- under the laws of the United States or any state thereof or the District of Columbia, and the Successor assumes by supplemental indenture in a form reasonably satisfactory to the Trustee all of the obligations of the Company or the Guarantor, as the case may be, under the Notes or a Guarantee, as the case may be, and the Indenture, (ii) immediately after giving effect to such transaction, no Default or Event of Default has occurred and is continuing, (iii) immediately after giving effect to such transaction and the use of any net proceeds therefrom, on a pro forma basis, the Consolidated Net Worth of the --- ----- Company or the Successor (in the case of a transaction involving the Company), as the case may be, would be at least equal to the Consolidated Net Worth of the Company immediately prior to such transaction (exclusive of any adjustments to Consolidated Net Worth attributable to transaction costs) less any amount treated as a Restricted Payment in connection with such transaction in accordance with this Indenture and (iv) immediately after giving effect to such transaction, the Company could incur at least $1.00 of Indebtedness pursuant to Section 3.02(a) hereof. The foregoing provisions shall not apply to (i) a transaction involving the sale or disposition of Capital Stock of a Guarantor, or the consolidation or merger of a Guarantor, or the sale, lease, conveyance or other disposition of all or substantially all of the assets of a Guarantor, that in any such case results in such Guarantor being released from its Guarantee pursuant to the Indenture or (ii) a transaction the purpose of which is to change the state of incorporation of the Company or any Guarantor. Section 3.10. Reports to Holders of Notes. --------------------------- The Company will file with the Commission the annual reports and the information, documents and other reports required to be filed pursuant to Section 13 or 15(d) of the Exchange Act. The Company will file with the Trustee and mail to each holder of record of Notes such reports, information and -32- documents within 15 days after it files them with the Commission. In the event that the Company is no longer subject to these periodic requirements of the Exchange Act, it will nonetheless continue to file reports with the Commission and the Trustee and mail such reports to each holder of Notes as if it were subject to such reporting requirements. Regardless of whether the Company is required to furnish such reports to its stockholders pursuant to the Exchange Act, the Company will cause its consolidated financial statements and a "Management's Discussion and Analysis of Results of Operations and Financial Condition" written report, similar to those that would have been required to appear in annual or quarterly reports, to be delivered to holders of Notes. ARTICLE FOUR Miscellaneous Section 4.01. Governing Law. ------------- The laws of the State of New York shall govern this Supplemental Indenture, the Securities of each Series and the Guarantees. Section 4.02. No Adverse Interpretation of Other Agreements. --------------------------------------------- This Supplemental Indenture may not be used to interpret another indenture, loan or debt agreement of the Company or a Subsidiary. Any such indenture, loan or debt agreement may not be used to interpret this Supplemental Indenture. Section 4.03. No Recourse Against Others. -------------------------- All liability described in paragraph 13 of the Notes of any director, officer, employee or stockholder, as such, of the Company is waived and released. Section 4.04. Successors and Assigns. ---------------------- All covenants and agreements of the Company and the Guarantors in this Supplemental Indenture and the Notes shall bind its successors and assigns. All agreements of the Trustee in this Supplemental Indenture shall bind its successors and assigns. -33- Section 4.05. Duplicate Originals. ------------------- The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. Section 4.06. Severability. ------------ In case any one or more of the provisions contained in this Supplemental Indenture or in the Notes shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Supplemental Indenture or of the Notes. -34- SIGNATURES IN WITNESS WHEREOF, the parties have caused this Supplemental Indenture to be duly executed, all as of the date first above written. D.R. HORTON, INC. By: ----------------------------------------- Name: Title: GUARANTORS: DRHI, Inc. DRH Construction, Inc. DRH New Mexico Construction, Inc., D.R. Horton Denver Management Company, Inc. D.R. Horton Denver No. 10, Inc. D.R. Horton Denver No. 11, Inc. D.R. Horton Denver No. 12, Inc. D.R. Horton Denver No. 13, Inc. D.R. Horton Denver No. 14, Inc. D.R. Horton Denver No. 15, Inc. D.R. Horton Denver No. 16, Inc. D.R. Horton Denver No. 17, Inc. D.R. Horton Denver No. 18, Inc. D.R. Horton, Inc.-Albuquerque D.R. Horton, Inc.- Denver D.R. Horton, Inc.-Minnesota D.R. Horton, Inc.-New Jersey Meadows I, Ltd. Meadows II, Ltd. Meadows III, Ltd. Meadows IX, Inc. Meadows X, Inc. D.R. Horton Los Angeles Holding Company, Inc. D.R. Horton Los Angeles Management Company, Inc. D.R. Horton Los Angeles No. 9, Inc. D.R. Horton Los Angeles No. 10, Inc. D.R. Horton Los Angeles No. 11, Inc. D.R. Horton Los Angeles No. 12, Inc. -35- D.R. Horton Los Angeles No. 13, Inc. D.R. Horton Los Angeles No. 14, Inc. D.R. Horton Los Angeles No. 16, Inc. D.R. Horton Los Angeles No. 17, Inc. D.R. Horton, Inc. - Birmingham D.R. Horton, Inc. - Greensboro D.R. Horton San Diego Holding Company, Inc. D.R. Horton San Diego Management Company, Inc. D.R. Horton San Diego No. 9, Inc. D.R. Horton San Diego No. 10, Inc. D.R. Horton San Diego No. 11, Inc. D.R. Horton San Diego No. 12, Inc. D.R. Horton San Diego No. 13, Inc. D.R. Horton San Diego No. 14, Inc. D.R. Horton San Diego No. 15, Inc. D.R. Horton San Diego No. 16, Inc. D.R. Horton San Diego No. 17, Inc. D.R. Horton San Diego No. 18, Inc. D.R. Horton San Diego No. 19, Inc. D.R. Horton San Diego No. 20, Inc. D.R. Horton San Diego No. 21, Inc. D.R. Horton, Inc. - Torrey S. G. Torrey Atlanta, Ltd. By: ----------------------------------------- Name: Title: -36- SGS COMMUNITIES AT GRANDE QUAY, LLC By Meadows IX, Inc., a member By: ------------------------- Name: Title: and By Meadows X, Inc., a member By: ------------------------- Name: Title: D.R. HORTON MANAGEMENT COMPANY, LTD. By Meadows I, Ltd., its general partner By: ------------------------- Name: Title: -37- D.R. HORTON - TEXAS, LTD. By Meadows I, Ltd., its general partner By: ------------------------- Name: Title: D.R. HORTON - ROYALTY, LTD. By Meadows I, Ltd., its general partner By: ------------------------- Name: Title: By: ------------------------- Name: Title: -38- AMERICAN STOCK TRANSFER & TRUST COMPANY, as Trustee By: ----------------------------- Name: Title: (SEAL) Exhibit A --------- THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS SECURITY IS NOT EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. A-1 No. CUSIP No.: _______ 8 3/8% Senior Notes due 2004 D.R. HORTON, INC. a Delaware corporation promises to pay to or registered assigns the principal sum of Dollars on June 15, 2004 Interest Payment Dates: June 15 and December 15, commencing December 15, 1997 Interest Record Dates: June 1 and December 1 Authenticated: Dated: D.R. HORTON, INC. [Seal] By: ------------------------ Title: By: ------------------------ Title: American Stock Transfer & Trust Company, as Trustee, certifies that this is one of the Securities referred to in the within mentioned Indenture. By: ---------------------------- Authorized Signatory A-2 D.R. HORTON, INC. 8 3/8% Senior Notes due 2004 1. Interest. -------- D.R. HORTON, INC. (the "Company"), a Delaware corporation, promises to pay interest on the principal amount of this Security at the rate per annum shown above. The Company will pay interest semiannually on June 15 and December 15 of each year, commencing December 15, 1997, until the principal is paid or made available for payment. Interest on the Securities will accrue from the most recent date to which interest has been paid or duly provided for or, if no interest has been paid, from the date of original issuance, provided that, if there is no existing default in the payment of interest, and if this Security is authenticated between a record date referred to on the face hereof and the next succeeding interest payment date, interest shall accrue from such interest payment date. Interest will be computed on the basis of a 360-day year of twelve 30-day months. 2. Method of Payment. ----------------- The Company will pay interest on the Securities (except defaulted interest, if any, which will be paid on such special payment date to Holders of record on such special record date as may be fixed by the Company) to the persons who are registered Holders of Securities at the close of business on the June 1 and December 1 immediately preceding the interest payment date. Holders must surrender Securities to a Paying Agent to collect principal payments. The Company will pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. 3. Paying Agent and Registrar. -------------------------- Initially, American Stock Transfer & Trust Company (the "Trustee") will act as Paying Agent and Registrar. The Company may change or appoint any Paying Agent, Registrar or co-Registrar without notice. The Company or any of its Subsidiaries may act as Paying Agent, Registrar or co-Registrar. A-3 4. Indenture. --------- The Company issued the Securities under an Indenture dated as of June 9, 1997 ("Indenture") among the Company, the Guarantors and the Trustee, as supplemented by a First Supplemental Indenture dated as of June 9, 1997 (as so supplemented, the "Indenture"). The terms of the Securities and the Guarantees include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 ("TIA") as in effect on the date of the Indenture. The Securities and the Guarantees are subject to all such terms, and Securityholders are referred to the Indenture and the Act for a statement of them. Capitalized terms not defined herein have the meanings given to those terms in the Indenture. The Company will furnish to any Securityholder upon written request and without charge a copy of the Indenture and the applicable Authorizing Resolution or supplemental indenture. Requests may be made to: D.R. Horton, Inc., 1901 Ascension Blvd., Suite 100, Arlington, Texas 76006, Attention: Chief Financial Officer. 5. Redemption. ---------- Except as set forth in the following sentence, the Securities will not be redeemable. The Company may redeem Securities, at any time prior to June 15, 2000, with the net cash proceeds of one or more Public Equity Offerings by the Company, at a redemption price equal to 108.375% of the principal amount of such Securities, plus accrued and unpaid interest, if any, to the date of redemption; provided, however, that after each such redemption not less than -------- ------- $97,500,000 principal amount of Securities (including any Additional Securities but excluding any Securities held by the Company or any of its Affiliates) remains outstanding. Notice of any such redemption must be given within 60 days after the date of the closing of the relevant Public Equity Offering. Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder of Securities to be redeemed at his registered address. Securities in denominations larger than $1,000 may be redeemed in part. On and after the redemption date interest ceases to accrue on Securities or portions of them called for redemption, provided that if the Company shall default in the payment of such Security at the redemption price together with accrued in- A-4 terest, interest shall continue to accrue at the rate borne by the Securities. 6. Denominations, Transfer, Exchange. --------------------------------- The Securities are in registered form only without coupons in denominations of $1,000 and integral multiples of $1,000. A Holder may transfer or exchange Securities by presentation of such Securities to the Registrar or a co-Registrar with a request to register the transfer or to exchange them for an equal principal amount of Securities of other denominations. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not transfer or exchange any Security selected for redemption, except the unredeemed part thereof if the Security is redeemed in part, or transfer or exchange any Securities for a period of 15 days before a selection of Securities to be redeemed. 7. Persons Deemed Owners. --------------------- The registered Holder of this Security shall be treated as the owner of it for all purposes. 8. Unclaimed Money. --------------- If money for the payment of principal or interest remains unclaimed for two years, the Trustee or Paying Agent will pay the money back to the Company at its request. After that, Holders entitled to the money must look to the Company for payment unless an abandoned property law designates another person. 9. Amendment, Supplement, Waiver. ----------------------------- Subject to certain exceptions, the Indenture or the Securities may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the outstanding Securities and any past default or compliance with any provision relating to the Securities may be waived in a particular instance with the consent of the Holders of a majority in principal amount of the outstanding Securities. Without the consent of any Securityholder, the Company and the Trustee may amend or supplement the Indenture or the Securities to cure any ambiguity, defect or inconsistency, to provide for uncerti- A-5 ficated Securities in addition to or in place of certificated Securities, to create a Series and establish its terms, to remove a Guarantor which, in accordance with the terms of the Indenture, ceases to be liable in respect of its Guarantee, or to make any other change, provided such action does not adversely affect the rights of any Securityholder. 10. Successor Corporation. --------------------- When a successor corporation assumes all the obligations of its predecessor under the Securities and the Indenture, the predecessor corporation will be released from those obligations. 11. Trustee Dealings With Company. ----------------------------- American Stock Transfer & Trust Company, the Trustee under the Indenture, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its affiliates, and may otherwise deal with the Company or its affiliates, as if it were not Trustee. 12. No Recourse Against Others. -------------------------- A director, officer, employee or stockholder, as such, of the Company shall not have any liability for any obligations of the Company under the Securities or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Securityholder by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Securities. 13. Discharge of Indenture. ---------------------- The Indenture contains certain provisions pertaining to defeasance, which provisions shall for all purposes have the same effect as if set forth herein. 14. Authentication. -------------- This Security shall not be valid until the Trustee signs the certificate of authentication on the other side of this Security. A-6 15. Abbreviations. ------------- Customary abbreviations may be used in the name of a Securityholder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= custodian), and U/G/M/A (= Uniform Gifts to Minors Act). A-7 ASSIGNMENT FORM If you the Holder want to assign this Security, fill in the form below: I or we assign and transfer this Security to - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Insert assignee's social security or tax ID number) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Print or type assignee's name, address, and zip code) ---------- and irrevocably appoint - -------------------------------------------------------------------------------- agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. - -------------------------------------------------------------------------------- Date: Your signature: ---------------- -------------------- (Sign exactly as your name appears on the other side of this Security) Signature Guarantee: ------------------------------------------------------------ [FORM OF NOTATION ON SECURITY RELATING TO GUARANTEE] GUARANTEE The undersigned (the "Guarantors") have unconditionally guaranteed, jointly and severally (such guarantee by each Guarantor being referred to herein as the "Guarantee") (i) the due and punctual payment of the principal of and interest on the Securities, whether at maturity, by acceleration or otherwise, the due and punctual payment of interest on the overdue principal and interest, if any, on the Securities, to the extent lawful, and the due and punctual performance of all other obligations of the Company to the Holders or the Trustee all in accordance with the terms set forth in Article Nine of the Indenture and (ii) in case of any extension of time of payment or renewal of any Securities or any of such other obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. No past, present or future stockholder, officer, director, employee or incorporator, as such, of any of the Guarantors shall have any liability under the Guarantee by reason of such person's status as stockholder, officer, director, employee or incorporator. Each holder of a Security by accepting a Security waives and releases all such liability. This waiver and release are part of the consideration for the issuance of the Guarantees. Each holder of a Security by accepting a Security agrees that any Guarantor named below shall have no further liability with respect to its Guarantee if such Guarantor otherwise ceases to be liable in respect of its Guarantee in accordance with the terms of the Indenture. The Guarantee shall not be valid or obligatory for any purpose until the certificate of authentication on the Securities upon which the Guarantee is noted shall have been executed by the Trustee under the Indenture by the manual signature of one of its authorized officers. [Guarantors] By: --------------------- Title: EX-10.1 4 AMENDED AND RESTATED MASTER LOAN AGREEMENT EXHIBIT 10.1 AMENDED AND RESTATED MASTER LOAN AND INTER-CREDITOR AGREEMENT among D. R. HORTON, INC., as Borrower, NATIONSBANK, N.A. (SOUTH), BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, FIRST AMERICAN BANK TEXAS, SSB, SOUTHTRUST BANK OF ALABAMA, NATIONAL ASSOCIATION, COMERICA BANK, THE FIRST NATIONAL BANK OF CHICAGO, BANK ONE, ARIZONA, NA, SANWA BANK CALIFORNIA, AMSOUTH BANK OF ALABAMA, FLEET NATIONAL BANK, PNC BANK NATIONAL ASSOCIATION SOCIETE GENERALE, SOUTHWEST AGENCY as Banks, BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Documentation Agent and NATIONSBANK, N.A. (SOUTH), as Administrative Agent
TABLE OF CONTENTS Page ARTICLE 1 DEFINITIONS.......................................................................... 1 ARTICLE 2 LOANS AND LETTERS OF CREDIT.......................................................... 17 2.1 Extension of Credit.................................................................. 17 2.2 Manner of Borrowing and Disbursement Under Loans..................................... 17 2.3 Interest on Loans.................................................................... 19 2.4 Issuance and Administration of Letters of Credit..................................... 20 2.5 Fees and Commissions on Loans and Letters of Credit.................................. 24 2.6 Notes, Loan and Letters of Credit Accounts........................................... 25 2.7 Repayment of Loans and Letters of Credit............................................. 26 2.8 Manner of Payment.................................................................... 27 2.9 Application of Payments.............................................................. 27 ARTICLE 3 INVENTORY AND FUNDING AVAILABILITY .................................................. 29 3.1 Loan Funding Availability............................................................ 29 ARTICLE 4 LOAN DISBURSEMENTS................................................................... 31 4.1 Prior to the First Disbursement or Letter of Credit.................................. 31 4.2 Subsequent Disbursements............................................................. 31 ARTICLE 5 BORROWER'S COVENANTS, AGREEMENTS, REPRESENTATIONS AND WARRANTIES..................... 32 5.1 Payment.............................................................................. 32 5.2 Performance.......................................................................... 32 5.3 Additional Information............................................................... 32 5.4 Quarterly Financial Statements and Other Information................................. 32 5.5 Compliance Certificates.............................................................. 32 5.6 Annual Financial Statements and Information; Certificate of No Default............... 33 5.7 Financial and Inventory Covenants.................................................... 33 5.8 Other Financial Documentation........................................................ 34 5.9 Reserved............................................................................. 34 5.10 Payment of Contractors............................................................... 34 5.11 Inspection and Appraisal............................................................. 35 5.12 Fees and Expenses.................................................................... 35 5.13 Hazardous Substances................................................................. 35 5.14 Insurance............................................................................ 36 5.15 Litigation........................................................................... 36 5.16 Reportable Event..................................................................... 36 5.17 Secured Indebtedness................................................................. 36 5.18 Interest Rate Hedging................................................................ 37
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Page ARTICLE 6 DEFAULT AND REMEDIES................................................................. 37 6.1 Defaults............................................................................. 37 6.2 Remedies............................................................................. 40 6.3 Waivers.............................................................................. 41 6.4 Cross-Default........................................................................ 41 6.5 No Liability of the Banks............................................................ 41 ARTICLE 7 THE ADMINISTRATIVE AGENT............................................................. 42 7.1 Appointment and Authorization........................................................ 42 7.2 Delegation of Duties................................................................. 42 7.3 Interest Holders..................................................................... 42 7.4 Consultation with Counsel............................................................ 43 7.5 Documents............................................................................ 43 7.6 Administrative Agent and Affiliates.................................................. 43 7.7 Responsibility of the Administrative Agent........................................... 43 7.8 Action by Administrative Agent....................................................... 43 7.9 Notice of Default or Event of Default................................................ 44 7.10 Responsibility Disclaimed............................................................ 44 7.11 Indemnification...................................................................... 45 7.12 Credit Decision...................................................................... 45 7.13 Successor Administrative Agent....................................................... 45 7.14 Documentation Agent.................................................................. 46 ARTICLE 8 GENERAL CONDITIONS................................................................... 46 8.1 Benefit.............................................................................. 46 8.2 Assignment........................................................................... 46 8.3 Amendment and Waiver................................................................. 47 8.4 Additional Obligations and Amendments................................................ 48 8.5 Consideration of Renewal............................................................. 48 8.6 Terms................................................................................ 48 8.7 Governing Law and Jurisdiction....................................................... 49 8.8 Publicity............................................................................ 49 8.9 Attorneys' Fees...................................................................... 49 8.10 Mandatory Arbitration................................................................ 50 8.11 Invalidation of Provisions........................................................... 51 8.12 Execution in Counterparts............................................................ 51 8.13 Captions............................................................................. 51 8.14 Notices.............................................................................. 51 8.15 Final Agreement...................................................................... 54
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EXHIBITS -------- Exhibit A - Commitment Ratios Exhibit B - Form of Inventory Quarterly Report Exhibit C - Form of Inventory Summary Report Exhibit D - Form of Request for Advance Exhibit E - Form of Request for Issuance of Letter of Credit Exhibit F - Form of Letter of Credit Application Exhibit G - Form of Quarterly Compliance Certificate Exhibit H - Form of Assignment and Assumption Agreement
SCHEDULE -------- Schedule 1.59 - Prior Letters of Credit Schedule 1.88 - Subsidiaries of the Borrower
iii AMENDED AND RESTATED MASTER LOAN AND INTER-CREDITOR AGREEMENT ---------------------------------------- THIS AMENDED AND RESTATED MASTER LOAN AND INTER-CREDITOR AGREEMENT (this "Agreement") dated as of the 1st day of April, 1997, is by and among D.R. HORTON, INC., a Delaware corporation (the "Borrower"); NATIONSBANK, N.A. (SOUTH); BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, FIRST AMERICAN BANK TEXAS, SSB, SOUTHTRUST BANK OF ALABAMA, NATIONAL ASSOCIATION, COMERICA BANK, THE FIRST NATIONAL BANK OF CHICAGO, BANK ONE, ARIZONA, NA, SANWA BANK CALIFORNIA, AMSOUTH BANK OF ALABAMA, FLEET NATIONAL BANK, PNC BANK, NATIONAL ASSOCIATION, SOCIETE GENERALE, SOUTHWEST AGENCY (collectively, the "Banks"); NATIONSBANK, N.A. (SOUTH), as issuing bank for letters of credit (in such capacity, the "Issuing Bank"), BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as documentation agent for the Banks (in such capacity, the "Documentation Agent"), and NATIONSBANK, N.A. (SOUTH), as administrative agent for the Banks and the Issuing Bank (in such capacity, the "Administrative Agent"). IN CONSIDERATION of the sum of TEN AND NO/100 DOLLARS ($10.00) in hand paid by each party to the other and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by each of the undersigned, the undersigned hereby amend and restate that certain Master Loan and Inter-Creditor Agreement dated as of February 14, 1997 among the Borrower, the Banks, the Issuing Bank, the Documentation Agent and the Administrative Agent and covenant and agree as follows: ARTICLE 1 DEFINITIONS ----------- For the purposes of this Agreement, the words and phrases set forth below shall have the following meanings: 1.1 Acquisition Cost. If the subject Developed Lot or Land Parcel ---------------- was purchased individually, the Acquisition Cost for such Developed Lot or Land Parcel shall be the actual purchase price and closing costs approved by the Administrative Agent and paid by the Borrower or its Restricted Subsidiaries for the acquisition of such individual Developed Lot or Land Parcel excluding Administrative Costs, together with all applicable Development Costs. If the subject Developed Lot or Land Parcel was part of a larger group of Developed Lots or Land Parcels, the Acquisition Cost for such Developed Lot or Land Parcel shall be the pro rata portion of the overall actual purchase price and closing costs approved by the Administrative Agent and paid by the Borrower and its Restricted Subsidiaries for the acquisition of such larger group of Developed Lots or Land Parcels allocable to the subject Developed Lot or Land Parcel excluding Administrative Costs, together with a pro rata portion of all applicable Development Costs. 1.2 Administrative Agent. NationsBank, N.A. (South), in its -------------------- capacity as Administrative Agent hereunder. 1.3 Administrative Costs. Costs and expenses incurred by the -------------------- Borrower or its Restricted Subsidiaries in connection with (a) the marketing and selling of Inventory which is part of the Loan Inventory and (b) the administration, management and operation of the Borrower's and its Restricted Subsidiaries' businesses (excluding, without limitation, Interest Expense and fees payable hereunder). 1.4 Advance or Advances. Amounts advanced by the Banks to the ------- -------- Borrower pursuant to Article 2 hereof on the occasion of any borrowing or in connection with draws under Letters of Credit. 1.5 Affiliate. Any Person (other than a Person whose sole --------- relationship with the Borrower is as an employee) directly or indirectly controlling, controlled by, or under common control with the Borrower. For purposes of this definition, "control" when used with respect to any Person means the direct or indirect beneficial ownership of more than twenty percent (20%) of the voting securities or voting equity or partnership interests, of such Person or the power to direct or cause the direction of the management and policies of such Person, whether by control or otherwise. 1.6 Agreement. This Amended and Restated Master Loan and --------- Inter-Creditor Agreement. 1.7 Agreement Date. The date as of which the Borrower, the -------------- Administrative Agent, the Issuing Bank and the Banks execute this Agreement. 1.8 Applicable Law. In respect of any Person, all provisions of -------------- constitutions, statutes, rules, regulations, and orders of governmental bodies or regulatory agencies applicable to such Person, including, without limitation, all orders and decrees of all courts and arbitrators in proceedings or actions to which the Person in question is a party or by which it is bound. 1.9 Authorized Signatory. With respect to the Borrower, such -------------------- personnel of the Borrower as set forth in an incumbency certificate of the Borrower delivered to the Administrative Agent on the Agreement Date (or any duly executed incumbency certificate delivered after the Agreement Date) and certified therein as being duly authorized by the Borrower to execute documents, agreements, and instruments on behalf of the Borrower. 1.10 Available Letter of Credit Commitment. As of any date of ------------------------------------- determination, the Letter of Credit Commitment less all then outstanding Letter ---- of Credit Obligations. 1.11 Available Revolving Loan Commitment. As of any date of ----------------------------------- determination, an amount equal to the lesser of (a) the Revolving Loan Commitment or (b) (i) the Loan Funding Availability less (ii) the sum of (A) the principal amount of the Term Loan then outstanding, -2- (B) the principal amount of the Revolving Loans then outstanding, (C) unreimbursed draws under any Letter of Credit, and (D) the outstanding principal balances of all Unsecured Indebtedness. 1.12 Banks. NationsBank, N.A. (South); Bank of America National ----- Trust and Savings Association; First American Bank Texas, SSB; SouthTrust Bank of Alabama, National Association; Comerica Bank; The First National Bank of Chicago; Bank One, Arizona, NA; Sanwa Bank California; AmSouth Bank of Alabama; Fleet National Bank; PNC Bank, National Association; and Societe Generale, Southwest Agency. An individual Bank is sometimes referred to as a "Bank." 1.13 Borrower. D.R. Horton, Inc., a Delaware corporation. -------- 1.14 Business Day. A day on which none of the Banks are authorized ------------ or required to be closed and foreign exchange markets are open for the transaction of business required for this Agreement in Atlanta, Georgia. 1.15 Change of Control. Either (i) any sale, lease or other transfer ----------------- (in one transaction or a series of transactions) of all or substantially all of the consolidated assets of the Borrower and its Restricted Subsidiaries to any Person (other than a Restricted Subsidiary of the Borrower), provided that a transaction where the holders of all classes of Common Equity of the Borrower immediately prior to such transaction own, directly or indirectly, 50% or more of all classes of Common Equity of such Person immediately after such transaction shall not be a Change of Control; (ii) a "person" or "group" within the meaning of Section 13(d) of the Exchange Act (other than the Borrower or Donald R. Horton, his wife, children or grandchildren, or Terrill J. Horton, or any trust or other entity formed or controlled by Donald R. Horton, his wife, children or grandchildren, or Terrill J. Horton)) becomes the "beneficial owner" (as defined in Rule 13d-8 under the Exchange Act) of Common Equity of the Borrower representing more than 50% of the voting power of the Common Equity of the Borrower; (iii) Continuing Directors cease to constitute at least a majority of the Board of Directors of the Borrower; or (iv) the stockholders of the Borrower approve any plan or proposal for the liquidation or dissolution of the Borrower, provided that a liquidation or dissolution of the Borrower which is part of a transaction that does not constitute a Change of Control under the proviso contained in clause (i) above shall not constitute a Change of Control. 1.16 Change of Management. Donald R. Horton shall cease to serve -------------------- either as Chairman of the Board of Directors of the Borrower or as President of the Borrower. 1.17 Closed Sales. For any calculation period, sales of Developed ------------ Lots containing Dwellings which have been closed by the Borrower and all Restricted Subsidiaries. Closed Sales shall include Developed Lots containing Dwellings owned by any Person which became a Restricted Subsidiary after the Agreement Date for which sales have closed during the applicable calculation period. 1.18 Code. The Internal Revenue Code of 1986, as amended. ---- -3- 1.19 Commitment. The aggregate amount of the Revolving Loan ---------- Commitment, the Letter of Credit Commitment and the Term Loan Commitment. 1.20 Commitment Ratios. The percentages in which the Banks are ----------------- severally bound to satisfy any of the Revolving Loan Commitment, the Term Loan Commitment, the Letter of Credit Commitment or the Commitment as set forth on Exhibit A attached hereto and incorporated herein. - --------- 1.21 Common Equity. With respect to any Person, capital stock of ------------- such Person that is generally entitled to (i) vote in the election of directors of such Person, or (ii) if such Person is not a corporation, vote or otherwise participate in the selection of the governing body, partners, managers or others that will control the management or policies of such Person. 1.22 Construction Costs. All costs accepted by the Administrative ------------------ Agent actually incurred by the Borrower or its Restricted Subsidiaries with respect to the construction of a Dwelling as of the date of determination by the Administrative Agent, excluding (a) projected costs and costs for materials or labor not yet delivered to, provided to or incorporated into such Dwelling and (b) Administrative Costs. 1.23 Continuing Director. A director who either was a member of the ------------------- board of directors of the Borrower on the Agreement Date or who became a director of the Borrower subsequent to such date and whose election, or nomination for election by the Borrower's stockholders, was duly approved by a majority of the Continuing Directors on the board of directors of the Borrower at the time of such approval, either by a specific vote or by approval of the proxy statement issued by the Borrower on behalf of the entire board of directors of the Borrower in which such individual is named as nominee for a director. 1.24 Default. Any of the events specified in Section 6.1 hereof, ------- provided that any requirement for notice or lapse of time, or both, has been satisfied. 1.25 Default Rate. A simple per annum interest rate equal to the sum ------------ of (a) the Term Loan Base Rate or the Revolving Loan Base Rate, as the case may be, plus (b) two hundred basis points (2%). ---- 1.26 Developed Lots. Subdivision lots owned by the Borrower or its -------------- Restricted Subsidiaries, subject to a recorded plat, which the Borrower has designated and the Administrative Agent has accepted to be included and are included as "Developed Lots" in the calculation of the Loan Funding Availability (exclusive of any Dwelling Lot). An individual Developed Lot is sometimes referred to herein as a "Developed Lot." 1.27 Development Costs. All costs accepted by the Administrative ----------------- Agent actually incurred by the Borrower and its Restricted Subsidiaries with respect to the development of a Land Parcel into a Developed Lot or Developed Lots as of the date of determination by the -4- Administrative Agent, excluding (a) projected costs and costs for materials or labor not yet delivered to, provided to or incorporated into such parcel of land and (b) Administrative Costs. 1.28 Dwelling. A house which the Borrower or any Restricted -------- Subsidiary has constructed or is constructing on a Developed Lot which has been designated as a Dwelling Lot. 1.29 Dwelling Lots. Developed Lots with Dwellings which the Borrower ------------- or any Restricted Subsidiary has designated and the Administrative Agent has accepted to be included and are included as "Dwelling Lots" in the calculation of the Loan Funding Availability. The term "Dwelling Lot" includes the Dwelling located thereon. An individual Dwelling Lot is sometimes referred to herein as a "Dwelling Lot." 1.30 EBITDA. With respect to the Borrower and all Restricted ------ Subsidiaries, earnings for the preceding twelve (12) calendar months (including without limitation dividends from Unrestricted Subsidiaries including, without limitation, net income (or loss) of any Person that accrued prior to the date that such Person becomes a Restricted Subsidiary or is merged with or into or consolidated with the Borrower or any of its Restricted Subsidiaries) before interest incurred, state and federal income taxes paid, franchise taxes paid and depreciation and amortization, all in accordance with GAAP. 1.31 ERISA. The Employee Retirement Income Security Act of 1974, as ----- in effect on the Agreement Date and as such Act may be amended thereafter from time to time. 1.32 ERISA Affiliate. (a) Any corporation which is a member of the --------------- same controlled group of corporations (within the meaning of Code Section 414(b)) as is the Borrower, (b) any other trade or business (whether or not incorporated) under common control (within the meaning of Code Section 414(c)) with the Borrower, (c) any other corporation, partnership or other organization which is a member of an affiliated service group (within the meaning of Code Section 414(m)) with the Borrower, or (d) any other entity required to be aggregated with the Borrower pursuant to regulations under Code Section 414(o). 1.33 Event of Default. Any event specified in Section 6.1 hereof and ---------------- any other event which with any passage of time or giving of notice (or both) would constitute such event a Default. 1.34 Exchange Act. The Securities Exchange Act of 1934, as amended. ------------ 1.35 Federal Funds Effective Rate. As of any date, the "Federal ---------------------------- Funds Effective Rate" for each relevant month as published in the Federal Reserve Statistical Release H.15 (519), as published by the Board of Governors of the Federal Reserve System, or any successor publication published by the Board of Governors of the Federal Reserve System. 1.36 Financial Covenant Carve Out. Any acquisition of Inventory, ---------------------------- which the Borrower has elected to exclude from the calculation of the covenants set forth in Sections 5.7(a), -5- (b), (h)(ii) and (i) hereof; provided, however, that no acquisition may qualify -------- ------- as a "Financial Covenant Carve Out" if (a) the Borrower has elected to have an acquisition designated as a "Financial Covenant Carve Out" in the preceding twelve (12) calendar month period; (b) such acquisition has already been designated as a "Financial Covenant Carve Out" on the last day of each of the two (2) fiscal quarter ends immediately following the date of such acquisition; (c) contemporaneously with delivery by the Borrower of the notice of designation of an acquisition as a "Financial Covenant Carve Out", the Borrower fails to deliver to the Administrative Agent and the Documentation Agent a plan of action reflecting that the Borrower will be in compliance (after giving effect to such acquisition) with the covenants in Sections 5.7(a), (b), (h)(ii) and (i) hereof on or prior to the last day of the third fiscal quarter following the date of such acquisition; and (d) the acquisition in question would, if it were included in the compliance calculations, cause (1) the ratio of Notes Payable to Tangible Net Worth to exceed (A) as of the last day of each fiscal quarter of the Borrower in 1997, 2.1 to 1, (B) as of the last day of each fiscal quarter of the Borrower in 1998, 2.2 to 1, or (C) as of the last day of each fiscal quarter of the Borrower in 1999, 2.2 to 1, or (2) the ratio of Total Liabilities to Tangible Net Worth to exceed (A) as of the last day of each fiscal quarter of the Borrower in 1997, 2.5 to 1, or (B) as of the last day of each fiscal quarter of the Borrower in 1998, 2.6 to 1, or (C) as of the last day of each fiscal quarter of the Borrower in 1999, 2.6 to 1. 1.37 Fixed Charges. The aggregate consolidated interest incurred of ------------- the Borrower and its Restricted Subsidiaries for the most recently completed four (4) fiscal quarters for which results have been reported to the Banks. 1.38 Fixed Charges Coverage Ratio. The ratio of the Borrower's ---------------------------- EBITDA to Fixed Charges. 1.39 Force Majeure Delay. A delay to the development of a Lot Under ------------------- Development or a delay to the construction of a Dwelling which is caused by fire, earthquake or other Acts of God, strike, lockout, acts of public enemy, riot, insurrection, or governmental regulation of the sale or transportation of materials, supplies or labor, provided that the Borrower furnishes the Administrative Agent with written notice of any such delay within ten (10) days from the commencement of any such delay and provided that the period of the Force Majeure Delay shall not exceed the period of delay caused by such event. 1.40 Funding Period. A period commencing on the day immediately -------------- following the date that the Loan Funding Availability is established pursuant to Section 3.1(c) hereof by the Administrative Agent and ending on the date that the Loan Funding Availability next is established pursuant to Section 3.1(c) hereof by the Administrative Agent. 1.41 GAAP. As in effect as of the Agreement Date, generally ---- accepted accounting principles consistently applied. -6- 1.42 Governmental Authority. Any nation or government, any state or ---------------------- other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. 1.43 Guaranty or Guaranteed. As applied to an obligation (each a -------- ---------- "primary obligation"), shall mean and include (a) any guaranty, direct or indirect, in any manner, of any part or all of such primary obligation, and (b) any agreement, direct or indirect, contingent or otherwise, the practical effect of which is to assure in any way the payment or performance (or payment of damages in the event of non-performance) of any part or all of such primary obligation, including, without limiting the foregoing, any reimbursement obligations as to amounts drawn down by beneficiaries of outstanding letters of credit, and any obligation of such Person (the "primary obligor"), whether or not contingent, (i) to purchase any such primary obligation or any property or asset constituting direct or indirect security therefor, (ii) to advance or supply funds (1) for the purchase or payment of such primary obligation or (2) to maintain working capital, equity capital or the net worth, cash flow, solvency or other balance sheet or income statement condition of any other Person, (iii) to purchase property, assets, securities or services primarily for the purpose of assuring the owner or holder of any primary obligation of the ability of the primary obligor with respect to such primary obligation to make payment thereof or (iv) otherwise to assure or hold harmless the owner or holder of such primary obligation against loss in respect thereof. 1.44 Guarantors. ---------- DRH Construction, Inc., a Delaware corporation DRH New Mexico Construction, Inc., a Delaware corporation D.R. Horton Denver Management Company, Inc., a Colorado corporation D.R. Horton Denver No. 10, Inc., a Colorado corporation D.R. Horton Denver No. 11, Inc., a Colorado corporation D.R. Horton Denver No. 12, Inc., a Colorado corporation D.R. Horton Denver No. 13, Inc., a Colorado corporation D.R. Horton Denver No. 14, Inc., a Colorado corporation D.R. Horton Denver No. 15, Inc., a Colorado corporation D.R. Horton Denver No. 16, Inc., a Colorado corporation D.R. Horton Denver No. 17, Inc., a Colorado corporation D.R. Horton Denver No. 18, Inc., a Colorado corporation D.R. Horton, Inc. - Albuquerque, a Delaware corporation D.R. Horton, Inc. - Denver, a Delaware corporation D.R. Horton, Inc. - Minnesota, a Delaware corporation D.R. Horton, Inc. - New Jersey, a New Jersey corporation Meadows IX, Inc., a New Jersey corporation Meadows X, Inc., a New Jersey corporation SGS Communities at Grande Quay, L.L.C., a New Jersey limited liability company D.R. Horton Los Angeles Holding Company, Inc., a California corporation -7- D.R. Horton Los Angeles Management Company, Inc., a California corporation D.R. Horton Los Angeles No. 9, Inc., a California corporation D.R. Horton Los Angeles No. 10, Inc., a California corporation D.R. Horton Los Angeles No. 11, Inc., a California corporation D.R. Horton Los Angeles No. 12, Inc., a California corporation D.R. Horton Los Angeles No. 13, Inc., a California corporation D.R. Horton Los Angeles No. 14, Inc., a California corporation D.R. Horton Los Angeles No. 16, Inc., a California corporation D.R. Horton, Inc. - Birmingham, a Delaware corporation D.R. Horton, Inc. - Greensboro, a Delaware corporation D.R. Horton San Diego Holding Company, Inc., a California corporation D.R. Horton San Diego Management Company, Inc., a California corporation D.R. Horton San Diego No. 9, Inc., a California corporation D.R. Horton San Diego No. 10, Inc., a California corporation D.R. Horton San Diego No. 11, Inc., a California corporation D.R. Horton San Diego No. 12, Inc., a California corporation D.R. Horton San Diego No. 13, Inc., a California corporation D.R. Horton San Diego No. 14, Inc., a California corporation D.R. Horton San Diego No. 15, Inc., a California corporation D.R. Horton San Diego No. 16, Inc., a California corporation D.R. Horton San Diego No. 17, Inc., a California corporation D.R. Horton San Diego No. 18, Inc., a California corporation D.R. Horton San Diego No. 19, Inc., a California corporation D.R. Horton San Diego No. 20, Inc., a California corporation D.R. Horton San Diego No. 21, Inc., a California corporation D.R. Horton - Texas, Ltd., a Texas limited partnership D.R. Horton, Inc. - Torrey, a Delaware corporation Together with each additional Restricted Subsidiary of Borrower as may from time to time deliver a Guaranty of the Loans and Letters of Credit which Guaranty is accepted by Administrative Agent. 1.45 Indebtedness. With respect to any specified Person, (a) all items, ------------ except items of (i) shareholders' and partners' equity, (ii) capital stock, (iii) surplus, (iv) general contingency or deferred tax reserves, (v) liabilities for deposits and (vi) deferred income, which in accordance with GAAP would be included in determining total liabilities as shown on the liability side of a balance sheet of such Person, (b) all direct or indirect obligations secured by any Lien to which any property or asset owned by such Person is subject, whether or not the obligation secured thereby shall have been assumed, and (c) all reimbursement obligations with respect to outstanding letters of credit. 1.46 Indebtedness for Money Borrowed. With respect to any specified ------------------------------- Person, all money borrowed by such Person and Indebtedness represented by notes payable by such Person and drafts accepted representing extensions of credit to such Person, all obligations of such Person evidenced by bonds, debentures, notes, or other similar instruments, all Indebtedness of such Person upon which interest charges are customarily paid, and all Indebtedness of such Person issued or assumed as full or partial payment for property or services, whether or not any -8- notes, drafts, obligations, or Indebtedness represent Indebtedness for money borrowed. For purposes of this definition, interest which is accrued but not paid on the original due date or within any applicable cure or grace period as provided by the underlying contract for such interest shall be deemed Indebtedness for Money Borrowed. 1.47 Interest Expense. In respect of any period, an amount equal to the ---------------- sum of the interest incurred during such period based on a stated interest rate with respect to Indebtedness for Money Borrowed of the Borrower and its Restricted Subsidiaries on a consolidated basis. 1.48 Inventory. All real and personal property, improvements and fixtures --------- owned by the Borrower or the Restricted Subsidiaries, including but not limited to all Land Parcels, Lots Under Development, Development Lots and Dwelling Lots. 1.49 Inventory Quarterly Report. The detailed quarterly written report -------------------------- with respect to the Loan Inventory, in substantially the form of Exhibit B --------- attached hereto, to be prepared by the Borrower and submitted to the Administrative Agent in accordance with Section 3.1(c) hereof. 1.50 Inventory Summary Report. The monthly written summary of the Loan ------------------------ Inventory, in substantially the form of Exhibit C attached hereto, to be --------- prepared by the Borrower and submitted to the Administrative Agent in accordance with Section 3.1(c) hereof. 1.51 Issuing Bank. NationsBank, N.A. (South) (or any successor Issuing ------------ Bank appointed in accordance with the provisions of this Agreement), as issuer of the Letters of Credit. 1.52 Land Parcels. Parcels of land owned by the Borrower or any of its ------------ Restricted Subsidiaries which are, as of the date of determination, not scheduled for commencement of development into Developed Lots during the twelve (12) calendar months immediately following such date of determination and which the Borrower has designated as "Land Parcels". An individual Land Parcel is sometimes referred to as a "Land Parcel." 1.53 Letter of Credit Banks. NationsBank, N.A. (South) and Bank of America ---------------------- National Trust and Savings Association. 1.54 Letter of Credit Commitment. The Obligation of the Issuing Bank to --------------------------- issue Letters of Credit hereunder pursuant to the terms hereof in an aggregate face amount not to exceed $25,000,000 at any time outstanding. 1.55 Letter of Credit Bank Commitment Ratio. The percentages in which the -------------------------------------- Letter of Credit Banks are severally bound to reimburse the Issuing Bank for draws under Letters of Credit pursuant to the terms hereof, as set forth on Exhibit A attached hereto and incorporated herein. - --------- 1.56 Letter of Credit Maturity Date. April 16, 2000, or such earlier date ------------------------------ as payment of the Letter of Credit Obligations shall be due (whether by acceleration or otherwise). -9- 1.57 Letter of Credit Obligations. At any time, the sum of (a) an amount ---------------------------- equal to the aggregate undrawn and unexpired amount (including the amount to which any such Letter of Credit can be reinstated pursuant to the terms hereof) of the then outstanding Letters of Credit and (b) an amount equal to the aggregate drawn, but unreimbursed, drawings on any Letters of Credit. 1.58 Letter of Credit Reserve Account. An interest bearing account -------------------------------- maintained by the Administrative Agent for the benefit of the Issuing Bank, the proceeds of which are maintained as cash collateral for the Letter of Credit Obligations. The amount of funds in the Letter of Credit Reserve Account shall not exceed the then outstanding Letter of Credit Obligations, and any excess shall be applied as set forth in Section 2.9 hereof. All funds in the Letter of Credit Reserve Account shall be invested in such investments as the Administrative Agent, in its sole and absolute discretion, deems appropriate. The Borrower hereby acknowledges and agrees that any interest earned on such funds shall be retained by the Administrative Agent as additional collateral for the Letter of Credit Obligations. Upon satisfaction in full of all Letter of Credit Obligations, the Administrative Agent shall pay any amounts then held in such account to the Borrower. 1.59 Letters of Credit. Letters of credit issued for the account of the ----------------- Borrower to support obligations of the Borrower or any of its Affiliates, including but not limited to earnest money payments under option contracts, project completion performance or project maintenance (but not credit enhancement), including, without limitation, those Letters of Credit issued by the Issuing Bank prior to the Agreement Date and more fully described on Schedule 1.59 attached hereto. An individual Letter of Credit is sometimes - ------------- referred to as a "Letter of Credit." 1.60 Lien. With respect to any property, any mortgage, lien, pledge, ---- assignment, charge, security interest, title retention agreement, levy, execution, seizure, attachment, garnishment, or other encumbrance of any kind in the nature of any of the foregoing in respect of such property, whether or not choate, vested, or perfected. 1.61 Loan Documents. This Agreement, the Notes and any and all other -------------- documents evidencing the Notes or the Letters of Credit as the same may be amended, substituted, replaced, extended or renewed from time to time. 1.62 Loan Funding Availability. The amount of Unsecured Indebtedness and ------------------------- unreimbursed draws under Letters of Credit which the Borrower may incur as established pursuant to Section 3.1 hereof, at any applicable time, by the Administrative Agent based on the Loan Inventory. 1.63 Loan Inventory. Lots Under Development, Developed Lots and Dwelling -------------- Lots which are not encumbered by a Lien or Liens (other than any Permitted Encumbrance) and which have been designated by the Borrower and accepted by the Administrative Agent as "Loan Inventory" to be utilized for the purpose of calculating the Loan Funding Availability. 1.64 Loans. Collectively, amounts advanced by the Banks to the Borrower ----- under the Revolving Loan Commitment and the Term Loan Commitment and evidenced by the Notes. -10- 1.65 Lots Under Development. Land Parcels which are, as of the date of ---------------------- determination, being developed into Developed Lots or which are scheduled for the commencement of development into Developed Lots within twelve (12) calendar months after the date of determination, and which the Borrower has designated and the Administrative Agent has accepted to be included and are included as "Lots Under Development" in the calculation of the Loan Funding Availability. An individual Lot Under Development is sometimes referred to as a "Lot Under Development." 1.66 Majority Banks. At any time, Banks the total of whose Commitment -------------- Ratios with respect to the Commitment exceeds fifty percent (50%) of the aggregate Commitment Ratios with respect to the Commitment of Banks entitled to vote hereunder. 1.67 Models. A Dwelling Lot containing a dwelling unit which is designated ------ by the Borrower as a model unit for use in marketing and promoting the sale of Dwelling Lots. 1.68 Multi-Level Pricing Grid. An interest rate margin pricing grid as may ------------------------ be agreed to from time to time by the Borrower and the Banks which will be attached hereto as Schedule 1.68 and shall include any successor Schedule 1.68. ------------- 1.69 New York Federal Funds Rate. For any day, the rate per annum (rounded --------------------------- upward, if necessary, to the nearest 1/16th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day. 1.70 Notes. The Amended and Restated Term Loan Notes and the Amended and ----- Restated Revolving Loan Notes. 1.71 Notes Payable. With respect to the Borrower and all Restricted ------------- Subsidiaries, all Indebtedness for Money Borrowed other than promissory notes issued as earnest money for contracts, non-recourse promissory notes for seller financing and notes payable for insurance premiums and capitalized lease obligations. 1.72 Obligations. (a) All payment and performance obligations of the ----------- Borrower and all other obligors to the Banks, the Issuing Bank and the Administrative Agent under this Agreement and the other Loan Documents, as they may be amended from time to time, or as a result of making the Loans, and (b) the obligation to pay an amount equal to the amount of any and all damages which the Borrower is obligated to pay pursuant to the Loan Documents to, or on behalf of, the Banks, the Issuing Bank and the Administrative Agent, or any of them, which they may suffer by reason of a breach by any of the Borrower or any other obligor of any obligation, covenant, or undertaking with respect to this Agreement or any other Loan Document. -11- 1.73 Overnight Federal Funds Rate. The rate on overnight Federal funds ---------------------------- transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day by the Federal Reserve Bank of New York. 1.74 Permitted Encumbrances. Liens, encumbrances, easements and other ---------------------- matters which (a) are in favor of the Administrative Agent, the Documentation Agent, the Banks and the Issuing Bank to secure the Obligations, (b) are on real estate for real estate taxes not yet delinquent, (c) are for taxes, assessments, judgments, governmental charges or levies or claims the non-payment of which is being diligently contested in good faith by appropriate proceedings and for which adequate reserves have been set aside on the Borrower's books (but only so long as no foreclosure, distraint sale or similar proceedings have been commenced with respect thereto and remain unstayed for a period of thirty (30) days after their commencement), (d) are in favor of carriers, warehousemen, mechanics, laborers and materialmen incurred in the ordinary course of business for sums not yet past due or being diligently contested in good faith (if adequate reserves are being maintained by the Borrower with respect thereto), (e) are incurred in the ordinary course of business in connection with worker's compensation and unemployment insurance, or (f) are easements, rights-of-way, restrictions or similar encumbrances on the use of real property which does not interfere with the ordinary conduct of business of the Borrower or materially detract from the value of such real property. 1.75 Person. An individual, corporation, partnership, limited liability ------ company, trust, or unincorporated organization, or a government or any agency or political subdivision thereof. 1.76 Plan. An employee benefit plan within the meaning of Section 3(3) of ---- ERISA maintained by or contributed to by the Borrower or any ERISA Affiliate. 1.77 Reconciliation Date. Two (2) Business Days after the Borrower's ------------------- receipt of notice from the Administrative Agent pursuant to Section 3.1(d) hereof that the outstanding principal balance of the Unsecured Indebtedness plus unpaid draws under Letters of Credit exceeds the Loan Funding Availability. 1.78 Reportable Event. Shall have the meaning set forth in Section 4043(b) ---------------- of ERISA. 1.79 Request for Advance. Any certificate signed by an Authorized ------------------- Signatory of the Borrower requesting an Advance hereunder which will increase the aggregate amount of the Loans outstanding, which certificate shall be denominated a "Request for Advance," and shall be in substantially the form of Exhibit D attached hereto. Each Request for Advance shall, among other things, - --------- (a) specify the date of the Advance, which shall be a Business Day, (b) specify the amount of the Advance, (c) state that there shall not exist, on the date of the requested Advance and after giving effect thereto, a Default or an Event of Default, and (d) state that all conditions precedent to the making of the Advance have been satisfied. 1.80 Request for Issuance of Letter of Credit. Any certificate signed by ---------------------------------------- an Authorized Signatory of the Borrower requesting that the Issuing Bank issue a Letter of Credit -12- hereunder, which certificate shall be in substantially the form of Exhibit E --------- attached hereto, and shall, among other things, (a) specify the stated amount of the Letter of Credit, (b) specify the effective date for the issuance of the Letter of Credit (which shall be a Business Day), (c) specify the date on which the Letter of Credit is to expire (which shall be a Business Day), (d) specify the Person for whose benefit such Letter of Credit is to be issued, (e) specify other relevant terms of such Letter of Credit, (f) be accompanied by a completed letter of credit application substantially similar to Exhibit F attached hereto --------- or otherwise in form and substance satisfactory to the Issuing Bank, and (g) state that there shall not exist, on the date of issuance of the requested Letter of Credit and after giving effect thereto, a Default or an Event of Default. 1.81 Restricted Subsidiary. Any Subsidiary of the Borrower which has been --------------------- designated as a Restricted Subsidiary by the Borrower and from which the Administrative Agent is required to receive a duly executed Subsidiary Guaranty, including, without limitation, the Guarantors. 1.82 Revolving Loans. Revolving lines of credit to be advanced by the --------------- Banks pursuant to the terms of this Agreement and evidenced by the Revolving Loan Notes. 1.83 Revolving Loan Base Rate. At any time, the lesser of (a) the New York ------------------------ Federal Funds Rate plus one hundred twenty-nine basis points (1.29%) or (b) the ---- Three-Month LIBOR plus one hundred twenty basis points (1.20%), provided, ---- -------- however, that (i) if a Multi-Level Pricing Grid is not established and in full - ------- force and effect on or prior to December 31, 1997, then commencing on January 1, 1998 and for all times thereafter, the Revolving Loan Base Rate shall be the lesser of (y) the New York Federal Funds Rate plus one hundred thirty-four basis ---- points (1.34%) or (z) the Three-Month LIBOR plus one hundred twenty-five basis ---- points (1.25%), or (ii) if a Multi-Level Pricing Grid is established and in full force and effect on or prior to December 31, 1997, then commencing on the date on which such Multi-Level Pricing Grid is established and agreed to, the Revolving Loan Base Rate shall be the rate applicable from time to time as set forth on such Multi-Level Pricing Grid. 1.84 Revolving Loan Commitment. The several obligations of the Banks to ------------------------- advance funds in the aggregate sum of up to $275,000,000 to the Borrower pursuant to the terms hereof as such obligations may be reduced from time to time pursuant to the terms hereof. 1.85 Revolving Loan Maturity Date. April 16, 2000, or such earlier date as ---------------------------- payment of the Revolving Loans shall be due (whether by acceleration or otherwise). 1.86 Revolving Loan Notes. The promissory notes by the Borrower one each -------------------- in favor of each of the Banks evidencing such Bank's pro rata share of the Revolving Loans, as well as any promissory note or notes issued by the Borrower in substitution, replacement, extension, amendment or renewal of any such promissory note or notes. An individual Revolving Loan Note held by a Bank is sometimes referred to as a "Revolving Loan Note." The combined face amount of the Revolving Loan Notes may not exceed TWO HUNDRED SEVENTY-FIVE MILLION AND NO/100 DOLLARS ($275,000,000.00). -13- 1.87 Speculative Lot. Any Dwelling Lots having a fully or partially --------------- constructed dwelling unit thereon which Dwelling Lot is not subject to a bona fide contract for the sale of such Dwelling Lot to a third party, excluding Developed Lots containing Dwellings used as Models. 1.88 Subsidiary. As applied to any Person, (a) any corporation of which ---------- fifty percent (50%) or more of the outstanding stock (other than directors' qualifying shares) having ordinary voting power to elect a majority of its board of directors, regardless of the existence at the time of a right of the holders of any class or classes of securities of such corporation to exercise such voting power by reason of the happening of any contingency, or any partnership of which fifty percent (50%) or more of the outstanding partnership interests, is at the time owned by such Person, or by one or more Subsidiaries of such Person, or by such Person and one or more Subsidiaries of such Person, and (b) any other entity which is controlled or susceptible to being controlled by such Person, or by one or more Subsidiaries of such Person, or by such Person and one or more Subsidiaries of such Person; provided, however, that for purposes of -------- ------- this Agreement and the other Loan Documents the term "Subsidiary" shall not ---------- include DRH Mortgage Company, Ltd., a Texas limited partnership, SGS Communities at West Windsor, L.L.C., a New Jersey limited liability company, and SGS Communities at Battleground, L.L.C., a New Jersey limited liability company. Unless the context otherwise requires, "Subsidiaries" as used herein shall mean ------------ the Subsidiaries of the Borrower. The Subsidiaries of the Borrower as of the Closing Date are set forth on Schedule 1.87 attached hereto. ------------- 1.89 Subsidiary Guaranty. A guaranty agreement in form and substance ------------------- satisfactory to the Administrative Agent whereunder a Restricted Subsidiary guarantees the full and faithful payment and performance of all of the Obligations of the Borrower hereunder and under the other Loan Documents. 1.90 Super-Majority Banks. At any time, Banks the total of whose -------------------- Commitment Ratios with respect to the Commitment exceeds sixty-six and two thirds percent (66-2/3%) of the aggregate Commitment Ratios with respect to the Commitment of Banks entitled to vote hereunder. 1.91 Tangible Assets. The difference between total assets of the Borrower --------------- and its Restricted Subsidiaries and all intangible assets of the Borrower and its Restricted Subsidiaries, all as determined in accordance with GAAP. 1.92 Tangible Net Worth. With respect to the Borrower and its Restricted ------------------ Subsidiaries, stockholder's equity on a consolidated basis less all "intangible assets" as defined under GAAP and amounts invested in Unrestricted Subsidiaries of such Person. 1.93 Term Loan. Amounts advanced by the Banks on the Agreement Date under --------- the Term Loan Commitment pursuant to the terms of this Agreement and evidenced by the Term Loan Notes. -14- 1.94 Term Loan Base Rate. The Three-Month LIBOR plus one hundred eighty- ------------------- ---- five basis points (1.85%), provided, however, that (a) if a Multi-Level Pricing -------- ------- Grid is not established and in full force and effect on or prior to December 31, 1997, then commencing on January 1, 1998 and for all times thereafter, the Term Loan Base Rate shall be the Three-Month LIBOR plus two hundred basis points ---- (2.00%), or (b) if a Multi-Level Pricing Grid is established and in full force and effect on or prior to December 31, 1997, then commencing on the date on which such Multi-Level Pricing Grid is established and agreed to, the Term Loan Base Rate shall be the rate applicable from time to time as set forth on such Multi-Level Pricing Grid. 1.95 Term Loan Commitment. The several obligations of the Banks to advance -------------------- on the Agreement Date funds in the aggregate sum of $100,000,000 to the Borrower pursuant to the terms hereof. 1.96 Term Loan Maturity Date. April 16, 2001, or such earlier date as ----------------------- payment of the Term Loan shall be due (whether by acceleration or otherwise). 1.97 Term Loan Notes. The promissory notes by the Borrower one each in --------------- favor of each of the Banks evidencing such Bank's pro rata share of the Term Loan, as well as any promissory note or notes issued by the Borrower in substitution, replacement, extension, amendment or renewal of any such promissory note or notes. An individual Term Loan Note held by a Bank is sometimes referred to as a "Term Loan Note." The combined face amount of the Term Loan Notes may not exceed ONE HUNDRED MILLION AND NO/100s DOLLARS ($100,000,000). 1.98 Third Party Notes Payable. With respect to the Borrower and its ------------------------- Restricted Subsidiaries, all Indebtedness for Money Borrowed other than (a) publicly issued Indebtedness for Money Borrowed which is pari passu with the ---- ----- Obligations, (b) non-recourse Indebtedness, (c) Indebtedness owed to the seller of any Inventory acquired by the Borrower or its Restricted Subsidiaries, (d) Indebtedness which is structurally subordinate to the Obligations or which is convertible into equity at the option of the Borrower, (e) Indebtedness for earnest money and (f) notes payable for insurance premiums and capitalized lease obligations. 1.99 Three-Month LIBOR. As of any date of determination, a rate of interest ----------------- per annum equal to the three (3) month London Interbank Offered Rate for deposits in United States dollars (rounded to two decimal places) in amounts comparable to the outstanding principal amount of the Loans then outstanding, which interest rate is set forth in the Wall Street Journal (Eastern Edition) on the next Business Day; provided, however, if more than one -------- ------- such offered rate appears in the Wall Street Journal (Eastern Edition), the applicable rate shall be the highest thereof. 1.100 Total Capital. The sum of the Tangible Net Worth of the Borrower ------------- and its Restricted Subsidiaries plus Notes Payable of the Borrower and its Restricted Subsidiaries. -15- 1.101 Total Liabilities. All items required by GAAP to be set forth as ----------------- "liabilities" on the Borrower's and its Restricted Subsidiaries' consolidated balance sheet. 1.102 Unrestricted Subsidiaries. Subsidiaries of the Borrower which are ------------------------- not Restricted Subsidiaries. 1.103 Unsecured Indebtedness. Indebtedness for Money Borrowed of the ---------------------- Borrower and its Restricted Subsidiaries which is not secured in whole or in part by any Lien except Permitted Encumbrances (excluding capitalized lease obligations, notes payable for insurance premiums, non-recourse promissory notes for seller financing and promissory notes issued as earnest money for contracts). 1.104 Working Capital. The total of the Borrower's and its Restricted --------------- Subsidiaries' assets minus the sum of the Borrower's and Restricted Subsidiaries' fixed assets, intangible assets, earnest monies for lot and land option contracts represented by promissory notes payable by the Borrower and Restricted Subsidiaries and the total of the Borrower's and Restricted Subsidiaries' liabilities. [Total Assets - (Fixed Assets + Intangible Assets + Earnest Monies Represented by Promissory Notes + Total Liabilities).] Each definition of an agreement in this Article 1 shall include such agreement as modified, amended, or supplemented from time to time with the prior written consent of the Majority Banks, except as provided in Section 8.3 hereof, and except where the context otherwise requires, definitions imparting the singular shall include the plural and vice versa. Except where otherwise specifically restricted, reference to a party to a Loan Document includes that party and its successors and assigns. All terms used herein which are defined in Article 9 of the Uniform Commercial Code in effect in the State of Georgia on the date hereof and which are not otherwise defined herein shall have the same meanings herein as set forth therein. All accounting terms used herein without definition shall be used as defined under GAAP as of the Agreement Date. ARTICLE 2 LOANS AND LETTERS OF CREDIT --------------------------- 2.1 Extension of Credit. Subject to the terms and conditions of, and ------------------- in reliance upon the representations and warranties made in this Agreement and the other Loan Documents, the Banks agree, severally in accordance with their respective Commitment Ratios, and not jointly, to extend credit to the Borrower in an aggregate principal amount not to exceed $375,000,000 and the Issuing Bank agrees to issue Letters of Credit on behalf of the Borrower in an aggregate face amount not to exceed $25,000,000, all as provided below: -16- (a) The Term Loan. Subject to the terms and conditions of this ------------- Agreement and provided that there is no Default or Event of Default, the Banks agree, severally in accordance with their Commitment Ratios with respect to the Term Loan Commitment, and not jointly, upon the terms and subject to the conditions of this Agreement, to lend to the Borrower, on the Agreement Date, amounts which in the aggregate do not exceed the Term Loan Commitment. Advances under the Term Loan Commitment which are repaid may not be reborrowed. (b) The Revolving Loans. Subject to the terms and conditions of this ------------------- Agreement and provided that there is no Default or Event of Default, the Banks agree, severally in accordance with their Commitment Ratios with respect to the Revolving Loan Commitment, and not jointly, upon the terms and subject to the conditions of this Agreement, to lend and relend to the Borrower, prior to the Revolving Loan Maturity Date, amounts which in the aggregate at any one time outstanding do not exceed the Available Revolving Loan Commitment. Advances under the Revolving Loan Commitment may be repaid and reborrowed from time to time on a revolving basis as set forth herein. (c) The Letters of Credit. Subject to the terms and conditions of --------------------- this Agreement and provided that there is no Default or Event of Default, the Issuing Bank agrees to issue Letters of Credit for the account of the Borrower pursuant to Section 2.4 hereof in an aggregate amount for the Borrower at any one time not to exceed the Available Letter of Credit Commitment. (d) Use of Loan Proceeds. The Administrative Agent, the Banks and the -------------------- Borrower agree that the proceeds of the Loans shall be used for general corporate purposes, including, without limitation, working capital support, home construction, lot acquisition, lot development, land acquisition, asset acquisitions and stock acquisitions. 2.2 Manner of Borrowing and Disbursement Under Loans. ------------------------------------------------ (a) Advances. The Borrower shall give the Administrative Agent -------- irrevocable written notice for Advances under the Loans not later than 12:00 noon (Eastern time) on the day immediately preceding the date of the requested Advance in the form of a Request for Advance, or notice by telephone or telecopy followed immediately by a Request for Advance; provided, however, that the -------- ------- failure by the Borrower to confirm any notice by telephone or telecopy with a Request for Advance shall not invalidate any notice so given. Each Advance hereunder shall be in principal amounts of not less than $100,000 and in integral multiples of $100,000. Subsequent to the initial Advance(s) of the Loans made on the Agreement Date, the Borrower may not request, in the aggregate, more than (i) two (2) Advances in any calendar month plus (ii) four (4) additional Advances in any twelve (12) calendar month period. In any event, the Borrower may not request, in the aggregate, more than twenty-eight (28) Advances in any twelve (12) calendar month period. (b) Notification of Banks. Upon receipt of a Request for Advance or --------------------- notice by telephone or telecopy, the Administrative Agent shall promptly notify each Bank by telephone or -17- telecopy of the requested Advance, the date on which the Advance is to be made, the amount of the Advance and the amount of such Bank's portion of the applicable Advance based upon such Bank's Commitment Ratio in respect to such Loan. Each Bank shall, not later than 12:00 noon (Eastern time) on the date specified in such notice, make available to the Administrative Agent at the Administrative Agent's office, or at such account as the Administrative Agent shall designate, the amount of its portion of the applicable Advance in immediately available funds. (c) Disbursement. Prior to 2:00 p.m. (Eastern time) on the date of an ------------ Advance hereunder, the Administrative Agent shall, subject to the satisfaction of the conditions set forth in this Agreement, disburse the amounts made available to the Administrative Agent by the Banks in immediately available funds by (i) transferring the amounts so made available by wire transfer pursuant to the instructions of the Borrower, or (ii) in the absence of such instructions, crediting the amounts so made available to the account of the Borrower maintained with the Administrative Agent or an affiliate of the Administrative Agent. Unless the Administrative Agent shall have received notice from a Bank prior to the date of any Advance that such Bank will not make available to the Administrative Agent such Bank's ratable portion of such Advance, and so long as notice has been given as provided in Section 2.2(b) hereof, the Administrative Agent may assume that such Bank has made such portion available to the Administrative Agent on the date of such Advance and the Administrative Agent may, in its sole discretion and in reliance upon such assumption, without any obligation hereunder to do so, make available to the Borrower on such date a corresponding amount. If and to the extent such Bank shall not have so made such ratable portion available to the Administrative Agent, such Bank agrees to repay to the Administrative Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Administrative Agent for the first two (2) days that such amount is not repaid, at the Overnight Federal Funds Rate, and, thereafter, at the Overnight Federal Funds Rate plus four percent (4%) per annum. If such Bank ---- shall repay to the Administrative Agent such corresponding amount, such amount so repaid shall constitute such Bank's portion of the applicable Advance for purposes of this Agreement. If such Bank does not repay such corresponding amount immediately upon the Administrative Agent's demand therefor, the Administrative Agent may notify the Borrower, and the Borrower shall immediately pay such corresponding amount to the Administrative Agent, together with all interest accrued thereon and on the same terms and conditions that would have applied to such Advance had such Bank funded its portion thereof. Any payments received by the Administrative Agent following such demand shall be applied in repayment of amounts owed to the Administrative Agent hereunder prior to any other application. The failure of any Bank to fund its portion of any Advance shall not relieve any other Bank of its obligation, if any, hereunder to fund its respective portion of the Advance on the date of such borrowing, but no Bank shall be responsible for any such failure of any other Bank. In the event that, at any time when this Agreement is not in Default, a Bank for any reason fails or refuses to fund its portion of an Advance, then, until such time as such Bank has funded its portion of such Advance, or all other Banks have received payment in full (whether by repayment or prepayment) of the principal and interest due in respect of such Advance, such non-funding Bank shall (i) be automatically deemed to have transferred to the Bank serving as -18- Administrative Agent all of such non-funding Bank's right to vote regarding any issue on which voting is required or advisable under this Agreement or any other Loan Document, and (ii) not be entitled to receive payments of principal, interest or fees from the Borrower in respect of such Advances which such Bank failed to make. 2.3 Interest on Loans. ----------------- (a) Revolving Loans. Interest on Revolving Loans shall be computed on --------------- the basis of a hypothetical year of 360 days for the actual number of days elapsed during each calendar month and shall be payable at a simple interest rate equal to the Revolving Loan Base Rate times the principal balance outstanding from time to time under the Revolving Loan Notes for the number of days such principal amounts are outstanding during such calendar month. Interest then outstanding shall be due and payable in arrears as provided in Section 2.7 hereof. (b) Term Loan. Interest on the Term Loan shall be computed on the --------- basis of a hypothetical year of 360 days for the actual number of days elapsed during each calendar month and shall be payable at a simple interest rate equal to the Term Loan Base Rate times the principal balance outstanding from time to time under the Term Loan Notes for the number of days such principal amounts are outstanding during such calendar month. Interest then outstanding shall be due and payable in arrears as provided in Section 2.7 hereof. (c) Upon Default. Upon the occurrence and during the continuance of a ------------ Default, the Super-Majority Banks shall have the option (but shall not be required to give prior notice thereof to the Borrower to accelerate the maturity of the Loans or to exercise any other rights or remedies hereunder in connection with the exercise of this right) to charge interest on the outstanding principal balance of the Loans at the Default Rate from the date of such Default. Such interest shall be payable on the earliest of demand, the first (1st) Business Day of the next calendar month or the Revolving Loan Maturity Date or the Term Loan Maturity Date, as applicable, and shall accrue until the earlier of (i) waiver or cure (to the satisfaction of the Super-Majority Banks) of the applicable Default, (ii) agreement by the Super-Majority Banks to rescind the charging of interest at the Default Rate, or (iii) payment in full of the Obligations. 2.4 Issuance and Administration of Letters of Credit. ------------------------------------------------ (a) Subject to the terms and conditions hereof, the Issuing Bank, on behalf of the Letter of Credit Banks, and in reliance on the agreements of the Letter of Credit Banks set forth in subsection (d) below, hereby agrees to issue one or more Letters of Credit up to an aggregate face amount equal to the Available Letter of Credit Commitment, provided, however, that the Issuing Bank -------- ------- shall have no obligation to issue any Letter of Credit if a Default or Event of Default would be caused thereby; and provided further, however, that at no time -------- ------- shall the total Letter of Credit Obligations outstanding hereunder exceed $25,000,000. Each Letter of Credit shall (1) be denominated in U.S. dollars, and (2) expire no later than the Letter of Credit Maturity Date. A Letter of Credit may contain provisions for automatic renewal provided that no Default or Event of Default exists on the renewal date or would be caused by such renewal and provided -19- further that the new expiration date does not extend beyond the Letter of Credit Maturity Date. Each Letter of Credit shall be subject to the Uniform Customs and Practices for Documentary Credits and, to the extent not inconsistent therewith, the laws of the State of Georgia and shall be in a form reasonably acceptable to the Issuing Bank. The Issuing Bank shall not at any time be obligated to issue, or cause to be issued, any Letter of Credit if such issuance would conflict with, or cause the Issuing Bank to exceed any limits imposed by, any Applicable Law. If a Letter of Credit provides that it is automatically renewable unless notice is given by the Issuing Bank that it will not be renewed, the Issuing Bank shall not be bound to give a notice of non-renewal unless directed to do so by the Letter of Credit Banks at least thirty (30) days prior to the date on which such notice of non-renewal is required to be delivered to the beneficiary of the applicable Letter of Credit pursuant to the terms thereof. The Borrower hereby agrees that upon the Letter of Credit Maturity Date (whether by reason of acceleration or otherwise) at the request of the Administrative Agent, the Borrower shall deposit in an interest bearing account with the Administrative Agent, as cash collateral for the Obligations, an amount equal to the maximum amount currently or at any time thereafter available to be drawn on all outstanding Letters of Credit, and the Borrower hereby grants to the Administrative Agent (for itself and on behalf of the Issuing Bank) a security interest in all such cash. Upon receipt of the cash collateral referred to in the preceding sentence, the obligations of the Letter of Credit Banks under this Section 2.4 shall cease; provided that, if for any reason, all or any part of such cash collateral must be surrendered or disgorged by the Administrative Agent, then such obligations shall be automatically reinstated. The terms hereof shall govern the reimbursement obligation of the Borrower with respect to the Letters of Credit. (b) The Borrower may from time to time request that the Issuing Bank issue a Letter of Credit. The Borrower shall execute and deliver to the Administrative Agent and the Issuing Bank a Request for Issuance of Letter of Credit for each Letter of Credit to be issued by the Issuing Bank, not later than 12:00 noon (Eastern time) on the fifth (5th) Business Day preceding the date on which the requested Letter of Credit is to be issued, or such shorter notice as may be acceptable to the Issuing Bank and the Administrative Agent. Upon receipt of any such Request for Issuance of Letter of Credit, subject to satisfaction of all conditions precedent thereto as set forth in Article 4 hereof, the Issuing Bank shall process such Request for Issuance of Letter of Credit and the certificates, documents and other papers and information delivered to it in connection therewith in accordance with its customary procedures and shall promptly issue the Letter of Credit requested thereby. The Issuing Bank shall furnish a copy of such Letter of Credit to the Borrower and the Administrative Agent following the issuance thereof. The Borrower shall pay or reimburse the Issuing Bank on demand for normal and customary costs and expenses incurred by the Issuing Bank in effecting payment under, amending or otherwise administering the Letters of Credit. (c) At such time as the Administrative Agent shall be notified by the Issuing Bank that the beneficiary under any Letter of Credit has drawn on the same, the Administrative Agent shall promptly notify the Borrower and each Letter of Credit Bank, by telephone or telecopy, of the amount of the draw and, in the case of each Letter of Credit Bank, such Letter -20- of Credit Bank's portion of such draw amount as calculated in accordance with its Letter of Credit Bank Commitment Ratio. (d) The Borrower hereby agrees to immediately reimburse the Issuing Bank for amounts paid by the Issuing Bank in respect of draws under a Letter of Credit issued at the Borrower's request. In order to facilitate such repayment, the Borrower hereby irrevocably requests the Letter of Credit Banks, and the Letter of Credit Banks hereby severally agree, on the terms and conditions of this Agreement (other than as provided in Article 2 hereof with respect to the amounts of, the timing of requests for, and the repayment of Advances hereunder), with respect to any drawing under a Letter of Credit prior to the occurrence of an event described in clauses (e) or (f) of Section 6.1 hereof, to make an Advance hereunder on each day on which a draw is made under any Letter of Credit and in the amount of such draw, and to pay the proceeds of such Advance directly to the Issuing Bank to reimburse the Issuing Bank for the amount paid by it upon such draw. Each Letter of Credit Bank shall pay its share of such Advance by paying its portion of such Advance to the Administrative Agent in accordance with Section 2.2(c) hereof and its Letter of Credit Bank Commitment Ratio, without reduction for any set-off or counterclaim of any nature whatsoever and regardless of whether any Default or Event of Default (other than with respect to an event described in clauses (e) or (f) of Section 6.1 hereof) then exists or would be caused thereby. If at any time that any Letters of Credit are outstanding, any of the events described in clauses (e) or (f) of Section 6.1 hereof shall have occurred, then each Letter of Credit Bank shall, automatically upon the occurrence of any such event and without any action on the part of the Issuing Bank, the Borrower, the Administrative Agent, the Banks or the Letter of Credit Banks, be deemed to have purchased an undivided participation in the face amount of all Letters of Credit then outstanding in an amount equal to such Letter of Credit Bank's Letter of Credit Bank Commitment Ratio, and each Letter of Credit Bank shall, notwithstanding such Default, upon a drawing under any Letter of Credit, immediately pay to the Administrative Agent for the account of the Issuing Bank, in immediately available funds, the amount of such Letter of Credit Bank's participation (and the Issuing Bank shall deliver to such Letter of Credit Bank a loan participation certificate dated the date of the occurrence of such event and in the amount of such Letter of Credit Bank's Letter of Credit Bank Commitment Ratio). The disbursement of funds in connection with a draw under a Letter of Credit pursuant to this Section shall be subject to the terms and conditions of Section 2.2(c) hereof. The obligation of each Letter of Credit Bank to make payments to the Administrative Agent, for the account of the Issuing Bank, in accordance with this Section 2.4 shall be absolute and unconditional and no Letter of Credit Bank shall be relieved of its obligations to make such payments by reason of noncompliance by any other Person with the terms of the Letter of Credit or for any other reason. The Administrative Agent shall promptly remit to the Issuing Bank the amounts so received from the Letter of Credit Banks. Any overdue amounts payable by any of the Letter of Credit Banks to the Issuing Bank in respect of a draw under any Letter of Credit shall bear interest, payable on demand, for the first two (2) days of such non-payment, at the Overnight Federal Funds Rate, and, thereafter,at the Overnight Federal Funds Rate plus four ---- percent (4%). (e) The obligation of the Borrower to reimburse the Letter of Credit Banks for Advances made to reimburse the Issuing Bank for draws under any Letters of Credit shall be -21- absolute, unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement under all circumstances whatsoever, including, without limitation, the following circumstances: (i) Any lack of validity or enforceability of any Loan Document; (ii) Any amendment or waiver of or consent to any departure from any or all of the Loan Documents; (iii) Any improper use which may be made of any Letter of Credit or any improper acts or omissions of any beneficiary or transferee of any Letter of Credit in connection therewith; (iv) The existence of any claim, set-off, defense or any right which the Borrower may have at any time against any beneficiary or any transferee of any Letter of Credit (or Persons for whom any such beneficiary or any such transferee may be acting) or any Bank or Letter of Credit Bank (other than the defense of payment to such Bank or Letter of Credit Bank in accordance with the terms of this Agreement) or any other Person (other than the Issuing Bank), whether in connection with any Letter of Credit, any transaction contemplated by any Letter of Credit, this Agreement, any other Loan Document, or any unrelated transaction; (v) Any statement or any other documents presented under any Letter of Credit proving to be insufficient, forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect whatsoever, provided that such payment shall not have constituted gross negligence or willful misconduct of the Issuing Bank; (vi) The insolvency of any Person issuing any documents in connection with any Letter of Credit; (vii) Any breach of any agreement between the Borrower and any beneficiary or transferee of any Letter of Credit; (viii) Any irregularity in the underlying transaction with respect to which any Letter of Credit is issued, including any fraud by the beneficiary or any transferee of such Letter of Credit; or (ix) Any other circumstances arising from causes beyond the control of the Issuing Bank. (f) Each Letter of Credit Bank shall be responsible for its pro rata share (based on such Letter of Credit Bank's Letter of Credit Bank Commitment Ratio) of any and all reasonable out-of-pocket costs, expenses (including reasonable legal fees) and disbursements -22- which may be incurred or made by the Issuing Bank in connection with the collection of any amounts due under, the administration of, or the presentation or enforcement of any rights conferred by any Letter of Credit, the Borrower's or any guarantor's obligations to reimburse or otherwise, excluding, however, any such expenses incurred by the Issuing Bank as a result of the willful misconduct or gross negligence of the Issuing Bank in determining whether a request presented under a Letter of Credit complies with the terms of the Letter of Credit. In the event the Borrower shall fail to pay such expenses of the Issuing Bank within ten (10) days after demand for payment by the Issuing Bank, each Letter of Credit Bank shall thereupon pay to the Issuing Bank its pro rata share (based on such Letter of Credit Bank's Letter of Credit Bank Commitment Ratio) of such expenses within five (5) days from the date of the Issuing Bank's notice to the Letter of Credit Banks of the Borrower's failure to pay; provided, -------- however, that if the Borrower or any guarantor shall thereafter pay such - ------- expense, the Issuing Bank will repay to each Letter of Credit Bank the amounts received from such Letter of Credit Bank hereunder. The Borrower hereby irrevocably requests the Letter of Credit Banks and the Letter of Credit Banks hereby severally agree subject to compliance with the terms and conditions hereof (other than as provided in Article 2 hereof with respect to the amounts of and the timing of requests for Advances hereunder), to make an Advance to the Issuing Bank, on behalf of the Borrower for reimbursement of expenses under this Section 2.4(f). (g) The Borrower agrees that each Advance by the Letter of Credit Banks to reimburse the Issuing Bank for draws under any Letter of Credit or for expenses as provided in Section 2.4(f) hereof, shall be payable immediately on the date of such Advance and shall bear interest at the Base Rate until paid in full or at the Default Rate following the occurrence of a Default. (h) The Borrower agrees that it will indemnify and hold harmless the Administrative Agent, the Issuing Bank, each Letter of Credit Bank and each other Bank and each of their respective employees, representatives, officers and directors from and against any and all claims, liabilities, obligations, losses (other than loss of profits), damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever (including reasonable attorneys' fees, but excluding taxes) which may be imposed on, incurred by or asserted against the Administrative Agent, the Issuing Bank, any such Letter of Credit Bank or any such Bank in any way relating to or arising out of the issuance of a Letter of Credit, except that the Borrower shall not be liable to the Administrative Agent, the Issuing Bank, any such Letter of Credit Bank or any such Bank for any portion of such claims, liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, or disbursements resulting from the gross negligence or willful misconduct of the Administrative Agent, the Issuing Bank, any such Letter of Credit Bank or such Bank, as the case may be, or any such claims, liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements arising solely out of a controversy among the Administrative Agent, the Issuing Bank, the Letter of Credit Banks and the Banks, or any of them. This Section 2.4(h) shall survive termination of this Agreement. -23- 2.5 Fees and Commissions on Loans and Letters of Credit. --------------------------------------------------- (a) Administration Fee. The Borrower agrees to pay to the ------------------ Administrative Agent, for its administrative services as administrative agent for the Banks and the Issuing Bank hereunder, a fee of $50,000.00 per annum. Such fee shall be due and payable on the Agreement Date and on each anniversary of the Agreement Date, and shall be fully earned when due and non-refundable when paid. In the event that following the payment of an annual administration fee, all obligations of the Borrower hereunder shall be fully and finally performed and this Agreement shall be terminated prior to the next anniversary of the Agreement Date, a pro rata portion of such fee shall be refunded to the Borrower, based upon the time remaining to the next anniversary of the Agreement Date. (b) Renewal Fee. In the event that the Revolving Loan Maturity Date ----------- shall be extended, the Borrower agrees to pay to the Administrative Agent for distribution to each of the Banks which elects to renew this Agreement in accordance with Section 8.5 hereof, on a pro rata basis in accordance with their respective Commitment Ratios, an annual renewal fee in consideration of the agreement of such Banks to extend the Revolving Loan Maturity Date of this Agreement in the amount of five one hundredths of one percent (.05%) of the amount of the Revolving Loan Commitment (as of the effective date of such renewal). Such fee shall be due and payable on the effective date of the renewal, and shall be fully earned when due and non-refundable when paid. In the event that following the payment of an annual renewal fee, all Obligations of the Borrower hereunder shall be fully and finally performed and this Agreement shall be terminated prior to the extended Revolving Loan Maturity Date, a pro rata portion of such annual renewal fee most recently paid shall be refunded to the Borrower, based upon the time remaining to the extended Revolving Loan Maturity Date. (c) Unused Fee on Revolving Loans. The Borrower agrees to pay to the ----------------------------- Administrative Agent for the benefit of the Banks, in accordance with their respective Commitment Ratios for the Revolving Loan Commitment, an unused fee for each calendar year on the difference between (i) the Revolving Loan Commitment and (ii) the daily sum of the outstanding Revolving Loans for each day during the applicable period, in each case at the rate of (A) if the average difference between clauses (i) and (ii) for the period is less than $75,000,000, 15 basis points (.15%), (B) if the average difference between clauses (i) and (ii) for the period is less than $150,000,000, but greater than or equal to $75,000,000, 22.5 basis points (.225%), and (C) if the average difference between clauses (i) and (ii) is greater than or equal to $150,000,000, 30 basis points (.30%). Such unused fee shall be computed on the basis of a hypothetical year of 360 days for the actual number of days elapsed, shall be due and payable quarterly in arrears on the eighteenth (18th) day of each January, April, July, and October for the immediately preceding calendar quarter, commencing on April 18, 1997 (for the period from the Agreement Date through March 31, 1997), and on the Revolving Loan Maturity Date, and shall be fully earned when due and non- refundable when paid. (d) Letter of Credit Fees. The Borrower agrees to pay to the --------------------- Administrative Agent (i) for the benefit of the Issuing Bank and the Letter of Credit Banks, a fee on the stated -24- amount of any outstanding Letters of Credit from the date of issuance through the expiration date of each such Letter of Credit in an amount equal to one percent (1%) per annum (the "Letter of Credit Fees") and (ii) for the benefit of the Issuing Bank, an issuing fee in the amount of $100 for each Letter of Credit (which additional amount shall be due and payable on the date of issuance and renewal). The Letter of Credit Fees shall be calculated on the basis of a hypothetical year of 360 days for the actual number of days elapsed, shall be due and payable on the date of issuance and renewal of each Letter of Credit, and shall be fully earned when due and non-refundable when paid. The Administrative Agent shall, promptly after receipt of the Letter of Credit Fees, distribute to the Letter of Credit Banks in accordance with their respective Letter of Credit Bank Commitment Ratios. 2.6 Notes, Loan and Letters of Credit Accounts. ------------------------------------------ (a) The Loans shall be repayable in accordance with the terms and provisions set forth herein, and shall be evidenced by the Notes. One of the Term Loan Notes and one of the Revolving Loan Notes shall be payable to the order of each Bank in accordance with the respective Commitment Ratio for such Loans of such Bank. The Notes shall be issued by the Borrower to each of the Banks and shall be duly executed and delivered by Authorized Signatories. (b) Each Bank and each Letter of Credit Bank, as the case may be, may open and maintain on its books in the name of the Borrower a loan account with respect to the Loans and interest thereon and a letter of credit account with respect to its obligations pursuant to Letters of Credit. Each Bank which opens such accounts in respect of the Loans shall debit the applicable loan account for the principal amount of each Advance made by it and accrued interest thereon, and shall credit such loan account for each payment on account of principal of or interest on the Loans. Each Letter of Credit Bank which opens such accounts in respect of the Letters of Credit shall debit the applicable account for the amount of each Advance made by it and accrued interest thereon, and shall credit such account for each payment on account of principal and interest of Letter of Credit Advances. The records of each Bank and each Letter of Credit Bank, as the case may be, with respect to the accounts maintained by it shall be prima facie evidence of the Loans and Letter of Credit Obligations and accrued interest thereon, but the failure to maintain such records shall not impair the obligation of the Borrower to repay Indebtedness hereunder. (c) The Administrative Agent and Issuing Bank may maintain in accordance with their usual practice records of account evidencing the Indebtedness of the Borrower resulting from Advances under the Loans and each drawing under a Letter of Credit. In any legal action or proceeding in respect of this Agreement, the entries made in such record shall be prima facie evidence, absent manifest error, of the existence and amounts of the obligations of the Borrower therein recorded. Failure of the Issuing Bank to maintain any such record shall not excuse the Borrower from the obligation to pay such Indebtedness. To the extent that the records of the Administrative Agent or Issuing Bank conflict with the records of the Banks maintained pursuant -25- to Section 2.6(b) above, absent manifest error, the records of the Administrative Agent or Issuing Bank, as the case may be, shall control. (d) Each Advance from the Banks under this Agreement shall be made pro rata on the basis of their respective applicable Commitment Ratios. (e) Each Advance made on account of drawing under Letters of Credit shall be made pro rata by the Letter of Credit Banks on the basis of their respective Letter of Credit Bank Commitment Ratios. 2.7 Repayment of Loans and Letters of Credit. ---------------------------------------- (a) Interest. The Borrower shall pay, on the eighteenth (18th) -------- calendar day of each month, all interest on the Term Loan and the Revolving Loans which has accrued as of the first (1st) calendar day of such month, commencing on the eighteenth (18th) calendar day of the first (1st) full calendar month following the Agreement Date. (b) Letters of Credit. The Borrower shall repay all draws upon the ----------------- Letters of Credit immediately upon the Issuing Bank's demand therefor. The Borrower shall make certain other payments in respect of the Letter of Credit Obligations as provided in Sections 2.4(a), 2.4(g) and 3.1 hereof. (c) Reconciliation of Loan Inventory. The Borrower shall repay -------------------------------- certain portions of the outstanding principal of the Loans and accrued and unpaid interest thereon upon the reconciliation of the Loan Funding Availability against the outstanding principal balance under the Notes as provided in Section 3.1 hereof. (d) Maturity. In addition to the foregoing, a final payment of all -------- Obligations then outstanding shall be due and payable by the Borrower on the Revolving Loan Maturity Date, the Term Loan Maturity Date or the Letter of Credit Maturity Date, as applicable. 2.8 Manner of Payment. ----------------- (a) Each payment (including any prepayment) by the Borrower on account of the principal of or interest on the Loans, fees, and any other amount owed to the Banks or the Administrative Agent under this Agreement, the Notes, or the other Loan Documents shall be made not later than 1:00 p.m. (Eastern time) on the date specified for payment under this Agreement or such other Loan Document to the Administrative Agent to an account designated by the Administrative Agent, for the account of the Banks, the Issuing Bank or the Administrative Agent, as the case may be, in lawful money of the United States of America in immediately available funds. Any payment received by the Administrative Agent after 12:00 noon (Eastern time) shall be deemed received on the next Business Day for purposes of interest accrual. In the case of a payment for the account of a Bank or the Issuing Bank, then, subject to the provisions -26- of Section 2.9 of this Agreement, the Administrative Agent will promptly thereafter distribute the amount so received in like funds to such Bank or the Issuing Bank. If the Administrative Agent shall not have received any payment from the Borrower as and when due, the Administrative Agent will promptly notify the Banks and, if appropriate, the Issuing Bank, accordingly, and the Administrative Agent shall not be obligated to make any distributions under this Section 2.8. (b) If any payment under this Agreement or any of the Notes shall be specified to be made upon a day which is not a Business Day, it shall be made on the next succeeding day which is a Business Day, and such extension of time shall in such case be included in computing interest and fees, if any, in connection with such payment. (c) The Borrower may not make payments, in the aggregate, under this Agreement (excluding any payments specifically required pursuant to the terms of this Agreement) more than (i) two (2) times in any calendar month plus (ii) four (4) additional times in any twelve (12) calendar month period. In any event, the Borrower may not make, in the aggregate, more than twenty-eight (28) payments (excluding any payments specifically required pursuant to the terms of this Agreement) under this Agreement in any twelve (12) calendar month period. (d) The Borrower agrees to pay principal, interest, fees, and all other amounts due hereunder or under the Notes and Letter of Credit Obligations without set-off or counterclaim or any deduction whatsoever. 2.9 Application of Payments. Unless otherwise specifically provided in ----------------------- this Agreement or the other Loan Documents, payments made to the Administrative Agent, the Letter of Credit Banks or the Banks, or any of them, or otherwise received by the Administrative Agent, the Letter of Credit Banks or the Banks, or any of them (from realization on collateral for the Obligations or otherwise), shall be applied (subject to Section 2.2(c) hereof) in the following order to the extent such Obligations are then due and payable hereunder: First, ----- to the costs and expenses, if any, incurred by the Administrative Agent or the Banks, or any of them, in the collection of such amounts under this Agreement or any of the other Loan Documents, including, without limitation, any reasonable costs incurred in connection with the sale or disposition of any collateral for the Obligations; Second, pro rata among the Administrative Agent, the Issuing ------ Bank and the Banks based on the total amount of fees then due and payable hereunder or under any other Loan Document and to any other fees and commissions then due and payable by the Borrower to the Banks, the Issuing Bank and the Administrative Agent under this Agreement or any Loan Document; Third, to any ----- due and unpaid interest which may have accrued on the Term Loan and the Revolving Loans, pro rata among the Banks based on the outstanding principal amount of the Term Loan and the Revolving Loans as the case may be, outstanding immediately prior to such payment; Fourth, to any amounts outstanding with ------ respect to draws under Letters of Credit; Fifth, to any unpaid principal of the ----- Revolving Loans, pro rata among the Banks based on the principal amount of the Revolving Loans outstanding immediately prior to such payment; Sixth, to any ----- unpaid principal of the Term Loan, pro rata among the Banks based on the outstanding principal amount of the Term Loan outstanding immediately prior to such payment; Seventh, to the extent any Letters of Credit are then outstanding, ------- for deposit into the Letter of -27- Credit Reserve Account; Eighth, to any other Obligations not otherwise referred ------ to in this Section 2.9 until all such Obligations are paid in full; Ninth, to ----- actual damages incurred by the Administrative Agent, the Issuing Bank or the Banks, or any of them, by reason of any breach hereof or of any other Loan Documents by the Borrower or a Restricted Subsidiary; and Tenth, upon ----- satisfaction in full of all Obligations, to the Borrower or as otherwise required by law. Notwithstanding the foregoing, (a) in the case of any voluntary prepayment hereunder at a time when there does not exist an Event of Default or Default, the Borrower may designate the order of application of such payments with respect to items Fifth and Sixth in the immediately preceding sentence, and ----- ----- (b) after the occurrence and during the continuance of a Default or an Event of Default, payments with respect to items Fourth, Fifth and Sixth in the ------ ----- ----- immediately preceding sentence shall be applied to such items based upon the ratio of the Obligations under each of such items to the aggregate Obligations under all of such items. If any Bank shall obtain any payment (whether involuntary or otherwise) on account of the Loans made by it in excess of its ratable share of the Loans then outstanding and such Bank's share of any expenses, fees and other items due and payable to it hereunder, such Bank shall forthwith purchase a participation in the Loans from the other Banks as shall be necessary to cause such purchasing Bank to share the excess payment ratably based on the applicable Commitment Ratios with each of them; provided, however, -------- ------- that if all or any portion of such excess payment is thereafter recovered from such purchasing Bank, such purchase from each Bank shall be rescinded and such Bank shall repay to the purchasing Bank the purchase price to the extent of such recovery. The Borrower agrees that any Bank so purchasing a participation from another Bank pursuant to this Section may, to the fullest extent permitted by law, exercise all its rights of payment with respect to such participation as fully as if such Bank were the direct creditor of the Borrower in the amount of such participation so long as the Obligations are not increased. ARTICLE 3 INVENTORY AND FUNDING AVAILABILITY ---------------------------------- 3.1 Loan Funding Availability. At the designated times set forth herein, ------------------------- the Administrative Agent shall establish a Loan Funding Availability for the Loan Inventory and other Unsecured Indebtedness. (a) Calculation of Loan Funding Availability. The Loan Funding ---------------------------------------- Availability shall be equal to the sum of "A" plus "B" plus "C"; provided, that -------- at no time may the sum of "A" and "B" exceed thirty percent (30%) of Loan Funding Availability. A = seventy-five percent (75%) of the sum of all Acquisition Costs for all Lots Under Development which are included in the Loan Inventory. If, after a parcel of land is designated a Lot Under Development, development of such parcel ceases for thirty (30) calendar days or more (other than by reason of a Force Majeure Delay), at the discretion of the Administrative Agent, the Loan Funding Availability for such parcel may be reduced to an amount -28- determined by the Administrative Agent (which amount can be zero) until development of such Lot Under Development is resumed to the satisfaction of the Administration Agent. B = seventy-five percent (75%) of the sum of all Acquisition Costs for all Developed Lots included in the Loan Inventory. C = one hundred percent (100%) of the sum of all Acquisition Costs and Construction Costs for all Dwelling Lots included in the Loan Inventory. (b) Designation of Land Parcels, Lots Under Development, Developed -------------------------------------------------------------- Lots and Dwelling Lots. On or before the fifteenth (15th) calendar day of each - ---------------------- calendar month (other than a month following the end of a calendar quarter), the Borrower shall deliver to the Administrative Agent an Inventory Summary Report in the form attached hereto as Exhibit C and incorporated herein. On or before --------- the fifteenth (15th) calendar day of each month following the end of a calendar quarter, the Borrower shall deliver to the Administrative Agent an Inventory Quarterly Report in the form attached hereto as Exhibit B and incorporated --------- herein which form shall have been completed and signed by the Borrower. The Inventory Summary Report and Inventory Quarterly Report shall reflect Inventory that the Borrower desires to have designated as Loan Inventory. Upon the Administrative Agent's receipt of the Inventory Summary Report or Inventory Quarterly Report, as the case may be, the Administrative Agent may conduct inspections or reviews of the subject Inventory that the Administrative Agent deems appropriate, at the expense of the Administrative Agent except as hereinafter expressly provided. Based upon the information in the Inventory Summary Report or Inventory Quarterly Report, as the case may be, and the other information compiled by the Administrative Agent, the Administrative Agent shall determine, in its discretion, whether a Lot Under Development, Developed Lot or Dwelling Lot not previously designated as part of the Loan Inventory shall be designated part of the Loan Inventory and, if so, whether such Lot Under Development, Developed Lot or Dwelling Lot shall be designated a Lot Under Development, Developed Lot or Dwelling Lot. (c) Periodic Establishment of Loan Funding Availability. Within two --------------------------------------------------- (2) business days of the Administrative Agent's receipt of an Inventory Summary Report or Inventory Quarterly Report, as the case may be, the Administrative Agent shall establish the Loan Funding Availability based on the Report delivered to the Administrative Agent and information compiled by the Administrative Agent. In the event the Borrower does not submit the Inventory Summary Report or Inventory Quarterly Report in the time and manner set forth above or furnish sufficient information to the Administrative Agent to enable the Administrative Agent to establish a new Loan Funding Availability, the Administrative Agent will establish a Loan Funding Availability based on some or all of the previous information submitted to the Administrative Agent by the Borrower in the immediately preceding Inventory Summary Report or Inventory Quarterly Report and the information compiled by the Administrative Agent, as required hereunder, in connection therewith, as the case may be, or other information available to the Administrative Agent. (d) Reconciliation. In the event that the Loan Funding Availability -------------- for a particular Funding Period is less than the then outstanding principal amount of all Unsecured -29- Indebtedness and unpaid draws under Letters of Credit, the Administrative Agent shall notify the Borrower thereof. On or before the Reconciliation Date, the Borrower shall (i) (A) pay to the Administrative Agent a principal payment to be applied to the Loans and unpaid draws under Letters of Credit and/or (B) provide to the Administrative Agent evidence that the principal amount of other Unsecured Indebtedness has been reduced in an aggregate amount sufficient to eliminate the excess of the outstanding principal amount of the Unsecured Indebtedness and unpaid draws under Letters of Credit over the Loan Funding Availability, together with any accrued and unpaid interest on such excess or (ii) provide a revised Inventory Summary Report or Inventory Quarterly Report designating sufficient additional Inventory (which shall be acceptable to the Administrative Agent, in its discretion) as Loan Inventory to cause the Loan Funding Availability to equal or exceed the outstanding principal of all Unsecured Indebtedness and unpaid draws under Letters of Credit. (e) Removal/Disapproval of Inventory for Loan Funding Availability. -------------------------------------------------------------- If, at any time, the Administrative Agent determines, in its reasonable discretion, that any part of the Loan Inventory is not acceptable for inclusion in the calculation of the Loan Funding Availability as a result of an unforeseen material adverse change in the condition of such portion of the Loan Inventory or as a result of the existence of hazardous wastes or materials in or on any Inventory which are in violation of any warranty, representation or covenant of the Loan Documents regarding such hazardous wastes or materials, the Administrative Agent may exclude such portion of the Loan Inventory from the calculation of the Loan Funding Availability. If, after such exclusion, the then outstanding principal amount under Unsecured Indebtedness (and unpaid draws under Letters of Credit) would exceed the Loan Funding Availability, the Borrower shall pay to the Administrative Agent on the Reconciliation Date immediately following the exclusion of such Loan Inventory, a principal payment on the Loans (or provide to the Administrative Agent evidence satisfactory to the Administrative Agent that other Unsecured Indebtedness has been reduced) or unpaid draws under Letters of Credit in an amount sufficient to eliminate such excess of the aggregate outstanding principal balance of the Unsecured Indebtedness (and unpaid draws under Letters of Credit) over the Loan Funding Availability, together with accrued and unpaid interest on such excess. (f) Release of Guaranties. Contemporaneously with the delivery of an --------------------- Inventory Summary Report (or an Inventory Quarterly Report), the Borrower may request the release of any Restricted Subsidiary from the Subsidiary Guaranty. In the event that the Loan Funding Availability established by the Administrative Agent pursuant to Section 3.1(e) hereof, without consideration of any Inventory owned by such Restricted Subsidiary, is equal to or greater than the amount otherwise required pursuant to Section 3.1(d) hereof, then the Administrative Agent shall, upon receipt of a certificate from the Borrower that no Default exists before and after giving effect to such release, release such Restricted Subsidiary from the Subsidiary Guaranty. -30- ARTICLE 4 LOAN DISBURSEMENTS AND LETTERS OF CREDIT ---------------------------------------- 4.1 Prior to the First Disbursement or Letter of Credit. Prior to --------------------------------------------------- requesting the first disbursement under the Loans or Letter of Credit hereunder, the Borrower shall deliver all of the following items to the Administrative Agent, in form and substance satisfactory to the Administrative Agent. The Administrative Agent and the Banks shall have no obligation to make the first disbursement hereunder and the Issuing Bank shall have no obligation to issue the first Letter of Credit hereunder until all of these items have been so executed and/or delivered to the Administrative Agent. The Administrative Agent shall have received an Amended and Restated Revolving Loan Note and an Amended and Restated Term Loan Note by the Borrower payable to the order of each Bank and a Certificate of Acknowledgement from each Guarantor acknowledging that the Guaranty dated as of February 14, 1997 in favor of the Administrative Agent and each Bank continues in full force and effect. 4.2 Subsequent Disbursements and Letters of Credit. Prior to requesting ---------------------------------------------- subsequent disbursements under the Revolving Loans (subsequent to the first disbursement) or Letters of Credit hereunder (subsequent to the first Letter of Credit), the Borrower shall execute and deliver to the Administrative Agent all of the following items, in form and substance satisfactory to the Administrative Agent. The Administrative Agent and the Banks shall have no obligation to make further disbursements or issue additional Letters of Credit until all of these items have been properly executed and delivered to the Administrative Agent. There shall be no disbursement of the Term Loan after the first disbursement. (a) Inventory Summary Report. The Inventory Summary Report that the ------------------------ Borrower is required to deliver pursuant to Section 3.1(b) hereof. (b) Inventory Quarterly Report. The Inventory Quarterly Report that -------------------------- the Borrower is required to deliver pursuant to Section 3.1(b) hereof. (c) Request for Advance. The Request for Advance that the Borrower is ------------------- required to deliver pursuant to Section 2.2 hereof or the Request for Issuance of Letter of Credit that the Borrower is required to deliver in connection with any issuance of a Letter of Credit hereunder, as the case may be. (d) Other Documents. Such other documents that the Administrative --------------- Agent may reasonably require. -31- ARTICLE 5 BORROWER'S COVENANTS, AGREEMENTS, --------------------------------- REPRESENTATIONS AND WARRANTIES ------------------------------ The Borrower makes the following covenants, agreements, representations and warranties with respect to the Loan Documents and the obligations thereunder to the Banks: 5.1 Payment. The Borrower shall pay when due all sums owing under this ------- Agreement, the Notes and the other Loan Documents executed by the Borrower. 5.2 Performance. The Borrower shall perform all Obligations under this ----------- Agreement, the Notes and the other Loan Documents executed by the Borrower. 5.3 Additional Information. On request of the Administrative Agent, the ---------------------- Borrower shall deliver to the Administrative Agent and/or the Issuing Bank any documents or information with respect to the Inventory that the Administrative Agent and/or the Issuing Bank may reasonably require including, without limitation, surveys and acquisition closing documentation. 5.4 Quarterly Financial Statements and Other Information. Within forty- ---------------------------------------------------- five (45) days after the last day of each quarter in each fiscal year of the Borrower, except the last quarter in each such fiscal year of the Borrower, the Borrower shall deliver to the Administrative Agent the Form 10-Q of the Borrower as filed with the Securities and Exchange Commission. Within ten (10) days from the date of filing, the Borrower shall provide to the Administrative Agent a copy of every other report filed by the Borrower with the Securities and Exchange Commission under the Exchange Act and a copy of each registration statement filed by the Borrower with the Securities and Exchange Commission pursuant to the Securities Act of 1933. 5.5 Compliance Certificates. Within forty-five (45) days from the end of ----------------------- each fiscal quarter of the Borrower, the Borrower shall provide to the Administrative Agent a certificate signed by an Authorized Signatory of the Borrower in the form attached hereto as Exhibit G setting forth such --------- calculations required to establish whether the Borrower was in compliance with Section 5.7 hereof. 5.6 Annual Financial Statements and Information; Certificate of No -------------------------------------------------------------- Default. Within one hundred (100) days after the end of each fiscal year of the - ------- Borrower, the Borrower shall deliver to the Administrative Agent the Form 10-K of the Borrower as filed with the Securities and Exchange Commission, together with the audited consolidated financial statements of the Borrower (which shall be prepared by an independent accounting firm of recognized standing). 5.7 Financial and Inventory Covenants. Until the Obligations are repaid --------------------------------- in full, the Borrower shall adhere to the following financial covenants (after giving effect to any Financial -32- Covenant Carve Out), all on a consolidated basis with the Restricted Subsidiaries and determined as of the last day of each fiscal quarter of the Borrower: (a) The Borrower shall maintain at all times a ratio of Notes Payable to Tangible Net Worth of not greater than 1.75 to 1.0 on a consolidated basis. (b) The Borrower shall maintain at all times a ratio of Total Liabilities to Tangible Net Worth of not more than 2.25 to 1. (c) The Borrower shall maintain at all times a ratio of (i) EBITDA to (ii) Fixed Charges of not less than 3.0 to 1.0. (d) The Borrower shall maintain at all times Working Capital of $100,000,000 on a consolidated basis. (e) The Borrower shall maintain at all times a minimum Tangible Net Worth of one hundred thirty million and no/100 dollars ($130,000,000.00), plus fifty percent (50%) of annual net profits for such fiscal year, plus ---- ---- fifty percent (50%) of any capital paid into the Borrower (other than stock issued in connection with an employee stock ownership plan, an employee stock option plan, an employee stock purchase plan or for an acquisition), plus one hundred percent (100%) of net losses with absolute minimum ---- Tangible Net Worth of not less than one hundred thirty million and no/100 dollars ($130,000,000.00), on a consolidated basis. (f) The Borrower shall not at any time permit Third Party Notes Payable to be greater than thirteen percent (13%) of Tangible Assets on a consolidated basis. (g) The total number of Speculative Lots owned by the Borrower and its Restricted Subsidiaries at any given time shall not exceed fifty percent (50%) of all Closed Sales during the immediately preceding twelve (12) calendar months. Models shall not be considered "Speculative Lots" for purposes of this Section 5.7(g). (h) (i) The Borrower shall not permit the total number of Developed Lots and Lots Under Development, in each case, then owned by the Borrower and all Restricted Subsidiaries, at any given time to exceed two and one- half (2 1/2) times the number of Closed Sales during the immediately preceding twelve (12) calendar months. (ii) The Borrower shall not permit the aggregate cost of all Developed Lots and Lots Under Development, in each case, then owned by the Borrower and all Restricted Subsidiaries, at any given time to exceed forty percent (40%) of all Tangible Assets of the Borrower on a consolidated basis. (i) The cost of the land owned by Borrower and all Restricted Subsidiaries at any given time which has not been developed into Developed Lots and is not scheduled -33- for commencement of development into Developed Lots within twelve (12) calendar months from the date of determination shall not exceed ten percent (10%) of all Tangible Assets of the Borrower and its Restricted Subsidiaries on a consolidated basis. In the event that the Borrower or any Restricted Subsidiary classifies certain undeveloped land as being scheduled for development within twelve (12) calendar months for the purpose of this provision and, as of the last day of such twelve (12) calendar month period, development of such land has not commenced, such land shall not be classified as scheduled for development within twelve (12) calendar months until such development is commenced. 5.8 Other Financial Documentation. The Borrower shall provide to the ----------------------------- Administrative Agent such other financial information as the Administrative Agent may reasonably request from time to time to clarify or amplify the information required to be furnished to the Administrative Agent under this Agreement. 5.9 Reserved. -------- 5.10 Payment of Contractors. The Borrower shall pay in a timely manner, ---------------------- and shall cause its Subsidiaries to pay in a timely manner, any and all contractors and subcontractors who conduct work in or on the Inventory, subject to the right of the Borrower to contest any amount in dispute, so long as the contesting of such amount is pursued diligently and in good faith. The Borrower will advise the Administrative Agent in writing immediately if the Borrower or any of its Subsidiaries receives any written notice from any contractor(s), subcontractor(s) or material furnisher(s) to the effect that said contractor(s) or material furnisher(s) have not been paid for any labor or materials furnished to or in the Inventory and such outstanding payment or payments are individually or collectively equal to or greater than five hundred thousand and no/100 dollars ($500,000.00) per subdivision or seven million and no/100 dollars ($7,000,000.00) in the aggregate. The Borrower will further make available to the Administrative Agent, for inspection and copying, on demand, any contracts, bills of sale, statements, receipted vouchers or agreements, under which the Borrower claims title to any materials, fixtures or articles used in the development of the Loan Inventory or construction of improvements on the Loan Inventory including, without limitation, the Dwellings. 5.11 Inspection and Appraisal. The Borrower shall permit the ------------------------ Administrative Agent and the Banks and their authorized agents to enter upon the Inventory during normal working hours and as often as they desire, for the purpose of inspecting or appraising the Loan Inventory or the construction of the Dwellings. 5.12 Fees and Expenses. The Borrower shall pay when due all commitment and ----------------- renewal fees and external legal fees incurred by the Administrative Agent in connection with the making of the Loans. 5.13 Hazardous Substances. The Borrower warrants and represents to the -------------------- Administrative Agent, Issuing Bank and the Banks that to the best of their knowledge and belief -34- and based on environmental assessments of the Inventory commissioned by the Borrower, except to the extent disclosed to the Administrative Agent in environmental assessments or other writings or to the extent that it would not materially and adversely affect the use and marketability of any Inventory, the Inventory has not been and is not now being used in violation of any federal, state or local environmental law, ordinance or regulation, that no proceedings have been commenced, or notice(s) received, concerning any alleged violation of any such environmental law, ordinance or regulation, and that the Inventory is free of hazardous or toxic substances and wastes, contaminants, oil, radioactive or other materials the removal of which is required or the maintenance of which is restricted, prohibited or penalized by any federal, state or local agency, authority or governmental unit except as set forth in the site assessments. The Borrower covenants that it shall neither permit any such materials to be brought on to the Inventory, nor shall it acquire real property to be added to the Loan Inventory upon which any such materials exist, except to the extent disclosed to the Administrative Agent in environmental assessments or other writings or to the extent that it would not materially and adversely affect the use and marketability of any Inventory; and if such materials are so brought or found located thereon, such materials shall be immediately removed, with proper disposal, to the extent required by applicable environmental laws, ordinances and regulations, and all required environmental cleanup procedures shall be diligently undertaken pursuant to all such laws, ordinances and regulations. The Borrower further represents and warrants that the Borrower will promptly transmit to the Administrative Agent and the Banks copies of any citations, orders, notices or other material governmental or other communications received with respect to any hazardous materials, substances, wastes or other environmentally regulated substances affecting the Inventory. Notwithstanding the foregoing, there shall not be a default of this provision should the Borrower store or use minimal quantities of the aforesaid materials, provided that: such substances are of a type and are held only in a quantity normally used in connection with the construction, occupancy or operation of comparable buildings or residential developments (such as cleaning fluids and supplies normally used in the day to day operation of residential developments), such substances are being held, stored and used in complete and strict compliance with all applicable laws, regulations, ordinances and requirements, and the indemnity set forth below shall always apply to such substances, and it shall continue to be the responsibility of the Borrower to take all remedial actions required under and in accordance with this Agreement in the event of any unlawful release of any such substance. 5.14 Insurance. The Borrower shall keep the Inventory comprising the Loan --------- Inventory insured by responsible insurance companies in such amounts and against such risks as is customary for owners of similar businesses and properties in the same general areas in which the Borrower and its Restricted Subsidiaries operate or, to the customary extent (and in a manner approved by the Administrative Agent) the Borrower may be self insured. All insurance herein provided for shall be in form and with companies reasonably approved by the Administrative Agent. The Borrower shall also maintain general liability insurance, workman's compensation insurance, automobile insurance for all vehicles owned by them and any other insurance reasonably required by the Administrative Agent, to the extent commercially available at a reasonable cost. On the Agreement Date, the Borrower shall deliver to the Administrative Agent a copy of a certificate of insurance evidencing the insurance required hereunder. In addition, on -35- the date of delivery of each report required by Section 3.1(b) hereof, the Borrower shall certify to the Administrative Agent that all insurance policies required to be maintained hereunder remain in full force and effect. 5.15 Litigation. The Borrower warrants and represents to the ---------- Administrative Agent, the Issuing Bank and the Banks that as of the Agreement Date, neither the Borrower nor any Restricted Subsidiary is a party to any litigation having a reasonable probability of being adversely determined to the Borrower or any Restricted Subsidiary which, if adversely determined, would impair the ability of the Borrower to carry on its business substantially as now conducted or contemplated or would materially adversely affect the financial condition, business or operations of the Borrower. 5.16 Reportable Event. Promptly after Borrower receives notice or ---------------- otherwise becomes aware thereof, the Borrower shall notify the Administrative Agent of the occurrence of any Reportable Event with respect to any Plan as to which the Pension Benefit Guaranty Corporation has not by regulation waived the requirement of Section 4043(a) of ERISA that it be notified within thirty (30) days of the occurrence of such event (provided that the Borrower shall give the Administrative Agent notice of any failure to meet the minimum funding standards of Section 412 of the Code or Section 302 of ERISA, regardless of the issuance of any waivers in accordance with Section 412(d) of the Code. 5.17 Secured Indebtedness. The Borrower shall not, and shall not permit -------------------- any of its Restricted Subsidiaries to, incur or permit to exist any Indebtedness which (a) is secured in whole or in part by any of the Inventory (other than Permitted Encumbrances) or (b) contains any provision requiring the Borrower or any Restricted Subsidiary to grant to the lender thereunder any Lien at a future date or upon the occurrence of any subsequent event; except that the Borrower and its Restricted Subsidiaries may incur (i) Indebtedness in favor of a seller of Inventory to the Borrower which is secured solely by the Inventory contemporaneously acquired from such seller, (ii) Indebtedness secured solely by the Borrower's headquarters building located in Arlington, Texas or any other office building owned by the Borrower or any Restricted Subsidiary, and (iii) Indebtedness secured by any clubhouse located in any development of the Borrower or any Restricted Subsidiary. 5.18 Interest Rate Hedging. At all times during the term hereof, the --------------------- Borrower shall enter into and maintain one or more interest hedge agreements having a notional amount equal to $100,000,000 such that the weighted average term of all such interest hedge agreements is not less than three (3) years from the Agreement Date. Any such interest hedge agreement shall provide such interest rate protection in conformity with International Swap Dealers Association standards on terms reasonably acceptable to the Administrative Agent, such terms to include consideration of the creditworthiness of the other party to such interest rate hedge agreements. For purposes hereof, indebtedness having a fixed rate of interest shall be deemed subject to an interest rate hedge agreement having a notional amount equal to the principal amount thereon and having an interest rate equal to the interest rate thereon. -36- ARTICLE 6 DEFAULT AND REMEDIES -------------------- 6.1 Defaults. Each of the following shall constitute a Default, whatever -------- the reason for such event and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment or order of any court or any order, rule, or regulation of any governmental or non-governmental body: (a) Any representation or warranty made under this Agreement shall prove incorrect or misleading in any material respect when made or deemed to have been made; (b) The Borrower shall default in the payment of any principal, interest or other monetary amounts payable hereunder or under the Notes, or any of them, or under the other Loan Documents (other than payments due on the Revolving Loan Maturity Date or the Term Loan Maturity Date, as the case may be) which payment default is not cured within thirty (30) calendar days of Borrower's receipt of notice from the Administrative Agent; (c) The Borrower shall default in the performance or observance of any other agreement or covenant contained in this Agreement not specifically referred to elsewhere in this Section 6.1, and such Event of Default shall not be cured to the Majority Banks' satisfaction within a period of ninety (90) days from the date the Borrower receives notice from the Administrative Agent with respect thereto; (d) There shall occur any Event of Default in the performance or observance of any agreement or covenant or breach of any representation or warranty contained in any of the Loan Documents (other than this Agreement or as otherwise provided in this Section 6.1 of this Agreement) or any Subsidiary Guaranty, which shall not be cured to the Majority Banks' satisfaction within the applicable cure period, if any, provided for in such Loan Document or ninety (90) days from the date the Borrower receives notice from the Administrative Agent with respect thereto if no cure period is provided in such Loan Document; (e) There shall be entered a decree or order for relief in respect of the Borrower or any of its Restricted Subsidiaries under Title 11 of the United States Code, as now constituted or hereafter amended, or any other applicable federal or state bankruptcy law or other similar law, or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator, or similar official of the Borrower or any of its Restricted Subsidiaries, or of any substantial part of their respective properties, or ordering the winding-up or liquidation of the affairs of the Borrower or any of its Restricted Subsidiaries, or an involuntary petition shall be filed against the Borrower or any of its Restricted Subsidiaries, and a temporary stay entered, and (i) such petition and stay shall not be diligently contested, or (ii) any such petition and stay shall continue undismissed for a period of thirty (30) consecutive days; -37- (f) The Borrower or any of its Restricted Subsidiaries shall file a petition, answer, or consent seeking relief under Title 11 of the United States Code, as now constituted or hereafter amended, or any other applicable federal or state bankruptcy law or other similar law, or the Borrower or any of its Restricted Subsidiaries shall consent to the institution of proceedings thereunder or to the filing of any such petition or to the appointment or taking of possession of a receiver, liquidator, assignee, trustee, custodian, sequestrator, or other similar official of the Borrower or any of its Restricted Subsidiaries, or of any substantial part of their respective properties, or the Borrower or any of its Restricted Subsidiaries shall fail generally to pay their respective debts as they become due, or the Borrower or any of its Restricted Subsidiaries shall take any corporate or partnership action to authorize any such action; (g) A final judgment shall be entered by any court against the Borrower or any of its Restricted Subsidiaries for the payment of money which exceeds $500,000.00, which judgment is not covered by insurance or a warrant of attachment or execution or similar process shall be issued or levied against property of the Borrower or any of its Restricted Subsidiaries which, together with all other such property of the Borrower or any of its Restricted Subsidiaries subject to other such process, exceeds in value $500,000.00 in the aggregate, and if, within thirty (30) days after the entry, issue, or levy thereof, such judgment, warrant, or process shall not have been paid or discharged or bonded or stayed pending appeal, or if, after the expiration of any such stay, such judgment, warrant, or process shall not have been paid or discharged; (h) (1) There shall be at any time any "accumulated funding deficiency," as defined in ERISA or in Section 412 of the Code, with respect to any Plan; or (2) a trustee shall be appointed by a United States District Court to administer any Plan; or the Pension Benefit Guaranty Corporation shall institute proceedings to terminate any Plan; or (3) any of the Borrower and its ERISA Affiliates shall incur any liability to the Pension Benefit Guaranty Corporation in connection with the termination of any Plan; or (4) any Plan or trust created under any Plan of any of the Borrower and its ERISA Affiliates shall engage in a non-exempt "prohibited transaction" (as such term is defined in Section 406 of ERISA or Section 4975 of the Code) which would subject the Borrower or any ERISA Affiliate to the tax or penalty on "prohibited transactions" imposed by Section 502 of ERISA or Section 4975 of the Code; and by reason of any or all of the events described in clauses (1) through (4), as applicable, the Borrower shall have incurred or is likely to incur liability in excess of $1,000,000.00 in the aggregate; (i) All or any portion of any Loan Document shall at any time and for any reason be declared by a court of competent jurisdiction in a suit with respect to such Loan Document to be null and void, or a proceeding shall be commenced by any governmental authority involving a legitimate dispute or by the Borrower or any of its Restricted Subsidiaries, having jurisdiction over the Borrower or any of its Restricted Subsidiaries, seeking to establish the invalidity or unenforceability thereof (exclusive of questions of interpretation of any provision thereof), or the Borrower or any of its Restricted Subsidiaries shall deny that it has any liability or obligation for the payment of principal or interest purported to be created under any Loan Document; -38- (j) There shall occur any Change of Control; (k) Except for conveyances of all or any part of the Loan Inventory between the Borrower and the Guarantors there occurs any sale, lease, conveyance, assignment, pledge, encumbrance, or transfer of all or any part of the Loan Inventory or any interest therein, voluntarily or involuntarily, whether by operation of law or otherwise, except (i) in accordance with the terms of this Agreement, (ii) for execution of contracts with prospective purchasers, (iii) for Permitted Encumbrances, and (iv) in the ordinary course of business; (l) Except in the normal course of Borrower's development of inventory into Developed Lots and construction of Dwellings thereon, without the prior written consent of Administrative Agent, Borrower grants any easement or dedication, files any plat, condominium declaration, or restriction or otherwise encumbers all or any portion of the Loan Inventory, or seeks or permits any zoning reclassification or variance, unless such action is expressly permitted by the Loan Documents or does not affect any Inventory which is part of the Loan Inventory; or Notwithstanding anything contained herein to the contrary, the occurrence of any of the foregoing shall not be a Default or an Event of Default hereunder if: (i) the occurrence pertains only to specific parcel(s) within the Loan Inventory; and (ii) the affected parcel(s) is (are) removed from the Loan Inventory on or before ten (10) days in the case of a monetary occurrence and thirty (30) days in the case of a non-monetary occurrence after the occurrence or, if the Borrower is entitled to notice and cure, within the applicable notice and cure period. In the event that any such parcel is a Lot Under Development, Developed Lot or Dwelling Lot, then the Loan Funding Availability shall be immediately calculated excluding such parcel. If, as the result of such removal, the outstanding principal balance under all Unsecured Indebtedness together with any unreimbursed draws under Letters of Credit would exceed the Loan Funding Availability, the Borrower shall pay (X) to the Administrative Agent on the Reconciliation Date immediately following the removal of such Inventory from the Loan Inventory, a principal payment on the Loans in an amount sufficient to eliminate such excess of the aggregate outstanding principal balance of all Unsecured Indebtedness and unreimbursed draws under Letters of Credit over the Loan Funding Availability, together with any due and unpaid interest on such excess or (Y) add additional Inventory to the Loan Inventory (which is acceptable to the Administrative Agent) in an amount sufficient to cause the Loan Funding Availability to equal or exceed the Loans and unreimbursed draws under Letters of Credit. 6.2 Remedies. If a Default shall have occurred and shall be continuing: -------- (a) With the exception of a Default specified in Sections 6.1(e), (f) or (g) hereof, the Administrative Agent shall at the request, or may with the consent, of the Super-Majority Banks, by notice to the Borrower (i) declare the Notes, all interest thereon and all other amounts payable under this Agreement and the other Loan Documents to be forthwith due and payable, whereupon the Notes, all such interest and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower, (ii) terminate the Revolving Loan -39- Commitment and the Letter of Credit Commitment, and (iii) require the Borrower to, and the Borrower shall thereupon, deposit in the Letter of Credit Reserve Account, an amount equal to the maximum amount currently or at any time thereafter to be drawn on all outstanding Letters of Credit, and the Borrower hereby pledges to the Administrative Agent, the Letter of Credit Banks and the Issuing Bank and grants to them a security interest in, all such cash as security for the Obligations. (b) Upon the occurrence of a Default under Sections 6.1(e), (f) or (g) hereof, the Revolving Loan Commitment and the Letter of Credit Commitment shall automatically terminate and such principal, interest (including without limitation, interest which would have accrued but for the commencement of a case or proceeding under the federal bankruptcy laws), Letter of Credit Obligations and other amounts payable under this Agreement or the Notes shall thereupon and concurrently therewith become due and payable, all without any action by the Administrative Agent, the Issuing Bank or the Banks or the holders of the Notes, and the Borrower shall thereupon forthwith deposit in the Letter of Credit Reserve Account an amount equal to all outstanding Letter of Credit Obligations, all without presentment, demand, protest or other notice of any kind, all of which are expressly waived, anything in this Agreement or in the Notes to the contrary notwithstanding, and the Borrower hereby pledges to the Administrative Agent, the Letter of Credit Banks and the Issuing Bank, and grants to the Administrative Agent, the Letter of Credit Banks and the Issuing Bank a security interest in, all such cash as security for the Obligations. (c) [Reserved] (d) The Administrative Agent, with the concurrence of the Super- Majority Banks, shall exercise all of the post-default rights granted to it and to them under the Loan Documents or under Applicable Law. (e) The rights and remedies of the Administrative Agent, the Issuing Bank and the Banks hereunder shall be cumulative, and not exclusive. 6.3 Waivers. Neither a waiver of any Default or Event of Default by the ------- Borrower hereunder nor any representation by a Bank or Banks as to the nonoccurrence or nonexistence thereof shall be implied from any delay or omission by any one or all of the Banks to notify the Borrower thereof or to take action on account of such Default or Event of Default, and no express waiver shall affect any Default or Event of Default other than the matter specified in the waiver and it shall be operative only for the time and to the extent therein stated. Waivers of any covenants, terms or conditions contained herein must be in writing and shall not be construed as a waiver of any subsequent breach of the same covenant, term or condition. Any one or all of the Banks' consent or approval to or of any act by the Borrower requiring further consent or approval shall not be deemed to waive or render unnecessary the consent or approval to or of any subsequent or similar act. Any one or all of the Banks' exercise of any right or remedy or hereunder shall not in any way constitute a cure or waiver of a Default or an Event of Default, or invalidate any act done pursuant to any notice of the occurrence of a Default or an Event of -40- Default, or prejudice the Banks in the exercise of any of their rights hereunder or under the Notes or any other Loan Documents, unless, in the exercise of said rights, the Banks realize all amounts owed to them under the Notes and other Loan Documents. 6.4 Cross-Default. All of the Notes and other Loan Documents are "cross ------------- defaulted" such that (a) the occurrence of an Event of Default under any one of the Loan Documents shall constitute an Event of Default under this Agreement and all of the Loan Documents and (b) the occurrence of a Default under any one of the Loan Documents shall constitute a Default under this Agreement and all of the other Loan Documents. 6.5 No Liability of the Banks. ------------------------- (a) Construction and/or Development. None of the Banks, the ------------------------------- Administrative Agent or the Issuing Bank shall be liable to any party for (i) the development of or construction upon any of the Inventory, (ii) the failure to develop or construct or protect improvements on the Inventory, (iii) the payment of any expense incurred in connection with the development of or construction upon the Inventory, (iv) the performance or nonperformance of any other obligation of the Borrower, or (v) the Banks' or the Administrative Agent's exercise of any remedy available to them. In addition, the Banks shall not be liable to the Borrower or any third party for the failure of the Banks or their authorized agents to discover or to reject materials or workmanship during the course of the Banks' inspections of the Inventory. (b) Dwelling Lots. In addition to 6.5(a) above, none of the Banks, ------------- the Administrative Agent or the Issuing Bank shall be liable to any party for (i) the construction or completion of the Dwellings, (ii) the failure to construct, complete or protect the Dwellings, (iii) the payment of any expense incurred in connection with the construction of the Dwellings, (iv) the performance or nonperformance of any other obligation of the Borrower, or (v) the Banks' or the Administrative Agent's exercise of any remedy available to them. In addition, the Banks shall not be liable to the Borrower or any third party for the failure of the Banks or their authorized agents to discover or to reject materials or workmanship during the course of the Banks' inspections of the Dwelling Lots. (c) Other Banks. The obligations of each Bank under this Agreement ----------- are separate and independent such that no action, inaction or responsibility of one Bank shall be imputed to the remaining Banks. The Borrower hereby waives any claim or demand against each Bank as to the action, inaction or responsibility of another. ARTICLE 7 THE ADMINISTRATIVE AGENT. ------------------------ 7.1 Appointment and Authorization. Each Bank hereby irrevocably appoints ----------------------------- and authorizes, and hereby agrees that it will require any transferee of any of its interest in its Loans -41- and in its Notes irrevocably to appoint and authorize, the Administrative Agent to take such actions as its agent on its behalf and to exercise such powers hereunder as are delegated by the terms hereof, together with such powers as are reasonably incidental thereto. Neither the Administrative Agent nor any of its directors, officers, employees, or agents shall be liable to any Bank (or any transferee thereof) for any action taken or omitted to be taken by it or them hereunder or in connection herewith (including, without limitation, the granting or withholding of approval of any matter), except for its or their own gross negligence or willful misconduct. The Banks hereby each acknowledge and agree that the Administrative Agent may, absent actual knowledge to the contrary, rely upon certifications of the Borrower with respect to Inventory, financial covenant compliance, covenant compliance and all matters related thereto. The Administrative Agent shall endeavor to exercise its rights and responsibilities under this Agreement in accordance with its usual practices for borrowers similar to the Borrower, but the Administrative Agent shall not be liable to the Banks with respect to errors or omissions with respect to the foregoing unless they are the result of the gross negligence or willful misconduct of the Administrative Agent. 7.2 Delegation of Duties. The Administrative Agent may execute any of its -------------------- duties under the Loan Documents by or through agents or attorneys selected by it using reasonable care and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Administrative Agent shall not be responsible to any Bank for the negligence or misconduct of any agents or attorneys selected by it with reasonable care. 7.3 Interest Holders. The Administrative Agent may treat each Bank, or ---------------- the Person designated in the last notice filed with the Administrative Agent under this Section 7.3, as the holder of all of the interests of such Bank in its Loans and in its Notes until written notice of transfer, signed by such Bank (or the Person designated in the last notice filed with the Administrative Agent) and by the Person designated in such written notice of transfer, in form and substance satisfactory to the Administrative Agent, shall have been filed with the Administrative Agent. 7.4 Consultation with Counsel. The Administrative Agent may consult with ------------------------- legal counsel selected by it and shall not be liable to any Bank (or transferee thereof) for any action taken or suffered by it in good faith in reliance thereon. 7.5 Documents. The Administrative Agent shall be under no duty to --------- examine, inquire into, or pass upon the validity, effectiveness, or genuineness of this Agreement, any Note, or any instrument, document, or communication furnished pursuant hereto or in connection herewith, and the Administrative Agent shall be entitled to assume that they are valid, effective, and genuine, have been signed or sent by the proper parties, and are what they purport to be. 7.6 Administrative Agent and Affiliates. The Administrative Agent and its ----------------------------------- affiliates may accept deposits from, administer depository accounts for and generally engage in any kind of business with the Borrower or any Affiliates of, or Persons doing business with, the Borrower, without any obligation to account to any Bank (or any transferee thereof) therefor. -42- 7.7 Responsibility of the Administrative Agent. The duties and ------------------------------------------ obligations of the Administrative Agent under this Agreement are only those expressly set forth in this Agreement. The Administrative Agent shall be entitled to assume that no Default or Event of Default has occurred and is continuing unless it has actual knowledge, or has been notified by the Borrower, of such fact and has either determined that a Default or an Event of Default has occurred or has been notified by a Bank that such Bank considers that a Default or an Event of Default has occurred and is continuing, and such Bank shall specify in detail the nature thereof in writing. The Administrative Agent shall not be liable hereunder to any Bank (or any transferee thereof) for any action taken or omitted to be taken except for its own gross negligence or willful misconduct. The Administrative Agent shall provide each Bank with copies of such documents received from the Borrower as such Bank may reasonably request. 7.8 Action by Administrative Agent. ------------------------------ (a) Except for action requiring the approval of the Majority Banks, the Super-Majority Banks or all Banks, the Administrative Agent shall be entitled to use its discretion with respect to exercising or refraining from exercising any rights which may be vested in it by, and with respect to taking or refraining from taking any action or actions which it may be able to take under or in respect of, this Agreement, unless the Administrative Agent shall have been instructed by the Majority Banks or the Super-Majority Banks, as the case may be, to exercise or refrain from exercising such rights or to take or refrain from taking such action, provided that the Administrative Agent shall not exercise any rights under Section 6.2(a) of this Agreement without the request of the Majority Banks or the Super-Majority Banks, as the case may be. The Administrative Agent shall incur no liability to any Bank (or any transferee thereof) under or in respect of this Agreement with respect to anything which it may do or refrain from doing in the reasonable exercise of its judgment or which may seem to it to be necessary or desirable in the circumstances, except for its gross negligence or willful misconduct. (b) The Administrative Agent shall not be liable to the Banks or to any Bank in acting or refraining from acting under this Agreement in accordance with the instructions of the Majority Banks or the Super-Majority Banks, as the case may be, and any action taken or failure to act pursuant to such instructions shall be binding on all Banks. (c) The Borrower shall have the right to rely upon actions and representations of the Administrative Agent in the performance of its duties hereunder (including, without limitation, representations with respect to amendments or waivers pursuant to Section 8.3 hereof), without regard to whether such actions or representations are actually authorized by the Banks or any of them and without seeking confirmation or ratification of such actions or representations. 7.9 Notice of Default or Event of Default. In the event that the ------------------------------------- Administrative Agent or any Bank shall acquire actual knowledge, or shall have been notified in writing, of any Default or Event of Default, the Administrative Agent or such Bank shall promptly notify the Banks and the Administrative Agent, and the Administrative Agent shall take such action and assert such rights under this Agreement as the Majority Banks or Super-Majority Banks (as applicable) shall -43- request in writing, and the Administrative Agent shall not be subject to any liability by reason of its acting pursuant to any such request. If the Majority Banks or Super-Majority Banks (as applicable) shall fail to request the Administrative Agent to take action or to assert rights under this Agreement in respect of any Default or Event of Default within ten (10) days (or shorter period as set forth in such notice) after their receipt of the notice of any Default or Event of Default from the Administrative Agent, or shall request inconsistent action with respect to such Default or Event of Default, the Administrative Agent may, but shall not be required to, take such action and assert such rights (other than rights under Article 6 hereof) as it deems in its discretion to be advisable for the protection of the Banks, except that, if the Majority Banks or Super-Majority Banks (as applicable) have instructed the Administrative Agent not to take such action or assert such right, in no event shall the Administrative Agent act contrary to such instructions. 7.10 Responsibility Disclaimed. The Administrative Agent, in its capacity ------------------------- as Administrative Agent, shall be under no liability or responsibility whatsoever as Administrative Agent: (a) To the Borrower or any other Person or entity as a consequence of any failure or delay in performance by or any breach by, any Bank or Banks of any of its or their obligations under this Agreement; (b) To any Bank or Banks, as a consequence of any failure or delay in performance by, or any breach by, the Borrower or any other obligor of any of its obligations under this Agreement or the Notes or any other Loan Document; or (c) To any Bank or Banks for any statements, representations, or warranties in this Agreement, or any other document contemplated by this Agreement or any information provided pursuant to this Agreement, any other Loan Document, or any other document contemplated by this Agreement, or for the validity, effectiveness, enforceability, or sufficiency of this Agreement, the Notes, any other Loan Document, or any other document contemplated by this Agreement. 7.11 Indemnification. The Banks agree to indemnify the Administrative --------------- Agent (to the extent not reimbursed by the Borrower) pro rata according to their respective Commitment Ratios, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including fees and expenses of experts, agents, consultants, and counsel), or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Administrative Agent in any way relating to or arising out of this Agreement, any other Loan Document, or any other document contemplated by this Agreement or any action taken or omitted by the Administrative Agent under this Agreement, any other Loan Document, or any other document contemplated by this Agreement, except that no Bank shall be liable to the Administrative Agent for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, or disbursements resulting from the gross negligence or willful misconduct of the Administrative Agent. The provisions of this Section 7.11 shall survive the termination of this Agreement. -44- 7.12 Credit Decision. Each Bank represents and warrants to each other and --------------- to the Administrative Agent that: (a) In making its decision to enter into this Agreement and to make Advances it has independently taken whatever steps it considers necessary to evaluate the financial condition and affairs of the Borrower and that it has made an independent credit judgment, and that it has not relied upon information provided by the Administrative Agent; and (b) So long as any portion of the Loans or Letter of Credit Obligations remains outstanding, it will continue to make its own independent evaluation of the financial condition and affairs of the Borrower. 7.13 Successor Administrative Agent. Subject to the appointment and ------------------------------ acceptance of a successor Administrative Agent (which shall be any Bank or a commercial Issuing Bank organized under the laws of the United States of America or any political subdivision thereof which has combined capital and reserves in excess of $250,000,000) as provided below, the Administrative Agent may resign at any time by giving written notice thereof to the Banks and the Borrower and may be removed at any time for cause by the Majority Banks. Upon any such resignation or removal, the Majority Banks shall have the right to appoint a successor Administrative Agent. If no successor Administrative Agent shall have been so appointed by the Majority Banks, and shall have accepted such appointment within thirty (30) days after the retiring Administrative Agent's giving of notice of resignation or the Majority Banks' removal of the retiring Administrative Agent, then the retiring Administrative Agent may, on behalf of the Banks, appoint a successor Administrative Agent which shall be any Issuing Bank or a commercial bank organized under the laws of the United States of America or any political subdivision thereof which has combined capital and reserves in excess of $250,000,000. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges, duties, and obligations of the retiring Administrative Agent, and, after fully performing its obligations pursuant to Section 2.8 hereof as to all payments received by it, the retiring Administrative Agent shall be discharged from its duties and obligations hereunder. After any retiring Administrative Agent's resignation or removal hereunder as Administrative Agent, the provisions of this Section 7.13 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as the Administrative Agent. 7.14 Documentation Agent. The Documentation Agent shall have no duties or ------------------- obligations under this Agreement or the other Loan Documents in its capacity as Documentation Agent. -45- ARTICLE 8 GENERAL CONDITIONS ------------------ 8.1 Benefit. This Agreement is made and entered into for the sole ------- protection and benefit of the Administrative Agent, the Issuing Bank and the Banks and the Borrower, their successors and assigns, and no other person or persons other than the Borrower shall have any right of action hereon or rights to the Loan proceeds at any time. None of the Administrative Agent, the Issuing Bank or the Banks shall (a) owe any duty whatsoever to any claimant for labor performed or material furnished in connection with the construction of any Dwelling or improvement on any Inventory, or (b) owe any duty to apply any undisbursed portion of the Loan to the payment of any claim, or (c) owe any duty to exercise any right or power of the Banks hereunder or arising from any Default by the Borrower. 8.2 Assignment. The terms hereof shall be binding upon and inure to the ---------- benefit of the heirs, successors, assigns, and personal representatives of the parties hereto; provided, however, that the Borrower shall not assign this Agreement or any of its rights, interests, duties or obligations hereunder or any Loan proceeds or other monies to be advanced hereunder in whole or in part without the prior written consent of the Banks and any such assignment (whether voluntary or by operation law) without said consent shall be void and render automatically terminated any obligation of any Bank hereunder to advance any further monies pursuant to this Agreement or any other Loan Document. Any Bank may assign its rights and obligations under this Agreement, the Notes and any other Loan Documents, in whole or in part, to any other Person, provided that all of the provisions hereof shall continue in full force and effect and, in the event of such assignment, such Bank shall thereafter be relieved of all liability hereunder with respect to actions or omissions of such Bank occurring thereafter, but only to the extent of the interest so assigned and any Loan disbursements made by any assignee(s) shall be deemed made in pursuance and not in modification hereof and shall be evidenced by the applicable Note and any other Loan Documents. Notwithstanding the foregoing, (i) with the prior written consent of the Administrative Agent only, a Bank may assign not less than one hundred percent (100%) of its interest, rights and obligations hereunder, and (ii) without the prior written consent of all of the other Banks, no Bank shall have the right to assign any portion of its interest, rights or obligations hereunder to any other Person unless (a) such assignment is in compliance with clause (i) of this sentence, or (b) in all other cases, (1) the assignee shall assume all of the obligations of the assigning Bank under this Agreement, to the extent of the interest so assigned, and (2) following such assignment, each of the assigning Bank and the assignee shall maintain a Commitment Ratio of not less than five percent (5%). Notwithstanding anything in this Section 8.2 to the contrary, any Bank may enter into participation agreements with any other Person, so long as such agreement does not confer any rights under this Agreement, any other Loan Document or the Subsidiary Guaranty to any purchaser thereof, or relieve such Bank from any of its Obligations under this Agreement (it being understood that all actions hereunder shall be conducted as if no such participation had been granted). All assignments permitted hereunder shall be made pursuant to an Assignment and Assumption Agreement in substantially the form of Exhibit H attached hereto. --------- -46- 8.3 Amendment and Waiver. Neither this Agreement nor any term hereof may -------------------- be amended orally, nor may any provision hereof be waived orally but only by an instrument in writing signed by the Majority Banks and, in the case of an amendment, also by the Borrower, except that in the event of: (a) any (i) amendment or waiver having a duration of more than ninety (90) days or (ii) direction to the Administrative Agent regarding termination of the Commitments, acceleration, or exercise of remedies, any action may be made only by an instrument in writing signed by the Super- Majority Banks; (b) (i) any change in the timing of, or the amount of, payments of fees due hereunder or in the method of calculating funding availability, (ii) any waiver of any Event of Default due to the failure by the Borrower to pay any sum due hereunder, (iii) any amendment of this Section 8.3 or of the definitions of Majority Banks or Super-Majority Banks, or (iv) the release of any Guarantor other than in connection with the conversion of such Guarantor to an Unrestricted Subsidiary or in accordance with Section 3.1(f) hereof, any amendment or waiver may be made only by an instrument in writing signed by each of the Banks; (c) (i) any change in the Amount of the Revolving Loan Commitment, (ii) any change in the timing of or the amount of payments of principal, interest or fees due with respect to the Revolving Loans or any change in the rate of interest applied thereto, any change may be made only by an instrument signed by each of the Banks holding Revolving Loan Commitments; and (d) (i) any change in the Amount of the Term Loan Commitment, (ii) any change in the timing of or the amount of payments of principal, interest or fees due with respect to the Term Loans or any change in the rate of interest applied thereto may be made only by an instrument signed by each of the Banks holding Term Loan Commitments. Any amendment to accomplish any of the foregoing must also be signed by the Borrower. Each Bank hereby acknowledges and agrees that a response to any request for action by the Administrative Agent shall be made within ten (10) days from the receipt of such request and that the failure to respond within such period shall be deemed to be an acceptance by such Bank of the course of action recommended by the Administrative Agent. 8.4 Additional Obligations and Amendments. The Banks shall be under no ------------------------------------- obligation to extend any loans to the Borrower other than as specifically set forth in this Agreement. This Agreement shall not be amended except by a written instrument signed by all parties hereto which instrument contains a specific reference to this Agreement. Each Bank agrees that it will not enter into any financing agreement with the Borrower or any of its Restricted Subsidiaries without the consent of all of the Banks. -47- 8.5 Consideration of Renewal. The Banks agree that no later than thirty ------------------------ (30) calendar days prior to each anniversary of the Agreement Date, representatives of the Banks will consult with each other to determine whether the Banks are willing, in their sole and absolute discretion, to extend the Revolving Loan Maturity Date and/or the Letter of Credit Maturity Date for a period of not more than one (1) calendar year from the then current Revolving Loan Maturity Date or Letter of Credit Maturity Date, as the case may be. Notwithstanding the foregoing, if there has occurred a Change of Management, the Banks shall not have any obligation to consult, as to any proposed extension of either the Revolving Loan Maturity Date or the Letter of Credit Maturity Date, with any Bank which has not approved, in writing, such Change of Management. The Administrative Agent shall, within a reasonable period of time thereafter, advise the Borrower whether the Banks are willing to so extend the Revolving Loan Maturity Date or the Letter of Credit Maturity Date. If the Banks and the Borrower agree to so extend the Revolving Loan Maturity Date or the Letter of Credit Maturity Date, such agreement shall be evidenced by appropriate amendments to the Loan Documents, executed by all applicable parties. In the event that any Bank does not agree to extend the Revolving Loan Maturity Date and/or the Letter of Credit Maturity Date, the Revolving Loan Maturity Date then in effect with respect to such Bank's Revolving Loans shall remain unchanged, and the Borrower in its sole discretion may (a) repay in full (together with all accrued interest and fees with respect thereto) such Bank's Term Loan, without respect to any other provisions herein, or (b) may require such Bank to assign without recourse or warranty one-hundred percent (100%) of its Term Loan (and such Bank hereby agrees to so assign) to a replacement bank designated by the Borrower (and acceptable to the Administrative Agent) which assignment shall be effective upon receipt by such Bank of payment in full of all Obligations then outstanding to such Bank. 8.6 Terms. Whenever the context and construction require, all words used ----- in the singular number herein shall be deemed to have been used in the plural, and vice versa, and the masculine gender shall include the feminine and neuter and the neuter shall include the masculine and feminine. 8.7 Governing Law and Jurisdiction. This Agreement shall be construed in ------------------------------ accordance with the laws of the State of Georgia, and such laws shall govern the interpretation, construction and enforcement hereof. For the purposes of any legal action or proceeding brought by the Administrative Agent or the Banks with respect to this Agreement or the Loan Documents, the Borrower hereby irrevocably submits to the jurisdiction and venue of the Superior Court of Fulton County, Georgia, and hereby irrevocably designates and appoints CT Corporate System, 1201 Peachtree Street, N.E., Atlanta, Georgia 30361, as its authorized agent for service of process in the State of Georgia. The Borrower also hereby submits to the non-exclusive jurisdiction and venue of the United States District Court for the Northern District of Georgia for any action, suit or proceeding arising out of or relating to this Agreement or the Loan Documents. The Administrative Agent and the Banks shall for all purposes be entitled to treat such designee of Borrower as the authorized agent to receive for or on its behalf service of writs or summons or other legal process in Georgia; delivery of such service to such authorized agent shall be deemed to be made when delivered or mailed by certified mail addressed to such authorized agent, with a copy to the Borrower at the address of the Borrower last known to the Administrative -48- Agent, sent by overnight delivery service. In the event that, for any reason, such agent or its successor shall no longer serve as agent of the Borrower to receive service of process in the State of Georgia, the Borrower shall establish a successor so to serve, and shall advise the Administrative Agent thereof, so that at all times Borrower will maintain an agent to receive service of process in the State of Georgia on its behalf with respect to this Agreement and the Loan Documents. In the event that, for any reason, service of legal process cannot be made in the manner described above, such service may be made in such other manner permitted by law. The Borrower hereby irrevocably waives any objection it might now or hereafter be entitled to make with respect to the venue of any suit, action or proceeding arising out of or relating to this Agreement and the Loan Documents which is brought in the Superior Court of Fulton County, Georgia or, at the election of the Administrative Agent, in the United States District Court for the Northern District of Georgia, and the Borrower hereby irrevocably waives any right to claim that any such suit, action or proceeding brought in any such court has been brought in an incorrect forum. 8.8 Publicity. Subject to the Borrower's approval, the Administrative --------- Agent shall have the right to incorporate the names of the Banks into signage placed upon the Loan Inventory. Each Bank shall have the right to secure printed publicity through newspaper and other media concerning the Inventory and source of financing. 8.9 Attorneys' Fees. The Borrower shall pay on demand all attorneys' fees --------------- and other costs and expenses actually incurred by the Administrative Agent, the Documentation Agent, the Issuing Bank and the Banks, or any of them, in the enforcement of or preservation of the Banks', the Administrative Agent's or the Issuing Bank's rights under this Agreement and the other Loan Documents. To the full extent permitted by applicable law, the Borrower agrees to pay interest on any fees, costs or expenses due to the Administrative Agent, the Issuing Bank and the Banks, or any of them, under this Section 8.9 which are not paid when due at the Default Rate. In the event that any Loan Document contains a provision regarding enforcement or preservation of rights which is different from this Section 8.9, this Section 8.9 shall control. 8.10 Mandatory Arbitration. Any controversy or claim between or among the --------------------- parties hereto arising out of or relating to this Agreement, the Loan Documents or any related instruments including any claim based on or arising from an alleged tort, shall be determined by binding arbitration in accordance with the Federal Arbitration Act (or, if not applicable, the applicable state law), the Rules of Practice and Procedure for the Arbitration of Commercial Disputes of Endispute, Inc., doing business as J.A.M.S./Endispute ("J.A.M.S."), as amended -------- from time to time, and the "Special Rules" set forth below. In the event of any inconsistency, the Special Rules shall control. Judgment upon any arbitration award may be entered in any court having jurisdiction. Any party to this Agreement may bring an action, including a summary judgment or expedited proceeding, to compel arbitration of any controversy or claim to which this provision applies in any court having jurisdiction over such action. (a) Special Rules. The arbitration shall be conducted in the City of ------------- Atlanta, Georgia and administered by J.A.M.S. who will appoint an arbitrator; if J.A.M.S. is -49- unable or legally precluded from administering the arbitration, then the American Arbitration Association will serve. All arbitration hearings will be commenced within ninety (90) days of the demand for arbitration; further, the arbitrator shall only, upon a showing of cause, be permitted to extend the commencement of such hearing for up to an additional sixty (60) days. (b) Reservation of Rights. Nothing in this Loan Agreement shall be --------------------- deemed to (i) limit the applicability of any otherwise applicable statutes of limitation or repose and any waivers contained in this Loan Agreement; or (ii) be a waiver by a Bank or Banks of the protection afforded to it or them by 12 U.S.C. Sec. 91 or any substantially equivalent state law; or (iii) limit the right of a Bank or Banks (A) to exercise self help remedies such as (but not limited to) setoff, or (B) to obtain from a court provisional or ancillary remedies such as injunctive relief or the appointment of a receiver. The Administrative Agent may (or at the direction of the Majority Banks) exercise such self help remedies (including, without limitation, remedies under Section 6.2 hereof), or obtain such provisional or ancillary remedies before, during or after the pendency of any arbitration proceeding brought pursuant to this Loan Agreement. Neither the exercise of self help remedies nor the institution or maintenance of provisional or ancillary remedies shall constitute a waiver of the right of any party, including the claimant in any such action to arbitrate the merits of the controversy or claim occasioning resort to such remedies. No provision in this Agreement or any Loan Documents regarding submission to jurisdiction and/or venue in any court is intended or shall be construed to be in derogation of the provisions in this Agreement. 8.11 Invalidation of Provisions. In the event that any one or more of the -------------------------- provisions of this Agreement is deemed invalid by a court having jurisdiction over this Agreement or other similar authority, the Administrative Agent, the Issuing Bank and the Banks may, in their sole discretion, terminate this Agreement in whole or in part. 8.12 Execution in Counterparts. This Agreement may be executed in multiple ------------------------- counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same instrument. 8.13 Captions. The captions herein are inserted only as a matter of -------- convenience and for reference and in no way define, limit or describe the scope of this Agreement or the intent of any provision hereof. 8.14 Notices. All notices, requests, consents, demands and other ------- communications required or which any party desires to give hereunder or under any other Loan Document shall, unless other specifically provided in such other Loan Document, be deemed sufficiently given or furnished if (a) in writing and delivered by personal delivery, by courier, or by registered or certified United States mail, postage prepaid, addressed to the party to whom directed at the addresses specified below (unless changed by similar notice in writing given by the particular -50- party whose address is to be changed), (b) by telex with confirmation thereof in writing by sender pursuant to subsection (a) above, (c) facsimile to the facsimile number specified below with confirmation thereof in writing by sender pursuant to subsection (a) above, or (d) by oral communication with confirmation thereof in writing by the notifying party pursuant to subsection (a) above within three (3) business days after such oral communication. Any such notice or communication shall be deemed to have been given and to be effective either at the time of personal delivery or, in the case of courier or mail, as of the date of first attempted delivery at the address and in the manner provided herein, or, in the case of telex, when transmitted (answerback confirmed), or, in the case of facsimile, upon receipt or, in the case of oral communication, upon the effectiveness of written confirmation as hereinabove provided. Notwithstanding the foregoing, no notice of change of address shall be effective except upon receipt. This Section shall not be construed in any way to affect or impair any waiver of notice or demand provided in any Loan Document or to require giving of notice or demand to or upon any person in any situation or for any reason. BORROWER: -------- D. R. Horton, Inc. 1901 Ascension Boulevard Suite 100 Arlington, Texas 76006 Attn: David J. Keller and Ted I. Harbour Facsimile No.: (817) 856-8249 Telephone No.: (817) 856-8200 -51- ADMINISTRATIVE AGENT, AS ISSUING BANK AND AS A BANK: --------------------------------------------------- NationsBank, N.A. (South) 70 Mansell Court Roswell, Georgia 30076 Attn: Henry A. Dyer Facsimile No.: (770) 642-1261 Telephone No.: (770) 552-3559 With copy to: Powell, Goldstein, Frazer & Murphy 16th Floor 191 Peachtree St. N.E. Atlanta, Georgia 30303 Attn: W. Joseph Thompson Facsimile No.: (404) 572-6999 Telephone No.: (404) 572-6600 DOCUMENTATION AGENT AND AS A BANK: --------------------------------- Bank of America National Trust and Savings Association 5 Park Plaza Suite 500 Irvine, California 92714-8525 Attn: William D. Balfour, III, Vice President Facsimile No.: (714) 260-5639 Telephone No.: (714) 260-5698 BANKS: ----- First American Bank Texas, SSB The Princeton Tower 14651 Dallas Parkway Suite 400 Dallas, Texas 75240 Attn: Brady Hutka Facsimile No.: (972) 419-3394 Telephone No.: (972) 419-3407 -52- SouthTrust Bank of Alabama, National Association 420 North 20th Street Birmingham, Alabama 35203 Attn: Jordy Henson Facsimile No.: (205) 254-4879 Telephone No.: (205) 254-5004 Comerica Bank 1 Detroit Center 500 Woodward Avenue Detroit, Michigan 48226-3256 Attn: Kurt Strehlke Facsimile No.: (313) 222-9295 Telephone No.: (313) 222-9291 The First National Bank of Chicago Real Estate Finance One First National Plaza Suite 0151 Chicago, Illinois 60670-0151 Attn: Gregory A. Gilbert, Vice President Facsimile No.: (312) 732-1117 Telephone No.: (312) 732-2107 Bank One, Arizona, NA 201 N. Central 19th Floor Phoenix, Arizona 85004 Attn: Jennifer Pescatore Facsimile No.: (602) 221-4435 Telephone No.: (602) 221-2402 Sanwa Bank California Real Estate Industries 4041 MacArthur Boulevard Suite 100 Newport Beach, California 92660 Attn: Russ Wakeham Facsimile No.: (714) 852-1510 Telephone No.: (714) 662-6007 -53- AmSouth Bank of Alabama Commercial Real Estate, 9th Floor 1900 5th Avenue North Birmingham, Alabama 35203 Attn: Ronny Hudspeth Facsimile No.: (205) 326-4075 Telephone No.: (205) 307-4227 Fleet National Bank 111 Westminster Street Suite 800 Providence, Rhode Island 02903 Attn: Michael A. Cope Facsimile No.: (401) 278-5166 Telephone No.: (401) 278-5914 PNC Bank, National Association Two Tower Center 18th Floor East Brunswick, New Jersey 08816 Attn: Douglas G. Paul Facsimile No.: (908) 220-3755 Telephone No.: (908) 220-3566 Societe Generale, Southwest Agency 2001 Ross Avenue Suite 4800 Dallas, Texas 75201 Attn: Louis P. Laville, III Facsimile No.: (214) 979-1104 Telephone No.: (214) 979-2762 8.15 Final Agreement. THE WRITTEN LOAN DOCUMENTS REPRESENT THE FINAL --------------- ---------------------------------------------- AGREEMENT BETWEEN THE PARTIES HERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF - ------------------------------------------------------------------------------- PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES HERETO. - -------------------------------------------------------------------------- [THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] -54- IN WITNESS WHEREOF, the Borrower and the Banks have caused this Agreement to be executed by their duly authorized officers as of the day and year set forth above. BORROWER: D.R. HORTON, INC., a Delaware corporation Date of Execution: By: /s/ - ------------------ -------------------------------------- Title: ----------------------------------- [CORPORATE SEAL] ADMINISTRATIVE AGENT, NATIONSBANK, N.A. (SOUTH), a national DOCUMENTATION AGENT, banking association, as Administrative ISSUING BANK AND BANKS: Agent, Issuing Bank and as a Bank Date of Execution: By: /s/ - ------------------ -------------------------------------- Title: ----------------------------------- BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, a national banking association, as Documentation Agent and as a Bank Date of Execution: By: /s/ - ------------------ -------------------------------------- Title: ----------------------------------- FIRST AMERICAN BANK TEXAS, SSB, a Texas state savings bank, as a Bank Date of Execution: By: /s/ - ------------------ -------------------------------------- Title: -----------------------------------
D.R. HORTON, INC. MASTER LOAN AND INTER-CREDITOR AGREEMENT Signature Page 1 SOUTHTRUST BANK OF ALABAMA, NATIONAL ASSOCIATION, a national banking association, as a Bank Date of Execution: By: /s/ - ------------------ -------------------------------------- Title: ----------------------------------- COMERICA BANK, a Michigan banking corporation, as a Bank Date of Execution: By: /s/ - ------------------ -------------------------------------- Title: ----------------------------------- THE FIRST NATIONAL BANK OF CHICAGO, a national banking association, as a Bank Date of Execution: By: /s/ - ------------------ -------------------------------------- Title: ----------------------------------- BANK ONE, ARIZONA, NA, a national banking association, as a Bank Date of Execution: By: /s/ - ------------------ -------------------------------------- Title: ----------------------------------- SANWA BANK CALIFORNIA, a California corporation, as a Bank Date of Execution: By: /s/ - ------------------ -------------------------------------- Title: -----------------------------------
D.R. HORTON, INC. MASTER LOAN AND INTER-CREDITOR AGREEMENT Signature Page 2 AMSOUTH BANK OF ALABAMA, an Alabama banking corporation, as a Bank Date of Execution: By: /s/ - ------------------ -------------------------------------- Title: ----------------------------------- FLEET NATIONAL BANK, a national banking association, as a Bank Date of Execution: By: /s/ - ------------------ -------------------------------------- Title: ----------------------------------- PNC BANK, NATIONAL ASSOCIATION, a national banking association, as a Bank Date of Execution: By: /s/ - ------------------ -------------------------------------- Title: ----------------------------------- SOCIETE GENERALE, SOUTHWEST AGENCY, as a Bank Date of Execution: By: /s/ - ------------------ -------------------------------------- Title: -----------------------------------
D.R. HORTON, INC. MASTER LOAN AND INTER-CREDITOR AGREEMENT Signature Page 3
EXHIBIT A Bank Commitments ---------------- Bank Revolving Loan Term Loan Letter of ---- Revolving Loan Dollar Term Loan Dollar Credit Total Percentage* Commitment Percentage* Commitment Percentage* ----- ---------- ---------- ---------- ---------- ---------- NationsBank, N.A. (South) 31.5/275 $ 31,500,000 21/100 $ 21,000,000 12.5/25 Bank of America National Trust and Savings Association 31.5/275 $ 31,500,000 21/100 $ 21,000,000 12.5/25 First American Bank Texas, SSB 15/275 $ 15,000,000 10/100 $ 10,000,000 SouthTrust Bank of Alabama, National Association 15/275 $ 15,000,000 10/100 $ 10,000,000 Comerica Bank 25/275 $ 25,000,000 10/100 $ 10,000,000 The First National Bank of Chicago 16/275 $ 16,000,000 6/100 $ 6,000,000 Bank One, Arizona, NA 20/275 $ 20,000,000 10/100 $ 10,000,000 Sanwa Bank California 18/275 $ 18,000,000 12/100 $ 12,000,000 AmSouth Bank of Alabama 25/275 $ 25,000,000 0/100 $ -0- Fleet National Bank 33/275 $ 33,000,000 0/100 $ -0- PNC Bank, National Association 25/275 $ 25,000,000 0/100 $ -0- Societe Generale, Southwest Agency 20/275 $ 20,000,000 0/100 $ -0- TOTALS: 100% $ 275,000,000 100% $ 100,000,000 100% EXHIBIT A Bank Commitments ---------------- Bank Letter of ---- Credit Percent of Total Commitment Total* ----- ---------- ----- NationsBank, N.A. (South) $ 12,500,000 65/400 $65,000,000 Bank of America National Trust and Savings Association $ 12,500,000 65/400 $65,000,000 First American Bank Texas, SSB 25/400 $25,000,000 SouthTrust Bank of Alabama, National Association 25/400 $25,000,000 Comerica Bank 35/400 $35,000,000 The First National Bank of Chicago 22/400 $22,000,000 Bank One, Arizona, NA 30/400 $30,000,000 Sanwa Bank California 30/400 $30,000,000 AmSouth Bank of Alabama 25/400 $25,000,000 Fleet National Bank 33/400 $33,000,000 PNC Bank, National Association 25/400 $25,000,000 Societe Generale, Southwest Agency 20/400 $20,000,000 TOTALS: $ 25,000,000 100% $ 400,000,000
- -------------------------------- * For dollar commitments, each fractional percentage should be multiplied by 100,000,000. SCHEDULE 1.88 Subsidiaries of Borrower DRHI, Inc., a Delaware corporation D.R. Horton, Inc. - Minnesota, a Delaware corporation Meadows I, Ltd., a Delaware corporation Meadows II, Ltd., a Delaware corporation Meadows III, Ltd., a Delaware corporation Meadows IV, Inc., a Texas corporation Meadows V, Ltd., a Delaware corporation Meadows VII Ltd., a Delaware corporation Meadows VIII Ltd., a Delaware corporation Meadows IX Ltd., a New Jersey corporation Meadows X Ltd., a New Jersey corporation D.R. Horton Denver Management Company, Inc., a Colorado corporation D.R. Horton Denver No. 10, Inc., a Colorado corporation D.R. Horton Denver No. 11, Inc., a Colorado corporation D.R. Horton Denver No. 12, Inc., a Colorado corporation D.R. Horton Denver No. 13, Inc., a Colorado corporation D.R. Horton Denver No. 14, Inc., a Colorado corporation D.R. Horton Denver No. 15, Inc., a Colorado corporation D.R. Horton Denver No. 16, Inc., a Colorado corporation D.R. Horton Denver No. 17, Inc., a Colorado corporation D.R. Horton Denver No. 18, Inc., a Colorado corporation D.R. Horton Management Company, Ltd., a Texas limited partnership D.R. Horton - Royalty, Ltd., a Texas limited partnership D.R. Horton, Inc. - Sacramento, a California corporation D.R. Horton Sacramento Management Company, Inc., a California corporation D.R. Horton Los Angeles Holding Company, Inc., a California corporation D.R. Horton, Inc. - Albuquerque, a Delaware corporation D.R. Horton, Inc. - Birmingham, a Delaware corporation D.R. Horton, Inc. - Denver, a Delaware corporation D.R. Horton, Inc. - Greensboro, a Delaware corporation D.R. Horton, Inc. - Los Angeles, a Delaware corporation D.R. Horton, Inc. - New Jersey, a New Jersey corporation D.R. Horton Los Angeles Management Company, Inc., a California corporation D.R. Horton Los Angeles No. 9, Inc., a California corporation D.R. Horton Los Angeles No. 10, Inc., a California corporation D.R. Horton Los Angeles No. 11, Inc., a California corporation D.R. Horton Los Angeles No. 12, Inc., a California corporation D.R. Horton Los Angeles No. 13, Inc., a California corporation D.R. Horton Los Angeles No. 14, Inc., a California corporation D.R. Horton Los Angeles No. 16, Inc., a California corporation D.R. Horton San Diego Holding Company, Inc., a California corporation D.R. Horton, Inc. - San Diego, a Delaware corporation D.R. Horton San Diego Management Company, Inc., a California corporation D.R. Horton San Diego No. 9, Inc., a California corporation D.R. Horton San Diego No. 10, Inc., a California corporation D.R. Horton San Diego No. 11, Inc., a California corporation D.R. Horton San Diego No. 12, Inc., a California corporation D.R. Horton San Diego No. 13, Inc., a California corporation D.R. Horton San Diego No. 14, Inc., a California corporation D.R. Horton San Diego No. 15, Inc., a California corporation D.R. Horton San Diego No. 16, Inc., a California corporation D.R. Horton San Diego No. 17, Inc., a California corporation D.R. Horton San Diego No. 18, Inc., a California corporation D.R. Horton San Diego No. 19, Inc., a California corporation D.R. Horton San Diego No. 20, Inc., a California corporation D.R. Horton San Diego No. 21, Inc., a California corporation D.R. Horton-Texas, Ltd., a Texas limited partnership DRH Construction, Inc., a Delaware corporation DRH Land Company, Inc., a California corporation DRH New Mexico Construction, Inc., a Delaware corporation DRH Title Company of Texas, Ltd., a Texas limited partnership Opus Landscapes, L.L.C., a New Jersey limited liability company Grande Realty, Inc., a New Jersey corporation SGS Communities at Grande Quay, L.L.C., a New Jersey limited liability company D.R. Horton, Inc. - Torrey, a Delaware corporation ACKNOWLEDGEMENT OF GUARANTORS The undersigned Guarantors (each a "Guarantor" and collectively, the "Guarantors")) hereby acknowledge that the Master Loan and Inter-Creditor Agreement dated as of February 14, 1997 among D.R. Horton, Inc., a Delaware corporation (the "Borrower"), the financial institutions parties thereto (collectively, the "Banks"); NationsBank, N.A. (South), as issuing bank for letters of credit (in such capacity, the "Issuing Bank"); Bank of America National Trust and Savings Association, as documentation agent (in such capacity, the "Documentation Agent"); and NationsBank, N.A. (South), as administrative agent (in such capacity, the "Administrative Agent") is amended and restated pursuant to that certain Amended and Restated Master Loan and Inter-Creditor Agreement dated as of even date herewith (as amended and restated, the "New Loan Agreement") by and among the Borrower, the Banks, the Issuing Bank, the Documentation Agent and the Administrative Agent and further certify that the Guaranty dated as of February 14, 1997 (the "Guaranty") made by each Guarantor in favor of the Administrative Agent and each Bank continues in full force and effect and further acknowledge and agree that the Obligations guaranteed by the Guaranty are the Obligations as defined in the New Loan Agreement. IN WITNESS WHEREOF, the Guarantors have duly executed and sealed this Acknowledgement as of the 1st day of April, 1997. GUARANTORS: DRH CONSTRUCTION, INC. DRH NEW MEXICO CONSTRUCTION, INC. D.R. HORTON DENVER MANAGEMENT COMPANY, INC. D.R. HORTON DENVER NO. 10, INC. D.R. HORTON DENVER NO. 11, INC. D.R. HORTON DENVER NO. 12, INC. D.R. HORTON DENVER NO. 13, INC. D.R. HORTON DENVER NO. 14, INC. D.R. HORTON DENVER NO. 15, INC. D.R. HORTON DENVER NO. 16, INC. D.R. HORTON DENVER NO. 17, INC. D.R. HORTON DENVER NO. 18, INC. D.R. HORTON, INC. - ALBUQUERQUE D.R. HORTON, INC. - DENVER D.R. HORTON, INC. - MINNESOTA D.R. HORTON, INC. - NEW JERSEY MEADOWS IX, INC., individually and as a member of SGS Communities at Grande Quay,L.L.C. MEADOWS X, INC., individually and as a member of SGS Communities at Grande Quay, L.L.C. SGS COMMUNITIES AT GRANDE QUAY, L.L.C. D.R. HORTON LOS ANGELES HOLDING COMPANY, INC. D.R. HORTON LOS ANGELES MANAGEMENT COMPANY, INC. D.R. HORTON LOS ANGELES NO. 9, INC. D.R. HORTON LOS ANGELES NO. 10, INC. GUARANTORS: D.R. HORTON LOS ANGELES NO. 11, INC. (continued) D.R. HORTON LOS ANGELES NO. 12, INC.
D.R. HORTON LOS ANGELES NO. 13, INC. D.R. HORTON LOS ANGELES NO. 14, INC. D.R. HORTON LOS ANGELES NO. 16, INC. D.R. HORTON, INC. - BIRMINGHAM D.R. HORTON, INC. - GREENSBORO D.R. HORTON SAN DIEGO HOLDING COMPANY, INC. D.R. HORTON SAN DIEGO MANAGEMENT COMPANY, INC. D.R. HORTON SAN DIEGO NO. 9, INC. D.R. HORTON SAN DIEGO NO. 10, INC. D.R. HORTON SAN DIEGO NO. 11, INC. D.R. HORTON SAN DIEGO NO. 12, INC. D.R. HORTON SAN DIEGO NO. 13, INC. D.R. HORTON SAN DIEGO NO. 14, INC. D.R. HORTON SAN DIEGO NO. 15, INC. D.R. HORTON SAN DIEGO NO. 16, INC. D.R. HORTON SAN DIEGO NO. 17, INC. D.R. HORTON SAN DIEGO NO. 18, INC. D.R. HORTON SAN DIEGO NO. 19, INC. D.R. HORTON SAN DIEGO NO. 20, INC. D.R. HORTON SAN DIEGO NO. 21, INC. D.R. HORTON - TEXAS, LTD., by Meadows I, Inc. a Delaware corporation D.R. HORTON, INC. - TORREY By: ------------------------------------------- David J. Keller Title: as Treasurer or another officer of the Guarantors set forth above
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