-----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, Ism+re+s3tZPxd21lXgftSvs1OHXHtXpHd+W0NcGdxWtXqpOja6mwHtSmMTwOYFa Uasd+8hXoeGvTwMcGV4vdQ== 0000950134-02-005626.txt : 20020515 0000950134-02-005626.hdr.sgml : 20020515 20020515115113 ACCESSION NUMBER: 0000950134-02-005626 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020515 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: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-14122 FILM NUMBER: 02649420 BUSINESS ADDRESS: STREET 1: 1901 ASCENSION BLVD STREET 2: STE 100 CITY: ARLINGTON STATE: TX ZIP: 76006 BUSINESS PHONE: 8178568200 MAIL ADDRESS: STREET 1: 1901 ASCENSION BLVD STREET 2: SUITE 100 CITY: ARLINGTON STATE: TX ZIP: 76006 10-Q 1 d96909e10-q.txt FORM 10-Q FOR QUARTER ENDED MARCH 31, 2002 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark One) x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES --- EXCHANGE ACT OF 1934 For the Quarterly Period Ended March 31, 2002 --------------- OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES --- EXCHANGE ACT OF 1934 For the Transition Period From To ------------------- ------------------- Commission file number 1-14122 ----------- D.R. Horton, Inc. -------------------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 75-2386963 ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1901 Ascension Blvd., Suite 100, Arlington, Texas 76006 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (817) 856-8200 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common stock, $.01 par value -- 146,309,661 shares as of May 10, 2002 ------------- This report contains 35 pages. INDEX D.R. HORTON, INC.
PAGE ---- PART I. FINANCIAL INFORMATION. ITEM 1. Financial Statements. Consolidated Balance Sheets -- March 31, 2002 and September 30, 2001. 3 Consolidated Statements of Income -- Three Months and Six Months Ended March 31, 2002 and 2001. 4 Consolidated Statements of Cash Flows -- Six Months Ended March 31, 2002 and 2001. 5 Notes to Consolidated Financial Statements. 6-18 ITEM 2. Management's Discussion and Analysis of Results of Operations and Financial Condition. 19-27 ITEM 3. Quantitative and Qualitative Disclosures about Market Risk. 28 PART II. OTHER INFORMATION. ITEM 2. Changes in Securities. 29 ITEM 4. Submission of Matters to a Vote of Security Holders. 30 ITEM 5. Other Information. 31 ITEM 6. Exhibits and Reports on Form 8-K 32-34 SIGNATURES. 35
ITEM 1. FINANCIAL STATEMENTS D.R. HORTON, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
MARCH 31, SEPTEMBER 30, 2002 2001 ------------- ------------- (IN THOUSANDS) (UNAUDITED) ASSETS HOMEBUILDING: Cash ....................................................................... $ 176,241 $ 232,305 Inventories: Finished homes and construction in progress ............................ 1,991,513 1,424,101 Residential lots - developed and under development .................... 2,199,256 1,377,452 Land held for development .............................................. 10,365 2,824 ------------- ------------- 4,201,134 2,804,377 Property and equipment (net) ............................................... 68,536 53,096 Earnest money deposits and other assets .................................... 358,888 181,659 Excess of cost over net assets acquired .................................... 564,005 136,223 ------------- ------------- 5,368,804 3,407,660 ------------- ------------- FINANCIAL SERVICES: Cash ....................................................................... 13,485 6,975 Mortgage loans held for sale ............................................... 202,323 222,818 Other assets ............................................................... 12,042 14,737 ------------- ------------- 227,850 244,530 ------------- ------------- $ 5,596,654 $ 3,652,190 ============= ============= LIABILITIES HOMEBUILDING: Accounts payable and other liabilities ..................................... $ 629,932 $ 498,576 Notes payable .............................................................. 2,748,197 1,701,689 ------------- ------------- 3,378,129 2,200,265 ------------- ------------- FINANCIAL SERVICES: Accounts payable and other liabilities ..................................... 9,750 10,173 Notes payable to financial institutions .................................... 148,157 182,641 ------------- ------------- 157,907 192,814 ------------- ------------- 3,536,036 2,393,079 ------------- ------------- Minority interests ......................................................... 21,887 8,864 ------------- ------------- STOCKHOLDERS' EQUITY Preferred stock, $.10 par value, 30,000,000 shares authorized, no shares issued ....................................................... -- -- Common stock, $.01 par value, 200,000,000 shares authorized, 146,254,255 shares at March 31, 2002 and 76,901,511 shares at September 30, 2001, issued and outstanding ........................................... 1,463 769 Additional capital ......................................................... 1,346,209 704,842 Unearned compensation ...................................................... (7,460) -- Retained earnings .......................................................... 698,519 544,636 ------------- ------------- 2,038,731 1,250,247 ------------- ------------- $ 5,596,654 $ 3,652,190 ============= =============
See accompanying notes to consolidated financial statements. -3- D.R. HORTON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS SIX MONTHS ENDED MARCH 31, ENDED MARCH 31, ---------------------------- ---------------------------- 2002 2001 2002 2001 ------------ ------------ ------------ ------------ (IN THOUSANDS, EXCEPT PER SHARE DATA) ------------------------------------- (UNAUDITED) ----------- HOMEBUILDING: Revenues Home sales ....................................... $ 1,534,357 $ 853,575 $ 2,660,095 $ 1,709,652 Land/lot sales ................................... 41,843 38,832 51,073 56,309 ------------ ------------ ------------ ------------ 1,576,200 892,407 2,711,168 1,765,961 ------------ ------------ ------------ ------------ Cost of sales Home sales ....................................... 1,258,842 682,760 2,157,740 1,372,659 Land/lot sales ................................... 36,203 30,647 44,110 44,079 ------------ ------------ ------------ ------------ 1,295,045 713,407 2,201,850 1,416,738 ------------ ------------ ------------ ------------ Gross profit Home sales ....................................... 275,515 170,815 502,355 336,993 Land/lot sales ................................... 5,640 8,185 6,963 12,230 ------------ ------------ ------------ ------------ 281,155 179,000 509,318 349,223 Selling, general and administrative expense ........... 149,494 94,101 267,911 185,999 Interest expense ...................................... 2,563 1,623 3,759 4,529 Other (income) expense ................................ (2,426) 5,684 146 8,998 ------------ ------------ ------------ ------------ 131,524 77,592 237,502 149,697 ------------ ------------ ------------ ------------ FINANCIAL SERVICES: Revenues .............................................. 23,865 14,429 48,787 28,538 Selling, general and administrative expense ........... 14,918 9,830 30,041 19,967 Interest expense ...................................... 999 875 2,335 2,007 Other (income) ........................................ (2,818) (1,213) (5,862) (2,629) ------------ ------------ ------------ ------------ 10,766 4,937 22,273 9,193 ------------ ------------ ------------ ------------ INCOME BEFORE INCOME TAXES ....................... 142,290 82,529 259,775 158,890 Provision for income taxes ............................ 53,359 30,948 97,416 59,584 ------------ ------------ ------------ ------------ Income before cumulative effect of change in accounting principle ............................. 88,931 51,581 162,359 99,306 Cumulative effect of change in accounting principle, net of income taxes of $1,282 ......... -- -- -- 2,136 ------------ ------------ ------------ ------------ NET INCOME ....................................... $ 88,931 $ 51,581 $ 162,359 $ 101,442 ============ ============ ============ ============ Basic earnings per common share: Income before cumulative effect of change in accounting principle ...................... $ 0.69 $ 0.46 $ 1.33 $ 0.88 Cumulative effect of change in accounting principle, net of income taxes ............... -- -- -- 0.02 ------------ ------------ ------------ ------------ Net income ....................................... $ 0.69 $ 0.46 $ 1.33 $ 0.90 ============ ============ ============ ============ Diluted earnings per common share: Income before cumulative effect of change in in accounting principle ...................... $ 0.64 $ 0.45 $ 1.26 $ 0.86 Cumulative effect of change in accounting principle, net of income taxes ............... -- -- -- 0.02 ------------ ------------ ------------ ------------ Net income ....................................... $ 0.64 $ 0.45 $ 1.26 $ 0.88 ============ ============ ============ ============ Cash dividends per share .............................. $ 0.06 $ 0.05 $ 0.11 $ 0.09 ============ ============ ============ ============
See accompanying notes to consolidated financial statements. -4- D.R. HORTON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED MARCH 31, ------------------------------ 2002 2001 ------------ ------------ (IN THOUSANDS) (UNAUDITED) OPERATING ACTIVITIES Net income ................................................................ $ 162,359 $ 101,442 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization ............................................. 11,024 11,972 Amortization of debt premiums and fees .................................... 4,476 1,165 Changes in operating assets and liabilities: Increase in inventories .................................................. (116,046) (289,052) Increase in earnest money deposits and other assets ...................... (45,592) (24,905) Decrease (increase) in mortgage loans held for sale ...................... 20,495 (9,527) Decrease in accounts payable and other liabilities ....................... (97,586) (17,584) ------------ ------------ NET CASH USED IN OPERATING ACTIVITIES .......................................... (60,870) (226,489) ------------ ------------ INVESTING ACTIVITIES Net purchases of property and equipment ................................... (15,725) (10,356) Distributions from (investments in) venture capital entities .............. 500 (2,022) Net cash paid for acquisitions ............................................ (152,573) (1,318) ------------ ------------ NET CASH USED IN INVESTING ACTIVITIES .......................................... (167,798) (13,696) ------------ ------------ FINANCING ACTIVITIES Proceeds from notes payable ............................................... 1,555,000 538,993 Repayment of notes payable ................................................ (1,377,974) (444,808) Issuance of senior subordinated notes payable ............................. -- 198,404 Proceeds from issuance of common stock associated with certain employee benefit plans ................................................... 855 73 Proceeds from exercise of stock options ................................... 9,709 7,251 Payment of cash dividends ................................................. (8,476) (6,106) ------------ ------------ NET CASH PROVIDED BY FINANCING ACTIVITIES ...................................... 179,114 293,807 ------------ ------------ (DECREASE) INCREASE IN CASH .................................................... (49,554) 53,622 Cash at beginning of period .............................................. 239,280 72,525 ------------ ------------ Cash at end of period .................................................... $ 189,726 $ 126,147 ============ ============
See accompanying notes to consolidated financial statements. -5- D.R. HORTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) MARCH 31, 2002 NOTE A - BASIS OF PRESENTATION The accompanying unaudited, consolidated financial statements include the accounts of D.R. Horton, Inc. and its subsidiaries (the "Company"). Intercompany accounts and transactions have been eliminated in consolidation. The statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the three-month and six-month periods ended March 31, 2002 are not necessarily indicative of the results that may be expected for the year ending September 30, 2002. Business - The Company is a national builder that is engaged primarily in the construction and sale of single-family housing in the United States. The Company designs, builds and sells single-family houses on lots developed by the Company and on finished lots which it purchases, ready for home construction. Periodically, the Company sells land or lots it has developed. The Company also provides title agency and mortgage brokerage services to its home buyers. Stock Split - In March 2002, the Company's Board of Directors declared a three-for-two stock split (effected as a 50% stock dividend), payable on April 9, 2002 to common stockholders of record on March 26, 2002. The shares issued and outstanding as of March 31, 2002 and the related Common Stock and Additional Capital balances have been restated to reflect the stock split. NOTE B - CHANGES IN ACCOUNTING PRINCIPLES Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities", was issued in June 1998, and was later amended by SFAS 137 and 138, which were issued in June 1999 and June 2000, respectively. Pursuant to the implementation requirements of SFAS No. 133, the Company adopted it on October 1, 2000, the first day of the Company's fiscal year ending September 30, 2001. The Company's interest rate swaps, the terms of which are more fully described in Item 3, were not designated as hedges under the provisions of SFAS No. 133. The Statement requires such swaps to be recorded in the consolidated balance sheet at fair value. Changes in their fair value must be recorded in the consolidated statements of income. Accordingly, the Company recorded a cumulative effect of a change in accounting principle amounting to $2.1 million, net of income taxes of $1.3 million, as an adjustment to net income in the six months ended March 31, 2001. The fair value of the Company's interest rate swaps at March 31, 2002 and September 30, 2001 is recorded in homebuilding other assets, and the changes in their fair value during the three months and six months ended March 31, 2002 and 2001 are recorded in homebuilding other income. SFAS No. 133 was also implemented on October 1, 2000 for the hedging activities of the Company's financial services segment. The effects of doing so were not significant. In June 2001, the Financial Accounting Standards Board issued SFAS No. 141, "Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets". Under Statement No. 142, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests. Other intangible assets will continue to be amortized over their useful lives. The Company early-adopted the new rules on accounting for goodwill and other intangible assets beginning October 1, 2001. The Company performed the required impairment tests at October 31, 2001 and determined that no goodwill or other intangible asset impairments exist. The following summarizes the pro forma impact of the non-amortization approach for the three months and six months ended March 31, 2001 as if these Statements had been adopted on October 1, 2000:
THREE MONTHS ENDED SIX MONTHS ENDED MARCH 31, 2001 MARCH 31, 2001 ------------------ ---------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Net income, as previously reported .................... $ 51,581 $ 101,442 Amortization of goodwill, net of income taxes of $775 and $1,538 respectively ................... 1,291 2,564 ------------- ------------- Net income, as adjusted ............................... $ 52,872 $ 104,006 ============= ============= Net income per share, as adjusted: Basic ......................................... $ 0.47 $ 0.92 ============= ============= Diluted ....................................... $ 0.46 $ 0.91 ============= =============
-6- D.R. HORTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED) MARCH 31, 2002 NOTE C - SEGMENT INFORMATION The Company's financial reporting segments consist of homebuilding and financial services. The Company's homebuilding operations comprise the most substantial part of its business, with approximately 98% of consolidated revenues for the three months and six months ended March 31, 2002 and 2001. The homebuilding segment generates the majority of its revenues from the sale of completed homes, with a lesser amount from the sale of land and lots. The financial services segment generates its revenues from originating and selling mortgages and collecting fees for title insurance agency and closing services. NOTE D - EARNINGS PER SHARE Basic earnings per share for the three months and six months ended March 31, 2002 and 2001 is based on the weighted average number of shares of common stock outstanding. Diluted earnings per share is based on the weighted average number of shares of common stock and dilutive securities outstanding. The following table sets forth the computation of basic and diluted earnings per share:
THREE MONTHS ENDED SIX MONTHS ENDED MARCH 31, MARCH 31, ---------------------- ----------------------- 2002 2001 2002 2001 --------- ---------- ---------- ---------- (IN THOUSANDS) Numerator: Net income .................................................................. $ 88,931 $ 51,581 $ 162,359 $ 101,442 Effect of dilutive securities: Interest expense and amortization of issuance costs associated zero coupon convertible senior notes, net of applicable income taxes ................................................................... 1,042 -- 1,042 -- --------- ---------- ---------- ---------- Numerator for diluted earnings per share after assumed conversions ............................................................. $ 89,973 $ 51,581 $ 163,401 $ 101,442 ========= ========== ========== ========== Denominator: Denominator for basic earnings per share--weighted average shares .......................................................... 128,897 113,150 122,095 112,796 Effect of dilutive securities: Zero coupon convertible senior notes ........................................ 10,000 -- 5,000 -- Employee stock options ...................................................... 2,576 1,940 2,320 1,832 --------- ---------- ---------- ---------- Denominator for diluted earnings per share--adjusted weighted average shares and assumed conversions .................................. 141,473 115,090 129,415 114,628 ========= ========== ========== ==========
In March 2002, the Company's Board of Directors declared a three-for-two stock split (effected as a 50% stock dividend), payable on April 9, 2002 to common stockholders of record on March 26, 2002. All average share amounts presented above have been restated to reflect the effects of the three-for-two stock split. On February 5, 2002, each of the Company's 381,113 zero coupon convertible senior notes outstanding first became eligible for conversion into 26.239 shares of the Company's common stock. These convertible senior notes are convertible on any date as of which the average closing price of the Company's common stock for the twenty preceding trading days exceeds the specified threshold of 110% of the accreted value of each note, divided by the conversion rate. The twenty-day average closing price of the Company's common stock exceeded the specified threshold on March 31, 2002, which had the effect of increasing the denominator for diluted earnings per share by 10 million shares for the three months ended March 31, 2002 and 5 million shares for the six months ended March 31, 2002. Also, the numerator for diluted earnings per share was increased by tax-effected interest expense and amortization of issuance costs associated with the convertible senior notes for the three months and six months ended March 31, 2002. -7- D.R. HORTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED) MARCH 31, 2002 NOTE E - DEBT The Company's homebuilding notes payable consist of the following:
MARCH 31, SEPTEMBER 30, 2002 2001 ------------- ------------- (IN THOUSANDS) (UNAUDITED) Unsecured: Revolving credit facility due 2006 .................... $ 480,000 $ -- 8.375% Senior notes due 2004, net ..................... 149,141 148,943 10.5% Senior notes due 2005, net ...................... 199,498 199,439 10% Senior notes due 2006, net ........................ 147,701 147,600 9% Senior notes due 2008, net ......................... 102,704 -- 8% Senior notes due 2009, net ......................... 383,346 383,257 9.375% Senior notes due 2009, net ..................... 262,305 -- 9.75% Senior subordinated notes due 2010, net ......... 148,954 148,917 9.375% Senior subordinated notes due 2011, net ........ 199,698 199,688 7.875% Senior notes due 2011, net ..................... 198,377 198,319 10.5% Senior subordinated notes due 2011, net ......... 159,334 -- Zero coupon convertible senior notes due 2021, net .... 205,805 202,509 Other secured ............................................... 111,334 73,017 ------------- ------------- $ 2,748,197 $ 1,701,689 ============= =============
On January 31, 2002, the Company refinanced its existing unsecured revolving credit facility with a new, replacement facility. The new $805 million facility includes $125 million which may be used for letters of credit. The new facility matures in January 2006, and is guaranteed by substantially all of the Company's subsidiaries other than its financial services subsidiaries. Borrowings bear daily interest at rates based upon the London Interbank Offered Rate (LIBOR) plus a spread based upon the Company's ratio of debt to tangible net worth. In addition to stated interest rates, the revolving credit facility requires the Company to pay certain fees. The new credit facility contains covenants which are essentially the same as those that existed under the old facility. On February 21, 2002, the Company assumed the outstanding debt of Schuler Homes, Inc. ("Schuler") as part of Schuler's merger into the Company. The debt assumed included the 9% senior notes due 2008, the 9.375% senior notes due 2009 and the 10.5% senior subordinated notes due 2011, all of which were recorded by the Company at their market values as of February 21, 2002. The Company repaid $20.2 million, in principal amount, of the Schuler senior and senior subordinated notes as part of the Company's change of control offer in connection with the merger. On April 11, 2002, the Company issued $250 million of 8.5% Senior notes due 2012. The net proceeds from this offering were used to repay borrowings under the unsecured revolving credit facility. These notes are guaranteed by substantially all of the Company's subsidiaries other than its financial services subsidiaries. -8- D.R. HORTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED) MARCH 31, 2002 NOTE F - INTEREST The Company capitalizes interest during development and construction. Capitalized interest is charged to cost of sales as the related inventory is delivered to the home buyer. Homebuilding interest costs are:
THREE MONTHS ENDED SIX MONTHS ENDED MARCH 31, MARCH 31, ---------------------------- ---------------------------- 2002 2001 2002 2001 ------------ ------------ ------------ ------------ (IN THOUSANDS) Capitalized interest, beginning of period ............. $ 110,126 $ 74,557 $ 96,910 $ 66,092 Interest incurred - homebuilding ...................... 46,535 31,185 83,247 60,728 Interest expensed: Directly - homebuilding ......................... (2,563) (1,623) (3,759) (4,529) Amortized to cost of sales ...................... (29,446) (18,540) (51,746) (36,712) ------------ ------------ ------------ ------------ Capitalized interest, end of period ................... $ 124,652 $ 85,579 $ 124,652 $ 85,579 ============ ============ ============ ============
NOTE G - ACQUISITIONS On February 21, 2002, Schuler Homes, Inc. merged with and into D.R. Horton, Inc., with D.R. Horton the surviving corporation. At the time of the merger, Schuler's assets amounted to $1,377.6 million, mostly inventory. The total merger consideration consisted of the issuance of 20,079,532 shares of D.R. Horton, Inc. common stock, valued at $30.93 per share (the average closing price of D.R. Horton common stock for a period of ten trading days from December 4, 2001 to December 17, 2001); the payment of $168.7 million in cash; the assumption of $802.2 million of Schuler's debt, $238.2 million of which was paid at closing; the assumption of trade payables and other liabilities amounting to $200.0 million; and the assumption of $10.8 million of obligations to the Schuler entities' minority interest holders. Also, D.R. Horton issued options to purchase approximately 527,000 shares of D.R. Horton common stock to Schuler employees to replace outstanding Schuler stock options. The fair value of the options issued was $10.4 million and was recorded as additional capital. The intrinsic value of the unvested options issued was $7.8 million and was recorded as unearned compensation. The unearned compensation is being amortized over the remaining vesting period of the stock options. The merger was treated as a purchase of Schuler by D.R. Horton for accounting purposes. Under this method, Schuler assets acquired and liabilities assumed were recorded on the Company's balance sheet at their fair market values as of February 21, 2002. Schuler's results of operations from February 22, 2002 to March 31, 2002 are included in the Company's results of operations for the three and six months ended March 31, 2002. The following unaudited pro forma combined condensed financial data for the three and six-month periods ending March 31, 2002 and 2001 are derived from the historical financial statements of D.R. Horton, Inc., Schuler, Fortress-Florida (acquired in May 2001), and Emerald Builders (acquired in July 2001). The unaudited pro forma combined condensed financial data give effect to the merger with Schuler and the acquisitions of Fortress-Florida and Emerald as if they had occurred at the beginning of each period presented. Pro forma adjustments to historical financial data include adjustments that we deem appropriate, reflecting items of recurring significance and which are factually supported based on currently available information. The proforma adjustments include the estimated effects on net income of the recording of Schuler's inventory at fair value, net of income taxes, as follows: $1.3 million for the three months ended March 31, 2002; $9.7 million for the three months ended March 31, 2001; $4.7 million for the six months ended March 31,2002; and $12.3 million for the six months ended March 31,2001. -9- D.R. HORTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED) MARCH 31, 2002 NOTE G - ACQUISITIONS - (CONTINUED) The unaudited pro forma combined condensed financial data have been included for comparative purposes only and do not purport to show what the operating results would have been if the merger had been consummated as of the dates indicated and should not be construed as representative of future operating results.
THREE MONTHS SIX MONTHS ENDED MARCH 31, ENDED MARCH 31, ----------------------------- ----------------------------- 2002 2001 2002 2001 ------------- ------------- ------------- ------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Revenues .............................................. $ 1,759,696 $ 1,470,800 $ 3,334,957 $ 2,800,106 ------------- ------------- ------------- ------------- Income before cumulative effect of change in accounting principle ............................. 92,468 79,122 189,209 149,093 Cumulative effect of change in accounting principle, net of income taxes ................... -- -- -- 2,136 ------------- ------------- ------------- ------------- Net income ....................................... $ 92,468 $ 79,122 $ 189,209 $ 151,229 ============= ============= ============= ============= Basic earnings per common share: Income before cumulative effect of change in accounting principle ...................... $ 0.63 $ 0.55 $ 1.30 $ 1.03 Cumulative effect of change in accounting principle, net of income taxes ............... -- -- -- 0.02 ------------- ------------- ------------- ------------- Net income ....................................... $ 0.63 $ 0.55 $ 1.30 $ 1.05 ============= ============= ============= ============= Diluted earnings per common share: Income before cumulative effect of change in in accounting principle ...................... $ 0.59 $ 0.54 $ 1.24 $ 1.03 Cumulative effect of change in accounting principle, net of income taxes ............... -- -- -- 0.01 ------------- ------------- ------------- ------------- Net income ....................................... $ 0.59 $ 0.54 $ 1.24 $ 1.04 ============= ============= ============= =============
-10- D.R. HORTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED) MARCH 31, 2002 NOTE H - SUMMARIZED FINANCIAL INFORMATION The 7.875%, 8%, 8.375%, 9%, 9.375%, 10% and 10.5% Senior Notes, the 9.375%, 9.75% and 10.5% Senior Subordinated Notes, and the Zero Coupon Convertible Senior Notes are fully and unconditionally guaranteed, on a joint and several basis, by all of the Company's direct and indirect subsidiaries (Guarantor Subsidiaries), other than financial services subsidiaries and certain other inconsequential subsidiaries (collectively, Non-Guarantor Subsidiaries). Each of the Guarantor Subsidiaries is wholly-owned. In lieu of providing separate financial statements for the Guarantor Subsidiaries, consolidated condensed financial statements are presented below. Separate financial statements and other disclosures concerning the Guarantor Subsidiaries are not presented because management has determined that they are not material to investors. CONSOLIDATING BALANCE SHEET MARCH 31, 2002
NON-GUARANTOR SUBSIDIARIES ---------------------- D.R. GUARANTOR FINANCIAL INTERCOMPANY HORTON, INC. SUBSIDIARIES SERVICES OTHER ELIMINATIONS TOTAL ----------- ------------ --------- --------- ------------ ----------- (IN THOUSANDS) ASSETS HOMEBUILDING: Cash and cash equivalents .................. $ -- $ 162,600 $ -- $ 13,641 $ -- $ 176,241 Advances to/investments in subsidiaries .... 4,172,895 44,038 -- 2,595 (4,219,528) -- Inventories ................................ 620,202 3,499,536 -- 81,760 (364) 4,201,134 Property and equipment (net) ............... 9,813 53,814 -- 4,909 -- 68,536 Earnest money deposits and other assets .... 93,322 260,711 -- 9,914 (5,059) 358,888 Excess of cost over net assets acquired (net) .................................... -- 564,005 -- -- -- 564,005 ----------- ---------- --------- --------- ----------- ----------- 4,896,232 4,584,704 -- 112,819 (4,224,951) 5,368,804 ----------- ---------- --------- --------- ----------- ----------- FINANCIAL SERVICES: Cash and cash equivalents .................. -- -- 13,485 -- -- 13,485 Mortgage loans held for sale ............... -- -- 202,323 -- -- 202,323 Other assets ............................... -- -- 12,042 -- -- 12,042 ----------- ---------- --------- --------- ----------- ----------- -- -- 227,850 -- -- 227,850 ----------- ---------- --------- --------- ----------- ----------- TOTAL ASSETS ............................... $ 4,896,232 $4,584,704 $ 227,850 $ 112,819 $(4,224,951) $ 5,596,654 =========== ========== ========= ========= =========== =========== LIABILITIES & EQUITY HOMEBUILDING: Accounts payable and other liabilities ..... $ 175,090 $ 447,696 $ -- $ 7,173 $ (27) $ 629,932 Advances from parent/subsidiaries .......... -- 2,917,034 -- 44,554 (2,961,588) -- Notes payable .............................. 2,682,411 30,664 -- 40,154 (5,032) 2,748,197 ----------- ---------- --------- --------- ----------- ----------- 2,857,501 3,395,394 -- 91,881 (2,966,647) 3,378,129 ----------- ---------- --------- --------- ----------- ----------- FINANCIAL SERVICES: Accounts payable and other liabilities ..... -- -- 9,750 -- -- 9,750 Advances from parent/subsidiaries .......... -- -- 10,624 -- (10,624) -- Notes payable .............................. -- -- 148,157 -- -- 148,157 ----------- ---------- --------- --------- ----------- ----------- -- -- 168,531 -- (10,624) 157,907 ---------- --------- --------- ----------- ----------- TOTAL LIABILITIES .......................... 2,857,501 3,395,394 168,531 91,881 (2,977,271) 3,536,036 ----------- ---------- --------- --------- ----------- ----------- Minority interests ......................... -- -- 17 21,870 -- 21,887 ----------- ---------- --------- --------- ----------- ----------- Common stock ............................... 975 45 (26) 6,155 (6,174) 975 Additional capital ......................... 1,346,697 352,245 2,917 28,484 (383,646) 1,346,697 Retained earnings .......................... 698,519 837,020 56,411 (35,571) (857,860) 698,519 Unearned compensation ...................... (7,460) -- -- -- -- (7,460) ----------- ---------- --------- --------- ----------- ----------- 2,038,731 1,189,310 59,302 (932) (1,247,680) 2,038,731 ----------- ---------- --------- --------- ----------- ----------- TOTAL LIABILITIES & EQUITY ................. $ 4,896,232 $4,584,704 $ 227,850 $ 112,819 $(4,224,951) $ 5,596,654 =========== ========== ========= ========= =========== ===========
-11- D.R. HORTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENT (UNAUDITED) - (CONTINUED) NOTE H - SUMMARIZED FINANCIAL INFORMATION (CONTINUED) CONSOLIDATING BALANCE SHEET SEPTEMBER 30, 2001
NON-GUARANTOR SUBSIDIARIES ------------------------ D.R. GUARANTOR FINANCIAL INTERCOMPANY HORTON, INC. SUBSIDIARIES SERVICES OTHER ELIMINATIONS TOTAL ------------ ------------ --------- ----------- ------------ ---------- (IN THOUSANDS) ASSETS HOMEBUILDING: Cash and cash equivalents ..................... $ -- $ 230,481 $ -- $ 1,824 $ -- $ 232,305 Advances to/investments in subsidiaries ...... 2,493,783 74,241 -- -- (2,568,024) -- Inventories ................................... 564,593 2,212,933 -- 27,230 (379) 2,804,377 Property and equipment (net) .................. 8,114 39,823 -- 5,159 -- 53,096 Earnest money deposits and other assets ....... 39,978 140,436 -- 10,793 (9,548) 181,659 Excess of cost over net assets acquired (net) ....................................... -- 136,223 -- -- -- 136,223 ---------- ---------- --------- ----------- ----------- ---------- 3,106,468 2,834,137 -- 45,006 (2,577,951) 3,407,660 ---------- ---------- --------- ----------- ----------- ---------- FINANCIAL SERVICES: Cash and cash equivalents ..................... -- -- 6,975 -- -- 6,975 Mortgage loans held for sale .................. -- -- 222,818 -- -- 222,818 Other assets .................................. -- -- 14,737 -- -- 14,737 ---------- ---------- --------- ----------- ----------- ---------- -- -- 244,530 -- -- 244,530 ---------- --------- ----------- ----------- ---------- TOTAL ASSETS ................................ $3,106,468 $2,834,137 $ 244,530 $ 45,006 $(2,577,951) $3,652,190 ========== ========== ========= =========== =========== ========== LIABILITIES & EQUITY HOMEBUILDING: Accounts payable and other liabilities ........ $ 191,596 $ 304,486 $ -- $ 2,552 $ (58) $ 498,576 Advances from parent/subsidiaries ............. -- 1,944,796 -- 28,367 (1,973,163) -- Notes payable ................................. 1,664,625 37,064 -- 9,489 (9,489) 1,701,689 ---------- ---------- --------- ----------- ----------- ---------- 1,856,221 2,286,346 -- 40,408 (1,982,710) 2,200,265 ---------- ---------- --------- ----------- ----------- ---------- FINANCIAL SERVICES: Accounts payable and other liabilities ........ -- -- 10,173 -- -- 10,173 Advances from parent/subsidiaries ............. -- -- 13,748 -- (13,748) -- Notes payable ................................. -- -- 182,641 -- -- 182,641 ---------- ---------- --------- ----------- ----------- ---------- -- -- 206,562 -- (13,748) 192,814 ---------- ---------- --------- ----------- ----------- ---------- TOTAL LIABILITIES ............................. 1,856,221 2,286,346 206,562 40,408 (1,996,458) 2,393,079 ---------- ---------- --------- ----------- ----------- ---------- Minority interests ............................ -- -- 10 8,854 -- 8,864 ---------- ---------- --------- ----------- ----------- ---------- Common stock .................................. 769 1 6 6,155 (6,162) 769 Additional capital ............................ 704,842 84,612 2,299 10,129 (97,040) 704,842 Retained earnings ............................. 544,636 463,178 35,653 (20,540) (478,291) 544,636 ---------- ---------- --------- ----------- ----------- ---------- 1,250,247 547,791 37,958 (4,256) (581,493) 1,250,247 ---------- ---------- --------- ----------- ----------- ---------- TOTAL LIABILITIES & EQUITY .................... $3,106,468 $2,834,137 $ 244,530 $ 45,006 $(2,577,951) $3,652,190 ========== ========== ========= =========== =========== ==========
-12- D.R. HORTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENT (UNAUDITED) - (CONTINUED) NOTE H - SUMMARIZED FINANCIAL INFORMATION (CONTINUED) CONSOLIDATING STATEMENT OF INCOME THREE MONTHS ENDED MARCH 31, 2002
NON-GUARANTOR SUBSIDIARIES ------------------------- D.R. GUARANTOR FINANCIAL INTERCOMPANY HORTON, INC. SUBSIDIARIES SERVICES OTHER ELIMINATIONS TOTAL ------------ ------------ ------------ --------- ------------ ----------- (IN THOUSANDS) HOMEBUILDING: Revenues: Home sales ...................... $ 222,514 $ 1,284,294 $ -- $ 27,549 $ -- $ 1,534,357 Land/lot sales .................. 799 41,044 -- -- -- 41,843 ------------ ------------ ------------ --------- ------------ ----------- 223,313 1,325,338 -- 27,549 -- 1,576,200 ------------ ------------ ------------ --------- ------------ ----------- Cost of sales: Home sales ...................... 173,909 1,061,771 -- 23,201 (39) 1,258,842 Land/lot sales .................. (254) 36,457 -- -- -- 36,203 ------------ ------------ ------------ --------- ------------ ----------- 173,655 1,098,228 -- 23,201 (39) 1,295,045 ------------ ------------ ------------ --------- ------------ ----------- Gross profit: Home sales ...................... 48,605 222,523 -- 4,348 39 275,515 Land/lot sales .................. 1,053 4,587 -- -- -- 5,640 ------------ ------------ ------------ --------- ------------ ----------- 49,658 227,110 -- 4,348 39 281,155 Selling, general and administrative expense ............................ 42,449 103,512 -- 2,012 1,521 149,494 Interest expense ..................... 1,873 689 -- 1 -- 2,563 Other expense (income) ............... (136,954) (1,067) -- 1,598 133,997 (2,426) ------------ ------------ ------------ --------- ------------ ----------- 142,290 123,976 -- 737 (135,479) 131,524 ------------ ------------ ------------ --------- ------------ ----------- FINANCIAL SERVICES: Revenues ............................. -- -- 23,865 -- -- 23,865 Selling, general and administrative expense ............................ -- -- 16,439 -- (1,521) 14,918 Interest expense ..................... -- -- 999 -- -- 999 Other (income) ....................... -- -- (2,818) -- -- (2,818) ------------ ------------ ------------ --------- ------------ ----------- -- -- 9,245 -- 1,521 10,766 ------------ ------------ ------------ --------- ------------ ----------- Income before income taxes ........... 142,290 123,976 9,245 737 (133,958) 142,290 Provision for income taxes ........... 53,359 46,491 3,467 277 (50,235) 53,359 ------------ ------------ ------------ --------- ------------ ----------- Net income ........................... $ 88,931 $ 77,485 $ 5,778 $ 460 $ (83,723) $ 88,931 ============ ============ ============ ========= ============ ===========
-13- D.R. HORTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENT (UNAUDITED) - (CONTINUED) NOTE H - SUMMARIZED FINANCIAL INFORMATION (CONTINUED) CONSOLIDATING STATEMENT OF INCOME SIX MONTHS ENDED MARCH 31, 2002
NON-GUARANTOR SUBSIDIARIES ------------------------ D.R. GUARANTOR FINANCIAL INTERCOMPANY HORTON, INC. SUBSIDIARIES SERVICES OTHER ELIMINATIONS TOTAL ----------- ------------ ----------- --------- ------------ ----------- (IN THOUSANDS) HOMEBUILDING: Revenues: Home sales ......................... $ 401,551 $ 2,222,539 $ -- $ 36,005 $ -- $ 2,660,095 Land/lot sales ..................... 1,460 49,613 -- -- -- 51,073 ----------- ----------- ----------- --------- ----------- ----------- 403,011 2,272,152 -- 36,005 -- 2,711,168 ----------- ----------- ----------- --------- ----------- ----------- Cost of sales: Home sales ......................... 318,327 1,809,962 -- 29,666 (215) 2,157,740 Land/lot sales ..................... 505 43,605 -- -- -- 44,110 ----------- ----------- ----------- --------- ----------- ----------- 318,832 1,853,567 -- 29,666 (215) 2,201,850 ----------- ----------- ----------- --------- ----------- ----------- Gross profit: Home sales ......................... 83,224 412,577 -- 6,339 215 502,355 Land/lot sales ..................... 955 6,008 -- -- -- 6,963 ----------- ----------- ----------- --------- ----------- ----------- 84,179 418,585 -- 6,339 215 509,318 Selling, general and administrative expense ............................ 73,045 188,453 -- 3,307 3,106 267,911 Interest expense ...................... 2,911 846 -- 12 (10) 3,759 Other expense (income) ................ (251,552) (1,874) -- 6,389 247,183 146 ----------- ----------- ----------- --------- ----------- ----------- 259,775 231,160 -- (3,369) (250,064) 237,502 ----------- ----------- ----------- --------- ----------- ----------- FINANCIAL SERVICES: Revenues .............................. -- -- 48,787 -- -- 48,787 Selling, general and administrative expense ............................ -- -- 33,147 -- (3,106) 30,041 Interest expense ...................... -- -- 2,335 -- -- 2,335 Other (income) ........................ -- -- (5,862) -- -- (5,862) ----------- ----------- ----------- --------- ----------- ----------- -- -- 19,167 -- 3,106 22,273 ----------- ----------- ----------- --------- ----------- ----------- Income before income taxes ............ 259,775 231,160 19,167 (3,369) (246,958) 259,775 Provision for income taxes ............ 97,416 86,685 7,188 (1,263) (92,610) 97,416 ----------- ----------- ----------- --------- ----------- ----------- Net income ............................ $ 162,359 $ 144,475 $ 11,979 $ (2,106) $ (154,348) $ 162,359 =========== =========== =========== ========= =========== ===========
-14- D.R. HORTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENT (UNAUDITED) - (CONTINUED) NOTE H - SUMMARIZED FINANCIAL INFORMATION (CONTINUED) CONSOLIDATING STATEMENT OF INCOME THREE MONTHS ENDED MARCH 31, 2001
NON-GUARANTOR SUBSIDIARIES -------------------------- D.R. GUARANTOR FINANCIAL INTERCOMPANY HORTON, INC. SUBSIDIARIES SERVICES OTHER ELIMINATIONS TOTAL ----------- ------------ ----------- ----------- ------------ ----------- (IN THOUSANDS) HOMEBUILDING: Revenues: Home sales ......................... $ 156,304 $ 693,224 $ -- $ 4,047 $ -- $ 853,575 Land/lot sales ..................... 10,371 28,461 -- -- -- 38,832 ----------- ----------- ----------- ----------- ----------- ----------- 166,675 721,685 -- 4,047 -- 892,407 ----------- ----------- ----------- ----------- ----------- ----------- Cost of sales: Home sales ......................... 125,753 554,278 -- 2,840 (111) 682,760 Land/lot sales ..................... 7,486 23,161 -- -- -- 30,647 ----------- ----------- ----------- ----------- ----------- ----------- 133,239 577,439 -- 2,840 (111) 713,407 ----------- ----------- ----------- ----------- ----------- ----------- Gross profit: Home sales ......................... 30,551 138,946 -- 1,207 111 170,815 Land/lot sales ..................... 2,885 5,300 -- -- -- 8,185 ----------- ----------- ----------- ----------- ----------- ----------- 33,436 144,246 -- 1,207 111 179,000 Selling, general and administrative expense ............................ 21,939 69,075 -- 2,200 887 94,101 Interest expense ...................... 1,579 42 -- 74 (72) 1,623 Other expense (income) ................ (72,611) (413) -- 2,479 76,229 5,684 ----------- ----------- ----------- ----------- ----------- ----------- 82,529 75,542 -- (3,546) (76,933) 77,592 ----------- ----------- ----------- ----------- ----------- ----------- FINANCIAL SERVICES: Revenues .............................. -- -- 14,429 -- -- 14,429 Selling, general and administrative expense ............................ -- -- 10,717 -- (887) 9,830 Interest expense ...................... -- -- 875 -- -- 875 Other (income) ........................ -- -- (1,213) -- -- (1,213) ----------- ----------- ----------- ----------- ----------- ----------- -- -- 4,050 -- 887 4,937 ----------- ----------- ----------- ----------- ----------- ----------- Income before income taxes ............ 82,529 75,542 4,050 (3,546) (76,046) 82,529 Provision for income taxes ............ 30,948 28,328 1,519 (1,330) (28,517) 30,948 ----------- ----------- ----------- ----------- ----------- ----------- Net income ............................ $ 51,581 $ 47,214 $ 2,531 $ (2,216) $ (47,529) $ 51,581 =========== =========== =========== =========== =========== ===========
-15- D.R. HORTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENT (UNAUDITED) - (CONTINUED) NOTE H - SUMMARIZED FINANCIAL INFORMATION (CONTINUED) CONSOLIDATING STATEMENT OF INCOME SIX MONTHS ENDED MARCH 31, 2001
NON-GUARANTOR SUBSIDIARIES ---------------------- D.R. GUARANTOR FINANCIAL INTERCOMPANY HORTON, INC. SUBSIDIARIES SERVICES OTHER ELIMINATIONS TOTAL ----------- ------------ --------- --------- ------------ ----------- (IN THOUSANDS) HOMEBUILDING: Revenues: Home sales ............................. $ 275,503 $ 1,421,997 $ -- $ 12,152 $ -- $ 1,709,652 Land/lot sales ......................... 16,609 39,700 -- -- -- 56,309 ----------- ----------- --------- --------- ----------- ----------- 292,112 1,461,697 -- 12,152 -- 1,765,961 ----------- ----------- --------- --------- ----------- ----------- Cost of sales: Home sales ............................. 222,314 1,141,634 -- 8,968 (257) 1,372,659 Land/lot sales ......................... 12,274 31,805 -- -- -- 44,079 ----------- ----------- --------- --------- ----------- ----------- 234,588 1,173,439 -- 8,968 (257) 1,416,738 ----------- ----------- --------- --------- ----------- ----------- Gross profit: Home sales ............................. 53,189 280,363 -- 3,184 257 336,993 Land/lot sales ......................... 4,335 7,895 -- -- -- 12,230 ----------- ----------- --------- --------- ----------- ----------- 57,524 288,258 -- 3,184 257 349,223 Selling, general and administrative expense ................................. 42,155 137,772 -- 4,321 1,751 185,999 Interest expense .......................... 4,435 90 -- 182 (178) 4,529 Other expense (income) .................... (147,956) (1,212) -- 3,561 154,605 8,998 ----------- ----------- --------- --------- ----------- ----------- 158,890 151,608 -- (4,880) (155,921) 149,697 ----------- ----------- --------- --------- ----------- ----------- FINANCIAL SERVICES: Revenues .................................. -- -- 28,538 -- -- 28,538 Selling, general and administrative expense ................................. -- -- 21,718 -- (1,751) 19,967 Interest expense .......................... -- -- 2,007 -- -- 2,007 Other (income) ............................ -- -- (2,629) -- -- (2,629) ----------- ----------- --------- --------- ----------- ----------- -- -- 7,442 -- 1,751 9,193 ----------- ----------- --------- --------- ----------- ----------- Income before income taxes ................ 158,890 151,608 7,442 (4,880) (154,170) 158,890 Provision for income taxes ................ 59,584 56,853 2,791 (1,830) (57,814) 59,584 ----------- ----------- --------- --------- ----------- ----------- Income before cumulative effect of change in accounting principle ................ 99,306 94,755 4,651 (3,050) (96,356) 99,306 Cumulative effect of change in accounting principle, net of income taxes ......... 2,136 -- -- -- -- 2,136 ----------- ----------- --------- --------- ----------- ----------- Net income ................................ $ 101,442 $ 94,755 $ 4,651 $ (3,050) $ (96,356) $ 101,442 =========== =========== ========= ========= =========== ===========
-16- D.R. HORTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENT (UNAUDITED) - (CONTINUED) NOTE H - SUMMARIZED FINANCIAL INFORMATION (CONTINUED) CONSOLIDATING STATEMENT OF CASH FLOWS SIX MONTHS ENDED MARCH 31, 2002
NON-GUARANTOR SUBSIDIARIES -------------------- D.R. GUARANTOR FINANCIAL INTERCOMPANY HORTON, INC. SUBSIDIARIES SERVICES OTHER ELIMINATIONS TOTAL ------------ ------------ --------- -------- ------------ --------- (IN THOUSANDS) OPERATING ACTIVITIES Net income ...................................... $ 162,359 $ 144,475 $ 11,979 $ (2,106) $ (154,348) $ 162,359 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization ................ 1,728 8,404 678 214 -- 11,024 Amortization of debt premiums and fees ....... 4,476 -- -- -- -- 4,476 Changes in operating assets and liabilities: Increase in inventories ................... (56,648) (18,539) -- (40,844) (15) (116,046) (Increase) decrease in earnest money deposits and other assets .............. (24,378) (19,820) 2,716 379 (4,489) (45,592) Decrease in mortgage loans held for sale .. -- -- 20,495 -- -- 20,495 Increase (decrease) in accounts payable and other liabilities .................. (47,192) (67,646) (416) 17,637 31 (97,586) --------- ----------- -------- -------- ----------- --------- Net cash provided by (used in) operating activities ................................... 40,345 46,874 35,452 (24,720) (158,821) (60,870) --------- ----------- -------- -------- ----------- --------- INVESTING ACTIVITIES Net (purchases) dispositions of property and equipment .................................... (3,055) (12,007) (699) 36 -- (15,725) Distributions from venture capital entities ..... -- -- -- 500 -- 500 Net cash paid for acquisitions .................. -- (152,573) -- -- -- (152,573) --------- ----------- -------- -------- ----------- --------- Net cash provided by (used in) investing activities ................................... (3,055) (164,580) (699) 536 -- (167,798) --------- ----------- -------- -------- ----------- --------- FINANCING ACTIVITIES Net change in notes payable ..................... 472,144 (260,634) (34,484) (4,457) 4,457 177,026 Increase (decrease) in intercompany payables .... (511,522) 450,349 6,241 40,458 14,474 -- Proceeds from stock associated with certain employee benefit plans ....................... 855 -- -- -- -- 855 Proceeds from exercise of stock options ......... 9,709 -- -- -- -- 9,709 Cash dividends/distributions paid ............... (8,476) (139,890) -- -- 139,890 (8,476) --------- ----------- -------- -------- ----------- --------- Net cash provided by (used in) financing activities ................................... (37,290) 49,825 (28,243) 36,001 158,821 179,114 --------- ----------- -------- -------- ----------- --------- Increase (decrease) in cash ......................... -- (67,881) 6,510 11,817 -- (49,554) Cash at beginning of period ......................... -- 230,481 6,975 1,824 -- 239,280 --------- ----------- -------- -------- ----------- --------- Cash at end of period ............................... $ -- $ 162,600 $ 13,485 $ 13,641 $ -- $ 189,726 ========= =========== ======== ======== =========== =========
-17- D.R. HORTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENT (UNAUDITED) - (CONTINUED) NOTE H - SUMMARIZED FINANCIAL INFORMATION (CONTINUED) CONSOLIDATING STATEMENT OF CASH FLOWS SIX MONTHS ENDED MARCH 31, 2001
NON-GUARANTOR SUBSIDIARIES ------------------- D.R. GUARANTOR FINANCIAL INTERCOMPANY HORTON, INC. SUBSIDIARIES SERVICES OTHER ELIMINATIONS TOTAL ------------ ------------ --------- ------- ------------ --------- (IN THOUSANDS) OPERATING ACTIVITIES Net income ...................................... $ 101,442 $ 94,755 $ 4,651 $(3,050) $ (96,356) $ 101,442 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization ................ 899 10,222 608 243 -- 11,972 Amortization of debt premiums and fees ....... 1,165 -- -- -- -- 1,165 Changes in operating assets and liabilities: (Increase) decrease in inventories ........ (74,649) (217,017) -- 2,594 20 (289,052) (Increase) decrease in earnest money deposits and other assets .............. (1,497) (23,194) (2,014) 1,621 179 (24,905) Increase in mortgage loans held for sale .. -- -- (9,527) -- -- (9,527) Increase (decrease) in accounts payable and other liabilities .................. (2,911) (75,599) (1,794) 2,518 60,202 (17,584) --------- ------------ -------- ------- ----------- --------- Net cash provided by (used in) operating activities ................................... 24,449 (210,833) (8,076) 3,926 (35,955) (226,489) --------- ------------ -------- ------- ----------- --------- INVESTING ACTIVITIES Net purchases of property and equipment ......... (1,268) (7,477) (1,175) (436) -- (10,356) Investments in venture capital entities ......... -- -- -- (2,022) -- (2,022) Net cash paid for acquisitions .................. -- (1,318) -- -- -- (1,318) --------- ------------ -------- ------- ----------- --------- Net cash used in investing activities ........... (1,268) (8,795) (1,175) (2,458) -- (13,696) --------- ------------ -------- ------- ----------- --------- FINANCING ACTIVITIES Net change in notes payable ..................... 310,262 (21,665) 3,993 (1,831) 1,830 292,589 Increase (decrease) in intercompany payables .... (314,446) 392,565 4,402 (146) (82,375) -- Proceeds from stock associated with certain employee benefit plans ....................... 73 -- -- -- -- 73 Proceeds from exercise of stock options ......... 7,251 -- -- -- -- 7,251 Cash dividends/distributions paid ............... (6,106) (114,500) (2,000) -- 116,500 (6,106) --------- ------------ -------- ------- ----------- --------- Net cash provided by (used in) financing activities ................................... (2,966) 256,400 6,395 (1,977) 35,955 293,807 --------- ------------ -------- ------- ----------- --------- Increase (decrease) in cash ........................ 20,215 36,772 (2,856) (509) -- 53,622 Cash at beginning of period ........................ 20,397 40,349 10,727 1,052 -- 72,525 --------- ------------ -------- ------- ----------- --------- Cash at end of period .............................. $ 40,612 $ 77,121 $ 7,871 $ 543 $ -- $ 126,147 ========= ============ ======== ======= =========== =========
-18- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS - CONSOLIDATED D. R. Horton, Inc. and subsidiaries (the "Company") conduct homebuilding activities in 21 states and 42 markets through its 50 homebuilding divisions. Through its financial services segment, the Company also provides mortgage banking and title agency services in many of these same markets. THREE MONTHS ENDED MARCH 31, 2002 COMPARED TO THREE MONTHS ENDED MARCH 31, 2001 Consolidated revenues for the three months ended March 31, 2002, increased 76.4%, to $1,600.1 million, from $906.8 million for the comparable period of 2001, due to increases in both homebuilding and financial services revenues. $492.6 million of the increase in homebuilding revenues was attributable to revenues generated by Fortress-Florida, acquired in May 2001, Emerald Builders, acquired in July 2001, and Schuler, acquired in February 2002. Income before income taxes for the three months ended March 31, 2002, increased 72.4%, to $142.3 million, from $82.5 million for the comparable period of 2001. As a percentage of revenues, income before income taxes for the three months ended March 31, 2002, decreased 0.2 percentage points, to 8.9%, from 9.1% for the comparable period of 2001, primarily due to the effects of purchase accounting adjustments related to the Schuler acquisition, offset by fixed costs leverage achieved by the large amount of home closings generated by the Schuler operating divisions after the February 21, 2002 merger. The consolidated provision for income taxes increased 72.4%, to $53.4 million for the three months ended March 31, 2002, from $30.9 million for the same period of 2001, due to the corresponding increase in income before income taxes. The effective income tax rate was 37.5% for both periods. SIX MONTHS ENDED MARCH 31, 2002 COMPARED TO SIX MONTHS ENDED MARCH 31, 2001 Consolidated revenues for the six months ended March 31, 2002, increased 53.8%, to $2,760.0 million, from $1,794.5 million for the comparable period of 2001, primarily due to increases in home sales revenues. $591.8 million of the increase in homebuilding revenues was attributable to revenues generated by the acquisitions of Fortress-Florida, Emerald Builders and Schuler. Income before income taxes for the six months ended March 31, 2002, increased 63.5%, to $259.8 million, from $158.9 million for the comparable period of 2001. As a percentage of revenues, income before income taxes for the six months ended March 31, 2002, increased 0.5 percentage points, to 9.4%, from 8.9% for the comparable period of 2001, primarily due to the reduction in homebuilding selling, general and administrative (SG&A) expenses as a percentage of revenues. The consolidated provision for income taxes increased 63.5%, to $97.4 million for the six months ended March 31, 2002, from $59.6 million for the same period of 2001, due to the corresponding increase in income before income taxes. The effective income tax rate was 37.5% for both periods. The cumulative effect of a change in accounting principle was an increase in income of $2.1 million, net of income taxes, for the six months ended March 31, 2001. This accounting change is the result of the Company's October 1, 2000 adoption of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which requires the Company to recognize its interest rate swap agreements in the consolidated balance sheet at fair value. -19- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS - HOMEBUILDING The following tables set forth certain operating and financial data for the Company's homebuilding activities:
PERCENTAGES OF HOMEBUILDING REVENUES ---------------------------------------------------------------- THREE MONTHS ENDED SIX MONTHS ENDED MARCH 31, MARCH 31, ------------------------------ ----------------------------- 2002 2001 2002 2001 ------------ ------------ ------------ ------------ Costs and expenses: Cost of sales ................................... 82.2% 79.9% 81.2% 80.2% Selling, general and administrative expense ..... 9.5 10.6 9.9 10.5 Interest expense ................................ 0.2 0.2 0.1 0.3 ------------ ------------ ------------ ------------ Total costs and expenses ............................. 91.9 90.7 91.2 91.0 Other (income) expense ............................... (0.2) 0.6 0.0 0.5 ------------ ------------ ------------ ------------ Income before income taxes ........................... 8.3% 8.7% 8.8% 8.5% ============ ============ ============ ============
HOMES CLOSED THREE MONTHS ENDED MARCH 31, SIX MONTHS ENDED MARCH 31, ------------------------------------------------- ------------------------------------------------- 2002 2001 2002 2001 ----------------------- ----------------------- ----------------------- ----------------------- HOMES HOMES HOMES HOMES CLOSED REVENUES CLOSED REVENUES CLOSED REVENUES CLOSED REVENUES ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ($'S IN MILLIONS) ($'S IN MILLIONS) MID-ATLANTIC ....... 633 $ 138.6 630 $ 139.5 1,228 $ 263.7 1,225 $ 273.5 MIDWEST ............ 388 95.4 386 89.7 851 214.1 874 208.4 SOUTHEAST .......... 790 135.7 593 104.5 1,678 290.6 1,158 204.7 SOUTHWEST .......... 2,338 403.9 1,886 314.3 4,909 836.5 3,678 602.8 WEST ............... 2,490 760.8 835 205.6 3,664 1,055.2 1,685 420.3 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- 6,639 $ 1,534.4 4,330 $ 853.6 12,330 $ 2,660.1 8,620 $ 1,709.7 ========== ========== ========== ========== ========== ========== ========== ==========
NET NEW SALES CONTRACTS THREE MONTHS ENDED MARCH 31, SIX MONTHS ENDED MARCH 31, ------------------------------------------------- ------------------------------------------------- 2002 2001 2002 2001 ----------------------- ----------------------- ----------------------- ----------------------- HOMES HOMES HOMES HOMES SOLD $ SOLD $ SOLD $ SOLD $ ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ($'S IN MILLIONS) ($'S IN MILLIONS) Mid-Atlantic ....... 883 $ 182.6 860 $ 184.3 1,511 $ 310.7 1,410 $ 312.7 MIDWEST ............ 463 117.4 595 155.6 851 214.3 921 235.6 SOUTHEAST .......... 969 158.4 850 154.0 1,704 276.7 1,398 252.0 SOUTHWEST .......... 3,685 613.9 2,795 453.4 6,017 993.2 4,474 731.1 WEST ............... 2,617 761.1 1,612 408.6 3,678 1,060.0 2,738 724.7 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- 8,617 $ 1,833.4 6,712 $ 1,355.9 13,761 $ 2,854.9 10,941 $ 2,256.1 ========== ========== ========== ========== ========== ========== ========== ==========
SALES CONTRACT BACKLOG MARCH 31, 2002 MARCH 31, 2001 -------------------------- -------------------------- HOMES $ HOMES $ ----------- ----------- ----------- ----------- ($'S IN MILLIONS) MID-ATLANTIC ......... 1,105 $ 237.4 1,008 $ 246.8 MIDWEST .............. 918 263.0 947 252.7 SOUTHEAST ............ 1,490 239.6 1,227 225.0 SOUTHWEST ............ 5,410 910.2 3,985 679.8 WEST ................. 3,475 1,013.5 2,542 679.0 ----------- ----------- ----------- ----------- 12,398 $ 2,663.7 9,709 $ 2,083.3 =========== =========== =========== ===========
-20- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company's market regions consist of the following markets: MID-ATLANTIC Charleston, Charlotte, Columbia, Greensboro, Greenville, Hilton Head, Maryland-D.C., Myrtle Beach, New Jersey, Raleigh/Durham, Richmond, Virginia-D.C. and Williamsburg MIDWEST Chicago, Louisville and Minneapolis/St. Paul SOUTHEAST Atlanta, Birmingham, Fort Myers/Naples, Jacksonville, Miami/West Palm Beach and Orlando SOUTHWEST Albuquerque, Austin, Dallas, Fort Worth, Houston, Killeen, Phoenix, San Antonio and Tucson WEST Colorado Springs, Denver, Hawaii, Las Vegas, Los Angeles, Portland, Sacramento, San Francisco Bay Area, Salt Lake City, San Diego and Seattle THREE MONTHS ENDED MARCH 31, 2002 COMPARED TO THREE MONTHS ENDED MARCH 31, 2001 Revenues from homebuilding activities increased 76.6%, to $1,576.2 million (6,639 homes closed) for the three months ended March 31, 2002, from $892.4 million (4,330 homes closed) for the comparable period of 2001. Revenues from home sales increased in four of the Company's five market regions, with percentage increases ranging from 6.3% in the Midwest region to 270.1% in the West. Home sales revenues declined 0.6% in the Mid-Atlantic region. The increases in total homebuilding revenues and revenues from home sales were due to strong housing demand throughout the majority of the Company's markets, the acquisitions of Fortress-Florida and Emerald Builders during fiscal 2001, and the merger with Schuler in February 2002. In divisions where the Company operated throughout both periods, home sales revenues increased 22.8%, to $1,041.7 million (4,978 homes closed) for the three months ended March 31, 2002, from $848.5 million (4,311 homes closed) for the comparable period of 2001. The average selling price of homes closed during the three months ended March 31, 2002 was $231,100, up 17.3% from $197,100 for the same period in 2001. The increase in average selling price was due primarily to the Schuler acquisition. Schuler's operations are concentrated on the West Coast and in Hawaii, where average home selling prices are significantly higher than in the rest of the United States. The value of net new sales contracts increased 35.2% to $1,833.4 million (8,617 homes) for the three months ended March 31, 2002, from $1,355.9 million (6,712 homes) for the same period of 2001. The number of net new sales contracts increased in four of the Company's five market regions, with percentage increases ranging from 2.7% in the Mid-Atlantic region to 62.3% in the West region. The number of net new sales contracts declined 22.2% in the Midwest region. In divisions where the Company operated throughout both periods, the value of net new sales contracts increased 5.4%, to $1,425.5 million (6,959 homes) for the three months ended March 31, 2002, from $1,351.9 million (6,696 homes) for the comparable period of 2001. The average price of a net new sales contract in the three months ended March 31, 2002 was $212,800, up 5.3% from the $202,000 average in the comparable period of 2001. The increase in average selling price was primarily due to the effect of the Schuler acquisition. At March 31, 2002, the value of the Company's backlog of sales contracts was $2,663.7 million (12,398 homes), up 27.9% from $2,083.3 million (9,709 homes) at March 31, 2001. In divisions where the Company operated throughout both periods, the Company's sales contracts in backlog increased 0.8%, to 9,775 homes (valued at $2,064.2 million), from 9,697 homes (valued at $2,080.5 million) at March 31, 2001. The average sales price of homes in sales backlog was $214,800 at March 31, 2002, essentially unchanged from the average price at March 31, 2001. Cost of sales increased by 81.5%, to $1,295.0 million for the three months ended March 31, 2002, from $713.4 million for the comparable period of 2001. The increase in cost of sales was primarily attributable to the increase in revenues. Cost of home sales as a percentage of home sales revenues increased 2.0 percentage points, to 82.0% for the three months ended March 31, 2002, from 80.0% for the comparable period of 2001, due primarily to $33.6 million in charges related to the Schuler acquisition, the majority of which was a result of recording Schuler's inventory at fair value on the acquisition date. The increase in cost of home sales as a percentage of revenues was the primary cause of the 2.3 percentage point increase in total homebuilding cost of sales as a percentage of total homebuilding revenues, to 82.2% in the three months ended March 31, 2002, from 79.9% in the comparable period of 2001. -21- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Selling, general and administrative (SG&A) expenses from homebuilding activities increased by 58.9%, to $149.5 million in the three months ended March 31, 2002, from $94.1 million in the comparable period of 2001. As a percentage of homebuilding revenues, SG&A expenses decreased to 9.5% for the three months ended March 31, 2002, from 10.6% for the comparable period of 2001, due primarily to the fixed costs leverage achieved by the large amount of home closings revenues generated by the Schuler operating divisions between the Schuler acquisition date, February 21, 2002, and the end of the quarter. Interest expense associated with homebuilding activities increased to $2.6 million in the three months ended March 31, 2002, from $1.6 million in the comparable period of 2001. As a percentage of homebuilding revenues, homebuilding interest expense was 0.2% for the three months ended March 31, 2002, unchanged from the comparable period of 2001. During both periods, the Company expensed the portion of incurred interest and other financing costs which could not be charged to inventory. The Company follows a policy of capitalizing interest only on inventory under construction or development. Capitalized interest and other financing costs are included in cost of sales at the time of home closings. Other income associated with homebuilding activities was $2.4 million in the three months ended March 31, 2002, compared to other expense of $5.7 million in the comparable period of 2001. The income in the three months ended March 31, 2002 is primarily due to an increase in the fair value of the Company's interest rate swap agreements during the quarter. During the year-ago quarter, the expense was primarily due to a decrease in the fair value of the same interest rate swap agreements and an adjustment to the carrying value of the Company's investments in venture capital entities. SIX MONTHS ENDED MARCH 31, 2002 COMPARED TO SIX MONTHS ENDED MARCH 31, 2001 Revenues from homebuilding activities increased 53.5%, to $2,711.2 million (12,330 homes closed) for the six months ended March 31, 2002, from $1,766.0 million (8,620 homes closed) for the comparable period of 2001. Revenues from home sales increased in four of the Company's five market regions, with percentage increases ranging from 2.7% in the Midwest region to 151.1% in the West region. Revenues from homebuilding activities declined 3.6% in the Mid-Atlantic region. The increases in total homebuilding revenues and revenues from home sales were due to strong housing demand throughout the majority of the Company's markets, and the acquisitions of Fortress-Florida, Emerald Builders and Schuler. In divisions where the Company operated throughout both periods, home sales revenues increased 21.4% to $2,068.3 million (10,073 homes closed) for the six months ended March 31, 2002, from $1,703.8 million (8,596 homes closed) for the comparable period of 2001. The average selling price of homes closed during the six months ended March 31, 2002 was $215,700, up 8.8% from $198,300 for the same period in 2001. The increase in average selling price was primarily due to the Schuler acquisition. Schuler's operations are concentrated on the West Coast and in Hawaii, where average home selling prices are significantly higher than in the rest of the United States. The value of net new sales contracts increased 26.5%, to $2,854.9 million (13,761 homes) for the six months ended March 31, 2002, from $2,256.1 million (10,941 homes) for the same period of 2001. The number of net new sales contracts increased in four of the Company's five market regions, with percentage increases ranging from 7.2% in the Mid-Atlantic region to 34.5% in the Southwest region. The number of net new sales contracts declined 7.6% in the Midwest region. In divisions where the Company operated throughout both periods, the value of net new sales contracts increased 4.7%, to $2,356.3 million (11,538 homes) for the six months ended March 31, 2002, from $2,251.3 million (10,919 homes) for the comparable period of 2001. The average price of a net new sales contract in the six months ended March 31, 2002 was $207,500, up 0.6% over the $206,200 average in the six months ended March 31, 2001. Cost of sales increased 55.4%, to $2,201.9 million for the six months ended March 31, 2002, from $1,416.7 million for the comparable period of 2001. The increase in cost of sales was primarily attributable to the increase in revenues. Cost of home sales as a percentage of home sales revenues increased 0.8 percentage points, to 81.1% for the six months ended March 31, 2002, from 80.3% for the comparable period of 2001, due primarily to $33.6 million in charges related to the Schuler acquisition, the majority of which was a result of recording Schuler's inventory at fair value on the acquisition date. The increase in cost of home sales as a percentage of revenues was the primary cause of the 1.0 percentage point increase in total homebuilding cost of sales as a percentage of total homebuilding revenues, to 81.2% in the six months ended March 31, 2002, from 80.2% in the comparable period of 2001. -22- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Selling, general and administrative (SG&A) expenses from homebuilding activities increased by 44.0%, to $267.9 million in the six months ended March 31, 2002, from $186.0 million in the comparable period of 2001. As a percentage of homebuilding revenues, SG&A expenses decreased to 9.9% for the six months ended March 31, 2002, from 10.5% for the comparable period of 2001, due primarily to the fixed costs leverage achieved by the large amount of home closings revenues generated by the Schuler operating divisions between the Schuler acquisition date, February 21, 2002, and the end of the current six-month period. Interest expense associated with homebuilding activities decreased to $3.8 million in the six months ended March 31, 2002, from $4.5 million in the comparable period of 2001. As a percentage of homebuilding revenues, homebuilding interest expense declined 0.2 percentage points to 0.1% for the six months ended March 31, 2002, from 0.3% for the comparable period of 2001. During both periods, the Company expensed the portion of incurred interest and other financing costs which could not be charged to inventory. The Company follows a policy of capitalizing interest only on inventory under construction or development. Capitalized interest and other financing costs are included in cost of sales at the time of home closings. Other expense associated with homebuilding activities was $0.1 million in the six months ended March 31, 2002, compared to $9.0 million in the comparable period of 2001. The expense in 2001 is primarily due to the change in fair value of the Company's interest rate swap agreements during the period, resulting from the Company's adoption of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities ," on October 1, 2000, and adjustments to the carrying value of the Company's venture capital investments. -23- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS - FINANCIAL SERVICES The following table summarizes financial and other information for the Company's financial services operations:
THREE MONTHS ENDED SIX MONTHS ENDED MARCH 31, MARCH 31, --------------------------- --------------------------- 2002 2001 2002 2001 ----------- ----------- ----------- ----------- ($ IN THOUSANDS) Number of loans originated .................................... 4,024 2,738 8,447 5,075 ----------- ----------- ----------- ----------- Loan origination fees ......................................... $ 4,175 $ 3,080 $ 8,818 $ 5,726 Sale of servicing rights and gains from sale of mortgages ..... 11,239 6,160 24,300 12,987 Other revenues ................................................ 2,894 1,750 4,633 3,021 ----------- ----------- ----------- ----------- Total mortgage banking revenues ............................... 18,308 10,990 37,751 21,734 Title policy premiums, net .................................... 5,557 3,439 11,036 6,804 ----------- ----------- ----------- ----------- Total revenues ................................................ 23,865 14,429 48,787 28,538 Selling, general and administrative expense ................... 14,918 9,830 30,041 19,967 Interest expense .............................................. 999 875 2,335 2,007 Interest/other (income) ....................................... (2,818) (1,213) (5,862) (2,629) ----------- ----------- ----------- ----------- Income before income taxes .................................... $ 10,766 $ 4,937 $ 22,273 $ 9,193 =========== =========== =========== ===========
THREE MONTHS ENDED MARCH 31, 2002 COMPARED TO THREE MONTHS ENDED MARCH 31, 2001 Revenues from the financial services segment increased 65.4%, to $23.9 million in the three months ended March 31, 2002, from $14.4 million in the comparable period of 2001. The increase in financial services revenues was due to the rapid expansion of the Company's mortgage loan and title services provided to customers of the Company's homebuilding segment and the effects of the Fortress-Florida and Emerald Builders acquisitions. Selling, general and administrative expenses associated with financial services increased 51.8%, to $14.9 million in the three months ended March 31, 2002, from $9.8 million in the comparable period of 2001. As a percentage of financial services revenues, selling, general and administrative expenses decreased by 5.6 percentage points, to 62.5% in the three months ended March 31, 2002, from 68.1% in the comparable period in 2001, due primarily to the increase in revenues absorbing fixed costs. SIX MONTHS ENDED MARCH 31, 2002 COMPARED TO SIX MONTHS ENDED MARCH 31, 2001 Revenues from the financial services segment increased 71.0%, to $48.8 million in the six months ended March 31, 2002, from $28.5 million in the comparable period of 2001. The increase in financial services revenues was due to the rapid expansion of the Company's mortgage loan and title services provided to customers of the Company's homebuilding segment and the effects of the Fortress-Florida and Emerald Builders acquisitions. General and administrative expenses associated with financial services increased 50.5%, to $30.0 million in the six months ended March 31, 2002, from $20.0 million in the comparable period of 2001. As a percentage of financial services revenues, general and administrative expenses decreased by 8.4 percentage points, to 61.6% in the six months ended March 31, 2002, from 70.0% in the comparable period in 2001, due primarily to the increase in revenues absorbing fixed costs. -24- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES At March 31, 2002, the Company had available cash and cash equivalents of $189.7 million. Inventories (including finished homes, construction in progress, and developed residential lots and other land) at March 31, 2002, had increased by $1,396.8 million since September 30, 2001, due to the acquisition of Schuler, a general increase in business activity and the expansion of operations in the Company's market areas. The increase in inventories was due primarily to the Schuler acquisition. Net of homebuilding cash, the Company's ratio of homebuilding notes payable to total capital at March 31, 2002, increased 1.8 percentage points, to 55.8% from 54.0% at September 30, 2001. The stockholders' equity to total assets ratio increased 2.2 percentage points, to 36.4% at March 31, 2002, from 34.2% at September 30, 2001. At March 31, 2002, the Company has an $805 million, unsecured revolving credit facility , including $125 million which may be used for letters of credit. The new facility matures in January 2006, and is guaranteed by substantially all of the Company's subsidiaries other than its financial services subsidiaries. Under the most restrictive of the limitations imposed by the Company's indentures and the revolving credit facility, as of March 31, 2002, the Company was permitted to increase its homebuilding debt by approximately $1,376.8 million, which included $306.1 million available under the revolving credit facility. The Company has entered into multi-year interest rate swap agreements, aggregating a notional amount of $200 million, that fix the interest rate on a portion of the variable rate revolving credit facility. In the normal course of business, the Company provides standby letters of credit and performance bonds, issued by third parties, to secure performance under various contracts. At March 31, 2002, outstanding standby letters of credit and performance bonds, the majority of which mature in less than one year, were $88.8 million and $478.1 million, respectively. At March 31, 2002, the financial services segment had mortgage loans held for sale of $202.3 million and loan commitments for $249.4 million at fixed rates. The Company hedges the interest rate market risk on these mortgage loans held for sale and loan commitments through the use of best-efforts whole loan delivery commitments, mandatory forward commitments to sell mortgage- backed securities and the purchase of options on financial instruments. The financial services segment has a $205 million, one-year bank warehouse facility that matures on August 13, 2002, and is secured by mortgage loans held for sale. The warehouse facility is not guaranteed by the parent company. As of March 31, 2002, $148.2 million had been drawn under this facility. Substantially all of the mortgage company activities are financed under the warehouse facility. On February 21, 2002, Schuler Homes, Inc. merged with and into D.R. Horton, Inc., with D.R. Horton the surviving corporation. At the time of the merger, Schuler's assets amounted to $1,377.6 million, mostly inventory. The total merger consideration consisted of the issuance of 20,079,532 shares of D.R. Horton, Inc. common stock, valued at $30.93 per share (the average closing price of D.R. Horton common stock for a period of ten trading days from December 4, 2001 to December 17, 2001); the payment of $168.7 million in cash; the assumption of $802.2 million of Schuler's debt, $238.2 million of which was paid at closing; the assumption of trade payables and other liabilities amounting to $200.0 million; and the assumption of $10.8 million of obligations to the Schuler entities' minority interest holders. Also, D.R. Horton issued options to purchase approximately 527,000 shares of D.R. Horton common stock to Schuler employees to replace outstanding Schuler stock options. The fair value of the options issued was $10.4 million and was recorded as additional capital. The intrinsic value of the unvested options issued was $7.8 million and was recorded as unearned compensation. The unearned compensation is being amortized over the remaining vesting period of the stock options. The Schuler merger was accounted for as a purchase. Accordingly, Schuler's assets and liabilities, including identifiable intangibles, were initially recorded at their fair values as of the date of the merger. The excess of the total consideration paid over the net assets' fair value (approximately $425.2 million) was recorded as an addition to goodwill. The Company's rapid growth and acquisition strategy require significant amounts of cash. It is anticipated that future home construction, lot and land purchases and acquisitions will be funded through internally generated funds, existing and future credit facilities and the issuance of new debt or equity securities. At March 31, 2002, under currently effective shelf registration -25- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS statements, the Company has approximately 8.0 million shares issuable to effect, in whole or in part, possible future acquisitions and the capacity to issue new debt or equity securities amounting to $1.0 billion. In the future, the Company intends to continue to maintain effective shelf registration statements that will facilitate access to the capital markets. During the three months ended March 31, 2002, the Company's Board of Directors declared a quarterly cash dividend of $0.06 per common share, which was paid on February 15, 2002 to stockholders of record on February 5, 2002. On March 4, 2002, the Company's Board of Directors declared a three-for-two stock split (effected as a 50% stock dividend) which was paid on April 9, 2002, to stockholders of record on March 26, 2002. Cash was paid in lieu of fractional shares. On April 30, 2002, the Company's Board of Directors declared a cash dividend of $0.06 per common share, payable on May 21, 2002 to stockholders of record on May 14, 2002. On April 11, 2002, the Company issued $250 million of 8.5% Senior notes due 2012. The net proceeds from this offering were used to repay borrowings under the unsecured revolving credit facility. These notes are guaranteed by substantially all of the Company's subsidiaries other than its financial services subsidiaries. In 1999 and 2000, the Company entered into three separate limited partnership agreements with the purpose of investing in start-up and emerging growth companies whose technology and business plans have the potential of permitting the Company to leverage its size, expertise and customer base in the homebuilding industry. The Company originally authorized investment of up to $125 million in such companies over a four-year period. In January 2001, the original $125 million authorization was reduced to the $31.3 million that had been invested in such companies as of that date. The investments are concentrated in e-commerce businesses that serve the homebuilding, real estate and financial service industries, as well as in businesses whose strategic focus allows for the diversification of the Company's operations. As of March 31, 2002, the carrying value of the Company's investments in such companies, reported in homebuilding other assets, amounted to $5.0 million. Except for ordinary expenditures for the construction of homes and the acquisition of land and lots for development and sale of homes, at March 31, 2002, the Company had no material commitments for capital expenditures. -26- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SAFE HARBOR STATEMENT Certain statements contained in this report, as well as in other materials we have filed or will file with the Securities and Exchange Commission, statements made by us in periodic press releases and oral statements made by Company officials to analysts, stockholders and the press in the course of presentations about the Company, may be construed as "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Any or all of the forward-looking statements included in this report and in any other reports or public statements of the Company are subject to risks, uncertainties and other factors, many of which are outside of the Company's control, that could cause actual results to differ materially from the results discussed in and anticipated by the forward-looking statements. The following risks and uncertainties relevant to our business include factors we believe could adversely affect us. Other factors beyond those listed could also adversely affect us. - Changes in general economic, real estate and other business conditions - Changes in interest rates and the availability of mortgage financing - Governmental regulations and environmental matters - The Company's substantial leverage - Competitive conditions within the homebuilding industry - The availability of capital - The Company's ability to effect its growth strategies successfully We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. However, any further disclosures made on related subjects in subsequent reports on Forms 10-K, 10-Q and 8-K should be consulted. Additional information about issues that could lead to material changes in performance is contained in the Company's annual report on Form 10-K, which is filed with the Securities and Exchange Commission. -27- ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is subject to interest rate risk on its long term debt. The Company monitors its exposure to changes in interest rates and utilizes both fixed and variable rate debt. For fixed rate debt, changes in interest rates generally affect the value of the debt instrument, but not the Company's earnings or cash flows. Conversely, for variable rate debt, changes in interest rates generally do not impact the fair value of the debt instrument, but may affect the Company's future earnings and cash flows. The Company has mitigated its exposure to changes in interest rates on its variable rate bank debt by entering into interest rate swap agreements to obtain a fixed interest rate for a portion of the variable rate borrowings. The Company generally does not have an obligation to prepay fixed-rate debt prior to maturity and, as a result, interest rate risk and changes in fair value would not have a significant impact on the Company's fixed-rate debt until such time as the Company is required to refinance, repurchase or repay such debt. The Company's interest rate swaps were not designated as hedges under Statement of Financial Accounting Standards No. 133 when it was adopted on October 1, 2000. Since their maturities and other terms did not match the related debt, they were determined to be ineffective hedges (as defined by the Statement). Therefore, the Company is exposed to market risk associated with changes in the fair values of the swaps, since any such changes must be reflected in the Company's income statements. The Company's financial services segment is exposed to interest rate risk associated with its mortgage loan production activities. Mortgage loans are funded at fixed interest rates before they are committed to specific investors and interest rate lock commitments (IRLC's) are extended to borrowers who have applied for loan funding and who meet certain defined credit and underwriting criteria. Forward commitments to sell mortgage-backed securities are designated as fair value hedges of the risk of changes in the overall fair value of funded loans. The effectiveness of the fair value hedge is continuously monitored and any ineffectiveness, which for the three months ended March 31, 2002, was not significant, is recognized in current earnings. The IRLC's are classified and accounted for as non-designated derivative instruments with gains and losses recorded in current earnings. Interest rate risk associated with IRLC's is managed through the use of best-efforts whole loan delivery commitments, forward commitments to sell mortgage-backed securities and the purchase of options on financial instruments. These instruments are considered non-designated derivatives and are accounted for at fair market value with gains and losses recorded in current earnings. At March 31, 2002, total forward commitments to mitigate interest rate risk related to funded loans and IRLC's were approximately $154.5 million, the duration of which was less than six months. The following table shows, as of March 31, 2002, the Company's long term debt obligations, principal cash flows by scheduled maturity, weighted average interest rates and estimated fair market value. In addition, the table shows the notional amounts, weighted average interest rates and estimated fair market value of the Company's interest rate swaps.
Six Months Ended Fair Sep. 30, Year ended September 30, market ---------- ------------------------------------------------------- value at 2002 2003 2004 2005 2006 Thereafter Total 03/31/02 ---------- ------- ------- ------- ------- ----------- --------- --------- ($'s in millions) DEBT: Fixed rate ................... $ 24.3 $ 36.1 $ 167.9 $ 207.1 $ 150.5 $ 1,817.8 $ 2,403.7 $ 2,350.3 Average interest rate ........ 7.42% 6.33% 8.49% 10.73% 10.18% 8.08% 8.46% -- Variable rate ................ $ 152.9 $ 3.2 $ 8.3 -- $ 486.1 -- $ 650.5 $ 650.5 Average interest rate ........ 2.97% 5.75% 2.81% -- 3.68% -- 3.51% -- INTEREST RATE SWAPS: Variable to fixed ............ $ 200.0 $ 200.0 $ 200.0 $ 200.0 $ 200.0 $ 200.0 -- ($ 5.4) Average pay rate ............. 5.10% 5.10% 5.10% 5.10% 5.10% 5.07% -- -- Average receive rate ......... 90-day LIBOR
-28- PART II. OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES. Certain new indebtedness and limitations on payment of dividends or other distributions by the Company on its Common Stock were created in connection with its February 21, 2002 acquisition of Schuler Homes, Inc. ("Schuler"). As part of that acquisition, the Company executed: (i) the Seventh Supplemental Indenture, dated as of February 21, 2002, among the Company, the guarantors named therein and BNY Western Trust Company, as successor in interest to U.S. Trust Company of California, N.A., as trustee, assuming the obligations under the Indenture dated as of May 6, 1998, among Schuler, the guarantors named therein and BNY Western Trust Company, as successor in interest to U.S. Trust Company of California, N.A., as trustee, and Schuler's related 9% Senior Notes due 2008; (ii) the First Supplemental Indenture, dated as of February 21, 2002, among the Company, the guarantors named therein and U.S. Bank, N.A., as successor by merger to U.S. Bank Trust National Association, as trustee, assuming the obligations under the Indenture, dated as of June 28, 2001, among Schuler, the guarantors named therein and U.S. Bank, N.A., as successor by merger to U.S. Bank Trust National Association, as trustee, and Schuler's related 9.375% Senior Notes due 2009; and (iii) the First Supplemental Indenture, dated as of February 21, 2002, among the Company, the guarantors named therein and U.S. Bank, N.A., as successor by merger to U.S. Bank Trust National Association, as trustee, assuming the obligations under the Indenture, dated as of June 28, 2001, among Schuler, the guarantors named therein and U.S. Bank, N.A., as successor by merger to U.S. Bank Trust National Association, as trustee, and Schuler's related 10.5% Senior Subordinated Notes due 2011. Each of these indentures, as supplemented, impose limitations on the ability of the Company and its subsidiaries guaranteeing the assumed notes to, among other things, incur indebtedness, make "Restricted Payments" (as defined, which includes payments of dividends or other distributions on the Common Stock of the Company), effect certain "Asset Sales" (as defined), enter into certain transactions with affiliates, merge or consolidate with any person, or transfer all or substantially all of their properties and assets. These limitations are similar to limitations already existing by reason of the Company's other senior and senior subordinated notes and related indentures. The indentures related to the Schuler senior notes, as supplemented, also impose limitations on the ability of the Company and its guarantor subsidiaries to make any principal payment on, or redeem, repurchase, defease or otherwise acquire or retire for value prior to scheduled principal payments or at maturity indebtedness of the Company or the guarantor subsidiaries which is expressly subordinated in right of payment to such senior notes unless such transactions comply with the limitations on "Restricted Payment" contained in such indentures. The Schuler senior subordinated notes and the Company's 9.75% Senior Subordinated Notes due 2010 and 9.375% Senior Subordinated Notes due 2011 are indebtedness of the Company expressly subordinated in right of payment to such senior notes. Other information concerning the acquisition of Schuler has previously been reported in, and is described in, the Company's Amendment No. 1 to Registration Statement on Form S-4 (Registration Number 333-73888) filed with the SEC on January 16, 2002 and the Company's current reports on Form 8-K, filed with the SEC on February 19, 2002 and February 22, 2002 (as amended on March 25, 2002). On April 11, 2002, the Company issued $250,000,000 in principal amount of its 8.5% Senior Notes due 2012 (the "Notes"). As part of that issuance, the Company executed the Indenture, dated as of April 11, 2002, among the Company, the guarantors named therein and American Stock Transfer & Trust Company, as trustee, and the First Supplemental Indenture, dated as of April 11, 2002, among the Company, the guarantors named therein and American Stock Transfer & Trust Company, as trustee, authorizing the Notes, in addition to the Registration Rights Agreement, dated as of April 11, 2002, among the Company, the guarantors named therein and the initial purchasers of the Notes. This indenture and supplemental indenture impose limitations on the ability of the Company and its subsidiaries guaranteeing the Notes to, among other things, incur indebtedness, make "Restricted Payments" (as defined, which includes payments of dividends or other distributions on the Common Stock of the Company), effect certain "Asset Dispositions" (as defined), enter into certain transactions with affiliates, merge or consolidate with any other person, or transfer all or substantially all of their properties and assets. These limitations are substantially similar to the limitations already existing with respect to the Company's 8.375% Senior Notes due 2004, 10.5% Senior Notes due 2005, 8% Senior Notes due 2009, 7.875% Senior Notes due 2011 and Zero Coupon Convertible Senior Notes due 2021 and the related indenture and supplemental indentures under which such series of senior notes were issued. -29- ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. (a) On February 21, 2002, the Company held its Annual Meeting of Stockholders (the "Meeting"). At the Meeting, the stockholders re-elected ten members of the Board of Directors of the Company to serve until the Company's next annual meeting of stockholders and until their respective successors are elected and qualified. The names of the ten directors, the votes cast for and the number of votes withheld were as follows:
Name Votes For Votes Withheld ---- --------- -------------- Donald R. Horton 64,152,604 7,713,226 Bradley S. Anderson 70,714,594 1,151,236 Richard Beckwitt 70,592,380 1,303,450 Samuel R. Fuller 64,112,853 7,752,977 Richard I. Galland 70,712,119 1,153,711 Richard L. Horton 70,558,757 1,307,073 Terrill J. Horton 70,558,877 1,306,953 Francine I. Neff 71,009,112 1,129,718 Scott J. Stone 64,092,876 7,772,954 Donald J. Tomnitz 64,110,793 7,755,037
At the annual meeting of the Board of Directors following the Meeting, pursuant to the Merger Agreement with Schuler Homes, Inc., James K. Schuler was elected as a director to serve until the Company's next annual meeting of stockholders and until his successor is elected and qualified. (b) At the Meeting, a vote was taken for the approval and adoption of a proposal to amend and restate the D.R. Horton, Inc. 1991 Stock Incentive Plan. The following votes were cast upon this proposal: For: 43,962,460 Against: 27,775,516 Abstain: 125,782
-30- (c) At the Meeting, the stockholders considered and approved a proposal to approve and adopt the Agreement and Plan of Merger, dated as of October 22, 2001, as amended November 8, 2001 (the "Merger Agreement"), between the Company and Schuler, providing for, among other things, the merger of Schuler into the Company (the "Merger Proposal"). The number of votes cast for and against the Merger Proposal and the number of abstentions were as follows: For: 64,440,267 Against: 77,471 Abstain: 68,635
ITEM 5. OTHER INFORMATION. On February 21, 2002, the Company and the guarantors named therein executed the Seventh Supplemental Indenture, dated as of February 21, 2002, among the Company, the guarantors named therein and BNY Western Trust Company, as successor in interest to U.S. Trust Company of California, N.A., as trustee, relating to Schuler's 9% Senior Notes due 2008; the First Supplemental Indenture, dated as of February 21, 2002, among the Company, the guarantors named therein and U.S. Bank, N.A., as successor by merger to U.S. Bank Trust National Association, as trustee, relating to Schuler's 9.375% Senior Notes due 2009; the First Supplemental Indenture, dated as of February 21, 2002, among the Company, the guarantors named therein and U.S. Bank, N.A., as successor by merger to U.S. Bank Trust National Association, as trustee, relating to Schuler's 10.5% Senior Subordinated Notes due 2011. The effect of these three supplemental indentures is for the Company to assume the obligations of Schuler under the indentures to which such supplemental indentures relate and to include the restricted subsidiaries of the Company as guarantors of the debt to which such supplemental indentures relate. In addition, on February 21, 2002, the Company and the guarantors named therein executed the Fourteenth Supplemental Indenture, dated as of February 21, 2002, among the Company, the guarantors named therein and American Stock Transfer & Trust Company, as trustee, relating to the Company's 8.375% Senior Notes due 2004, 10.5% Senior Notes due 2005, 8% Senior Notes due 2009, 7.875% Senior Notes due 2011 and Zero Coupon Convertible Senior Notes due 2021; the Fourth Supplemental Indenture, dated as of February 21, 2002, among the Company, the guarantors named therein and American Stock Transfer & Trust Company, as trustee, relating to the Company's 9.75% Senior Subordinated Notes due 2010 and 9.375% Senior Subordinated Notes due 2011; and the Fifth Supplemental Indenture, dated as of February 21, 2002, among the Company, the guarantors named therein and First Union National Bank, as trustee, relating to the Company's 10% Senior Notes due 2006. The effect of these three indentures is to include the restricted subsidiaries of Schuler as guarantors of the debt to which such supplemental indentures relate. The six supplemental indentures are each attached hereto as exhibits. On April 1, 2002, as required under the applicable indentures, the Company completed a change of control offer to repurchase the three series of senior and senior subordinated notes previously issued by Schuler at 101% of their aggregate principal amount. $15,000,000 in aggregate principal amount of the 9.375% Senior Notes due 2009 and $5,225,000 in aggregate principal amount of the 10.5% Senior Subordinated Notes due 2011 were tendered for purchase. No holders chose to tender the 9% Senior Notes due 2008. On March 4, 2002, the Company announced that the Board of Directors declared a 3 for 2 stock split (effected as a 50% stock dividend), which was paid on April 9, 2002 to holders of record of the Company's common stock as of the close of business on March 26, 2002. On March 11, 2002, the Company filed a universal shelf registration statement on Form S-3 registering up to $1,000,000,000 of debt securities and associated guarantees, preferred stock, depositary shares, common stock, warrants, stock purchase contracts, stock purchase units, trust preferred securities and associated subordinated trust debt securities, and units of the above securities, which registration statement was declared effective by the SEC on March 27, 2002. -31- ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits. 3.1 Amended and Restated Certificate of Incorporation, as amended, of the Company is incorporated herein by reference from Exhibit 4.2 to the Company's registration statement (No. 333-76175) on Form S-3, filed April 13, 1999. 3.2 Amended and Restated Bylaws of the Company are incorporated herein by reference from Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1998. 4.1 Indenture, dated as of May 6, 1998, among Schuler Residential, Inc. (formerly known as Schuler Homes, Inc.), the guarantors named therein and BNY Western Trust Company, as successor in interest to U.S. Trust Company of California, N.A., as trustee, relating to the 9% Senior Notes due 2008, is incorporated herein by reference from Exhibit 4.4 to Schuler Residential, Inc.'s Quarterly Report on Form 10-Q for the quarter ended March 31, 1998. The Commission file number for Schuler Residential, Inc. is 0-19891. 4.2 First Supplemental Indenture, dated as of February 26, 1999, among Schuler Residential, Inc. (formerly known as Schuler Homes, Inc.), the guarantors named therein and BNY Western Trust Company, as successor in interest to U.S. Trust Company of California, N.A., as trustee, relating to the 9% Senior Notes due 2008, is incorporated herein by reference from Exhibit 1.07 to Schuler Homes, Inc.'s Registration Statement on Form 8-A filed with the SEC on June 22, 2001. The Commission file number for Schuler Homes, Inc. is 0-32461. 4.3 Second Supplemental Indenture, dated as of July 15, 1999, among Schuler Residential, Inc. (formerly known as Schuler Homes, Inc.), the guarantors named therein and BNY Western Trust Company, as successor in interest to U.S. Trust Company of California, N.A., as trustee, relating to the 9% Senior Notes due 2008, is incorporated herein by reference from Exhibit 1.08 to Schuler Homes, Inc.'s Registration Statement on Form 8-A filed with the SEC on June 22, 2001. The Commission file number for Schuler Homes, Inc. is 0-32461. 4.4 Third Supplemental Indenture, dated as of June 27, 2000, among Schuler Residential, Inc. (formerly known as Schuler Homes, Inc.), the guarantors named therein and BNY Western Trust Company, as successor in interest to U.S. Trust Company of California, N.A., as trustee, relating to the 9% Senior Notes due 2008, is incorporated herein by reference from Exhibit 1.09 to Schuler Homes, Inc.'s Registration Statement on Form 8-A filed with the SEC on June 22, 2001. The Commission file number for Schuler Homes, Inc. is 0-32461. 4.5 Fourth Supplemental Indenture, dated as of October 20, 2000, among Schuler Residential, Inc. (formerly known as Schuler Homes, Inc.), the guarantors named therein and BNY Western Trust Company, as successor in interest to U.S. Trust Company of California, N.A., as trustee, relating to the 9% Senior Notes due 2008, is incorporated herein by reference from Exhibit 1.10 to Schuler Homes, Inc.'s Registration Statement on Form 8-A filed with the SEC on June 22, 2001. The Commission file number for Schuler Homes, Inc. is 0-32461. 4.6 Fifth Supplemental Indenture, dated as of June 21, 2001, among Schuler Residential, Inc. (formerly known as Schuler Homes, Inc.), Schuler Homes, Inc., the guarantors named therein and BNY Western Trust Company, as successor in interest to U.S. Trust Company of California, N.A., as trustee, relating to the 9% Senior Notes due 2008, is incorporated herein by reference from Exhibit 1.11 to Schuler Homes, Inc.'s Registration Statement on Form 8-A filed with the SEC on June 22, 2001. The Commission file number for Schuler Homes, Inc. is 0-32461. -32- 4.7* Sixth Supplemental Indenture, dated as of October 4, 2001, among Schuler Homes, Inc., the guarantors named therein and BNY Western Trust Company, as successor in interest to U.S. Trust Company of California, N.A., as trustee, relating to the 9% Senior Notes due 2008. 4.8* Seventh Supplemental Indenture, dated as of February 21, 2002, among the Company, the guarantors named therein and BNY Western Trust Company, as successor in interest to U.S. Trust Company of California, N.A., as trustee, relating to the 9% Senior Notes due 2008. 4.9 Indenture, dated as of June 28, 2001, among Schuler Homes, Inc., the guarantors named therein and U.S. Bank, N.A., as successor by merger to U.S. Bank Trust National Association, as trustee, relating to the 9.375% Senior Notes due 2009, is incorporated herein by reference from Exhibit 4.8 to Schuler Homes, Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 2001. The Commission file number for Schuler Homes, Inc. is 0-32461. 4.10* First Supplemental Indenture, dated as of February 21, 2002, among the Company, the guarantors named therein and U.S. Bank, N.A., as successor by merger to U.S. Bank Trust National Association, as trustee, relating to the 9.375% Senior Notes due 2009. 4.11 Indenture, dated as of June 28, 2001, among Schuler Homes, Inc., the guarantors named therein and U.S. Bank, N.A., as successor by merger to U.S. Bank Trust National Association, as trustee, relating to the 10.5% Senior Subordinated Notes due 2011, is incorporated herein by reference from Exhibit 4.10 to Schuler Homes, Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 2001. The Commission file number for Schuler Homes, Inc. is 0-32461. 4.12* First Supplemental Indenture, dated as of February 21, 2002, among the Company, the guarantors named therein and U.S. Bank, N.A., as successor by merger to U.S. Bank Trust National Association, as trustee, relating to the 10.5% Senior Subordinated Notes due 2011. 4.13* Fourteenth Supplemental Indenture, dated as of February 21, 2002, among the Company, the guarantors named therein and American Stock Transfer & Trust Company, as trustee, relating to the 8.375% Senior Notes due 2004, 10.5% Senior Notes due 2005, 8% Senior Notes due 2009, 7.875% Senior Notes due 2011 and Zero Coupon Convertible Senior Notes due 2021. 4.14* Fourth Supplemental Indenture, dated as of February 21, 2002, among the Company, the guarantors named therein and American Stock Transfer & Trust Company, as trustee, relating to the 9.75% Senior Subordinated Notes due 2010 and 9.375% Senior Subordinated Notes due 2011. 4.15* Fifth Supplemental Indenture, dated as of February 21, 2002, among the Company, the guarantors named therein and First Union National Bank, as trustee, relating to the 10% Senior Notes due 2006. 4.16* Indenture, dated as of April 11, 2002, among the Company, the guarantors named therein and American Stock Transfer & Trust Company, as trustee, relating to senior debt securities of the Company. 4.17* First Supplemental Indenture, dated as of April 11, 2002, among the Company, the guarantors named therein and American Stock Transfer & Trust Company, as trustee, relating to the 8.5% Senior Notes due 2012. 4.18* Registration Rights Agreement, dated as of April 11, 2002, among the Company, the guarantors named therein and Salomon Smith Barney Inc., Banc of America Securities LLC, Credit Lyonnais Securities (USA) Inc. and Fleet Securities, Inc., relating to the 8.5% Senior Notes due 2012. -33- 10.1 Revolving Credit Agreement, dated as of January 31, 2002, among the Company, the lenders named therein, and Bank Of America, N.A., a national banking association, as Administrative Agent and Letter of Credit Issuer, is incorporated herein by reference from Exhibit 10.1 to the Company's Current Report on Form 8-K, dated January 31, 2002, filed with the SEC on February 1, 2002. 10.2* Indemnification Agreement for new Director, James K. Schuler. 10.3 Employment Agreement, dated as of October 22, 2001, between the Company and James K. Schuler, is incorporated by reference from Exhibit 10.8 of the Company's Registration Statement on Form S-4 (Registration No. 333-73888), filed with the SEC on November 21, 2001. 10.4* Form of Incentive Stock Option Agreement for replacement incentive stock options granted to former employees of Schuler Homes, Inc. pursuant to the D.R. Horton, Inc. 1991 Stock Incentive Plan, as amended and restated. 10.5* Form of Non-Qualified Stock Option Agreement for replacement non-qualified stock options granted to former employees of Schuler Homes, Inc. pursuant to the D.R. Horton, Inc. 1991 Stock Incentive Plan, as amended and restated. - ---------- *Filed herewith. (b) Reports on Form 8-K. 1. On January 22, 2002, the Company filed a Current Report on Form 8-K (Item 5), which included its press release of that date announcing the Company's financial results for the quarter ended December 31, 2002. 2. On January 24, 2002, the Company filed a Current Report on Form 8-K (Item 5), which announced the declaration of a cash dividend of six cents ($0.06) per share. 3. On February 1, 2002, the Company filed a Current Report on Form 8-K (Item 5), which announced that it had entered into a four-year, unsecured, revolving credit facility with several banks to replace its credit facility that had been scheduled to mature in April 2002. 4. On February 19, 2002, the Company filed a Current Report on Form 8-K (Item 5), which included its press release of that date announcing the stock portion of the merger consideration for the Schuler merger. 5. On February 22, 2002, the Company filed a Current Report on Form 8-K (Items 2 and 7), which announced the completion of the acquisition of Schuler and provided further information concerning the acquisition of Schuler and incorporated by reference the financial statements of Schuler and pro forma combined financial information for the Company and Schuler. 6. On March 25, 2002, the Company filed an amendment to the Current Report on Form 8-K (Item 7) previously filed on February 22, 2002, which provided amended pro forma combined financial information for the Company and Schuler. -34- SIGNATURES 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 thereunto duly authorized. D.R. HORTON, INC. Date: May 15, 2002 By /s/ SAMUEL R. FULLER ----------------------------------------------- Samuel R. Fuller, on behalf of D.R. Horton, Inc. and as Executive Vice President, Treasurer and Chief Financial Officer (Principal Financial and Accounting Officer) -35- INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 4.7 SIXTH SUPPLEMENTAL INDENTURE, DATED AS OF OCTOBER 4, 2001, AMONG SCHULER HOMES, INC., THE GUARANTORS NAMED THEREIN AND BNY WESTERN TRUST COMPANY, AS SUCCESSOR IN INTEREST TO U.S. TRUST COMPANY OF CALIFORNIA, N.A., AS TRUSTEE, RELATING TO THE 9% SENIOR NOTES DUE 2008. 4.8 SEVENTH SUPPLEMENTAL INDENTURE, DATED AS OF FEBRUARY 21, 2002, AMONG THE COMPANY, THE GUARANTORS NAMED THEREIN AND BNY WESTERN TRUST COMPANY, AS SUCCESSOR IN INTEREST TO U.S. TRUST COMPANY OF CALIFORNIA, N.A., AS TRUSTEE, RELATING TO THE 9% SENIOR NOTES DUE 2008. 4.10 FIRST SUPPLEMENTAL INDENTURE, DATED AS OF FEBRUARY 21, 2002, AMONG THE COMPANY, THE GUARANTORS NAMED THEREIN AND U.S. BANK, N.A., AS SUCCESSOR BY MERGER TO U.S. BANK TRUST NATIONAL ASSOCIATION, AS TRUSTEE, RELATING TO THE 9.375% SENIOR NOTES DUE 2009. 4.12 FIRST SUPPLEMENTAL INDENTURE, DATED AS OF FEBRUARY 21, 2002, AMONG THE COMPANY, THE GUARANTORS NAMED THEREIN AND U.S. BANK, N.A., AS SUCCESSOR BY MERGER TO U.S. BANK TRUST NATIONAL ASSOCIATION, AS TRUSTEE, RELATING TO THE 10.5% SENIOR SUBORDINATED NOTES DUE 2011. 4.13 FOURTEENTH SUPPLEMENTAL INDENTURE, DATED AS OF FEBRUARY 21, 2002, AMONG THE COMPANY, THE GUARANTORS NAMED THEREIN AND AMERICAN STOCK TRANSFER & TRUST COMPANY, AS TRUSTEE, RELATING TO THE 8.375% SENIOR NOTES DUE 2004, 10.5% SENIOR NOTES DUE 2005, 8% SENIOR NOTES DUE 2009, 7.875% SENIOR NOTES DUE 2011 AND ZERO COUPON CONVERTIBLE SENIOR NOTES DUE 2021. 4.14 FOURTH SUPPLEMENTAL INDENTURE, DATED AS OF FEBRUARY 21, 2002, AMONG THE COMPANY, THE GUARANTORS NAMED THEREIN AND AMERICAN STOCK TRANSFER & TRUST COMPANY, AS TRUSTEE, RELATING TO THE 9.75% SENIOR SUBORDINATED NOTES DUE 2010 AND 9.375% SENIOR SUBORDINATED NOTES DUE 2011. 4.15 FIFTH SUPPLEMENTAL INDENTURE, DATED AS OF FEBRUARY 21, 2002, AMONG THE COMPANY, THE GUARANTORS NAMED THEREIN AND FIRST UNION NATIONAL BANK, AS TRUSTEE, RELATING TO THE 10% SENIOR NOTES DUE 2006. 4.16 INDENTURE, DATED AS OF APRIL 11, 2002, AMONG THE COMPANY, THE GUARANTORS NAMED THEREIN AND AMERICAN STOCK TRANSFER & TRUST COMPANY, AS TRUSTEE, RELATING TO SENIOR DEBT SECURITIES OF THE COMPANY. 4.17 FIRST SUPPLEMENTAL INDENTURE, DATED AS OF APRIL 11, 2002, AMONG THE COMPANY, THE GUARANTORS NAMED THEREIN AND AMERICAN STOCK TRANSFER & TRUST COMPANY, AS TRUSTEE, RELATING TO THE 8.5% SENIOR NOTES DUE 2012. 4.18 REGISTRATION RIGHTS, DATED AS OF APRIL 11, 2002, AMONG THE COMPANY, THE GUARANTORS NAMED THEREIN AND SALOMON SMITH BARNEY INC., BANC OF AMERICA SECURITIES LLC, CREDIT LYONNAIS SECURITIES (USA) INC. AND FLEET SECURITIES, INC., RELATING TO THE 8.5% SENIOR NOTES DUE 2012.
10.2 INDEMNIFICATION AGREEMENT FOR NEW DIRECTOR, JAMES K. SCHULER. 10.4 FORM OF INCENTIVE STOCK OPTION AGREEMENT FOR REPLACEMENT INCENTIVE STOCK OPTIONS GRANTED TO FORMER EMPLOYEES OF SCHULER HOMES, INC. PURSUANT TO THE D.R. HORTON, INC. 1991 STOCK INCENTIVE PLAN, AS AMENDED AND RESTATED. 10.5 FORM OF NON-QUALIFIED STOCK OPTION AGREEMENT FOR REPLACEMENT NON-QUALIFIED STOCK OPTIONS GRANTED TO FORMER EMPLOYEES OF SCHULER HOMES, INC. PURSUANT TO THE D.R. HORTON, INC. 1991 STOCK INCENTIVE PLAN, AS AMENDED AND RESTATED.
EX-4.7 3 d96909ex4-7.txt 6TH SUPPLEMENTAL INDENTURE RE: 9% SENIOR NOTES EXHIBIT 4.7 SIXTH SUPPLEMENTAL INDENTURE Dated as of October 4, 2001 among SCHULER HOMES, INC. (formerly known as Schuler Holdings, Inc.), THE GUARANTORS PARTY HERETO and BNY WESTERN TRUST COMPANY AS TRUSTEE Supplementing the Indenture Dated as of May 6, 1998 SIXTH SUPPLEMENTAL INDENTURE This SIXTH SUPPLEMENTAL INDENTURE, dated as of October 4, 2001 (this "Sixth Supplemental Indenture"), by and among Schuler Homes, Inc., a Delaware corporation (formerly known as Schuler Holdings, Inc.) ("Schuler Homes"), the Guarantors signatory hereto BNY Western Trust Company, as successor in interest to U.S. Trust Company, National Association, as trustee (the "Trustee"). WHEREAS, Schuler Residential, Inc., a Delaware corporation ("Schuler Residential") (formerly known as Schuler Homes, Inc.) and the Guarantors signatory thereto executed and delivered the Indenture dated as of May 6, 1998, as supplemented by the First Supplemental Indenture, dated as of February 26, 1999, the Second Supplemental Indenture, dated as of July 15, 1999, the Third Supplemental Indenture, dated as of July 27, 2000, the Fourth Supplemental Indenture, dated as of October 20, 2000 and the Fifth Supplemental Indenture, dated as of June 21, 2001 (as supplemented, the "Indenture"), to the Trustee to provide for the issuance of Schuler Residential's 9% Senior Notes Due 2008 (the "Securities"). WHEREAS, pursuant to an Agreement and Plan of Reorganization, dated as of September 12, 2000 (the "Plan of Reorganization"), as amended, by and among Schuler Residential, Apollo Real Estate Investment Fund, L.P., a Delaware limited partnership ("Apollo"), Blackacre WPH, LLC, a Delaware limited liability company ("Blackacre"), Highridge Pacific Housing Investors, L.P., a California limited partnership ("Highridge"), AP WP Partners, L.P., a Delaware limited partnership ("APWP"), AP Western GP Corporation, a Delaware corporation ("AP Western"), API LHI, Inc., a California corporation ("API"), and Lamco Housing, Inc., a California corporation ("LAMCO," and collectively with Apollo, Blackacre, Highridge, APWP, AP Western and API, the "WP Partners"), (1) Schuler Residential and the WP Partners formed Schuler Homes and (2) a wholly-owned subsidiary of Schuler Homes merged into Schuler Residential, with Schuler Residential as the surviving corporation, as a result of which Schuler Residential became a wholly-owned subsidiary of Schuler Homes. WHEREAS, on April 2, 2001, pursuant to the Plan of Reorganization, Schuler Residential changed its name from "Schuler Homes, Inc." to "Schuler Residential, Inc.", and Schuler Homes changed its name from "Schuler Holdings, Inc." to "Schuler Homes, Inc." WHEREAS, in connection with the Plan of Reorganization, Schuler Homes acquired various subsidiaries which have been designated as Restricted Subsidiaries. WHEREAS, on June 21, 2001, pursuant to Section 2.6(b) of the Plan of Reorganization, Schuler Residential was merged into Schuler Homes, with Schuler Homes as the surviving corporation of such merger. WHEREAS, on June 21, 2001, Schuler Homes assumed all of the Obligations of Schuler Residential under the Indenture and the Securities. 1 WHEREAS, Schuler Homes desires that pursuant to Section 4.18 and Article 10 of the Indenture, those Restricted Subsidiaries listed on Exhibit A hereto (the "Additional Guarantors") shall become Guarantors under the Indenture. WHEREAS, Schuler Homes, the Guarantors and the Trustee have agreed to execute this Sixth Supplemental Indenture and have done all things necessary under their respective organizational documents and the Indenture to enter into this Sixth Supplemental Indenture. WHEREAS, Section 9.01 of the Indenture provides that the Company and the Guarantors, with the consent of the Trustee, may amend, modify or supplement the Indenture without notice to or the consent of any holder of the Securities for the purpose of reflecting additional guarantors in order to comply with Section 4.18 of the Indenture, and to make any other change that does not adversely affect the rights of any holder of the Securities. NOW THEREFORE, for and in consideration of the premises and mutual covenants herein contained, each party hereto agrees as follows for the benefit of the holders of the Securities: ARTICLE 1. DEFINITIONS Section 1.01. Definitions of Terms. Unless the context otherwise requires: (a) capitalized terms used herein that are not otherwise defined herein shall have the meaning assigned to such terms in the Indenture; (b) references to Sections or Articles mean references to such Section or Article in the Indenture, unless stated otherwise; and (c) rules of construction applicable pursuant to the Indenture are also applicable herein. ARTICLE 2. ADDITIONAL GUARANTORS Each of the Additional Guarantors listed on Exhibit A hereto hereby agrees to become a Guarantor under the Indenture, and upon its execution and delivery of this Sixth Supplemental Indenture, each of such Additional Guarantors guarantees payment of the Securities pursuant to the terms of Article 10 of the Indenture and Exhibit B thereto. 2 ARTICLE 3. MISCELLANEOUS Section 3.01. Authorization. The execution, delivery and performance by Schuler Homes and the Guarantors of this Sixth Supplemental Indenture have been duly authorized by all necessary action of Schuler Homes and each such Guarantor. Section 3.02. Ratification of Indenture. The Indenture, as supplemented by this Sixth Supplemental Indenture, is in all respects ratified and confirmed, and this Sixth Supplemental Indenture shall be deemed part of the Indenture in the manner and to the extent herein and therein provided and every holder of Securities heretofore or hereafter authenticated and delivered under the Indenture shall benefit and be bound hereby. Section 3.03. Governing Law. This Sixth Supplemental Indenture shall be governed by and construed in accordance with the laws of the State of New York, without regard to conflict of laws provisions thereof. Section 3.04. Severability. In case any one or more of the provisions in this Sixth Supplemental Indenture shall be held invalid, illegal or unenforceable, in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions shall not in any way be affected or impaired thereby, it being intended that all of the provisions hereof shall be enforceable to the full extent permitted by law. Section 3.05. Counterparts. This Sixth Supplemental Indenture may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. Section 3.06. Effectiveness. This Sixth Supplemental Indenture shall be effective and binding upon execution hereof by Schuler Homes, the Guarantors and the Trustee. Section 3.07. Trustee Not Responsible for Recitals. The recitals herein contained are made by Schuler Homes and the Guarantors and not by the Trustee, and the Trustee assumes no responsibility for the correctness thereof and shall incur no liability for any incorrectness thereof. The Trustee makes no representation as to the validity or sufficiency of this Sixth Supplemental Indenture. Section 3.08. Performance of Trustee. The Trustee, for itself and its successors, accepts the Trust of the Indenture as amended by this Sixth Supplemental Indenture and agrees to perform this Sixth Supplemental Indenture and the Indenture, but only upon the terms and conditions set forth herein and therein, including the terms and provisions in the Indenture defining and limiting the liability and responsibility of the Trustee. Section 3.09. Compensation. Schuler Homes shall promptly reimburse the Trustee upon request for all reasonable out-of-pocket expenses incurred by it in administering and executing this Sixth Supplemental Indenture. Such expenses shall include the reasonable compensation and out-of-pocket expenses of the Trustee's agents and counsel. 3 IN WITNESS WHEREOF, the parties hereto have caused this Sixth Supplemental Indenture to be duly executed, all as of the date first written above. SCHULER HOMES, INC. By: /s/ Thomas Connelly --------------------------------------- Thomas Connelly Senior Vice President and Chief Financial Officer SCHULER HOMES OF CALIFORNIA, INC. SCHULER HOMES OF OREGON, INC. SCHULER HOMES OF WASHINGTON, INC. MELODY HOMES, INC. MELODY MORTGAGE CO. SCHULER REALTY/MAUI, INC. SCHULER REALTY/OAHU, INC. LOKELANI CONSTRUCTION CORPORATION SHLR OF WASHINGTON, INC. SHLR OF COLORADO, INC. SSHI LLC SHLR OF NEVADA, INC. SRHI LLC SCHULER HOMES OF ARIZONA LLC SHLR OF CALIFORNIA, INC. SCHULER MORTGAGE, INC. SHA CONSTRUCTION LLC, as Guarantors By: /s/ Thomas Connelly --------------------------------------- Thomas Connelly Senior Vice President, Chief Financial Officer and Secretary 4 EACH OF THE GUARANTORS LISTED ON EXHIBIT A HERETO By: /s/ Thomas Connelly ---------------------------------------- Thomas Connelly Authorized Person BNY WESTERN TRUST COMPANY, as successor in interest to U.S. TRUST COMPANY, NATIONAL ASSOCIATION, as Trustee By: /s/ Sandra H. Leess ---------------------------------------- 5 EXHIBIT A ADDITIONAL GUARANTORS LAMCO Housing, Inc. AP LHI, Inc. APLAM, LLC AP Western GP Corporation AP WP Partners L.P. AP WP Operating Corporation HPH Homebuilders 2000 LP Porter GP LLC Porter LP LLC Western Pacific Housing, Inc. Western Pacific Housing Development Limited Partnership Western Pacific Housing Development II Limited Partnership WPH-Porter, LLC Tracy, LLC (formerly WPH-Edgewood 56, LLC) Western Pacific Housing-Agoura I, LLC Western Pacific Housing-American Canyon, LLC Western Pacific Housing-Antigua, LLC Western Pacific Housing-Bay Vista, LLC Western Pacific Housing-Broadway, LLC Western Pacific Housing-Cabrera, LLC Western Pacific Housing-Calvine, LLC Western Pacific Housing-Carrillo, LLC Western Pacific Housing-Cloverdale I, LLC Western Pacific Housing-Cloverdale II, LLC Western Pacific Housing-Communications Hill, LLC Western Pacific Housing-Cordelia Commons I, LLC Western Pacific Housing-Coto I, LLC Western Pacific Housing-Creekside, LLC Western Pacific Housing-Cypress Woods, LLC Western Pacific Housing-Deer Creek, LLC Western Pacific Housing-East Park, LLC Western Pacific Housing-Edgewood 45, LLC Western Pacific Housing-Escondido, LLC Western Pacific Housing-Fieldstone, LLC Western Pacific Housing-Hercules MRB, LLC Western Pacific Housing-Hercules Village, LLC Western Pacific Housing-Land Park North, LLC Western Pacific Housing-Laurel Woods II, LLC Western Pacific Housing-Lomas Verdes, LLC Western Pacific Housing-Martinez, LLC Western Pacific Housing-Menifee, LLC Western Pacific Housing-Montellano, LLC Western Pacific Housing-Murrieta, LLC Western Pacific Housing-Natomas Village 13, LLC Western Pacific Housing-Norco Estates, LLC Western Pacific Housing-Paradise Creek, LLC Western Pacific Housing-Providence I, LLC Western Pacific Housing-Robinhood Ridge, LLC Western Pacific Housing-Rowland Heights, LLC Western Pacific Housing-Saddlebrook, LLC Western Pacific Housing-San Elijo, LLC Western Pacific Housing-Simi I, LLC Western Pacific Housing-Sonoma, LLC Western Pacific Housing-Spanish Hills, LLC Western Pacific Housing-Stone Lake, LLC Western Pacific Housing-Sun Valley, LLC Western Pacific Housing-Terra Bay Woods, LLC Western Pacific Housing-Torrey Glenn, LLC Western Pacific Housing-Towngate, LLC Western Pacific Housing-Valpico, LLC Western Pacific Housing-Vineyard Terrace, LLC Western Pacific Housing-Westminster, LLC Western Pacific Housing-Windsor Pointe, LLC Western Pacific Housing-Black Mountain, LLC Western Pacific Housing-Cameron Meadows, LLC Western Pacific Housing-Carlsberg Ranch, LLC Western Pacific Housing-Carpenteria, LLC Western Pacific Housing-Dos Vientos 78, LLC Western Pacific Housing-Fillmore, LLC Western Pacific Housing-Lyons Canyon Partners, LLC Western Pacific Housing-San Elijo Area R, LLC Western Pacific Housing-Scott Ranch, LLC Western Pacific Housing-Sorrento, LLC Western Pacific Housing-Torrey Village Center Western Pacific Housing-Torrey, LLC Western Pacific Housing-Torrey Santa Fe, LLC WPH-Camino Ruiz, LLC WPH-HPH LLC WPH-SAL2, L.P. (formerly WPH-Sunset Hills III, L.P.) Western Pacific Funding, Inc. Western Pacific Housing - McGonigle Canyon, LLC Western Pacific Housing-Torrey Commercial, LLC Western Pacific Housing-Torrey Multi-Family, LLC WPH-SAL1, L.P. WPH Management Co. Allegra, LLC Coto Venture, Ltd. (see WPH-Coto Venture, L.P.) HPH Homebuilders LP 1995 HPH Homebuilders LP 1996 Livermore Homebuilders LP Oakley-Avalon LP Western Pacific Housing-Altamar, LLC Western Pacific Housing-Altura, L.P. Western Pacific Housing-Arbor Hills, LLC Western Pacific Housing-Aviara, L.P. Western Pacific Housing-Bella Nevona, LLC Western Pacific Housing Co. Western Pacific Housing-Canyon Park, LLC Western Pacific Housing-Carlsbad I, LLC Western Pacific Housing-Carmel, LLC Western Pacific Housing-Carter Station, LLC Western Pacific Housing-Corona, L.P. Western Pacific Housing-Coto Venture, L.P. Western Pacific Housing-Culver City, L.P. Western Pacific Housing-Curran Grove, LLC Western Pacific Housing-Del Sol Western Pacific Housing-El Camino, LLC Western Pacific Housing-Financing Partners Western Pacific Housing-Glen View, LLC Western Pacific Housing-Hamptons, L.P. Western Pacific Housing-Lost Hills Park, LLC Western Pacific Housing-Mayfair, LLC Western Pacific Housing-Mountaingate, L.P. Western Pacific Housing-Oso, L.P. Western Pacific Housing-Pacific Park, L.P. Western Pacific Housing-Pacific Park II, LLC Western Pacific Housing-Penasquitos, LLC Western Pacific Housing-Poinsettia, L.P. Western Pacific Housing-Rancho Del Tio, LLC Western Pacific Housing-Riverside I, LLC Western Pacific Housing-San Simeon, L.P. Western Pacific Housing-San Simeon II, L.P. Western Pacific Housing-Santa Fe, LLC Western Pacific Housing-Saugus, L.P. Western Pacific Housing-Scripps, L.P. Western Pacific Housing-Scripps II, LLC Western Pacific Housing-Seacove, L.P. Western Pacific Housing-Shadow Creek, LLC Western Pacific Housing-Skyridge, L.P. Western Pacific Housing-Stanton I, LLC Western Pacific Housing-Sunset Hills I, L.P. Western Pacific Housing-Sunset Hills II, L.P. Western Pacific Housing-Sutton Place, LLC Western Pacific Housing-Tiburon II, L.P. Western Pacific Housing-Torrey Hills, LLC Western Pacific Housing-Westlake, L.P. Western Pacific Housing-Westlake II, L.P. Western Pacific Housing-Windflower, L.P. Western Pacific Housing-Winterhaven, LLC Western Pacific Housing-Woods, L.P. Western Pacific Housing-Boardwalk, LLC Western Pacific Housing-Brea Olinda, LLC Western Pacific Housing-Gonsalves, LLC Western Pacific Housing-Lemon Grove, LLC Western Pacific Housing-Studio 528, LLC Western Pacific Housing-Terra Bay Duets, LLC Western Pacific Housing-Torrey Meadows, LLC Western Pacific Housing-Glacier, LLC Western Pacific Housing-Camarillo, LLC Western Pacific Housing-Playa Vista, LLC Western Pacific Housing-Torrance, LLC EX-4.8 4 d96909ex4-8.txt 7TH SUPPLEMENTAL INDENTURE RE: 9% SENIOR NOTES EXHIBIT 4.8 ================================================================================ D.R. HORTON, INC., THE GUARANTORS PARTY HERETO, AND BNY WESTERN TRUST COMPANY, as Trustee ---------- SEVENTH SUPPLEMENTAL INDENTURE Dated as of February 21, 2002 ---------- Supplementing the Indenture Dated May 6, 1998 with respect to the 9% Senior Notes Due 2008 ================================================================================ THIS SEVENTH SUPPLEMENTAL INDENTURE, dated as of February 21, 2002, by and among D.R. HORTON, INC., a Delaware corporation (the "Company"), the subsidiaries of the Company signatory hereto and BNY WESTERN TRUST COMPANY, as successor in interest to U.S. Trust Company of California, N.A., as trustee (the "Trustee"). RECITALS WHEREAS, Schuler Homes, Inc., a Delaware corporation ("Schuler"), and the Guarantors signatory thereto executed and delivered the Indenture, dated as of May 6, 1998, as supplemented by the First Supplemental Indenture, dated as of February 26, 1999, the Second Supplemental Indenture, dated as of July 15, 1999, the Third Supplemental Indenture, dated as of July 27, 2000, the Fourth Supplemental Indenture, dated as of October 20, 2000, the Fifth Supplemental Indenture, dated as of June 21, 2001, and the Sixth Supplemental Indenture, dated as of October 4, 2001 (as supplemented, the "Indenture"), to the Trustee, pursuant to which Schuler issued $100,000,000 principal amount of 9% Senior Notes due 2008 (the "Securities"); WHEREAS, on February 21, 2002, pursuant to the laws of the State of Delaware and in accordance with the terms of the Agreement and Plan of Merger, dated as of October 22, 2001, as amended (the "Merger Agreement"), by and between the Company and Schuler, Schuler was duly merged with and into the Company, with the Company continuing as the surviving corporation (the "Merger"); WHEREAS, as a result of the Merger, the Company succeeded to all Obligations, duties and liabilities of Schuler under the Indenture and the Securities as if incurred or contracted by the Company; WHEREAS, the Company desires to amend the Indenture to provide for the assumption by the Company of all Obligations of Schuler pursuant to Section 5.01 of the Indenture and that all references to Schuler shall now, where appropriate, be references to "D.R. Horton, Inc."; WHEREAS, Schuler has a new Subsidiary, Western Pacific Housing, Inc. (formerly known as Schuler Homes Holdco, Inc.), a Delaware corporation ("WPHI"), which has been designated as a Restricted Subsidiary; WHEREAS, prior to the effective time of the Merger, pursuant to an Agreement and Plan of Merger, dated as of February 15, 2002, by and among WPHI, each of the limited partnerships identified therein, each of the limited liability companies identified therein, and WPH Management Co., Inc., a California corporation (collectively, the "Merged Guarantors"), the Merged Guarantors merged with and into WPHI, with WPHI as the surviving corporation; WHEREAS, each of the Merged Guarantors was a Guarantor under the Indenture; WHEREAS, the Company desires to amend the Indenture to provide for the assumption by WPHI of all Obligations of the Merged Guarantors pursuant to Section 5.01 of the Indenture; 1 WHEREAS, pursuant to Section 4.18 of the Indenture, the Company is required to cause any Subsidiary with a Consolidated Tangible Net Worth greater than $5,000,000 which is a Restricted Subsidiary to guarantee, simultaneously with its designation as a Restricted Subsidiary, the payment of the Securities pursuant to the terms of Article 10 and Exhibit B of the Indenture; and WHEREAS, the execution of this Seventh Supplemental Indenture has been duly authorized by the Boards of Directors of the Company and the Additional Guarantors (as defined herein) and all things necessary to make this Seventh Supplemental Indenture a legal, valid, binding and enforceable obligation of the Company and the Additional Guarantors according to its terms have been done and performed; NOW THEREFORE, for and in consideration of the premises, the Company and the Additional Guarantors covenant and agree with the Trustee for the equal and ratable benefit of the respective holders of the Securities as follows: ARTICLE I. SUCCESSOR 1.1. The Company hereby assumes all the Obligations of Schuler under the Indenture and the Securities. 1.2. The Indenture is hereby amended so that all references to Schuler shall, where appropriate, be deemed to be referenced to "D.R. Horton, Inc." and further amended to reflect such changes in phraseology or form as may be required thereby. Section 11.02 to the Indenture is hereby amended so that the references to the Company's address shall be deemed to be 1901 Ascension Blvd., Suite 100, Arlington, Texas 76006, Attention: Chief Financial Officer. 1.3. Each series of Securities and each Guarantee under the Indenture shall be deemed "Designated Senior Indebtedness" and "Designated Guarantor Senior Indebtedness," respectively, for purposes of the Indenture, dated as of September 11, 2000, by and among the Company, the guarantors named therein and American Stock Transfer & Trust Company, as trustee. ARTICLE II. FORM OF SECURITY 2.1. In accordance with Article I of this Seventh Supplemental Indenture, Exhibit A to the Indenture is hereby amended so that all references to Schuler shall, where appropriate, be deemed to be referenced to "D.R. Horton, Inc." and further amended to reflect such changes in phraseology or form as may be required thereby. Exhibit A to the Indenture is hereby amended so that the references to the Company's address shall be deemed to be 1901 Ascension Blvd., Suite 100, Arlington, Texas 76006, Attention: Chief Financial Officer. 2 ARTICLE III. ADDITIONAL GUARANTORS 3.1. In accordance with Sections 4.18 and 10.03 of the Indenture, the following Restricted Subsidiaries of the Company (the "Additional Guarantors") hereby severally agree to be subject to and bound by the terms of the Indenture applicable to a Guarantor and hereby jointly and severally unconditionally and irrevocably guarantee on a senior basis the payment of the Securities pursuant to the terms of Article 10 of the Indenture:
Name Jurisdiction of Organization - ---- ---------------------------- C. Richard Dobson Builders, Inc. Virginia CH Investments of Texas, Inc. Delaware CHI Construction Company Arizona CHTEX of Texas, Inc. Delaware Continental Homes, Inc. Delaware Continental Homes of Florida, Inc. Florida Continental Homes of Texas, L.P. Texas Continental Residential, Inc. California D.R. Horton, Inc. - Birmingham Alabama D.R. Horton, Inc. - Chicago Delaware D.R. Horton, Inc. - Denver Delaware D.R. Horton, Inc. - Dietz-Crane Delaware D.R. Horton, Inc. - Greensboro Delaware D.R. Horton, Inc. - Jacksonville Delaware D.R. Horton, Inc. - Louisville Delaware D.R. Horton Los Angeles Holding Company, Inc. California D.R. Horton Management Company, Ltd. Texas D.R. Horton, Inc. - Minnesota Delaware D.R. Horton, Inc. - New Jersey Delaware D.R. Horton, Inc. - Portland Delaware D.R. Horton, Inc. - Sacramento California D.R. Horton San Diego Holding Company, Inc. California D.R. Horton - Emerald, Ltd. Texas D.R. Horton - Texas, Ltd. Texas D.R. Horton, Inc. - Torrey Delaware DRH Cambridge Homes, Inc. California DRH Cambridge Homes, LLC Delaware DRH Construction, Inc. Delaware DRH Regrem II, Inc. Delaware DRH Regrem III, Inc. Delaware DRH Regrem IV, Inc. Delaware
3
Name Jurisdiction of Organization - ---- ---------------------------- DRH Regrem V, Inc. Delaware DRH Regrem VII, LP Texas DRH Regrem VIII, LLC Delaware DRH Southwest Construction, Inc. California DRH Title Company of Colorado, Inc. Colorado DRH Tucson Construction, Inc. Delaware DRHI, Inc. Delaware KDB Homes, Inc. Delaware Meadows I, Ltd. Delaware Meadows II, Ltd. Delaware Meadows VIII, Ltd. Delaware Meadows IX, Inc. New Jersey Meadows X, Inc. New Jersey SHLR of Utah, Inc. Utah Western Pacific Housing, Inc. Delaware D.R. Horton-Schuler Homes, LLC Delaware Western Pacific Housing-Park Avenue East, LLC Delaware Western Pacific Housing-Park Avenue West, LLC Delaware Western Pacific Housing-Copper Canyon, LLC Delaware Western Pacific Housing-Del Valle, LLC Delaware Western Pacific Housing-River Ridge, LLC Delaware SGS Communities at Grande Quay, LLC New Jersey
3.2. The Additional Guarantors shall execute and deliver a Guarantee, which shall be incorporated herein by reference in the form set forth in Exhibit B to the Indenture. ARTICLE IV. MERGED GUARANTORS 4.1 In accordance with Section 10.04 of the Indenture, the Company and the Trustee acknowledge that the following Merged Guarantors have merged with and into WPHI, and that all Obligations of the Merged Guarantors under the Securities, the Indenture, the Registration Rights Agreement and the Guarantees have been assumed by WPHI: Porter LP LLC Western Pacific Housing Development Limited Partnership Western Pacific Housing Development II Limited Partnership WPH-Porter, LLC Tracy, LLC (formerly WPH-Edgewood 56, LLC) 4 Western Pacific Housing-Agoura I, LLC Western Pacific Housing-American Canyon, LLC Western Pacific Housing-Bay Vista, LLC Western Pacific Housing-Cabrera, LLC Western Pacific Housing-Calvine, LLC Western Pacific Housing-Cloverdale I, LLC Western Pacific Housing-Cloverdale II, LLC Western Pacific Housing-Cordelia Commons I, LLC Western Pacific Housing-Coto I, LLC Western Pacific Housing-Cypress Woods, LLC Western Pacific Housing-Deer Creek, LLC Western Pacific Housing-East Park, LLC Western Pacific Housing-Edgewood 45, LLC Western Pacific Housing-Escondido, LLC Western Pacific Housing-Fieldstone, LLC Western Pacific Housing-Hercules MRB, LLC Western Pacific Housing-Hercules Village, LLC Western Pacific Housing-Land Park North, LLC Western Pacific Housing-Laurel Woods II, LLC Western Pacific Housing-Martinez, LLC Western Pacific Housing-Menifee, LLC Western Pacific Housing-Montellano, LLC Western Pacific Housing-Murrieta, LLC Western Pacific Housing-Natomas Village 13, LLC Western Pacific Housing-Paradise Creek, LLC Western Pacific Housing-Providence I, LLC Western Pacific Housing-Rowland Heights, LLC Western Pacific Housing-Saddlebrook, LLC Western Pacific Housing-San Elijo, LLC Western Pacific Housing-Simi I, LLC Western Pacific Housing-Sonoma, LLC Western Pacific Housing-Spanish Hills, LLC Western Pacific Housing-Stone Lake, LLC Western Pacific Housing-Sun Valley, LLC Western Pacific Housing-Terra Bay Woods, LLC Western Pacific Housing-Torrey Glenn, LLC Western Pacific Housing-Towngate, LLC Western Pacific Housing-Valpico, LLC Western Pacific Housing-Westminster, LLC Western Pacific Housing-Windsor Pointe, LLC Western Pacific Housing-Black Mountain, LLC Western Pacific Housing-Cameron Meadows, LLC Western Pacific Housing-Carlsberg Ranch, LLC Western Pacific Housing-Carpenteria, LLC Western Pacific Housing-Dos Vientos 78, LLC 5 Western Pacific Housing-Fillmore, LLC Western Pacific Housing-San Elijo Area R, LLC Western Pacific Housing-Scott Ranch, LLC Western Pacific Housing-Sorrento, LLC Western Pacific Housing-Torrey, LLC Western Pacific Housing-Torrey Santa Fe, LLC WPH-SAL2, L.P. WPH-SAL1, L.P. Western Pacific Housing-Altamar, LLC Western Pacific Housing-Altura, L.P. Western Pacific Housing-Arbor Hills, LLC Western Pacific Housing-Bella Nevona, LLC Western Pacific Housing-Carlsbad I, LLC Western Pacific Housing-Carter Station, LLC Western Pacific Housing-Corona, L.P. Western Pacific Housing-Curran Grove, LLC Western Pacific Housing-Del Sol Western Pacific Housing-El Camino, LLC Western Pacific Housing-Financing Partners Western Pacific Housing-Glen View, LLC Western Pacific Housing-Hamptons, L.P. Western Pacific Housing-Mayfair, LLC Western Pacific Housing-Pacific Park, L.P. Western Pacific Housing-Penasquitos, LLC Western Pacific Housing-Rancho Del Tio, LLC Western Pacific Housing-Riverside I, LLC Western Pacific Housing-San Simeon, L.P. Western Pacific Housing-San Simeon II, L.P. Western Pacific Housing-Shadow Creek, LLC Western Pacific Housing-Skyridge, L.P. Western Pacific Housing-Stanton I, LLC Western Pacific Housing-Sunset Hills I, L.P. Western Pacific Housing-Sunset Hills II, L.P. Western Pacific Housing-Sutton Place, LLC Western Pacific Housing-Tiburon II, L.P. Western Pacific Housing-Torrey Hills, LLC Western Pacific Housing-Westlake, L.P. Western Pacific Housing-Winterhaven, LLC Western Pacific Housing-Woods, L.P. Western Pacific Housing-Brea Olinda, LLC Western Pacific Housing-Lemon Grove, LLC Western Pacific Housing-Camarillo, LLC Western Pacific Housing-Gonsalves, LLC 6 ARTICLE V. MISCELLANEOUS PROVISIONS 5.1. This Seventh Supplemental Indenture constitutes a supplement to the Indenture, and the Indenture and this Seventh Supplemental Indenture shall be read together and shall have the effect so far as practicable as though all of the provisions thereof and hereof are contained in one instrument. 5.2 The parties may sign any number of copies of this Seventh Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. 5.3 In the event that any provision in this Seventh Supplemental Indenture or the Notes shall be held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 5.4 The article and section headings herein are for convenience only and shall not affect the construction hereof. 5.5 Any capitalized term used in this Seventh Supplemental Indenture and not defined herein that is defined in the Indenture shall have the meaning specified in the Indenture, unless the context shall otherwise require. 5.6 All covenants and agreements in this Seventh Supplemental Indenture by the Company, the existing guarantors and the Additional Guarantors shall bind each of their successors and assigns, whether so expressed or not. All agreements of the Trustee in this Seventh Supplemental Indenture shall bind its successors and assigns. 5.7 The laws of the State of New York shall govern this Seventh Supplemental Indenture, the Notes and the Guarantees. 5.8 Except as amended by this Seventh Supplemental Indenture, the terms and provisions of the Indenture shall remain in full force and effect. 5.9 This Seventh 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 Seventh Supplemental Indenture. 5.10 All liability described in paragraph 16 of the Notes, of any director, officer, employee or stockholder, as such, of the Company is waived and released. 5.11 The Trustee accepts the modifications of the trust effected by this Seventh Supplemental Indenture, but only upon the terms and conditions set forth in the Indenture. Without limiting the generality of the foregoing, the Trustee assumes no responsibility for the correctness of the recitals herein contained which shall be taken as the statements of the 7 Company and the Trustee shall not be responsible or accountable in any way whatsoever for or with respect to the validity or execution or sufficiency of this Seventh Supplemental Indenture and the Trustee makes no representation with respect thereto. [SIGNATURES INTENTIONALLY APPEAR ON NEXT PAGE FOLLOWING] 8 IN WITNESS WHEREOF, the parties hereto have caused this Seventh Supplemental Indenture to be duly executed, all as of the day and year first above written. D.R. HORTON, INC. By: /s/ SAMUEL R. FULLER -------------------------------------- Samuel R. Fuller Executive Vice President, Chief Financial Officer, and Treasurer ADDITIONAL GUARANTORS: C. Richard Dobson Builders, Inc. CHI Construction Company CHTEX of Texas, Inc. Continental Homes, Inc. Continental Homes of Florida, Inc. Continental Residential, Inc. D.R. Horton, Inc. - Birmingham D.R. Horton, Inc. - Chicago D.R. Horton, Inc. - Denver D.R. Horton, Inc. - Dietz-Crane D.R. Horton, Inc. - Greensboro D.R. Horton, Inc. - Jacksonville D.R. Horton, Inc. - Louisville D.R. Horton Los Angeles Holding Company, Inc. D.R. Horton, Inc. - Minnesota D.R. Horton, Inc. - New Jersey D.R. Horton, Inc. - Portland D.R. Horton, Inc. - Sacramento D.R. Horton, Inc. - Torrey D.R. Horton San Diego Holding Company, Inc. DRH Cambridge Homes, Inc DRH Construction, Inc. DRH Regrem II, Inc. DRH Regrem III, Inc. DRH Regrem IV, Inc. DRH Regrem V, Inc. DRH Southwest Construction, Inc. DRH Title Company of Colorado, Inc. DRH Tucson Construction, Inc. DRHI, Inc. KDB Homes, Inc. Meadows I, Ltd. Meadows VIII, Ltd. Meadows IX, Inc. Meadows X, Inc. By: /s/ SAMUEL R. FULLER ------------------------------------- Samuel R. Fuller Treasurer DRH Regrem VIII, LLC DRH Cambridge Homes, LLC By: D.R. Horton, Inc. - Chicago, a member By: /s/ SAMUEL R. FULLER ----------------------------------- Samuel R. Fuller Treasurer D.R. Horton - Emerald, Ltd. D.R. Horton Management Company, Ltd. D.R. Horton-Texas, Ltd. DRH Regrem VII, LP By: Meadows I, Ltd., the general partner By: /s/ SAMUEL R. FULLER ----------------------------------- Samuel R. Fuller Treasurer SGS Communities At Grande Quay, LLC By: Meadows IX, Inc., a member By: /s/ SAMUEL R. FULLER ----------------------------------- Samuel R. Fuller Treasurer and By: Meadows X, Inc., a member By: /s/ SAMUEL R. FULLER ----------------------------------- Samuel R. Fuller Treasurer Continental Homes of Texas, L.P. By: CHTEX of Texas, Inc., the general partner By: /s/ SAMUEL R. FULLER ----------------------------------- Samuel R. Fuller Treasurer Meadows II, Ltd. CH Investments of Texas, Inc. By: /s/ WILLIAM PECK ------------------------------------ William Peck President Western Pacific Housing, Inc. SHLR of Utah, Inc. Western Pacific Housing-Park Avenue East, LLC Western Pacific Housing-Park Avenue West, LLC Western Pacific Housing-Copper Canyon, LLC Western Pacific Housing-Del Valle, LLC Western Pacific Housing-River Ridge, LLC By: /s/ THOMAS CONNELLY ------------------------------------------- Thomas Connelly, Chief Financial Officer and Secretary of each corporate guarantor and of each managing member or sole manager of each limited liability company guarantor D.R. Horton-Schuler Homes, LLC By: Vertical Construction Corporation, its manager By: /s/ THOMAS CONNELLY ----------------------------------- Thomas Connelly Chief Financial Officer and Secretary EXISTING GUARANTORS: Schuler Homes of California, Inc. Schuler Homes of Oregon, Inc. Schuler Homes of Washington, Inc. Melody Homes, Inc. Melody Mortgage Co. Schuler Realty/Maui, Inc. Schuler Realty/Oahu, Inc. Vertical Construction Corporation (Formerly Lokelani Construction Corporation) SHLR of Washington, Inc. SHLR of Colorado, Inc. SSHI LLC SHLR of Nevada, Inc. SRHI LLC Schuler Homes of Arizona LLC SHLR of California, Inc. Schuler Mortgage, Inc. SHA Construction LLC LAMCO Housing, Inc. AP LHI, Inc. APLAM, LLC AP Western GP Corporation AP WP Partners, L.P. AP WP Operating Corporation HPH Homebuilders 2000 LP Porter GP LLC Western Pacific Housing Management, Inc. (formerly known as Western Pacific Housing, Inc.) Western Pacific Housing-Antigua, LLC Western Pacific Housing-Broadway, LLC Western Pacific Housing-Carrillo, LLC Western Pacific Housing-Communications Hill, LLC Western Pacific Housing-Creekside, LLC Western Pacific Housing-Lomas Verdes, LLC Western Pacific Housing-Norco Estates, LLC Western Pacific Housing-Robinhood Ridge, LLC Western Pacific Housing-Vineyard Terrace, LLC Western Pacific Housing-Lyons Canyon Partners, LLC Western Pacific Housing-Torrey Village Center WPH-Camino Ruiz, LLC WPH-HPH LLC Western Pacific Funding, Inc. Western Pacific Housing - McGonigle Canyon, LLC Western Pacific Housing-Torrey Commercial, LLC Western Pacific Housing-Torrey Multi- Family, LLC Allegra, LLC Coto Venture, Ltd. HPH Homebuilders LP 1995 HPH Homebuilders LP 1996 Livermore Homebuilders LP Oakley-Avalon LP Western Pacific Housing-Aviara, L.P. Western Pacific Housing Co. Western Pacific Housing-Canyon Park, LLC Western Pacific Housing-Carmel, LLC Western Pacific Housing-Coto Venture, L.P. Western Pacific Housing-Culver City, L.P. Western Pacific Housing-Lost Hills Park, LLC Western Pacific Housing-Mountaingate, L.P. Western Pacific Housing-Oso, L.P. Western Pacific Housing-Pacific Park II, LLC Western Pacific Housing-Poinsettia, L.P. Western Pacific Housing-Santa Fe, LLC Western Pacific Housing-Scripps, L.P. Western Pacific Housing-Scripps II, LLC Western Pacific Housing-Seacove, L.P. Western Pacific Housing-Westlake II, L.P. Western Pacific Housing-Windflower, L.P. Western Pacific Housing-Boardwalk, LLC Western Pacific Housing-Studio 528, LLC Western Pacific Housing-Terra Bay Duets, LLC Western Pacific Housing-Torrey Meadows, LLC Western Pacific Housing-Windemere, LLC (formerly known as Western Pacific Housing- Glacier, LLC) Western Pacific Housing-Playa Vista, LLC Western Pacific Housing-Torrance, LLC By: /s/ THOMAS CONNELLY --------------------------------------------- Thomas Connelly, Chief Financial Officer and Secretary of each corporate guarantor, of each managing member or sole manager of each limited liability company guarantor, and of each general partner of each limited partnership guarantor BNY Western Trust Company, as Trustee By: /s/ GARRETT P. SMITH --------------------------------------------- Name: Garrett P. Smith ------------------------------------------- Title: Vice President ------------------------------------------ EX-4.10 5 d96909ex4-10.txt 1ST SUPPLEMENTAL INDENTURE RE: 9.375% SENIOR NOTES EXHIBIT 4.10 ================================================================================ D.R. HORTON, INC., THE GUARANTORS PARTY HERETO, AND U.S. BANK, N.A. (successor by merger to U.S. Bank Trust National Association), as Trustee ----------- FIRST SUPPLEMENTAL INDENTURE Dated as of February 21, 2002 ----------- Supplementing the Indenture Dated as of June 28, 2001 with respect to the 9 3/8% Senior Notes Due 2009 ================================================================================ THIS FIRST SUPPLEMENTAL INDENTURE, dated as of February 21, 2002, by and among D.R. HORTON, INC., a Delaware corporation (the "Company"), the EXISTING GUARANTORS (as defined herein), the ADDITIONAL GUARANTORS (as defined herein) and U.S. BANK, N.A., successor by merger to U.S. Bank Trust National Association, as trustee (the "Trustee"). RECITALS WHEREAS, Schuler Homes, Inc., a Delaware corporation ("Schuler") and the guarantors signatory thereto (the "Existing Guarantors") executed and delivered the Indenture dated as of June 28, 2001 (the "Indenture"), to the Trustee, pursuant to which Schuler issued $250,000,000 principal amount of 9 3/8% Senior Notes due 2009 (the "Securities"); WHEREAS, on February 21, 2002, pursuant to the laws of the State of Delaware and in accordance with the terms of the Agreement and Plan of Merger, dated as of October 22, 2001, as amended (the "Merger Agreement"), by and between the Company and Schuler, Schuler was duly merged with and into the Company, with the Company continuing as the surviving corporation (the "Merger"); WHEREAS, as a result of the Merger, the Company succeeded to all obligations, duties and liabilities of Schuler under the Indenture and the Securities as if incurred or contracted by the Company; WHEREAS, the Company desires to amend the Indenture to provide for the assumption by the Company of all Obligations of Schuler pursuant to Section 5.01 of the Indenture and that all references to Schuler shall now, where appropriate, be references to "D.R. Horton, Inc."; WHEREAS, Schuler has a new Subsidiary, Western Pacific Housing, Inc. (formerly known as Schuler Homes Holdco, Inc.), a Delaware corporation ("WPHI"), which has been designated as a Restricted Subsidiary; WHEREAS, prior to the effective time of the Merger, pursuant to an Agreement and Plan of Merger, dated as of February 15, 2002, by and among WPHI, each of the limited partnerships identified therein, each of the limited liability companies identified therein, and WPH Management Co., Inc., a California corporation (collectively, the "Merged Guarantors"), the Merged Guarantors merged with and into WPHI, with WPHI as the surviving corporation; WHEREAS, each of the Merged Guarantors was a Guarantor under the Indenture; WHEREAS, the Company desires to amend the Indenture to provide for the assumption by WPHI of all Obligations of the Merged Guarantors pursuant to Section 5.01 of the Indenture; WHEREAS, pursuant to Section 4.18 of the Indenture, the Company is required to cause any Restricted Subsidiary (the "Additional Guarantors") to guarantee, simultaneously with its 1 designation as a Restricted Subsidiary, the payment of the Securities pursuant to the terms of Article 10 and Exhibit B of the Indenture; and WHEREAS, the execution of this First Supplemental Indenture has been duly authorized by the Boards of Directors of the Company, the Merged Guarantors and the Additional Guarantors and all things necessary to make this First Supplemental Indenture a legal, valid, binding and enforceable obligation of the Company and the Additional Guarantors according to its terms have been done and performed; NOW THEREFORE, for and in consideration of the premises, the Company, the Merged Guarantors and the Additional Guarantors covenant and agree with the Trustee for the equal and ratable benefit of the respective holders of the Securities as follows: ARTICLE I. CHANGE OF NAME 1.1. The Company hereby assumes all the Obligations of Schuler under the Indenture, the Securities and the Registration Rights Agreement. 1.2. The Indenture is hereby amended so that all references to Schuler shall, where appropriate, be deemed to be referenced to "D.R. Horton, Inc." and further amended to reflect such changes in phraseology or form as may be required thereby. Section 11.02 to the Indenture is hereby amended so that the references to the Company's address shall be deemed to be 1901 Ascension Blvd., Suite 100, Arlington, Texas 76006, Attention: Chief Financial Officer. 1.3. Each series of Securities and each Guarantee under the Indenture shall be deemed "Designated Senior Indebtedness" and "Designated Guarantor Senior Indebtedness," respectively, for purposes of the Indenture, dated as of September 11, 2000, by and among the Company, the guarantors named therein and American Stock Transfer & Trust Company, as trustee. ARTICLE II. FORM OF SECURITY 2.1. In accordance with Article I of this First Supplemental Indenture, Exhibit A to the Indenture is hereby amended so that all references to Schuler shall, where appropriate, be deemed to be referenced to "D.R. Horton, Inc." and further amended to reflect such changes in phraseology or form as may be required thereby. Exhibit A to the Indenture is hereby amended so that the references to the Company's address shall be deemed to be 1901 Ascension Blvd., Suite 100, Arlington, Texas 76006, Attention: Chief Financial Officer. 2 ARTICLE III. ADDITIONAL GUARANTORS 3.1. In accordance with Sections 4.18 and 10.03 of the Indenture, the following Additional Guarantors hereby severally agree to be subject to and bound by the terms of the Indenture applicable to a Guarantor and hereby jointly and severally unconditionally and irrevocably guarantee on a senior basis the payment of the Securities pursuant to the terms of Article 10 of the Indenture:
Name Jurisdiction of Organization - ---- ---------------------------- C. Richard Dobson Builders, Inc. Virginia CH Investments of Texas, Inc. Delaware CHI Construction Company Arizona CHTEX of Texas, Inc. Delaware Continental Homes, Inc. Delaware Continental Homes of Florida, Inc. Florida Continental Homes of Texas, L.P. Texas Continental Residential, Inc. California D.R. Horton, Inc. - Birmingham Alabama D.R. Horton, Inc. - Chicago Delaware D.R. Horton, Inc. - Denver Delaware D.R. Horton, Inc. - Dietz-Crane Delaware D.R. Horton, Inc. - Greensboro Delaware D.R. Horton, Inc. - Jacksonville Delaware D.R. Horton, Inc. - Louisville Delaware D.R. Horton Los Angeles Holding Company, Inc. California D.R. Horton Management Company, Ltd. Texas D.R. Horton, Inc. - Minnesota Delaware D.R. Horton, Inc. - New Jersey Delaware D.R. Horton, Inc. - Portland Delaware D.R. Horton, Inc. - Sacramento California D.R. Horton San Diego Holding Company, Inc. California D.R. Horton - Emerald, Ltd. Texas D.R. Horton - Texas, Ltd. Texas D.R. Horton, Inc. - Torrey Delaware DRH Cambridge Homes, Inc. California DRH Cambridge Homes, LLC Delaware DRH Construction, Inc. Delaware DRH Regrem II, Inc. Delaware DRH Regrem III, Inc. Delaware DRH Regrem IV, Inc. Delaware
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Name Jurisdiction of Organization - ---- ---------------------------- DRH Regrem V, Inc. Delaware DRH Regrem VII, LP Texas DRH Regrem VIII, LLC Delaware DRH Southwest Construction, Inc. California DRH Title Company of Colorado, Inc. Colorado DRH Tucson Construction, Inc. Delaware DRHI, Inc. Delaware KDB Homes, Inc. Delaware Meadows I, Ltd. Delaware Meadows II, Ltd. Delaware Meadows VIII, Ltd. Delaware Meadows IX, Inc. New Jersey Meadows X, Inc. New Jersey Western Pacific Housing, Inc. Delaware D.R. Horton-Schuler Homes, LLC Delaware Western Pacific Housing-Park Avenue East, LLC Delaware Western Pacific Housing-Park Avenue West, LLC Delaware Western Pacific Housing-Copper Canyon, LLC Delaware Western Pacific Housing-Del Valle, LLC Delaware Western Pacific Housing-River Ridge, LLC Delaware Western Pacific Housing-Boardwalk, LLC Delaware Western Pacific Housing-Studio 528, LLC Delaware Western Pacific Housing-Terra Bay Duets, LLC Delaware Western Pacific Housing-Torrey Meadows, LLC Delaware Western Pacific Housing-Windemere, LLC Delaware Western Pacific Housing-Playa Vista, LLC Delaware Western Pacific Housing-Torrance, LLC Delaware SGS Communities at Grande Quay, LLC New Jersey
3.2. The Additional Guarantors shall execute and deliver a Guarantee, which shall be incorporated herein by reference in the form set forth in Exhibit B to the Indenture. ARTICLE IV. MERGED GUARANTORS 4.1 In accordance with Section 10.04 of the Indenture, the Company and the Trustee acknowledge that the following Merged Guarantors have merged with and into WPHI, and that all Obligations of the Merged Guarantors under the Securities, the Indenture, the Registration Rights Agreement and the Guarantees have been assumed by WPHI: 4 Porter LP LLC Tracy, LLC (formerly WPH-Edgewood 56, LLC) Western Pacific Housing-Agoura I, LLC Western Pacific Housing-American Canyon, LLC Western Pacific Housing-Bay Vista, LLC Western Pacific Housing-Cabrera, LLC Western Pacific Housing-Calvine, LLC Western Pacific Housing-Cloverdale I, LLC Western Pacific Housing-Cloverdale II, LLC Western Pacific Housing-Cordelia Commons I, LLC Western Pacific Housing-Coto I, LLC Western Pacific Housing-Cypress Woods, LLC Western Pacific Housing-Deer Creek, LLC Western Pacific Housing-East Park, LLC Western Pacific Housing-Edgewood 45, LLC Western Pacific Housing-Escondido, LLC Western Pacific Housing-Fieldstone, LLC Western Pacific Housing-Hercules MRB, LLC Western Pacific Housing-Hercules Village, LLC Western Pacific Housing-Land Park North, LLC Western Pacific Housing-Laurel Woods II, LLC Western Pacific Housing-Martinez, LLC Western Pacific Housing-Menifee, LLC Western Pacific Housing-Montellano, LLC Western Pacific Housing-Murrieta, LLC Western Pacific Housing-Natomas Village 13, LLC Western Pacific Housing-Paradise Creek, LLC Western Pacific Housing-Providence I, LLC Western Pacific Housing-Rowland Heights, LLC Western Pacific Housing-Saddlebrook, LLC Western Pacific Housing-San Elijo, LLC Western Pacific Housing-Simi I, LLC Western Pacific Housing-Sonoma, LLC Western Pacific Housing-Spanish Hills, LLC Western Pacific Housing-Stone Lake, LLC Western Pacific Housing-Sun Valley, LLC Western Pacific Housing-Terra Bay Woods, LLC Western Pacific Housing-Torrey Glenn, LLC Western Pacific Housing-Towngate, LLC Western Pacific Housing-Valpico, LLC Western Pacific Housing-Westminster, LLC Western Pacific Housing-Windsor Pointe, LLC Western Pacific Housing-Black Mountain, LLC Western Pacific Housing-Cameron Meadows, LLC Western Pacific Housing-Carlsberg Ranch, LLC 5 Western Pacific Housing-Carpenteria, LLC Western Pacific Housing-Dos Vientos 78, LLC Western Pacific Housing-Fillmore, LLC Western Pacific Housing-San Elijo Area R, LLC Western Pacific Housing-Scott Ranch, LLC Western Pacific Housing-Sorrento, LLC Western Pacific Housing-Torrey, LLC Western Pacific Housing-Torrey Santa Fe, LLC WPH-SAL2, L.P. (formerly WPH-Sunset Hills III, L.P.) WPH-SAL1, L.P. WPH Management Co. Western Pacific Housing-Altamar, LLC Western Pacific Housing-Altura, L.P. Western Pacific Housing-Arbor Hills, LLC Western Pacific Housing-Bella Nevona, LLC Western Pacific Housing-Carlsbad I, LLC Western Pacific Housing-Carter Station, LLC Western Pacific Housing-Corona, L.P. Western Pacific Housing-Curran Grove, LLC Western Pacific Housing-Del Sol Western Pacific Housing-El Camino, LLC Western Pacific Housing-Financing Partners Western Pacific Housing-Glen View, LLC Western Pacific Housing-Hamptons, L.P. Western Pacific Housing-Mayfair, LLC Western Pacific Housing-Pacific Park, L.P. Western Pacific Housing-Penasquitos, LLC Western Pacific Housing-Rancho Del Tio, LLC Western Pacific Housing-Riverside I, LLC Western Pacific Housing-San Simeon, L.P. Western Pacific Housing-San Simeon II, L.P. Western Pacific Housing-Shadow Creek, LLC Western Pacific Housing-Skyridge, L.P. Western Pacific Housing-Stanton I, LLC Western Pacific Housing-Sunset Hills I, L.P. Western Pacific Housing-Sunset Hills II, L.P. Western Pacific Housing-Sutton Place, LLC Western Pacific Housing-Tiburon II, L.P. Western Pacific Housing-Torrey Hills, LLC Western Pacific Housing-Westlake, L.P. Western Pacific Housing-Winterhaven, LLC Western Pacific Housing-Woods, L.P. 6 ARTICLE V. MISCELLANEOUS PROVISIONS 5.1. This First Supplemental Indenture constitutes a supplement to the Indenture, and the Indenture and this First Supplemental Indenture shall be read together and shall have the effect so far as practicable as though all of the provisions thereof and hereof are contained in one instrument. 5.2 The parties may sign any number of copies of this First Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. 5.3 In the event that any provision in this First Supplemental Indenture or the Notes shall be held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 5.4 The article and section headings herein are for convenience only and shall not affect the construction hereof. 5.5 Any capitalized term used in this First Supplemental Indenture and not defined herein that is defined in the Indenture shall have the meaning specified in the Indenture, unless the context shall otherwise require. 5.6 All covenants and agreements in this First Supplemental Indenture by the Company, the Existing Guarantors and the Additional Guarantors shall bind each of their successors and assigns, whether so expressed or not. All agreements of the Trustee in this First Supplemental Indenture shall bind its successors and assigns. 5.7 The laws of the State of New York shall govern this First Supplemental Indenture, the Notes and the Guarantees. 5.8 Except as amended by this First Supplemental Indenture, the terms and provisions of the Indenture shall remain in full force and effect. 5.9 This First 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 First Supplemental Indenture. 5.10 NO RECOURSE AGAINST OTHERS. A director, officer, controlling person, employee or stockholder, as such, of the Company or any Guarantor or any successor person thereof shall not have any liability for any Obligations, covenants or agreements of the Company or any Guarantor under the Securities or the Indenture or for any claim based on, in respect of or by reason of such obligations, covenants or agreements or their creation. Each Holder by accepting a Security waives and releases all such liability. The waiver and releases are part of the consideration for the issue of the Securities. 7 5.11 The Trustee accepts the modifications of the trust effected by this First Supplemental Indenture, but only upon the terms and conditions set forth in the Indenture. Without limiting the generality of the foregoing, the Trustee assumes no responsibility for the correctness of the recitals herein contained which shall be taken as the statements of the Company and the Trustee shall not be responsible or accountable in any way whatsoever for or with respect to the validity or execution or sufficiency of this First Supplemental Indenture and the Trustee makes no representation with respect thereto. [SIGNATURES INTENTIONALLY APPEAR ON NEXT PAGE FOLLOWING] 8 IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental Indenture to be duly executed, all as of the day and year first above written. D.R. HORTON, INC. By: /s/ SAMUEL R. FULLER ------------------------------------------- Samuel R. Fuller Executive Vice President, Chief Financial Officer, and Treasurer ADDITIONAL GUARANTORS: C. Richard Dobson Builders, Inc. CHI Construction Company CHTEX of Texas, Inc. Continental Homes, Inc. Continental Homes of Florida, Inc. Continental Residential, Inc. D.R. Horton, Inc. - Birmingham D.R. Horton, Inc. - Chicago D.R. Horton, Inc. - Denver D.R. Horton, Inc. - Dietz-Crane D.R. Horton, Inc. - Greensboro D.R. Horton, Inc. - Jacksonville D.R. Horton, Inc. - Louisville D.R. Horton Los Angeles Holding Company, Inc. D.R. Horton, Inc. - Minnesota D.R. Horton, Inc. - New Jersey D.R. Horton, Inc. - Portland D.R. Horton, Inc. - Sacramento D.R. Horton, Inc. - Torrey D.R. Horton San Diego Holding Company, Inc. DRH Cambridge Homes, Inc. DRH Construction, Inc. DRH Regrem II, Inc. DRH Regrem III, Inc. DRH Regrem IV, Inc. DRH Regrem V, Inc. DRH Southwest Construction, Inc. DRH Title Company of Colorado, Inc. DRH Tucson Construction, Inc. DRHI, Inc. KDB Homes, Inc. Meadows I, Ltd. Meadows VIII, Ltd. Meadows IX, Inc. Meadows X, Inc. By: /s/ SAMUEL R. FULLER ------------------------------------------- Samuel R. Fuller Treasurer DRH Regrem VIII, LLC DRH Cambridge Homes, LLC By: D.R. Horton, Inc. - Chicago, a member By: /s/ SAMUEL R. FULLER ------------------------------------- Samuel R. Fuller Treasurer D.R. Horton - Emerald, Ltd. D.R. Horton Management Company, Ltd. D.R. Horton-Texas, Ltd. DRH Regrem VII, LP By: Meadows I, Ltd., the general partner By: /s/ SAMUEL R. FULLER ------------------------------------- Samuel R. Fuller Treasurer SGS Communities At Grande Quay, LLC By: Meadows IX, Inc., a member By: /s/ SAMUELL R. FULLER ------------------------------------- Samuel R. Fuller Treasurer and By: Meadows X, Inc., a member By: /s/ SAMUEL R. FULLER ------------------------------------- Samuel R. Fuller Treasurer Continental Homes of Texas, L.P. By: CHTEX of Texas, Inc., the general partner By: /s/ SAMUEL R. FULLER ------------------------------------- Samuel R. Fuller Treasurer Meadows II, Ltd. CH Investments of Texas, Inc. By: /s/ WILLIAM PECK ------------------------------------- William Peck President Western Pacific Housing, Inc. Western Pacific Housing-Park Avenue East, LLC Western Pacific Housing-Park Avenue West, LLC Western Pacific Housing-Copper Canyon, LLC Western Pacific Housing-Del Valle, LLC Western Pacific Housing-River Ridge, LLC Western Pacific Housing-Boardwalk, LLC Western Pacific Housing-Studio 528, LLC Western Pacific Housing-Terra Bay Duets, LLC Western Pacific Housing-Torrey Meadows, LLC Western Pacific Housing-Windemere, LLC Western Pacific Housing-Playa Vista, LLC Western Pacific Housing-Torrance, LLC By: /s/ THOMAS CONNELLY ---------------------------------------- Thomas Connelly, Chief Financial Officer and Secretary of each corporate guarantor and of each managing member or sole manager of each limited liability company guarantor D.R. Horton-Schuler Homes, LLC By: Vertical Construction Corporation, its manager By: /s/ THOMAS CONNELLY ------------------------------- Thomas Connelly Chief Financial Officer and Secretary EXISTING GUARANTORS: ------------------- Melody Homes, Inc. Melody Mortgage Co. Schuler Homes of California, Inc. Schuler Homes of Washington, Inc. Schuler Homes of Oregon, Inc. SHLR of Washington, Inc. SHLR of Colorado, Inc. SHLR of Nevada, Inc. Schuler Realty/Maui, Inc. Schuler Realty/Oahu, Inc. Vertical Construction Corporation SHLR of Utah, Inc. Schuler Mortgage, Inc. SHLR of California, Inc. SSHI LLC (Stafford) SRHI LLC (Rielly) Schuler Homes of Arizona LLC SHA Construction LLC LAMCO Housing, Inc. AP LHI, Inc. APLAM, LLC AP Western GP Corporation AP WP Partners, L.P. AP WP Operating Corporation HPH Homebuilders 2000 LP Porter GP LLC Western Pacific Housing Management, Inc. (formerly known as Western Pacific Housing, Inc.) Western Pacific Housing-Antigua, LLC Western Pacific Housing-Broadway, LLC Western Pacific Housing-Carrillo, LLC Western Pacific Housing-Communications Hill, LLC Western Pacific Housing-Creekside, LLC Western Pacific Housing-Lomas Verdes, LLC Western Pacific Housing-Norco Estates, LLC Western Pacific Housing-Robinhood Ridge, LLC Western Pacific Housing-Vineyard Terrace, LLC Western Pacific Housing-Lyons Canyon Partners, LLC Western Pacific Housing-Torrey Village Center WPH-Camino Ruiz, LLC WPH-HPH LLC Western Pacific Funding, Inc. Western Pacific Housing-McGonigle Canyon, LLC Western Pacific Housing-Torrey Commercial, LLC Western Pacific Housing-Torrey Multi-Family, LLC Allegra, LLC Coto Venture, Ltd. (see WPH-Coto Venture, L.P.) HPH Homebuilders LP 1995 HPH Homebuilders LP 1996 Livermore Homebuilders LP Oakley-Avalon LP Western Pacific Housing-Aviara, L.P. Western Pacific Housing Co. Western Pacific Housing-Canyon Park, LLC Western Pacific Housing-Carmel, LLC Western Pacific Housing-Coto Venture, L.P. Western Pacific Housing-Culver City, L.P. Western Pacific Housing-Lost Hills Park, LLC Western Pacific Housing-Mountaingate, L.P. Western Pacific Housing-Oso, L.P. Western Pacific Housing-Pacific Park II, LLC Western Pacific Housing-Poinsettia, L.P. Western Pacific Housing-Santa Fe, LLC Western Pacific Housing-Scripps, L.P. Western Pacific Housing-Scripps II, LLC Western Pacific Housing-Seacove, L.P. Western Pacific Housing-Westlake II, L.P. Western Pacific Housing-Windflower, L.P. By: /s/ THOMAS CONNELLY ------------------------------------------- Thomas Connelly, Chief Financial Officer and Secretary of each corporate guarantor, of each managing member or sole manager of each limited liability company guarantor, and of each general partner of each limited partnership guarantor U.S. Bank, N.A. By: /s/ GONZALO UREY ------------------------------------------- Name: Gonzalo Urey ----------------------------------------- Title: Assistant Vice President ---------------------------------------- EX-4.12 6 d96909ex4-12.txt 1ST SUPPLEMENTAL INDENTURE RE: 10.5% SENIOR NOTES EXHIBIT 4.12 ================================================================================ D.R. HORTON, INC., THE GUARANTORS PARTY HERETO, AND U.S. BANK, N.A. (successor by merger to U.S. Bank Trust National Association), as Trustee ----------- FIRST SUPPLEMENTAL INDENTURE Dated as of February 21, 2002 ----------- Supplementing the Indenture Dated as of June 28, 2001 with respect to the 10 1/2% Senior Subordinated Notes Due 2011 ================================================================================ THIS FIRST SUPPLEMENTAL INDENTURE, dated as of February 21, 2002, by and among D.R. HORTON, INC., a Delaware corporation (the "Company"), the EXISTING GUARANTORS (as defined herein), the ADDITIONAL GUARANTORS (as defined herein) and U.S. BANK, N.A., as successor by merger to U.S. Bank Trust National Association, as trustee (the "Trustee"). RECITALS WHEREAS, Schuler Homes, Inc., a Delaware corporation ("Schuler") and the guarantors signatory thereto (the "Existing Guarantors") executed and delivered the Indenture dated as of June 28, 2001 (the "Indenture"), to the Trustee, pursuant to which Schuler issued $150,000,000 principal amount of 10 1/2% Senior Subordinated Notes due 2009 (the "Securities"); WHEREAS, on February 21, 2002, pursuant to the laws of the State of Delaware and in accordance with the terms of the Agreement and Plan of Merger, dated as of October 22, 2001, as amended (the "Merger Agreement"), by and between the Company and Schuler, Schuler was duly merged with and into the Company, with the Company continuing as the surviving corporation (the "Merger"); WHEREAS, as a result of the Merger, the Company succeeded to all obligations, duties and liabilities of Schuler under the Indenture and the Securities as if incurred or contracted by the Company; WHEREAS, the Company desires to amend the Indenture to provide for the assumption by the Company of all Obligations of Schuler pursuant to Section 5.01 of the Indenture and that all references to Schuler shall now, where appropriate, be references to "D.R. Horton, Inc."; WHEREAS, Schuler has a new Subsidiary, Western Pacific Housing, Inc. (formerly known as Schuler Homes Holdco, Inc.), a Delaware corporation ("WPHI"), which has been designated as a Restricted Subsidiary; WHEREAS, prior to the effective time of the Merger, pursuant to an Agreement and Plan of Merger, dated as of February 15, 2002, by and among WPHI, each of the limited partnerships identified therein, each of the limited liability companies identified therein, and WPH Management Co., Inc., a California corporation (collectively, the "Merged Guarantors"), the Merged Guarantors merged with and into WPHI, with WPHI as the surviving corporation; WHEREAS, each of the Merged Guarantors was a Guarantor under the Indenture; WHEREAS, the Company desires to amend the Indenture to provide for the assumption by WPHI of all Obligations of the Merged Guarantors pursuant to Section 5.01 of the Indenture; WHEREAS, pursuant to Section 4.18 of the Indenture, the Company is required to cause any Restricted Subsidiary (the "Additional Guarantors") to guarantee, simultaneously with its 1 designation as a Restricted Subsidiary, the payment of the Securities pursuant to the terms of Article 11 and Exhibit B of the Indenture; and WHEREAS, the execution of this First Supplemental Indenture has been duly authorized by the Boards of Directors of the Company, the Merged Guarantors and the Additional Guarantors and all things necessary to make this First Supplemental Indenture a legal, valid, binding and enforceable obligation of the Company and the Additional Guarantors according to its terms have been done and performed; NOW THEREFORE, for and in consideration of the premises, the Company and the Additional Guarantors covenant and agree with the Trustee for the equal and ratable benefit of the respective holders of the Securities as follows: ARTICLE I. CHANGE OF NAME 1.1. The Company hereby assumes all the Obligations of Schuler under the Indenture, the Securities and the Registration Rights Agreement. 1.2. The Indenture is hereby amended so that all references to Schuler shall, where appropriate, be deemed to be referenced to "D.R. Horton, Inc." and further amended to reflect such changes in phraseology or form as may be required thereby. Section 12.02 to the Indenture is hereby amended so that the references to the Company's address shall be deemed to be 1901 Ascension Blvd., Suite 100, Arlington, Texas 76006, Attention: Chief Financial Officer. 1.3. Each series of Securities under the Indenture shall rank pari passu, on at least an equal and ratable basis, with the securities issued under the Indenture, dated as of September 11, 2000, relating to the 9 3/8% Senior Subordinated Notes due 2011, by and among the Company, the guarantors named therein and American Stock Transfer & Trust Company, as trustee. ARTICLE II. FORM OF SECURITY 2.1. In accordance with Article I of this First Supplemental Indenture, Exhibit A to the Indenture is hereby amended so that all references to Schuler shall, where appropriate, be deemed to be referenced to "D.R. Horton, Inc." and further amended to reflect such changes in phraseology or form as may be required thereby. Exhibit A to the Indenture is hereby amended so that the references to the Company's address shall be deemed to be 1901 Ascension Blvd., Suite 100, Arlington, Texas 76006, Attention: Chief Financial Officer. 2 ARTICLE III. ADDITIONAL GUARANTORS 3.1. In accordance with Sections 4.18 and 11.13 of the Indenture, the following Additional Guarantors hereby severally agree to be subject to and bound by the terms of the Indenture applicable to a Guarantor and hereby jointly and severally unconditionally and irrevocably guarantee on a senior basis the payment of the Securities pursuant to the terms of Article 11 of the Indenture:
Name Jurisdiction of Organization - ---- ---------------------------- C. Richard Dobson Builders, Inc. Virginia CH Investments of Texas, Inc. Delaware CHI Construction Company Arizona CHTEX of Texas, Inc. Delaware Continental Homes, Inc. Delaware Continental Homes of Florida, Inc. Florida Continental Homes of Texas, L.P. Texas Continental Residential, Inc. California D.R. Horton, Inc. - Birmingham Alabama D.R. Horton, Inc. - Chicago Delaware D.R. Horton, Inc. - Denver Delaware D.R. Horton, Inc. - Dietz-Crane Delaware D.R. Horton, Inc. - Greensboro Delaware D.R. Horton, Inc. - Jacksonville Delaware D.R. Horton, Inc. - Louisville Delaware D.R. Horton Los Angeles Holding Company, Inc. California D.R. Horton Management Company, Ltd. Texas D.R. Horton, Inc. - Minnesota Delaware D.R. Horton, Inc. - New Jersey Delaware D.R. Horton, Inc. - Portland Delaware D.R. Horton, Inc. - Sacramento California D.R. Horton San Diego Holding Company, Inc. California D.R. Horton - Emerald, Ltd. Texas D.R. Horton - Texas, Ltd. Texas D.R. Horton, Inc. - Torrey Delaware DRH Cambridge Homes, Inc. California DRH Cambridge Homes, LLC Delaware DRH Construction, Inc. Delaware DRH Regrem II, Inc. Delaware DRH Regrem III, Inc. Delaware DRH Regrem IV, Inc. Delaware
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Name Jurisdiction of Organization - ---- ---------------------------- DRH Regrem V, Inc. Delaware DRH Regrem VII, LP Texas DRH Regrem VIII, LLC Delaware DRH Southwest Construction, Inc. California DRH Title Company of Colorado, Inc. Colorado DRH Tucson Construction, Inc. Delaware DRHI, Inc. Delaware KDB Homes, Inc. Delaware Meadows I, Ltd. Delaware Meadows II, Ltd. Delaware Meadows VIII, Ltd. Delaware Meadows IX, Inc. New Jersey Meadows X, Inc. New Jersey Western Pacific Housing, Inc. Delaware D.R. Horton-Schuler Homes, LLC Delaware Western Pacific Housing-Park Avenue East, LLC Delaware Western Pacific Housing-Park Avenue West, LLC Delaware Western Pacific Housing-Copper Canyon, LLC Delaware Western Pacific Housing-Del Valle, LLC Delaware Western Pacific Housing-River Ridge, LLC Delaware Western Pacific Housing-Boardwalk, LLC Delaware Western Pacific Housing-Studio 528, LLC Delaware Western Pacific Housing-Terra Bay Duets, LLC Delaware Western Pacific Housing-Torrey Meadows, LLC Delaware Western Pacific Housing-Windemere, LLC Delaware Western Pacific Housing-Playa Vista, LLC Delaware Western Pacific Housing-Torrance, LLC Delaware SGS Communities at Grande Quay, LLC New Jersey
3.2. The Additional Guarantors shall execute and deliver a Guarantee, which shall be incorporated herein by reference in the form set forth in Exhibit B to the Indenture. ARTICLE IV. MERGED GUARANTORS 4.1 In accordance with Section 11.14 of the Indenture, the Company and the Trustee acknowledge that the following Merged Guarantors have merged with and into WPHI, and that all Obligations of the Merged Guarantors under the Securities, the Indenture, the Registration Rights Agreement and the Guarantees have been assumed by WPHI: 4 Porter LP LLC Tracy, LLC (formerly WPH-Edgewood 56, LLC) Western Pacific Housing-Agoura I, LLC Western Pacific Housing-American Canyon, LLC Western Pacific Housing-Bay Vista, LLC Western Pacific Housing-Cabrera, LLC Western Pacific Housing-Calvine, LLC Western Pacific Housing-Cloverdale I, LLC Western Pacific Housing-Cloverdale II, LLC Western Pacific Housing-Cordelia Commons I, LLC Western Pacific Housing-Coto I, LLC Western Pacific Housing-Cypress Woods, LLC Western Pacific Housing-Deer Creek, LLC Western Pacific Housing-East Park, LLC Western Pacific Housing-Edgewood 45, LLC Western Pacific Housing-Escondido, LLC Western Pacific Housing-Fieldstone, LLC Western Pacific Housing-Hercules MRB, LLC Western Pacific Housing-Hercules Village, LLC Western Pacific Housing-Land Park North, LLC Western Pacific Housing-Laurel Woods II, LLC Western Pacific Housing-Martinez, LLC Western Pacific Housing-Menifee, LLC Western Pacific Housing-Montellano, LLC Western Pacific Housing-Murrieta, LLC Western Pacific Housing-Natomas Village 13, LLC Western Pacific Housing-Paradise Creek, LLC Western Pacific Housing-Providence I, LLC Western Pacific Housing-Rowland Heights, LLC Western Pacific Housing-Saddlebrook, LLC Western Pacific Housing-San Elijo, LLC Western Pacific Housing-Simi I, LLC Western Pacific Housing-Sonoma, LLC Western Pacific Housing-Spanish Hills, LLC Western Pacific Housing-Stone Lake, LLC Western Pacific Housing-Sun Valley, LLC Western Pacific Housing-Terra Bay Woods, LLC Western Pacific Housing-Torrey Glenn, LLC Western Pacific Housing-Towngate, LLC Western Pacific Housing-Valpico, LLC Western Pacific Housing-Westminster, LLC Western Pacific Housing-Windsor Pointe, LLC Western Pacific Housing-Black Mountain, LLC Western Pacific Housing-Cameron Meadows, LLC Western Pacific Housing-Carlsberg Ranch, LLC 5 Western Pacific Housing-Carpenteria, LLC Western Pacific Housing-Dos Vientos 78, LLC Western Pacific Housing-Fillmore, LLC Western Pacific Housing-San Elijo Area R, LLC Western Pacific Housing-Scott Ranch, LLC Western Pacific Housing-Sorrento, LLC Western Pacific Housing-Torrey, LLC Western Pacific Housing-Torrey Santa Fe, LLC WPH-SAL2, L.P. (formerly WPH-Sunset Hills III, L.P.) WPH-SAL1, L.P. WPH Management Co. Western Pacific Housing-Altamar, LLC Western Pacific Housing-Altura, L.P. Western Pacific Housing-Arbor Hills, LLC Western Pacific Housing-Bella Nevona, LLC Western Pacific Housing-Carlsbad I, LLC Western Pacific Housing-Carter Station, LLC Western Pacific Housing-Corona, L.P. Western Pacific Housing-Curran Grove, LLC Western Pacific Housing-Del Sol Western Pacific Housing-El Camino, LLC Western Pacific Housing-Financing Partners Western Pacific Housing-Glen View, LLC Western Pacific Housing-Hamptons, L.P. Western Pacific Housing-Mayfair, LLC Western Pacific Housing-Pacific Park, L.P. Western Pacific Housing-Penasquitos, LLC Western Pacific Housing-Rancho Del Tio, LLC Western Pacific Housing-Riverside I, LLC Western Pacific Housing-San Simeon, L.P. Western Pacific Housing-San Simeon II, L.P. Western Pacific Housing-Shadow Creek, LLC Western Pacific Housing-Skyridge, L.P. Western Pacific Housing-Stanton I, LLC Western Pacific Housing-Sunset Hills I, L.P. Western Pacific Housing-Sunset Hills II, L.P. Western Pacific Housing-Sutton Place, LLC Western Pacific Housing-Tiburon II, L.P. Western Pacific Housing-Torrey Hills, LLC Western Pacific Housing-Westlake, L.P. Western Pacific Housing-Winterhaven, LLC Western Pacific Housing-Woods, L.P. 6 ARTICLE V. MISCELLANEOUS PROVISIONS 5.1. This First Supplemental Indenture constitutes a supplement to the Indenture, and the Indenture and this First Supplemental Indenture shall be read together and shall have the effect so far as practicable as though all of the provisions thereof and hereof are contained in one instrument. 5.2 The parties may sign any number of copies of this First Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. 5.3 In the event that any provision in this First Supplemental Indenture or the Notes shall be held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 5.4 The article and section headings herein are for convenience only and shall not affect the construction hereof. 5.5 Any capitalized term used in this First Supplemental Indenture and not defined herein that is defined in the Indenture shall have the meaning specified in the Indenture, unless the context shall otherwise require. 5.6 All covenants and agreements in this First Supplemental Indenture by the Company, the Existing Guarantors and the Additional Guarantors shall bind each of their successors and assigns, whether so expressed or not. All agreements of the Trustee in this First Supplemental Indenture shall bind its successors and assigns. 5.7 The laws of the State of New York shall govern this First Supplemental Indenture, the Notes and the Guarantees. 5.8 Except as amended by this First Supplemental Indenture, the terms and provisions of the Indenture shall remain in full force and effect. 5.9 This First 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 First Supplemental Indenture. 5.10 NO RECOURSE AGAINST OTHERS. A director, officer, controlling person, employee or stockholder, as such, of the Company or any Guarantor or any successor person thereof shall not have any liability for any Obligations, covenants or agreements of the Company or any Guarantor under the Securities or the Indenture or for any claim based on, in respect of or by reason of such obligations, covenants or agreements or their creation. Each Holder by 7 accepting a Security waives and releases all such liability. The waiver and releases are part of the consideration for the issue of the Securities. 5.11 The Trustee accepts the modifications of the trust effected by this First Supplemental Indenture, but only upon the terms and conditions set forth in the Indenture. Without limiting the generality of the foregoing, the Trustee assumes no responsibility for the correctness of the recitals herein contained which shall be taken as the statements of the Company and the Trustee shall not be responsible or accountable in any way whatsoever for or with respect to the validity or execution or sufficiency of this First Supplemental Indenture and the Trustee makes no representation with respect thereto. [SIGNATURES INTENTIONALLY APPEAR ON NEXT PAGE FOLLOWING] 8 IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental Indenture to be duly executed, all as of the day and year first above written. D.R. HORTON, INC. By: /s/ SAMUEL R. FULLER -------------------------------------- Samuel R. Fuller Executive Vice President, Chief Financial Officer, and Treasurer ADDITIONAL GUARANTORS: C. Richard Dobson Builders, Inc. CHI Construction Company CHTEX of Texas, Inc. Continental Homes, Inc. Continental Homes of Florida, Inc. Continental Residential, Inc. D.R. Horton, Inc. - Birmingham D.R. Horton, Inc. - Chicago D.R. Horton, Inc. - Denver D.R. Horton, Inc. - Dietz-Crane D.R. Horton, Inc. - Greensboro D.R. Horton, Inc. - Jacksonville D.R. Horton, Inc. - Louisville D.R. Horton Los Angeles Holding Company, Inc. D.R. Horton, Inc. - Minnesota D.R. Horton, Inc. - New Jersey D.R. Horton, Inc. - Portland D.R. Horton, Inc. - Sacramento D.R. Horton San Diego Holding Company, Inc. D.R. Horton, Inc. - Torrey DRH Cambridge Homes, Inc. DRH Construction, Inc. DRH Regrem II, Inc. DRH Regrem III, Inc. DRH Regrem IV, Inc. DRH Regrem V, Inc. DRH Southwest Construction, Inc. DRH Title Company of Colorado, Inc. DRH Tucson Construction, Inc. DRHI, Inc. KDB Homes, Inc. Meadows I, Ltd. Meadows VIII, Ltd. Meadows IX, Inc. Meadows X, Inc. By: /s/ SAMUEL R. FULLER --------------------------------------- Samuel R. Fuller Treasurer DRH Regrem VIII, LLC DRH Cambridge Homes, LLC By: D.R. Horton, Inc. - Chicago, a member By: /s/ SAMUEL R. FULLER ------------------------------ Samuel R. Fuller Treasurer D.R. Horton - Emerald, Ltd. D.R. Horton Management Company, Ltd. D.R. Horton-Texas, Ltd. DRH Regrem VII, LP By: Meadows I, Ltd., the general partner By: /s/ SAMUEL R. FULLER ------------------------------ Samuel R. Fuller Treasurer SGS Communities At Grande Quay, LLC By: Meadows IX, Inc., a member By: /s/ SAMUEL R. FULLER ------------------------------ Samuel R. Fuller Treasurer and By: Meadows X, Inc., a member By: /s/ SAMUEL R. FULLER ------------------------------ Samuel R. Fuller Treasurer Continental Homes of Texas, L.P. By: CHTEX of Texas, Inc., the general partner By: /s/ SAMUEL R. FULLER ------------------------------ Samuel R. Fuller Treasurer Meadows II, Ltd. CH Investments of Texas, Inc. By: /s/ WILLIAM PECK ----------------------------- William Peck President Western Pacific Housing, Inc. Western Pacific Housing-Park Avenue East, LLC Western Pacific Housing-Park Avenue West, LLC Western Pacific Housing-Copper Canyon, LLC Western Pacific Housing-Del Valle, LLC Western Pacific Housing-River Ridge, LLC Western Pacific Housing-Boardwalk, LLC Western Pacific Housing-Studio 528, LLC Western Pacific Housing-Terra Bay Duets, LLC Western Pacific Housing-Torrey Meadows, LLC Western Pacific Housing-Windemere, LLC Western Pacific Housing-Playa Vista, LLC Western Pacific Housing-Torrance, LLC By: /s/ THOMAS CONNELLY ------------------------------------- Thomas Connelly, Chief Financial Officer and Secretary of each corporate guarantor and of each managing member or sole manager of each limited liability company guarantor D.R. Horton-Schuler Homes, LLC By: Vertical Construction Corporation, its manager By:/s/ THOMAS CONNELLY ---------------------------- Thomas Connelly Chief Financial Officer and Secretary EXISTING GUARANTORS: ------------------- Melody Homes, Inc. Melody Mortgage Co. Schuler Homes of California, Inc. Schuler Homes of Washington, Inc. Schuler Homes of Oregon, Inc. SHLR of Washington, Inc. SHLR of Colorado, Inc. SHLR of Nevada, Inc. Schuler Realty/Maui, Inc. Schuler Realty/Oahu, Inc. Vertical Construction Corporation SHLR of Utah, Inc. Schuler Mortgage, Inc. SHLR of California, Inc. SSHI LLC (Stafford) SRHI LLC (Rielly) Schuler Homes of Arizona LLC SHA Construction LLC LAMCO Housing, Inc. AP LHI, Inc. APLAM, LLC AP Western GP Corporation AP WP Partners, L.P. AP WP Operating Corporation HPH Homebuilders 2000 LP Porter GP LLC Western Pacific Housing Management, Inc. (formerly known as Western Pacific Housing, Inc.) Western Pacific Housing-Antigua, LLC Western Pacific Housing-Broadway, LLC Western Pacific Housing-Carrillo, LLC Western Pacific Housing-Communications Hill, LLC Western Pacific Housing-Creekside, LLC Western Pacific Housing-Lomas Verdes, LLC Western Pacific Housing-Norco Estates, LLC Western Pacific Housing-Robinhood Ridge, LLC Western Pacific Housing-Vineyard Terrace, LLC Western Pacific Housing-Lyons Canyon Partners, LLC Western Pacific Housing-Torrey Village Center WPH-Camino Ruiz, LLC WPH-HPH LLC Western Pacific Funding, Inc. Western Pacific Housing-McGonigle Canyon, LLC Western Pacific Housing-Torrey Commercial, LLC Western Pacific Housing-Torrey Multi-Family, LLC Allegra, LLC Coto Venture, Ltd. (see WPH-Coto Venture, L.P.) HPH Homebuilders LP 1995 HPH Homebuilders LP 1996 Livermore Homebuilders LP Oakley-Avalon LP Western Pacific Housing-Aviara, L.P. Western Pacific Housing Co. Western Pacific Housing-Canyon Park, LLC Western Pacific Housing-Carmel, LLC Western Pacific Housing-Coto Venture, L.P. Western Pacific Housing-Culver City, L.P. Western Pacific Housing-Lost Hills Park, LLC Western Pacific Housing-Mountaingate, L.P. Western Pacific Housing-Oso, L.P. Western Pacific Housing-Pacific Park II, LLC Western Pacific Housing-Poinsettia, L.P. Western Pacific Housing-Santa Fe, LLC Western Pacific Housing-Scripps, L.P. Western Pacific Housing-Scripps II, LLC Western Pacific Housing-Seacove, L.P. Western Pacific Housing-Westlake II, L.P. Western Pacific Housing-Windflower, L.P. By: /s/ THOMAS CONNELLY -------------------------------------------- Thomas Connelly, Chief Financial Officer and Secretary of each corporate guarantor, of each managing member or sole manager of each limited liability company guarantor, and of each general partner of each limited partnership guarantor U.S. Bank, N.A. By: /s/ GONZALO UREY ------------------------------------------- Name: Gonzalo Urey ----------------------------------------- Title: Assistant Vice President ---------------------------------------- EX-4.13 7 d96909ex4-13.txt 14TH SUPPLEMENTAL INDENTURE RE: SENIOR NOTES EXHIBIT 4.13 ================================================================================ D.R. HORTON, INC., THE GUARANTORS PARTY HERETO, AND AMERICAN STOCK TRANSFER & TRUST COMPANY, as Trustee ----------- FOURTEENTH SUPPLEMENTAL INDENTURE Dated as of February 21, 2002 ----------- Supplementing the Indenture Dated as of June 9, 1997 with respect to the 8 3/8% Senior Notes Due 2004 10 1/2% Senior Notes Due 2005 8% Senior Notes Due 2009 7 7/8% Senior Notes Due 2011 Zero Coupon Convertible Senior Notes Due 2021 ================================================================================ THIS FOURTEENTH SUPPLEMENTAL INDENTURE, dated as of February 21, 2002, 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"), the ADDITIONAL GUARANTORS (as defined herein), the EXISTING GUARANTORS (as defined herein) and AMERICAN STOCK TRANSFER & TRUST COMPANY, as trustee (the "Trustee"). RECITALS WHEREAS, the Company and the Trustee entered into the Indenture to provide for the issuance from time to time of senior debt securities (the "Securities") to be issued in one or more series as the Indenture provides; WHEREAS, pursuant to the First Supplemental Indenture, dated as of June 9, 1997 (the "First Supplemental Indenture"), among the Company, the guarantors party thereto and the Trustee, the Company issued a series of Securities designated as its 8 3/8% Senior Notes due 2004 in the aggregate principal amount of $250,000,000 (the "8 3/8% Notes"), pursuant to the Sixth Supplemental Indenture, dated as of February 4, 1999 (the "Sixth Supplemental Indenture"), among the Company, the guarantors party thereto and the Trustee, the Company issued a series of Securities designated as its 8% Senior Notes due 2009 in the aggregate principal amount of up to $400,000,000 (the "8% Notes"), pursuant to the Eighth Supplemental Indenture, dated as of March 21, 2000 (the "Eighth Supplemental Indenture") and the Tenth Supplemental Indenture, dated as of June 5, 2000 (the "Tenth Supplemental Indenture"), among the Company, the guarantors party thereto and the Trustee, the Company issued a series of Securities designated as its 10 1/2% Senior Notes due 2005 in the aggregate principal amount of $200,000,000 (the "10 1/2% Notes"), pursuant to the Eleventh Supplemental Indenture, dated as of May 11, 2001 (the "Eleventh Supplemental Indenture"), among the Company, the guarantors party thereto and the Trustee, the Company issued a series of Securities designated as its Zero Coupon Convertible Senior Notes due 2021 in the aggregate principal amount at maturity of $381,113,000 (the "Zero Coupon Notes"), and pursuant to the Thirteenth Supplemental Indenture, dated as of August 15, 2001 (the "Thirteenth Supplemental Indenture"), among the Company, the guarantors party thereto (the "Existing Guarantors") and the Trustee, the Company issued a series of Securities designated as its 7 7/8% Senior Notes due 2011 in the aggregate principal amount of $200,000,000 (the "7 7/8% Notes" and, together with the 8 3/8% Notes, the 8% Notes, the 10 1/2% Notes and the Zero Coupon Notes, the "Notes"); WHEREAS, on February 21, 2002, pursuant to the laws of the State of Delaware and in accordance with the terms of the Agreement and Plan of Merger, dated as of October 22, 2001, as amended, by and between the Company and Schuler Homes, Inc., a Delaware corporation ("Schuler"), Schuler was duly merged with and into the Company, with the Company continuing as the surviving corporation (the "Merger"); WHEREAS, pursuant to Section 4.05 of the Indenture, any Restricted Subsidiary that the Company organizes, acquires or otherwise invests in, or any Unrestricted Subsidiary that is 1 redesignated as a Restricted Subsidiary, is required to guarantee the Notes for all purposes under the Indenture; WHEREAS, as a result of the Merger and pursuant to Section 4.05 of the Indenture, the Company desires to cause each of the former subsidiaries of Schuler who are deemed to be Restricted Subsidiaries (the "Additional Guarantors") to be bound by those terms applicable to a Guarantor under the Indenture, and cause such Additional Guarantors to execute and deliver a supplemental indenture pursuant to which such Additional Guarantors shall unconditionally guarantee all of the Company's obligations under the Notes on the terms set forth in the Indenture; and WHEREAS, the execution of this Fourteenth Supplemental Indenture has been duly authorized by the Executive Committee of the Board of Directors of the Company and the Boards of Directors or other governing bodies of the Additional Guarantors and all things necessary to make this Fourteenth Supplemental Indenture a legal, valid, binding and enforceable obligation of the Company and the Additional Guarantors according to its terms have been done and performed; NOW THEREFORE, for and in consideration of the premises, the Company, the Existing Guarantors and the Additional Guarantors covenant and agree with the Trustee for the equal and ratable benefit of the respective holders of the Securities as follows: ARTICLE I. ADDITIONAL GUARANTORS 1.1. In accordance with Section 4.05 of the Indenture, the following Additional Guarantors hereby unconditionally guarantee all of the Company's obligations under the Notes and the Indenture, as it relates to the Notes, on the terms set forth in the Indenture, including without limitation, Article Nine thereof:
Name Jurisdiction of Organization ---- ---------------------------- Allegra, LLC California AP LHI, Inc. California AP Western GP Corporation Delaware AP WP Operating Corporation Delaware AP WP Partners, L.P. Delaware APLAM, LLC California D.R. Horton-Schuler Homes, LLC Delaware HPH Homebuilders 2000 L.P. California HPH Homebuilders LP 1995 California HPH Homebuilders LP 1996 California LAMCO Housing, Inc. California Livermore Homebuilders LP California Melody Homes, Inc. Delaware
2
Name Jurisdiction of Organization ---- ---------------------------- Melody Mortgage Co. Colorado Oakley-Avalon LP California Porter GP LLC Delaware Schuler Homes of Arizona LLC Delaware Schuler Homes of California, Inc. California Schuler Homes of Oregon, Inc. Oregon Schuler Homes of Washington, Inc. Washington Schuler Mortgage, Inc. Delaware Schuler Realty/Maui, Inc. Hawaii Schuler Realty/Oahu, Inc. Hawaii SHA Construction LLC Delaware SHLR of California, Inc. California SHLR of Colorado, Inc. Colorado SHLR of Nevada, Inc. Nevada SHLR of Utah, Inc. Utah SHLR of Washington, Inc. Washington SRHI LLC Delaware SSHI LLC Delaware Vertical Construction Corporation Delaware Western Pacific Funding, Inc. California Western Pacific Housing Co. California Western Pacific Housing Management, Inc. (formerly Western Pacific California Housing, Inc., a California corporation) Western Pacific Housing, Inc. (formerly Schuler Holdco, Inc., a Delaware Delaware corporation) Western Pacific Housing-Antigua, LLC Delaware Western Pacific Housing-Aviara, L.P. California Western Pacific Housing-Boardwalk, LLC Delaware Western Pacific Housing-Broadway, LLC Delaware Western Pacific Housing-Canyon Park, LLC Delaware Western Pacific Housing-Carmel, LLC Delaware Western Pacific Housing-Carrillo, LLC Delaware Western Pacific Housing-Communications Hill, LLC Delaware Western Pacific Housing-Copper Canyon, LLC Delaware Western Pacific Housing-Coto Venture, L.P. California Western Pacific Housing-Creekside, LLC Delaware Western Pacific Housing-Culver City, L.P. California Western Pacific Housing-Del Valle, LLC Delaware Western Pacific Housing-Lomas Verdes, LLC Delaware Western Pacific Housing-Lost Hills Park, LLC Delaware Western Pacific Housing-Lyons Canyon Partners, LLC Delaware Western Pacific Housing-McGonigle Canyon, LLC Delaware Western Pacific Housing-Mountaingate, L.P. California Western Pacific Housing-Norco Estates, LLC Delaware
3
Name Jurisdiction of Organization ---- ---------------------------- Western Pacific Housing-Oso, L.P. California Western Pacific Housing-Pacific Park II, LLC Delaware Western Pacific Housing-Park Avenue East, LLC Delaware Western Pacific Housing-Park Avenue West, LLC Delaware Western Pacific Housing-Playa Vista, LLC Delaware Western Pacific Housing-Poinsettia, L.P. California Western Pacific Housing-River Ridge, LLC Delaware Western Pacific Housing-Robinhood Ridge, LLC Delaware Western Pacific Housing-Santa Fe, LLC Delaware Western Pacific Housing-Scripps II, LLC Delaware Western Pacific Housing-Scripps, L.P. California Western Pacific Housing-Sea Cove, L.P. California Western Pacific Housing-Studio 528, LLC Delaware Western Pacific Housing-Terra Bay Duets, LLC Delaware Western Pacific Housing-Torrance, LLC Delaware Western Pacific Housing-Torrey Commercial, LLC Delaware Western Pacific Housing-Torrey Meadows, LLC Delaware Western Pacific Housing-Torrey Multi-Family, LLC Delaware Western Pacific Housing-Torrey Village Center, LLC Delaware Western Pacific Housing-Vineyard Terrace, LLC Delaware Western Pacific Housing-Westlake II, L.P. California Western Pacific Housing-Windemere, LLC Delaware Western Pacific Housing-Windflower, L.P. California WPH-Camino Ruiz, LLC Delaware WPH-HPH, LLC Delaware
1.2 The Trustee is hereby authorized to add the above-named Additional Guarantors to the list of Guarantors on the Guarantees affixed to the Notes. 1.3 In accordance with Section 5.01 of the Indenture, the Company, as the surviving entity in the Merger, assumes all of the obligations of the Company under the Notes and the Indenture. ARTICLE II. DESIGNATED SENIOR INDEBTEDNESS 2.1 Each series of Securities and each Guarantee under the Indenture shall be deemed "Designated Senior Indebtedness" and "Guarantor Senior Indebtedness," respectively, for purposes of the Indenture, dated as of June 28, 2001, by and among Schuler, the guarantors party thereto and U.S. Bank Trust National Association, as trustee. 4 ARTICLE III. MISCELLANEOUS 3.1. This Fourteenth Supplemental Indenture constitutes a supplement to the Indenture, and the Indenture and this Fourteenth Supplemental Indenture shall be read together and shall have the effect so far as practicable as though all of the provisions thereof and hereof are contained in one instrument. 3.2 The parties may sign any number of copies of this Fourteenth Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. 3.3 In the event that any provision in this Fourteenth Supplemental Indenture or the Notes shall be held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 3.4 The article and section headings herein are for convenience only and shall not affect the construction hereof. 3.5 Any capitalized term used in this Fourteenth Supplemental Indenture and not defined herein that is defined in the Indenture shall have the meaning specified in the Indenture, unless the context shall otherwise require. 3.6 All covenants and agreements in this Fourteenth Supplemental Indenture by the Company, the Existing Guarantors and the Additional Guarantors shall bind each of their successors and assigns, whether so expressed or not. All agreements of the Trustee in this Fourteenth Supplemental Indenture shall bind its successors and assigns. 3.7 The laws of the State of New York shall govern this Fourteenth Supplemental Indenture, the Notes and the Guarantees. 3.8 Except as amended by this Fourteenth Supplemental Indenture, the terms and provisions of the Indenture shall remain in full force and effect. 3.9 This Fourteenth 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 Fourteenth Supplemental Indenture. 3.10 All liability described in paragraph 12 of the Notes, of any director, officer, employee or stockholder, as such, of the Company is waived and released. 3.11 The Trustee accepts the modifications of the trust effected by this Fourteenth Supplemental Indenture, but only upon the terms and conditions set forth in the Indenture. Without limiting the generality of the foregoing, the Trustee assumes no responsibility for the correctness of the recitals herein contained which shall be taken as the statements of the 5 Company and the Trustee shall not be responsible or accountable in any way whatsoever for or with respect to the validity or execution or sufficiency of this Fourteenth Supplemental Indenture and the Trustee makes no representation with respect thereto. [SIGNATURES INTENTIONALLY APPEAR ON NEXT PAGE FOLLOWING] 6 IN WITNESS WHEREOF, the parties hereto have caused this Fourteenth Supplemental Indenture to be duly executed, all as of the day and year first above written. D.R. HORTON, INC. By: /s/ SAMUEL R. FULLER ------------------------------------------- Samuel R. Fuller Executive Vice President, Chief Financial Officer, and Treasurer EXISTING GUARANTORS: C. Richard Dobson Builders, Inc. CHI Construction Company CHTEX of Texas, Inc. Continental Homes, Inc. Continental Homes of Florida, Inc. Continental Residential, Inc. D.R. Horton, Inc. - Birmingham D.R. Horton, Inc. - Chicago D.R. Horton, Inc. - Denver D.R. Horton, Inc. - Dietz-Crane D.R. Horton, Inc. - Greensboro D.R. Horton, Inc. - Jacksonville D.R. Horton, Inc. - Louisville D.R. Horton Los Angeles Holding Company, Inc. D.R. Horton, Inc. - Minnesota D.R. Horton, Inc. - New Jersey D.R. Horton, Inc. - Portland D.R. Horton, Inc. - Sacramento D.R. Horton San Diego Holding Company, Inc. D.R. Horton, Inc. - Torrey DRH Cambridge Homes, Inc. DRH Construction, Inc. DRH Regrem II, Inc. DRH Regrem III, Inc. DRH Regrem IV, Inc. DRH Regrem V, Inc. DRH Southwest Construction, Inc. DRH Title Company of Colorado, Inc. DRH Tucson Construction, Inc. DRHI, Inc. KDB Homes, Inc. Meadows I, Ltd. Meadows VIII, Ltd. Meadows IX, Inc. Meadows X, Inc. By: /s/ SAMUEL R. FULLER ------------------------------------------- Samuel R. Fuller Treasurer DRH Regrem VIII, LLC DRH Cambridge Homes, LLC By: D.R. Horton, Inc. - Chicago, a member By: /s/ SAMUEL R. FULLER -------------------------------- Samuel R. Fuller Treasurer D.R. Horton - Emerald, Ltd. D.R. Horton Management Company, Ltd. D.R. Horton-Texas, Ltd. DRH Regrem VII, LP By: Meadows I, Ltd., the general partner By: /s/ SAMUEL R. FULLER -------------------------------- Samuel R. Fuller Treasurer SGS Communities At Grande Quay, LLC By: Meadows IX, Inc., a member By: /s/ SAMUEL R. FULLER -------------------------------- Samuel R. Fuller Treasurer and By: Meadows X, Inc., a member By: /s/ SAMUEL R. FULLER -------------------------------- Samuel R. Fuller Treasurer Continental Homes of Texas, L.P. By: CHTEX of Texas, Inc., the general partner By: /s/ SAMUEL R. FULLER -------------------------------- Samuel R. Fuller Treasurer Meadows II, Ltd. CH Investments of Texas, Inc. By: /s/ WILLIAM PECK -------------------------------- William Peck President ADDITIONAL GUARANTORS: Allegra, LLC AP LHI, Inc. AP Western GP Corporation AP WP Operating Corporation AP WP Partners, L.P. APLAM, LLC HPH Homebuilders 2000 L.P. HPH Homebuilders LP 1995 HPH Homebuilders LP 1996 LAMCO Housing, Inc. Livermore Homebuilders LP Melody Homes, Inc. Melody Mortgage Co. Oakley-Avalon LP Porter GP LLC Schuler Homes of Arizona LLC Schuler Homes of California, Inc. Schuler Homes of Oregon, Inc. Schuler Homes of Washington, Inc. Schuler Mortgage, Inc. Schuler Realty/Maui, Inc. Schuler Realty/Oahu, Inc. SHA Construction LLC SHLR of California, Inc. SHLR of Colorado, Inc. SHLR of Nevada, Inc. SHLR of Utah, Inc. SHLR of Washington, Inc. SRHI LLC SSHI LLC Vertical Construction Corporation Western Pacific Funding, Inc. Western Pacific Housing Co. Western Pacific Housing Management, Inc., (formerly Western Pacific Housing, Inc., a California corporation) Western Pacific Housing, Inc. (formerly Schuler Holdco, Inc., a Delaware corporation) Western Pacific Housing-Antigua, LLC Western Pacific Housing-Aviara, L.P. Western Pacific Housing-Boardwalk, LLC Western Pacific Housing-Broadway, LLC Western Pacific Housing-Canyon Park, LLC Western Pacific Housing-Carmel, LLC Western Pacific Housing-Carrillo, LLC Western Pacific Housing-Communications Hill, LLC Western Pacific Housing-Copper Canyon, LLC Western Pacific Housing-Coto Venture, L.P. Western Pacific Housing-Creekside, LLC Western Pacific Housing-Culver City, L.P. Western Pacific Housing-Del Valle, LLC Western Pacific Housing-Lomas Verdes, LLC Western Pacific Housing-Lost Hills Park, LLC Western Pacific Housing-Lyons Canyon Partners, LLC Western Pacific Housing-McGonigle Canyon, LLC Western Pacific Housing-Mountaingate, L.P. Western Pacific Housing-Norco Estates, LLC Western Pacific Housing-Oso, L.P. Western Pacific Housing-Pacific Park II, LLC Western Pacific Housing-Park Avenue East, LLC Western Pacific Housing-Park Avenue West, LLC Western Pacific Housing-Playa Vista, LLC Western Pacific Housing-Pointsettia, L.P. Western Pacific Housing-River Ridge, LLC Western Pacific Housing-Robinhood Ridge, LLC Western Pacific Housing-Santa Fe, LLC Western Pacific Housing-Scripps II, LLC Western Pacific Housing-Scripps, L.P. Western Pacific Housing-Sea Cove, L.P. Western Pacific Housing-Studio 528, LLC Western Pacific Housing-Terra Bay Duets, LLC Western Pacific Housing-Torrance, LLC Western Pacific Housing-Torrey Commercial, LLC Western Pacific Housing-Torrey Meadows, LLC Western Pacific Housing-Torrey Multi-Family, LLC Western Pacific Housing-Torrey Village Center, LLC Western Pacific Housing-Vineyard Terrace, LLC Western Pacific Housing-Westlake II, L.P. Western Pacific Housing-Windemere, LLC Western Pacific Housing-Windflower, L.P. WPH-Camino Ruiz, LLC WPH-HPH, LLC By: /s/ THOMAS CONNELLY ------------------------------------------------ Thomas Connelly, Chief Financial Officer and Secretary of each corporate guarantor, of each managing member or sole manager of each limited liability company guarantor, and of each general partner of each limited partnership guarantor D.R. Horton-Schuler Homes, LLC By: Vertical Construction Corporation, its manager By: /s/ THOMAS CONNELLY --------------------------------------- Thomas Connelly Chief Financial Officer and Secretary AMERICAN STOCK TRANSFER & TRUST COMPANY, as Trustee By: /s/ HERBERT J. LEMMER ------------------------------------------------ Name: Herbert J. Lemmer ---------------------------------------------- Title: Vice President --------------------------------------------- EX-4.14 8 d96909ex4-14.txt 4TH SUPPLEMENTAL INDENTURE RE: 9.75% SENIOR NOTES EXHIBIT 4.14 ================================================================================ D.R. HORTON, INC., THE GUARANTORS PARTY HERETO, AND AMERICAN STOCK TRANSFER & TRUST COMPANY, as Trustee ----------- FOURTH SUPPLEMENTAL INDENTURE Dated as of February 21, 2002 ----------- Supplementing the Indenture Dated as of September 11, 2000 with respect to the 9 3/4% Senior Subordinated Notes Due 2010 9 3/8% Senior Subordinated Notes Due 2011 ================================================================================ THIS FOURTH SUPPLEMENTAL INDENTURE, dated as of February 21, 2002, to the Indenture, dated as of September 11, 2000 (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"), the ADDITIONAL GUARANTORS (as defined herein), the EXISTING GUARANTORS (as defined herein) and AMERICAN STOCK TRANSFER & TRUST COMPANY, as trustee (the "Trustee"). RECITALS WHEREAS, the Company and the Trustee entered into the Indenture to provide for the issuance from time to time of senior debt securities (the "Securities") to be issued in one or more series as the Indenture provides; WHEREAS, pursuant to the First Supplemental Indenture dated as of September 11, 2000 (the "First Supplemental Indenture"), among the Company, the guarantors party thereto and the Trustee, the Company issued a series of Securities designated as its 9 3/4% Senior Subordinated Notes due 2010 in the aggregate principal amount of up to $200,000,000 (the "9 3/4% Notes"); WHEREAS, pursuant to the Second Supplemental Indenture dated as of March 12, 2001 (the "Second Supplemental Indenture"), among the Company, the guarantors party thereto and the Trustee, the Company issued a series of Securities designated as its 9 3/8% Senior Subordinated Notes due 2011 in the aggregate principal amount of up to $200,000,000 (the "9 3/8% Notes" and, together with the 9 3/4% Notes, the "Notes"); WHEREAS, pursuant to the Third Supplemental Indenture dated as of May 21, 2001 (the "Third Supplemental Indenture"), among the Company, the guarantors party thereto (the "Existing Guarantors") and the Trustee, the Company caused certain Restricted Subsidiaries to guarantee the Notes for all purposes under the Indenture; WHEREAS, on February 21, 2002, pursuant to the laws of the State of Delaware and in accordance with the terms of the Agreement and Plan of Merger, dated as of October 22, 2001, as amended, by and between the Company and Schuler Homes, Inc., a Delaware corporation ("Schuler"), Schuler was duly merged with and into the Company, with the Company continuing as the surviving corporation (the "Merger"); WHEREAS, pursuant to Section 4.05 of the Indenture, any Restricted Subsidiary that the Company organizes, acquires or otherwise invests in, or any Unrestricted Subsidiary that is redesignated as a Restricted Subsidiary, is required to guarantee the Notes for all purposes under the Indenture; WHEREAS, as a result of the Merger and pursuant to Section 4.05 of the Indenture, the Company desires to cause each of the former subsidiaries of Schuler who are deemed to be Restricted Subsidiaries (the "Additional Guarantors") to be bound by those terms applicable to a Guarantor under the Indenture, and cause such Additional Guarantors to execute and deliver a 1 supplemental indenture pursuant to which such Additional Guarantors shall unconditionally guarantee all of the Company's obligations under the Notes on the terms set forth in the Indenture; and WHEREAS, the execution of this Fourth Supplemental Indenture has been duly authorized by the Executive Committee of the Board of Directors of the Company and the Boards of Directors or other governing bodies of the Additional Guarantors and all things necessary to make this Fourth Supplemental Indenture a legal, valid, binding and enforceable obligation of the Company and the Additional Guarantors according to its terms have been done and performed; NOW THEREFORE, for and in consideration of the premises, the Company, the Existing Guarantors and the Additional Guarantors covenant and agree with the Trustee for the equal and ratable benefit of the respective holders of the Securities as follows: ARTICLE I. ADDITIONAL GUARANTORS 1.1. In accordance with Section 4.05 of the Indenture, the following Additional Guarantors hereby unconditionally guarantee all of the Company's obligations under the Notes and the Indenture, as it relates to the Notes, on the terms set forth in the Indenture, including without limitation, Article Nine thereof:
Name Jurisdiction of Organization ---- ---------------------------- Allegra, LLC California AP LHI, Inc. California AP Western GP Corporation Delaware AP WP Operating Corporation Delaware AP WP Partners, L.P. Delaware APLAM, LLC California D.R. Horton-Schuler Homes, LLC Delaware HPH Homebuilders 2000 L.P. California HPH Homebuilders LP 1995 California HPH Homebuilders LP 1996 California LAMCO Housing, Inc. California Livermore Homebuilders LP California Melody Homes, Inc. Delaware Melody Mortgage Co. Colorado Oakley-Avalon LP California Porter GP LLC Delaware Schuler Homes of Arizona LLC Delaware Schuler Homes of California, Inc. California Schuler Homes of Oregon, Inc. Oregon Schuler Homes of Washington, Inc. Washington
2 Schuler Mortgage, Inc. Delaware Schuler Realty/Maui, Inc. Hawaii Schuler Realty/Oahu, Inc. Hawaii SHA Construction LLC Delaware SHLR of California, Inc. California SHLR of Colorado, Inc. Colorado SHLR of Nevada, Inc. Nevada SHLR of Utah, Inc. Utah SHLR of Washington, Inc. Washington SRHI LLC Delaware SSHI LLC Delaware Vertical Construction Corporation Delaware Western Pacific Funding, Inc. California Western Pacific Housing Co. California Western Pacific Housing Management, Inc. California (formerly Western Pacific Housing, Inc., a California corporation) Western Pacific Housing, Inc. Delaware (formerly Schuler Holdco, Inc., a Delaware corporation) Western Pacific Housing-Antigua, LLC Delaware Western Pacific Housing-Aviara, L.P. California Western Pacific Housing-Boardwalk, LLC Delaware Western Pacific Housing-Broadway, LLC Delaware Western Pacific Housing-Canyon Park, LLC Delaware Western Pacific Housing-Carmel, LLC Delaware Western Pacific Housing-Carrillo, LLC Delaware Western Pacific Housing-Communications Delaware Hill, LLC Western Pacific Housing-Copper Canyon, LLC Delaware Western Pacific Housing-Coto Venture, L.P. California Western Pacific Housing-Creekside, LLC Delaware Western Pacific Housing-Culver City, L.P. California Western Pacific Housing-Del Valle, LLC Delaware Western Pacific Housing-Lomas Verdes, LLC Delaware Western Pacific Housing-Lost Hills Park, LLC Delaware Western Pacific Housing-Lyons Canyon Delaware Partners, LLC Western Pacific Housing-McGonigle Canyon, LLC Delaware Western Pacific Housing-Mountaingate, L.P. California Western Pacific Housing-Norco Estates, LLC Delaware Western Pacific Housing-Oso, L.P. California Western Pacific Housing-Pacific Park II, LLC Delaware Western Pacific Housing-Park Avenue East, LLC Delaware Western Pacific Housing-Park Avenue West, LLC Delaware
3 Western Pacific Housing-Playa Vista, LLC Delaware Western Pacific Housing-Pointsettia, L.P. California Western Pacific Housing-River Ridge, LLC Delaware Western Pacific Housing-Robinhood Ridge, LLC Delaware Western Pacific Housing-Santa Fe, LLC Delaware Western Pacific Housing-Scripps II, LLC Delaware Western Pacific Housing-Scripps, L.P. California Western Pacific Housing-Sea Cove, L.P. California Western Pacific Housing-Studio 528, LLC Delaware Western Pacific Housing-Terra Bay Duets, LLC Delaware Western Pacific Housing-Torrance, LLC Delaware Western Pacific Housing-Torrey Commercial, LLC Delaware Western Pacific Housing-Torrey Meadows, LLC Delaware Western Pacific Housing-Torrey Multi-Family, LLC Delaware Western Pacific Housing-Torrey Village Center, LLC Delaware Western Pacific Housing-Vineyard Terrace, LLC Delaware Western Pacific Housing-Westlake II, L.P. California Western Pacific Housing-Windemere, LLC Delaware Western Pacific Housing-Windflower, L.P. California WPH-Camino Ruiz, LLC Delaware WPH-HPH, LLC Delaware
1.2 The Trustee is hereby authorized to add the above-named Additional Guarantors to the list of Guarantors on the Guarantees affixed to the Notes. 1.3 In accordance with Section 5.01 of the Indenture, the Company, as the surviving entity in the Merger, assumes all of the obligations of the Company under the Notes and the Indenture. 1.4. Each series of Securities under the Indenture shall rank pari passu, on at least an equal and ratable basis, with the securities issued under the Indenture, dated as of June 28, 2001, related to the 10 1/2% Senior Subordinated Notes due 2011, by and among the Company, the guarantors named therein and U.S. Bank, N.A., as trustee. ARTICLE II. MISCELLANEOUS 2.1. This Fourth Supplemental Indenture constitutes a supplement to the Indenture, and the Indenture and this Fourth Supplemental Indenture shall be read together and shall have the effect so far as practicable as though all of the provisions thereof and hereof are contained in one instrument. 4 2.2 The parties may sign any number of copies of this Fourth Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. 2.3 In the event that any provision in this Fourth Supplemental Indenture or the Notes shall be held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 2.4 The article and section headings herein are for convenience only and shall not affect the construction hereof. 2.5 Any capitalized term used in this Fourth Supplemental Indenture and not defined herein that is defined in the Indenture shall have the meaning specified in the Indenture, unless the context shall otherwise require. 2.6 All covenants and agreements in this Fourth Supplemental Indenture by the Company, the Existing Guarantors and the Additional Guarantors shall bind each of their successors and assigns, whether so expressed or not. All agreements of the Trustee in this Fourth Supplemental Indenture shall bind its successors and assigns. 2.7 The laws of the State of New York shall govern this Fourth Supplemental Indenture, the Notes and the Guarantees. 2.8 Except as amended by this Fourth Supplemental Indenture, the terms and provisions of the Indenture shall remain in full force and effect. 2.9 This Fourth 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 Fourth Supplemental Indenture. 2.10 All liability described in paragraph 12 of the 9 3/4% Notes or paragraph 13 of the 9 3/8% Notes, of any director, officer, employee or stockholder, as such, of the Company is waived and released. 2.11 The Trustee accepts the modifications of the trust effected by this Fourth Supplemental Indenture, but only upon the terms and conditions set forth in the Indenture. Without limiting the generality of the foregoing, the Trustee assumes no responsibility for the correctness of the recitals herein contained which shall be taken as the statements of the Company and the Trustee shall not be responsible or accountable in any way whatsoever for or with respect to the validity or execution or sufficiency of this Fourth Supplemental Indenture and the Trustee makes no representation with respect thereto. [SIGNATURES INTENTIONALLY APPEAR ON NEXT PAGE FOLLOWING] 5 IN WITNESS WHEREOF, the parties hereto have caused this Fourth Supplemental Indenture to be duly executed, all as of the day and year first above written. D.R. HORTON, INC. By: /s/ SAMUEL R. FULLER ---------------------------------------- Samuel R. Fuller Executive Vice President, Treasurer and Chief Financial Officer EXISTING GUARANTORS: C. Richard Dobson Builders, Inc. CHI Construction Company CHTEX of Texas, Inc. Continental Homes, Inc. Continental Homes of Florida, Inc. Continental Residential, Inc. D.R. Horton, Inc. - Birmingham D.R. Horton, Inc. - Chicago D.R. Horton, Inc. - Denver D.R. Horton, Inc. - Dietz-Crane D.R. Horton, Inc. - Greensboro D.R. Horton, Inc. - Jacksonville D.R. Horton, Inc. - Louisville D.R. Horton Los Angeles Holding Company, Inc. D.R. Horton, Inc. - Minnesota D.R. Horton, Inc. - New Jersey D.R. Horton, Inc. - Portland D.R. Horton, Inc. - Sacramento D.R. Horton San Diego Holding Company, Inc. D.R. Horton, Inc. - Torrey DRH Cambridge Homes, Inc. DRH Construction, Inc. DRH Regrem II, Inc. DRH Regrem III, Inc. DRH Regrem IV, Inc. DRH Regrem V, Inc. DRH Southwest Construction, Inc. DRH Title Company of Colorado, Inc. DRH Tucson Construction, Inc. DRHI, Inc. KDB Homes, Inc. Meadows I, Ltd. Meadows VIII, Ltd. Meadows IX, Inc. Meadows X, Inc. By: /s/ SAMUEL R. FULLER ---------------------------------------- Samuel R. Fuller Treasurer DRH Regrem VIII, LLC DRH Cambridge Homes, LLC By: D.R. Horton, Inc. - Chicago, a member By: /s/ SAMUEL R. FULLER --------------------------------- Samuel R. Fuller Treasurer D.R. Horton - Emerald, Ltd. D.R. Horton Management Company, Ltd. D.R. Horton-Texas, Ltd. DRH Regrem VII, LP By: Meadows I, Ltd., the general partner By: /s/ SAMUEL R. FULLER --------------------------------- Samuel R. Fuller Treasurer SGS Communities At Grande Quay, LLC By: Meadows IX, Inc., a member By: /s/ SAMUEL R. FULLER --------------------------------- Samuel R. Fuller Treasurer and By: Meadows X, Inc., a member By: /s/ SAMUEL R. FULLER --------------------------------- Samuel R. Fuller Treasurer Continental Homes of Texas, L.P. By: CHTEX of Texas, Inc., the general partner By: /s/ SAMUEL R. FULLER --------------------------------- Samuel R. Fuller Treasurer Meadows II, Ltd. CH Investments of Texas, Inc. By: /s/ WILLIAM PECK ---------------------------------------- William Peck President ADDITIONAL GUARANTORS: Allegra, LLC AP LHI, Inc. AP Western GP Corporation AP WP Operating Corporation AP WP Partners, L.P. APLAM, LLC HPH Homebuilders 2000 L.P. HPH Homebuilders LP 1995 HPH Homebuilders LP 1996 LAMCO Housing, Inc. Livermore Homebuilders LP Melody Homes, Inc. Melody Mortgage Co. Oakley-Avalon LP Porter GP LLC Schuler Homes of Arizona LLC Schuler Homes of California, Inc. Schuler Homes of Oregon, Inc. Schuler Homes of Washington, Inc. Schuler Mortgage, Inc. Schuler Realty/Maui, Inc. Schuler Realty/Oahu, Inc. SHA Construction LLC SHLR of California, Inc. SHLR of Colorado, Inc. SHLR of Nevada, Inc. SHLR of Utah, Inc. SHLR of Washington, Inc. SRHI LLC SSHI LLC Vertical Construction Corporation Western Pacific Funding, Inc. Western Pacific Housing Co. Western Pacific Housing Management, Inc., (formerly Western Pacific Housing, Inc., a California corporation) Western Pacific Housing, Inc. (formerly Schuler Holdco, Inc., a Delaware corporation) Western Pacific Housing-Antigua, LLC Western Pacific Housing-Aviara, L.P. Western Pacific Housing-Boardwalk, LLC Western Pacific Housing-Broadway, LLC Western Pacific Housing-Canyon Park, LLC Western Pacific Housing-Carmel, LLC Western Pacific Housing-Carrillo, LLC Western Pacific Housing-Communications Hill, LLC Western Pacific Housing-Copper Canyon, LLC Western Pacific Housing-Coto Venture, L.P. Western Pacific Housing-Creekside, LLC Western Pacific Housing-Culver City, L.P. Western Pacific Housing-Del Valle, LLC Western Pacific Housing-Lomas Verdes, LLC Western Pacific Housing-Lost Hills Park, LLC Western Pacific Housing-Lyons Canyon Partners, LLC Western Pacific Housing-McGonigle Canyon, LLC Western Pacific Housing-Mountaingate, L.P. Western Pacific Housing-Norco Estates, LLC Western Pacific Housing-Oso, L.P. Western Pacific Housing-Pacific Park II, LLC Western Pacific Housing-Park Avenue East, LLC Western Pacific Housing-Park Avenue West, LLC Western Pacific Housing-Playa Vista, LLC Western Pacific Housing-Pointsettia, L.P. Western Pacific Housing-River Ridge, LLC Western Pacific Housing-Robinhood Ridge, LLC Western Pacific Housing-Santa Fe, LLC Western Pacific Housing-Scripps II, LLC Western Pacific Housing-Scripps, L.P. Western Pacific Housing-Sea Cove, L.P. Western Pacific Housing-Studio 528, LLC Western Pacific Housing-Terra Bay Duets, LLC Western Pacific Housing-Torrance, LLC Western Pacific Housing-Torrey Commercial, LLC Western Pacific Housing-Torrey Meadows, LLC Western Pacific Housing-Torrey Multi-Family, LLC Western Pacific Housing-Torrey Village Center, LLC Western Pacific Housing-Vineyard Terrace, LLC Western Pacific Housing-Westlake II, L.P. Western Pacific Housing-Windemere, LLC Western Pacific Housing-Windflower, L.P. WPH-Camino Ruiz, LLC WPH-HPH, LLC By: /s/ THOMAS CONNELLY -------------------------------------------- Thomas Connelly, Chief Financial Officer and Secretary of each corporate guarantor, of each managing member or sole manager of each limited liability company guarantor, and of each general partner of each limited partnership guarantor D.R. Horton-Schuler Homes, LLC By: Vertical Construction Corporation, its manager By: /s/ THOMAS CONNELLY ----------------------------------- Thomas Connelly Chief Financial Officer and Secretary AMERICAN STOCK TRANSFER & TRUST COMPANY, as Trustee By: /s/ HERBERT J. LEMMER ----------------------------------- Name: Herbert J. Lemmer --------------------------------- Title: Vice President -------------------------------- EX-4.15 9 d96909ex4-15.txt 5TH SUPPLEMENTAL INDENTURE RE: 10% SENIOR NOTES EXHIBIT 4.15 ================================================================================ D.R. HORTON, INC., THE GUARANTORS PARTY HERETO, AND FIRST UNION NATIONAL BANK, as Trustee ----------- FIFTH SUPPLEMENTAL INDENTURE Dated as of February 21, 2002 ----------- Supplementing the Indenture Dated as of April 15, 1996 with respect to the 10% Senior Notes Due 2006 ================================================================================ THIS FIFTH SUPPLEMENTAL INDENTURE, dated as of February 21, 2002, to the Indenture, dated as of April 15, 1996 (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"), the ADDITIONAL GUARANTORS (as defined herein), the EXISTING GUARANTORS (as defined herein) and FIRST UNION NATIONAL BANK, as trustee (the "Trustee"). RECITALS WHEREAS, Continental Homes Holding Corp., a Delaware corporation ("Continental"), and the Trustee entered into the Indenture to provide for the issuance from time to time of senior debt securities (the "Securities") to be issued in one or more series as the Indenture provides, pursuant to which Continental issued a series of Securities designated as its 10% Senior Notes due 2006 in the aggregate principal amount of $150,000,000 (the "Notes"); WHEREAS, on April 20, 1998, pursuant to the laws of the State of Delaware and in accordance with the terms of the Agreement and Plan of Merger, dated as of December 18, 1997, by and between the Company and Continental, Continental was duly merged with and into the Company (the "Continental Merger"), with the Company continuing as the surviving corporation; WHEREAS, as a result of the Continental Merger, the Company succeeded to all obligations, duties and liabilities of Continental under the Indenture as if incurred or contracted by the Company; WHEREAS, pursuant to the First Supplemental Indenture dated as of April 20, 1998 (the "First Supplemental Indenture"), the Second Supplemental Indenture dated as of August 31, 1998 (the "Second Supplemental Indenture"), the Third Supplemental Indenture dated as of August 31, 1999 (the "Third Supplemental Indenture"), and the Fourth Supplemental Indenture dated as of May 21, 2001 (the "Fourth Supplemental Indenture"), among the Company, each of the guarantors party to such supplemental indentures (the "Existing Guarantors") and the Trustee, the Company caused certain Restricted Subsidiaries to guarantee the Notes for all purposes under the Indenture; WHEREAS, on February 21, 2002, pursuant to the laws of the State of Delaware and in accordance with the terms of the Agreement and Plan of Merger, dated as of October 22, 2001, as amended, by and between the Company and Schuler Homes, Inc., a Delaware corporation ("Schuler"), Schuler was duly merged with and into the Company, with the Company continuing as the surviving corporation (the "Merger"); WHEREAS, pursuant to Sections 4.16 and 10.03 of the Indenture, any Subsidiary with a net book value greater than $10,000,000 which is a Restricted Subsidiary is required to guarantee, simultaneously with its designation as a Restricted Subsidiary, the payment of the Securities pursuant to the terms of Article Ten and Exhibit B of the Indenture; 1 WHEREAS, as a result of the Merger and pursuant to Sections 4.16 and 10.03 of the Indenture, the Company desires to cause each of the former subsidiaries of Schuler who are deemed to be Restricted Subsidiaries (the "Additional Guarantors") to be bound by those terms applicable to a Guarantor under the Indenture, and cause such Additional Guarantors to execute and deliver a supplemental indenture pursuant to which such Additional Guarantors shall unconditionally guarantee all of the Company's obligations under the Securities on the terms set forth in the Indenture; and WHEREAS, the execution of this Fifth Supplemental Indenture has been duly authorized by the Executive Committee of the Board of Directors of the Company and the Boards of Directors or other governing bodies of the Additional Guarantors and all things necessary to make this Fifth Supplemental Indenture a legal, valid, binding and enforceable obligation of the Company and the Additional Guarantors according to its terms have been done and performed; NOW THEREFORE, for and in consideration of the premises, the Company, the Existing Guarantors and the Additional Guarantors covenant and agree with the Trustee for the equal and ratable benefit of the respective holders of the Securities as follows: ARTICLE I. ADDITIONAL GUARANTORS 1.1. In accordance with Sections 4.16 and 10.03 of the Indenture, the following Additional Guarantors hereby unconditionally guarantee all of the Company's obligations under the Securities and the Indenture, as it relates to the Securities, on the terms set forth in the Indenture, including without limitation, Article Ten and Exhibit B thereof:
Name Jurisdiction of Organization ---- ---------------------------- Allegra, LLC California AP LHI, Inc. California AP Western GP Corporation Delaware AP WP Operating Corporation Delaware AP WP Partners, L.P. Delaware APLAM, LLC California D.R. Horton-Schuler Homes, LLC Delaware HPH Homebuilders 2000 L.P. California HPH Homebuilders LP 1995 California HPH Homebuilders LP 1996 California LAMCO Housing, Inc. California Livermore Homebuilders LP California Melody Homes, Inc. Delaware Melody Mortgage Co. Colorado Oakley-Avalon LP California Porter GP LLC Delaware Schuler Homes of Arizona LLC Delaware
2 Schuler Homes of California, Inc. California Schuler Homes of Oregon, Inc. Oregon Schuler Homes of Washington, Inc. Washington Schuler Mortgage, Inc. Delaware Schuler Realty/Maui, Inc. Hawaii Schuler Realty/Oahu, Inc. Hawaii SHA Construction LLC Delaware SHLR of California, Inc. California SHLR of Colorado, Inc. Colorado SHLR of Nevada, Inc. Nevada SHLR of Utah, Inc. Utah SHLR of Washington, Inc. Washington SRHI LLC Delaware SSHI LLC Delaware Vertical Construction Corporation Delaware Western Pacific Funding, Inc. California Western Pacific Housing Co. California Western Pacific Housing Management, Inc. California (formerly Western Pacific Housing, Inc., a California corporation) Western Pacific Housing, Inc. Delaware (formerly Schuler Holdco, Inc., a Delaware corporation) Western Pacific Housing-Antigua, LLC Delaware Western Pacific Housing-Aviara, L.P. California Western Pacific Housing-Boardwalk, LLC Delaware Western Pacific Housing-Broadway, LLC Delaware Western Pacific Housing-Canyon Park, LLC Delaware Western Pacific Housing-Carmel, LLC Delaware Western Pacific Housing-Carrillo, LLC Delaware Western Pacific Housing-Communications Delaware Hill, LLC Western Pacific Housing-Copper Canyon, LLC Delaware Western Pacific Housing-Coto Venture, L.P. California Western Pacific Housing-Creekside, LLC Delaware Western Pacific Housing-Culver City, L.P. California Western Pacific Housing-Del Valle, LLC Delaware Western Pacific Housing-Lomas Verdes, LLC Delaware Western Pacific Housing-Lost Hills Park, LLC Delaware Western Pacific Housing-Lyons Canyon Delaware Partners, LLC Western Pacific Housing-McGonigle Canyon, LLC Delaware Western Pacific Housing-Mountaingate, L.P. California Western Pacific Housing-Norco Estates, LLC Delaware Western Pacific Housing-Oso, L.P. California
3 Western Pacific Housing-Pacific Park II, LLC Delaware Western Pacific Housing-Park Avenue East, LLC Delaware Western Pacific Housing-Park Avenue West, LLC Delaware Western Pacific Housing-Playa Vista, LLC Delaware Western Pacific Housing-Pointsettia, L.P. California Western Pacific Housing-River Ridge, LLC Delaware Western Pacific Housing-Robinhood Ridge, LLC Delaware Western Pacific Housing-Santa Fe, LLC Delaware Western Pacific Housing-Scripps II, LLC Delaware Western Pacific Housing-Scripps, L.P. California Western Pacific Housing-Sea Cove, L.P. California Western Pacific Housing-Studio 528, LLC Delaware Western Pacific Housing-Terra Bay Duets, LLC Delaware Western Pacific Housing-Torrance, LLC Delaware Western Pacific Housing-Torrey Commercial, LLC Delaware Western Pacific Housing-Torrey Meadows, LLC Delaware Western Pacific Housing-Torrey Multi-Family, LLC Delaware Western Pacific Housing-Torrey Village Center, LLC Delaware Western Pacific Housing-Vineyard Terrace, LLC Delaware Western Pacific Housing-Westlake II, L.P. California Western Pacific Housing-Windemere, LLC Delaware Western Pacific Housing-Windflower, L.P. California WPH-Camino Ruiz, LLC Delaware WPH-HPH, LLC Delaware
1.2 The Trustee is hereby authorized to add the above-named Additional Guarantors to the list of Guarantors on the Guarantees affixed to the Notes. ARTICLE II. DESIGNATED SENIOR INDEBTEDNESS 2.1 Each series of Securities and each Guarantee under the Indenture shall be deemed "Designated Senior Indebtedness" and "Guarantor Senior Indebtedness," respectively, for purposes of the Indenture, dated as of June 28, 2001, by and among Schuler, the guarantors party thereto and U.S. Bank Trust National Association, as trustee. 4 ARTICLE III. MISCELLANEOUS 3.1. This Fifth Supplemental Indenture constitutes a supplement to the Indenture, and the Indenture and this Fifth Supplemental Indenture shall be read together and shall have the effect so far as practicable as though all of the provisions thereof and hereof are contained in one instrument. 3.2 The parties may sign any number of copies of this Fifth Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. 3.3 In the event that any provision in this Fifth Supplemental Indenture or the Notes shall be held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 3.4 The article and section headings herein are for convenience only and shall not affect the construction hereof. 3.5 Any capitalized term used in this Fifth Supplemental Indenture and not defined herein that is defined in the Indenture shall have the meaning specified in the Indenture, unless the context shall otherwise require. 3.6 All covenants and agreements in this Fifth Supplemental Indenture by the Company, the Existing Guarantors and the Additional Guarantors shall bind each of their successors and assigns, whether so expressed or not. All agreements of the Trustee in this Fifth Supplemental Indenture shall bind its successors and assigns. 3.7 The laws of the State of New York shall govern this Fifth Supplemental Indenture, the Notes and the Guarantees. 3.8 Except as amended by this Fifth Supplemental Indenture, the terms and provisions of the Indenture shall remain in full force and effect. 3.9 This Fifth 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 Fifth Supplemental Indenture. 3.10 All liability described in paragraph 16 of the Notes, of any director, officer, employee or stockholder, as such, of the Company is waived and released. 3.11 The Trustee accepts the modifications of the trust effected by this Fifth Supplemental Indenture, but only upon the terms and conditions set forth in the Indenture. Without limiting the generality of the foregoing, the Trustee assumes no responsibility for the correctness of the recitals herein contained which shall be taken as the statements of the Company and the Trustee shall not be responsible or accountable in any way whatsoever for or 5 with respect to the validity or execution or sufficiency of this Fifth Supplemental Indenture and the Trustee makes no representation with respect thereto. ARTICLE IV. SUCCESSOR 4.1 The Company, as the Successor, shall succeed to, and be substituted for, and may exercise every right and power of, and shall assume every duty and obligation of, the Company under the Indenture with the same effect as if such Successor had been named as the Company therein. [SIGNATURES INTENTIONALLY APPEAR ON NEXT PAGE FOLLOWING] 6 IN WITNESS WHEREOF, the parties hereto have caused this Fifth Supplemental Indenture to be duly executed, all as of the day and year first above written. D.R. HORTON, INC. By: /s/ SAMUEL R. FULLER ---------------------------------------------- Samuel R. Fuller, Executive Vice President, Treasurer and Chief Financial Officer EXISTING GUARANTORS: C. Richard Dobson Builders, Inc. CHI Construction Company CHTEX of Texas, Inc. Continental Homes, Inc. Continental Homes of Florida, Inc. Continental Residential, Inc. D.R. Horton, Inc. - Birmingham D.R. Horton, Inc. - Chicago D.R. Horton, Inc. - Denver D.R. Horton, Inc. - Dietz-Crane D.R. Horton, Inc. - Greensboro D.R. Horton, Inc. - Jacksonville D.R. Horton, Inc. - Louisville D.R. Horton Los Angeles Holding Company, Inc. D.R. Horton, Inc. - Minnesota D.R. Horton, Inc. - New Jersey D.R. Horton, Inc. - Portland D.R. Horton, Inc. - Sacramento D.R. Horton San Diego Holding Company, Inc. D.R. Horton, Inc. - Torrey DRH Cambridge Homes, Inc. DRH Construction, Inc. DRH Regrem II, Inc. DRH Regrem III, Inc. DRH Regrem IV, Inc. DRH Regrem V, Inc. DRH Southwest Construction, Inc. DRH Title Company of Colorado, Inc. DRH Tucson Construction, Inc. DRHI, Inc. KDB Homes, Inc. Meadows I, Ltd. Meadows VIII, Ltd. Meadows IX, Inc. Meadows X, Inc. By: /s/ SAMUEL R. FULLER ------------------------------------ Samuel R. Fuller Treasurer DRH Regrem VIII, LLC DRH Cambridge Homes, LLC By: D.R. Horton, Inc. - Chicago, a member By: /s/ SAMUEL R. FULLER ------------------------------ Samuel R. Fuller Treasurer D.R. Horton - Emerald, Ltd. D.R. Horton Management Company, Ltd. D.R. Horton-Texas, Ltd. DRH Regrem VII, LP By: Meadows I, Ltd., the general partner By: /s/ SAMUEL R. FULLER ---------------------------------- Samuel R. Fuller Treasurer SGS Communities At Grande Quay, LLC By: Meadows IX, Inc., a member By: /s/ SAMUEL R. FULLER ---------------------------------- Samuel R. Fuller Treasurer and By: Meadows X, Inc., a member By: /s/ SAMUEL R. FULLER ---------------------------------- Samuel R. Fuller Treasurer Continental Homes of Texas, L.P. By: CHTEX of Texas, Inc., the general partner By: /s/ SAMUEL R. FULLER ---------------------------------- Samuel R. Fuller Treasurer Meadows II, Ltd. CH Investments of Texas, Inc. By: /s/ WILLIAM PECK ----------------------------------- William Peck President ADDITIONAL GUARANTORS: Allegra, LLC AP LHI, Inc. AP Western GP Corporation AP WP Operating Corporation AP WP Partners, L.P. APLAM, LLC HPH Homebuilders 2000 L.P. HPH Homebuilders LP 1995 HPH Homebuilders LP 1996 LAMCO Housing, Inc. Livermore Homebuilders LP Melody Homes, Inc. Melody Mortgage Co. Oakley-Avalon LP Porter GP LLC Schuler Homes of Arizona LLC Schuler Homes of California, Inc. Schuler Homes of Oregon, Inc. Schuler Homes of Washington, Inc. Schuler Mortgage, Inc. Schuler Realty/Maui, Inc. Schuler Realty/Oahu, Inc. SHA Construction LLC SHLR of California, Inc. SHLR of Colorado, Inc. SHLR of Nevada, Inc. SHLR of Utah, Inc. SHLR of Washington, Inc. SRHI LLC SSHI LLC Vertical Construction Corporation Western Pacific Funding, Inc. Western Pacific Housing Co. Western Pacific Housing Management, Inc., (formerly Western Pacific Housing, Inc., a California corporation) Western Pacific Housing, Inc. (formerly Schuler Holdco, Inc., a Delaware corporation) Western Pacific Housing-Antigua, LLC Western Pacific Housing-Aviara, L.P. Western Pacific Housing-Boardwalk, LLC Western Pacific Housing-Broadway, LLC Western Pacific Housing-Canyon Park, LLC Western Pacific Housing-Carmel, LLC Western Pacific Housing-Carrillo, LLC Western Pacific Housing-Communications Hill, LLC Western Pacific Housing-Copper Canyon, LLC Western Pacific Housing-Coto Venture, L.P. Western Pacific Housing-Creekside, LLC Western Pacific Housing-Culver City, L.P. Western Pacific Housing-Del Valle, LLC Western Pacific Housing-Lomas Verdes, LLC Western Pacific Housing-Lost Hills Park, LLC Western Pacific Housing-Lyons Canyon Partners, LLC Western Pacific Housing-McGonigle Canyon, LLC Western Pacific Housing-Mountaingate, L.P. Western Pacific Housing-Norco Estates, LLC Western Pacific Housing-Oso, L.P. Western Pacific Housing-Pacific Park II, LLC Western Pacific Housing-Park Avenue East, LLC Western Pacific Housing-Park Avenue West, LLC Western Pacific Housing-Playa Vista, LLC Western Pacific Housing-Pointsettia, L.P. Western Pacific Housing-River Ridge, LLC Western Pacific Housing-Robinhood Ridge, LLC Western Pacific Housing-Santa Fe, LLC Western Pacific Housing-Scripps II, LLC Western Pacific Housing-Scripps, L.P. Western Pacific Housing-Sea Cove, L.P. Western Pacific Housing-Studio 528, LLC Western Pacific Housing-Terra Bay Duets, LLC Western Pacific Housing-Torrance, LLC Western Pacific Housing-Torrey Commercial, LLC Western Pacific Housing-Torrey Meadows, LLC Western Pacific Housing-Torrey Multi-Family, LLC Western Pacific Housing-Torrey Village Center, LLC Western Pacific Housing-Vineyard Terrace, LLC Western Pacific Housing-Westlake II, L.P. Western Pacific Housing-Windemere, LLC Western Pacific Housing-Windflower, L.P. WPH-Camino Ruiz, LLC WPH-HPH, LLC By: /s/ THOMAS CONNELLY ----------------------------------------------------- Thomas Connelly, Chief Financial Officer and Secretary of each corporate guarantor, of each managing member or sole manager of each limited liability company guarantor, and of each general partner of each limited partnership guarantor D.R. Horton-Schuler Homes, LLC By: Vertical Construction Corporation, its manager By: /s/ THOMAS CONNELLY ----------------------------------- Thomas Connelly Chief Financial Officer and Secretary FIRST UNION NATIONAL BANK, as Trustee By: /s/ GEORGE J. RAYZIS ------------------------------------------- Name: George J. Rayzis ----------------------------------------- Title: Vice President ---------------------------------------- EX-4.16 10 d96909ex4-16.txt INDENTURE RE: SENIOR DEBT SECURITIES EXHIBIT 4.16 EXECUTION COPY [144A] ================================================================================ D.R. HORTON, INC. AND THE GUARANTORS PARTY HERETO Senior Debt Securities ---------------------- Indenture Dated as of April 11, 2002 ---------------------- AMERICAN STOCK TRANSFER & TRUST COMPANY, Trustee ================================================================================ CROSS-REFERENCE TABLE This Cross-Reference Table is not a part of the Indenture. --------------------
TIA Indenture Section Section 310(a)(1)........................................................................... 7.09; 7.10 (a)(2)........................................................................... 7.10 (a)(3)........................................................................... N.A. (a)(4)........................................................................... N.A. (a)(5)........................................................................... N.A. (b).............................................................................. 7.08; 7.10; 11.02; 11.14 (c).............................................................................. N.A. 311(a).............................................................................. 7.11 (b).............................................................................. 7.11 (b)(1)........................................................................... 7.10 (c).............................................................................. N.A. 312(a).............................................................................. 2.05 (b).............................................................................. 2.05; 11.03 (c).............................................................................. 11.03 313(a).............................................................................. 7.06 (b)(1)........................................................................... N.A. (b)(2)........................................................................... 7.06 (c).............................................................................. N.A. (d).............................................................................. 7.06 314(a).............................................................................. 4.03; 7.06; 11.02 (b).............................................................................. N.A. (c)(1)........................................................................... 11.04 (c)(2)........................................................................... 11.04 (c)(3)........................................................................... N.A. (d).............................................................................. N.A. (e).............................................................................. 11.05 (f).............................................................................. N.A. 315(a).............................................................................. 7.01(b) (b).............................................................................. 7.05; 11.02 (c).............................................................................. 7.01(a) (d).............................................................................. 7.01(c) (e).............................................................................. 6.11
316(a)(last sentence)............................................................... 11.06 (a)(1)(A)........................................................................ 6.05 (a)(1)(B)........................................................................ 6.04 (a)(2)........................................................................... N.A. (b).............................................................................. 6.07 317(a)(1)........................................................................... 6.08 (a)(2)........................................................................... 6.09 (b).............................................................................. 2.04 318(a).............................................................................. 11.01 (b).............................................................................. N.A. (c).............................................................................. N.A.
- ---------- N.A. means Not Applicable. -ii- TABLE OF CONTENTS This Table of Contents is not a part of the Indenture. ---------------------------
Page ARTICLE ONE DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.01. Definitions................................................................................1 Section 1.02. Other Definitions.........................................................................12 Section 1.03. Incorporation by Reference of Trust Indenture Act.........................................13 Section 1.04. Rules of Construction.....................................................................13 ARTICLE TWO THE SECURITIES Section 2.01. Form and Dating...........................................................................14 Section 2.02. Execution and Authentication..............................................................16 Section 2.03. Registrar and Paying Agent................................................................17 Section 2.04. Paying Agent to Hold Money in Trust.......................................................17 Section 2.05. Securityholder Lists......................................................................17 Section 2.06. Transfer and Exchange.....................................................................18 Section 2.07. Replacement Securities....................................................................18 Section 2.08. Outstanding Securities....................................................................18 Section 2.09. Temporary Securities......................................................................19 Section 2.10. Cancellation..............................................................................19 Section 2.11. Defaulted Interest........................................................................19 Section 2.12. Treasury Securities.......................................................................20 Section 2.13. CUSIP Numbers.............................................................................20 Section 2.14. Deposit of Moneys.........................................................................20 Section 2.15. Book-Entry Provisions for Global Security.................................................20 Section 2.16. Restrictive Legends.......................................................................22 Section 2.17. Special Transfer Provisions...............................................................23
ARTICLE THREE REDEMPTION Section 3.01. Notices to Trustee........................................................................26 Section 3.02. Selection of Securities to be Redeemed....................................................26 Section 3.03. Notice of Redemption......................................................................27 Section 3.04. Effect of Notice of Redemption............................................................27 Section 3.05. Deposit of Redemption Price...............................................................27 Section 3.06. Securities Redeemed in Part...............................................................28 ARTICLE FOUR COVENANTS Section 4.01. Payment of Securities.....................................................................28 Section 4.02. Maintenance of Office or Agency...........................................................28 Section 4.03. Compliance Certificate....................................................................28 Section 4.04. Payment of Taxes; Maintenance of Corporate Existence; Maintenance of Properties...........28 Section 4.05. Additional Guarantors.....................................................................29 Section 4.06. Waiver of Stay, Extension or Usury Laws...................................................30 ARTICLE FIVE SUCCESSOR CORPORATION Section 5.01. When Company May Merge, etc...............................................................30 ARTICLE SIX DEFAULTS AND REMEDIES Section 6.01. Events of Default.........................................................................31 Section 6.02. Acceleration..............................................................................33 Section 6.03. Other Remedies............................................................................34 Section 6.04. Waiver of Existing Defaults...............................................................34 Section 6.05. Control by Majority.......................................................................34 Section 6.06. Limitation on Suits.......................................................................34 Section 6.07. Rights of Holders to Receive Payment......................................................35 Section 6.08. Collection Suit by Trustee................................................................35 Section 6.09. Trustee May File Proofs of Claim..........................................................35
-ii- Section 6.10. Priorities................................................................................36 Section 6.11. Undertaking for Costs.....................................................................36 ARTICLE SEVEN TRUSTEE Section 7.01. Duties of Trustee.........................................................................36 Section 7.02. Rights of Trustee.........................................................................38 Section 7.03. Individual Rights of Trustee..............................................................39 Section 7.04. Trustee's Disclaimer......................................................................39 Section 7.05. Notice of Defaults........................................................................39 Section 7.06. Reports by Trustee to Holders.............................................................39 Section 7.07. Compensation and Indemnity................................................................40 Section 7.08. Replacement of Trustee....................................................................40 Section 7.09. Successor Trustee by Merger, etc..........................................................41 Section 7.10. Eligibility; Disqualification.............................................................41 Section 7.11. Preferential Collection of Claims Against Company.........................................41 ARTICLE EIGHT DISCHARGE OF INDENTURE Section 8.01. Defeasance upon Deposit of Moneys or U.S. Government Obligations..........................42 Section 8.02. Survival of the Company's Obligations.....................................................45 Section 8.03. Application of Trust Money................................................................45 Section 8.04. Repayment to the Company..................................................................45 Section 8.05. Reinstatement.............................................................................46 ARTICLE NINE GUARANTEES Section 9.01. Unconditional Guarantees..................................................................46 Section 9.02. Severability..............................................................................47 Section 9.03. Release of a Guarantor....................................................................47 Section 9.04. Limitation of a Guarantor's Liability.....................................................48 Section 9.05. Guarantors May Consolidate, etc., on Certain Terms........................................48 Section 9.06. Contribution..............................................................................48 Section 9.07. Waiver of Subrogation.....................................................................49 Section 9.08. Execution of Guarantee....................................................................49
-iii- ARTICLE TEN AMENDMENTS, SUPPLEMENTS AND WAIVERS Section 10.01. Without Consent of Holders...............................................................50 Section 10.02. With Consent of Holders..................................................................51 Section 10.03. Compliance with Trust Indenture Act......................................................52 Section 10.04. Revocation and Effect of Consents........................................................52 Section 10.05. Notation on or Exchange of Securities....................................................53 Section 10.06. Trustee to Sign Amendments, etc..........................................................53 ARTICLE ELEVEN MISCELLANEOUS Section 11.01. Trust Indenture Act Controls.............................................................53 Section 11.02. Notices..................................................................................53 Section 11.03. Communications by Holders with Other Holders............................................54 Section 11.04. Certificate and Opinion as to Conditions Precedent......................................55 Section 11.05. Statements Required in Certificate or Opinion............................................55 Section 11.06. Rules by Trustee and Agents..............................................................55 Section 11.07. Legal Holidays...........................................................................56 Section 11.08. Governing Law............................................................................56 Section 11.09. No Adverse Interpretation of Other Agreements............................................56 Section 11.10. No Recourse Against Others...............................................................56 Section 11.11. Successors and Assigns...................................................................56 Section 11.12. Duplicate Originals......................................................................56 Section 11.13. Severability.............................................................................57 Section 11.14. Ranking..................................................................................57 SIGNATURES............................................................................................ S-1 EXHIBIT A - Form of Security EXHIBIT B - Form of Exchange Security EXHIBIT C - Form of Certificate to be Delivered in Connection with Transfers to Non-QIB Accredited Investors EXHIBIT D - Form of Certificate to be Delivered in Connection with Transfers Pursuant to Regulation S
iv INDENTURE dated as of April 11, 2002, by and among D.R. HORTON, INC., a Delaware corporation (the "Company"), each of the Guarantors (as defined in Section 1.01 below) and AMERICAN STOCK TRANSFER & TRUST COMPANY (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 the Company's debt securities issued under this Indenture: ARTICLE ONE DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.01. Definitions. "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. "Agent" means any Registrar, Paying Agent or co-Registrar or agent for service of notices and demands. "Attributable Debt" means, with respect to any Capitalized Lease Obligations, the capitalized amount thereof determined in accordance with GAAP. "Authorizing Resolution" means a resolution adopted by the Board of Directors or by an Officer or committee of Officers pursuant to Board delegation authorizing a Series of Securities. "Bankruptcy Law" means title 11 of the United States Code, as amended, or any similar federal or state law for the relief of debtors. "Board of Directors" means the Board of Directors of the Company or any authorized committee thereof. "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 applicable 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 -2- reporting purposes in accordance with GAAP, and the amount of such obligations will be the capitalized amount thereof determined in accordance with GAAP. "Change of Control Provisions" has the meaning set forth in the definition of "Disqualified Stock" below. "Company" means the party named as such in this Indenture until a successor replaces it pursuant to the Indenture and thereafter means the successor. "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. "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. "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 Securities of the applicable Series 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 Securities of the applicable Series; 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 Securities of the applicable Series shall not constitute Disqualified Stock if the change in control provisions applicable to such Capital Stock are no more favorable to such holders than any provisions described in the Authorizing Resolution or supplemental indenture pertaining to the Securities of the applicable Series ("Change of Control Provisions") and such Capital Stock specifically provides that the Company will not repurchase or redeem any such Capital Stock pursuant to such provisions prior to the Company's repurchase of the Securities of the applicable Series to the extent required pursuant to any such Change of Control Provisions. "Exchange Securities" means the series B Securities to be issued under this Indenture in exchange for the Initial Securities pursuant to a Registration Rights Agreement. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of -3- 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 Indenture. "Guarantee" means the guarantee of Securities of any applicable Series by each Guarantor under this Indenture. "Guarantors" means (i) initially on the execution of this Indenture, each of: Allegra, LLC, a California limited liability company; AP LHI, Inc., a California corporation; AP Western GP Corporation, a Delaware corporation; AP WP Operating Corporation, a Delaware corporation; AP WP Partners, L.P., a Delaware limited partnership; APLAM, LLC, a California limited liability company; C. Richard Dobson Builders, Inc., a Virginia corporation; CH Investments of Texas, Inc., a Delaware corporation; CHI Construction Company, an Arizona corporation; CHTEX of Texas, Inc., a Delaware corporation; Continental Homes of Florida, Inc., a Florida corporation; Continental Homes of Texas, L.P., a Texas limited partnership; Continental Homes, Inc., a Delaware corporation; Continental Residential, Inc., a California corporation; D.R. Horton - Emerald, Ltd., a Texas limited partnership; D.R. Horton - Texas, Ltd., a Texas limited partnership; D.R. Horton Los Angeles Holding Company, Inc., a California corporation; D.R. Horton Management Company, Ltd., a Texas limited partnership; D.R. Horton San Diego Holding Company, Inc., a California corporation; D.R. Horton, Inc. - Birmingham, an Alabama corporation; D.R. Horton, Inc. - Chicago, a Delaware corporation; D.R. Horton, Inc. - Denver, a Delaware corporation; D.R. Horton, Inc. - Dietz-Crane, a Delaware corporation; D.R. Horton, Inc. - Greensboro, a Delaware corporation; D.R. Horton, Inc. - Jacksonville, a Delaware corporation; D.R. Horton, Inc. - Louisville, a Delaware corporation; D.R. Horton, Inc. - Minnesota, a Delaware corporation; D.R. Horton, Inc. - New Jersey, a Delaware corporation; D.R. Horton, Inc. - Portland, a Delaware corporation; D.R. Horton, Inc. - Sacramento, a California corporation; D.R. Horton, Inc. - Torrey, a Delaware corporation; -4- D.R. Horton-Schuler Homes, LLC, a Delaware limited liability company; DRH Cambridge Homes, Inc., a California corporation; DRH Cambridge Homes, LLC, a Delaware limited liability company; DRH Construction, Inc., a Delaware corporation; DRH Regrem II, Inc., a Delaware corporation; DRH Regrem III, Inc., a Delaware corporation; DRH Regrem IV, Inc., a Delaware corporation; DRH Regrem V, Inc., a Delaware corporation; DRH Regrem VII, LP, a Texas limited partnership; DRH Regrem VIII, LLC, a Delaware limited liability company; DRH Southwest Construction, Inc., a California corporation; DRH Title Company of Colorado, Inc., a Colorado corporation; DRH Tucson Construction, Inc., a Delaware corporation; DRHI, Inc., a Delaware corporation; HPH Homebuilders 2000 L.P., a California limited partnership; KDB Homes, Inc., a Delaware corporation; LAMCO Housing, Inc., a California corporation; Meadows I, Ltd., a Delaware limited partnership; Meadows II, Ltd., a Delaware limited partnership; Meadows VIII, Ltd., a Delaware limited partnership; Meadows IX, Inc., a New Jersey corporation; Meadows X, Inc., a New Jersey corporation; Melody Homes, Inc., a Delaware corporation; Melmort Co., a Colorado corporation; Porter GP LLC, a Delaware limited liability company; Schuler Homes of Arizona LLC, a Delaware limited liability company; Schuler Homes of California, Inc., a California corporation; Schuler Homes of Oregon, Inc., an Oregon corporation; Schuler Homes of Washington, Inc., a Washington corporation; Schuler Mortgage, Inc., a Delaware corporation; Schuler Realty Hawaii, Inc., a Hawaii corporation; Schuler Realty/Maui, Inc., a Hawaii corporation; SGS Communities at Grande Quay, LLC, a New Jersey limited liability company; SHA Construction LLC, a Delaware limited liability company; SHLR of California, Inc., a California corporation; SHLR of Colorado, Inc., a Colorado corporation; SHLR of Nevada, Inc., a Nevada corporation; SHLR of Utah, Inc., a Utah corporation; SHLR of Washington, Inc., a Washington corporation; SRHI LLC, a Delaware limited liability company; -5- SSHI LLC, a Delaware limited liability company; Vertical Construction Corporation, a Delaware corporation; Western Pacific Funding, Inc., a California corporation; Western Pacific Housing Co., a California corporation; Western Pacific Housing Management, Inc., a California corporation; Western Pacific Housing, Inc., a Delaware corporation; Western Pacific Housing-Antigua, LLC, a Delaware limited liability company; Western Pacific Housing-Aviara, L.P., a California limited partnership; Western Pacific Housing-Boardwalk, LLC, a Delaware limited liability company; Western Pacific Housing-Broadway, LLC, a Delaware limited liability company; Western Pacific Housing-Canyon Park, LLC, a Delaware limited liability company; Western Pacific Housing-Carmel, LLC, a Delaware limited liability company; Western Pacific Housing-Carrillo, LLC, a Delaware limited liability company; Western Pacific Housing-Communications Hill, LLC, a Delaware limited liability company; Western Pacific Housing-Copper Canyon, LLC, a Delaware limited liability company; Western Pacific Housing-Creekside, LLC, a Delaware limited liability company; Western Pacific Housing-Culver City, L.P., a California limited partnership; Western Pacific Housing-Del Valle, LLC, a Delaware limited liability company; Western Pacific Housing-Lomas Verdes, LLC, a Delaware limited liability company; Western Pacific Housing-Lost Hills Park, LLC, a Delaware limited liability company; Western Pacific Housing-McGonigle Canyon, LLC, a Delaware limited liability company; Western Pacific Housing-Mountaingate, L.P., a California limited partnership; Western Pacific Housing-Norco Estates, LLC, a Delaware limited liability company; Western Pacific Housing-Oso, L.P., a California limited partnership; Western Pacific Housing-Pacific Park II, LLC, a Delaware limited liability company; Western Pacific Housing-Park Avenue East, LLC, a Delaware limited liability company; Western Pacific Housing-Park Avenue West, LLC, a Delaware limited liability company; -6- Western Pacific Housing-Playa Vista, LLC, a Delaware limited liability company; Western Pacific Housing-Poinsettia, L.P., a California limited partnership; Western Pacific Housing-River Ridge, LLC, a Delaware limited liability company; Western Pacific Housing-Robinhood Ridge, LLC, a Delaware limited liability company; Western Pacific Housing-Santa Fe, LLC, a Delaware limited liability company; Western Pacific Housing-Scripps II, LLC, a Delaware limited liability company; Western Pacific Housing-Scripps, L.P., a California limited partnership; Western Pacific Housing-Seacove, L.P., a California limited partnership; Western Pacific Housing-Studio 528, LLC, a Delaware limited liability company; Western Pacific Housing-Terra Bay Duets, LLC, a Delaware limited liability company; Western Pacific Housing-Torrance, LLC, a Delaware limited liability company; Western Pacific Housing-Torrey Commercial, LLC, a Delaware limited liability company; Western Pacific Housing-Torrey Meadows, LLC, a Delaware limited liability company; Western Pacific Housing-Torrey Multi-Family, LLC, a Delaware limited liability company; Western Pacific Housing-Torrey Village Center, LLC, a Delaware limited liability company; Western Pacific Housing-Vineyard Terrace, LLC, a Delaware limited liability company; Western Pacific Housing-Windemere, LLC, a Delaware limited liability company; Western Pacific Housing-Windflower, L.P., a California limited partnership; WPH-Camino Ruiz, LLC, a Delaware limited liability company; WPH-HPH, LLC, a Delaware limited liability company; and (ii) each of the Company's Subsidiaries which becomes a guarantor of Securities pursuant to the provisions of this Indenture. An Unrestricted Subsidiary may become a Guarantor if it (x) is so designated by resolution of the Board of Directors of the Company and (y) executes a supplemental indenture satisfactory to the Trustee. -7- "Holder" or "Securityholder" means the person in whose name a Security is registered on the Registrar's books. "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 respect 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. "Indenture" means this Indenture as amended or supplemented from time to time, including pursuant to any Authorizing Resolution or supplemental indenture pertaining to any Series. "Initial Securities" means the series A Securities issued under this Indenture. "Institutional Accredited Investor" means an institution that is an "accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act, who are not also QIBs. "interest" means, with respect to any Series of Securities, the sum of any interest and any Liquidated Damages on such series of Securities. -8- "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, amortization of other financing fees and expenses, the interest portion of any deferred payment obligation, amortization of discount or premium, if any, and all other 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 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 Indebtedness permitted to be incurred under this 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, with respect to any Series of Securities, the date on which the Securities of such Series are originally issued under this 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 agreement, capital lease or other title retention agreement relating to such Property. "Liquidated Damages" has the meaning set forth in paragraph 7 of the Initial Security. -9- "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 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. "Officer" means the Chairman of the Board, the President, any Vice President, the Treasurer, the Controller or the Secretary of the Company. "Officers' Certificate" means a certificate signed by two Officers or by an Officer and an Assistant Treasurer or an Assistant Secretary of the Company. "Opinion of Counsel" means a written opinion from legal counsel who is reasonably acceptable to the Trustee. The counsel may be an employee of or counsel to the Company or the Trustee. "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. "principal" of a debt security means the principal of the security plus, when appropriate, the premium, if any, on the security. "Private Placement Legend" means the legend set forth on the Initial Securities in the form set forth in Section 2.16. "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. -10- "Qualified Institutional Buyer" or "QIB" shall have the meaning specified in Rule 144A under the Securities Act. "Registration Rights Agreement" means, with respect to any issuance of Initial Securities under this Indenture, the registration rights agreement entered into among the Company, the Guarantors party thereto and the initial purchasers of such Initial Securities. "Regulation S" means Regulation S under the Securities Act. "Restricted Security" has the meaning assigned to "Restricted Security" in Rule 144(a)(3) under the Securities Act; provided, however, that the Trustee shall be entitled to request and conclusively rely on an Opinion of Counsel with respect to whether any Security constitutes a Restricted Security. "Restricted Subsidiary" means any Subsidiary of the Company which is not an Unrestricted Subsidiary. "Rule 144A" means Rule 144A under the Securities Act. "SEC" means the Securities and Exchange Commission or any successor agency performing the duties now assigned to it under the TIA. "Securities" means the Initial Securities and the Exchange Securities, treated as a single Series, issued under this Indenture. "Securities Act" means the Securities Act of 1933, as amended. "Series" means a series of Securities established under this Indenture. "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. "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. "TIA" means the Trust Indenture Act of 1939, as in effect from time to time. "Trustee" means the party named as such in this Indenture until a successor replaces it pursuant to this Indenture and thereafter means the successor serving hereunder. -11- "Trust Officer" means the Chairman of the Board, the President, any Vice President or any other officer or assistant officer of the Trustee assigned by the Trustee to administer its corporate trust matters. "United States" means the United States of America. "U.S. government obligations" means securities which are (i) direct obligations of the United States for the payment of which its full faith and credit is pledged or (ii) obligations of a person controlled or supervised by and acting as an agency or instrumentality of the United States the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States, which, in either case are not callable or redeemable at the option of the issuer thereof, and shall also include a depositary receipt issued by a bank or trust company as custodian with respect to any such U.S. government obligations or a specific payment of interest on or principal of any such U.S. government obligation held by such custodian for the account of the holder of a depositary receipt; provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depositary receipt from any amount received by the custodian in respect of the U.S. government obligation or the specific payment of interest on or principal of the U.S. government obligation evidenced by such depositary receipt. "Unrestricted Subsidiary" means any Subsidiary of the Company so designated by a resolution adopted by the Board of Directors of the Company 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 to be made under any provisions set forth limiting the making or paying of a "restricted payment" under the Authorizing Resolution or supplemental indenture pertaining to an applicable Series ("Restricted Payment Provisions"), (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 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" pursuant to any Restricted Payment Provisions at the time of such designation and will reduce the amount -12- available for other restricted payments under any Restricted Payment Provisions, to the extent provided therein, (ii) the Company must be permitted under any Restricted Payment Provisions 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 may also redesignate an Unrestricted Subsidiary to be a Restricted Subsidiary; provided, however, that (i) the Indebtedness of such Unrestricted Subsidiary as of the date of such redesignation could then be incurred under any provisions set forth limiting the incurrence of Indebtedness under the Authorizing Resolution or supplemental indenture pertaining to an applicable Series ("Debt Limitation Provisions"), (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 any debt incurrence covenant ratio set forth in any Debt Limitation Provisions and (iii) the Liens of such Unrestricted Subsidiary as of the date of such redesignation could then be incurred in accordance with any provisions set forth limiting the creation or existence of Liens under the Authorizing Resolution or supplemental indenture pertaining to an applicable Series ("Lien Limitation Provisions"). Any such designation or redesignation by the Board of Directors of the Company 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 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. Section 1.02. Other Definitions.
Defined in Term Section - ---- ---------- "Agent Members"................................................................................ 2.15 "Business Day"................................................................................. 11.07 "Custodian".................................................................................... 6.01 "Depository"................................................................................... 2.15 "Event of Default"............................................................................. 6.01 "Global Securities"............................................................................ 2.01(c) "Legal Holiday"................................................................................ 11.07 "Paying Agent"................................................................................. 2.03 "Physical Securities".......................................................................... 2.01(c) "Private Placement Legend"..................................................................... 2.16 "Registrar".................................................................................... 2.03
-13- Section 1.03. Incorporation by Reference of Trust Indenture Act. Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "Commission" means the SEC. "indenture securities" means the Securities. "indenture security holder" means a Securityholder. "indenture to be qualified" means this Indenture. "indenture trustee" or "institutional trustee" means the Trustee. "obligor" on the indenture securities means the Company, each of the Guarantors, or any other obligor on the Securities of a Series or any Guarantees thereof. All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule have the meanings so assigned to them. Section 1.04. Rules of Construction. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (3) "or" is not exclusive; (4) words in the singular include the plural, and in the plural include the singular; and (5) provisions apply to successive events and transactions. -14- ARTICLE TWO THE SECURITIES Section 2.01. Form and Dating. (a) The aggregate principal amount of Securities that may be issued under this Indenture is unlimited. The Securities may be issued from time to time in one or more Series. Each Series shall be created by an Authorizing Resolution or a supplemental indenture that establishes the terms of the Series, which may include the following: (1) the title of the Series; (2) the aggregate principal amount (or any limit on the aggregate principal amount) of the Series and, if any Securities of a Series are to be issued at a discount from their face amount, the method of computing the accretion of such discount; (3) the interest rate or method of calculation of the interest rate; (4) the date from which interest will accrue; (5) the record dates for interest payable on Securities of the Series; (6) the dates when, places where and manner in which principal and interest are payable; (7) the Registrar and Paying Agent; (8) the terms of any mandatory (including any sinking fund requirements) or optional redemption by the Company; (9) the terms of any redemption at the option of Holders; (10) the denominations in which Securities are issuable; (11) whether Securities will be issued in registered or bearer form and the terms of any such forms of Securities; (12) whether any Securities will be represented by a Global Security and the terms of any such Global Security; -15- (13) the currency or currencies (including any composite currency) in which principal or interest or both may be paid; (14) if payments of principal or interest may be made in a currency other than that in which Securities are denominated, the manner for determining such payments; (15) provisions for electronic issuance of Securities or issuance of Securities in uncertificated form; (16) any Events of Default, covenants and/or defined terms in addition to or in lieu of those set forth in this Indenture; (17) whether and upon what terms Securities may be defeased if different from the provisions set forth in this Indenture; (18) the form of the Securities, which, unless the Authorizing Resolution or supplemental indenture otherwise provides, shall be in the form of Exhibit A or Exhibit B; (19) any terms that may be required by or advisable under applicable law; (20) the percentage of the principal amount of the Securities which is payable if the maturity of the Securities is accelerated in the case of Securities issued at a discount from their face amount; (21) whether any Securities will not have Guarantees; and (22) any other terms in addition to or different from those contained in this Indenture. All Securities of one Series need not be issued at the same time and, unless otherwise provided, a Series may be reopened for issuances of additional Securities of such Series pursuant to an Authorizing Resolution, an Officers' Certificate or in any indenture supplemental hereto. The creation and issuance of a Series and the authentication and delivery thereof are not subject to any conditions precedent. (b) The Initial Securities and the Trustee's certificate of authentication relating thereto shall be substantially in the form of Exhibit A hereto. The Exchange Securities and the Trustee's certificate of authentication relating thereto shall be substantially in the form of Exhibit B hereto. The Securities may have notations, legends or endorsements required by -16- law, stock exchange rules, agreements to which the Company is subject, if any, or usage (provided that any such notation, legend or endorsement is in a form acceptable to the Company). Each Security shall be dated the date of its authentication. If required, the Securities may bear the appropriate legend regarding any original issue discount for federal income tax purposes. Each Security shall have an executed Guarantee from each of the Guarantors. The terms and provisions contained in the Securities, annexed hereto as Exhibits A and B, shall constitute, and are hereby expressly made, a part of this Indenture and, to the extent applicable, the Company, the Guarantors and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. (c) Global Securities. The Securities offered and sold (1) in reliance on Rule 144A, (2) in reliance on Regulation S and (3) to a limited number of Institutional Accredited Investors in a transaction exempt from the registration requirements of the Securities Act shall be issued initially in the form of one or more permanent Global Securities ("Global Securities") in definitive, fully registered form without interest coupons, in substantially the form of Exhibit A, which shall be deposited on behalf of the purchasers of the Securities represented thereby with the Trustee, at the Trustee's office in New York City, as custodian for the Depository, and registered in the name of the Depository or a nominee of the Depository, duly executed by the Company (and having an executed Guarantee in the manner set forth in Section 9.08) and authenticated by the Trustee as hereinafter provided and shall bear the legend set forth in Section 2.16. The aggregate principal amount of the Global Securities may from time to time be increased or decreased by adjustments made on the records of the Trustee and the Depository or its nominee in the limited circumstances hereinafter provided. Securities issued in exchange for interests in Global Securities pursuant to Section 2.15 may be issued in the form of permanent certificated Securities in registered form in substantially the form set forth in Exhibit A (the "Physical Securities"). Section 2.02. Execution and Authentication. Two Officers shall sign the Securities for the Company by manual or facsimile signature. The Company's seal shall be reproduced on the Securities. Each Guarantor shall execute the Guarantee in the manner set forth in Section 9.08. If an Officer whose signature is on a Security no longer holds that office at the time the Trustee authenticates the Security, the Security shall nevertheless be valid. A Security shall not be valid until the Trustee manually signs the certificate of authentication on the Security. The signature shall be conclusive evidence that the Security has been authenticated under this Indenture. -17- The Trustee shall authenticate Securities for original issue upon receipt of an Officers' Certificate of the Company. Each Security shall be dated the date of its authentication. Section 2.03. Registrar and Paying Agent. The Company shall maintain an office or agency where Securities may be presented for registration of transfer or for exchange ("Registrar"), an office or agency where Securities may be presented for payment ("Paying Agent") and an office or agency where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The Registrar shall keep a register of the Securities and of their transfer and exchange. The Company may have one or more co-Registrars and one or more additional paying agents. The term "Paying Agent" includes any additional paying agent. The Company shall enter into an appropriate agency agreement with any Agent not a party to this Indenture. The agreement shall implement the provisions of this Indenture that relate to such Agent. The Company shall promptly notify the Trustee in writing of the name and address of any such Agent and the Trustee shall have the right to inspect the Securities register at all reasonable times to obtain copies thereof, and the Trustee shall have the right to rely upon such register as to the names and addresses of the Holders and the principal amounts and certificate numbers thereof. If the Company fails to maintain a Registrar or Paying Agent or fails to give the foregoing notice, the Trustee shall act as such. The Company initially appoints the Trustee as Registrar and Paying Agent. Section 2.04. Paying Agent to Hold Money in Trust. Each Paying Agent shall hold in trust for the benefit of Securityholders and the Trustee all money held by the Paying Agent for the payment of principal of or interest on the Securities, and shall notify the Trustee of any default by the Company in making any such payment. If the Company or a Subsidiary acts as Paying Agent, it shall segregate the money and hold it as a separate trust fund. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon doing so the Paying Agent shall have no further liability for the money. Section 2.05. Securityholder Lists. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Securityholders. If the Trustee is not the Registrar, the Company shall furnish to the Trustee at least 5 Business Days before each semiannual interest payment date and at such other times as the Trustee may request in -18- writing a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Securityholders. Section 2.06. Transfer and Exchange. Where a Security is presented to the Registrar or a co-Registrar with a request to register a transfer, the Registrar shall register the transfer as requested if the requirements of Section 8-401(1) of the New York Uniform Commercial Code are met. Where Securities are presented to the Registrar or a co-Registrar with a request to exchange them for an equal principal amount of Securities of other denominations, the Registrar shall make the exchange as requested if the same requirements are met. To permit transfers and exchanges, the Trustee shall authenticate Securities at the Registrar's request. 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. Any exchange or transfer shall be without charge, except that the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto except in the case of exchanges pursuant to 2.09, 3.06, or 10.05 not involving any transfer. Section 2.07. Replacement Securities. If the Holder of a Security claims that the Security has been lost, destroyed, mutilated or wrongfully taken, the Company shall issue and, upon written request of any Officer of the Company, the Trustee shall authenticate a replacement Security, provided in the case of a lost, destroyed or wrongfully taken Security, that the requirements of Section 8-405 of the New York Uniform Commercial Code are met. If any such lost, destroyed, mutilated or wrongfully taken Security shall have matured or shall be about to mature, the Company may, instead of issuing a substitute Security therefor, pay such Security without requiring (except in the case of a mutilated Security) the surrender thereof. An indemnity bond must be sufficient in the judgment of the Company and the Trustee to protect the Company, the Trustee or any Agent from any loss which any of them may suffer if a Security is replaced, including the acquisition of such Security by a bona fide purchaser. The Company or the Trustee may charge for its expenses in replacing a Security. Section 2.08. Outstanding Securities. Securities outstanding at any time are all Securities authenticated by the Trustee except for those cancelled by it and those described in this Section. A Security does not cease to be outstanding because the Company, any Guarantor or one of their Affiliates holds the Security. -19- If a Security is replaced pursuant to Section 2.07, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Security is held by a bona fide purchaser. If the Paying Agent holds on a redemption date or maturity date money sufficient to pay Securities payable on that date, then on and after that date such Securities cease to be outstanding and interest on them ceases to accrue. Subject to the foregoing provisions of this Section, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security. Section 2.09. Temporary Securities. Until definitive Securities are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Securities. Temporary Securities shall be substantially in the form of definitive Securities but may have variations that the Company considers appropriate for temporary Securities. Without unreasonable delay, the Company shall prepare and, upon surrender for cancellation of the temporary Security, the Company and the Guarantors shall execute and the Trustee shall authenticate definitive Securities in exchange for temporary Securities. Until so exchanged, the temporary Securities shall in all respects be entitled to the same benefits under this Indenture as definitive Securities authenticated and delivered hereunder. Section 2.10. Cancellation. The Company at any time may deliver Securities to the Trustee for cancellation. The Registrar and Paying Agent shall forward to the Trustee any Securities surrendered to them for registration of transfer, exchange, redemption or payment. The Trustee and no one else shall cancel and destroy, or retain in accordance with its standard retention policy, all Securities surrendered for registration or transfer, exchange, redemption, paying or cancellation. Unless the Authorizing Resolution so provides, the Company may not issue new Securities to replace Securities that it has previously paid or delivered to the Trustee for cancellation. Section 2.11. Defaulted Interest. If the Company defaults in a payment of interest on the Securities, it shall pay the defaulted interest plus any interest payable on the defaulted interest to the persons who are Securityholders on a subsequent special record date. The Company shall fix such special record date and a payment date which shall be reasonably satisfactory to the Trustee. At least 15 days before such special record date, the Company shall mail to each Securityholder a notice -20- that states the record date, the payment date and the amount of defaulted interest to be paid. On or before the date such notice is mailed, the Company shall deposit with the Paying Agent money sufficient to pay the amount of defaulted interest to be so paid. The Company may pay defaulted interest in any other lawful manner if, after notice given by the Company to the Trustee of the proposed payment, such manner of payment shall be deemed practicable by the Trustee. Section 2.12. Treasury Securities. In determining whether the Holders of the required principal amount of Securities of a Series have concurred in any direction, waiver, consent or notice, Securities owned by the Company, the Guarantors or any of their respective Affiliates shall be considered as though they are not outstanding, except that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Securities which the Trustee actually knows are so owned shall be so considered. Section 2.13. CUSIP Numbers. The Company in issuing the Securities of any Series may use a "CUSIP" number, and if so, the Trustee shall use the CUSIP number in notices of redemption or exchange as a convenience to Holders of such Securities; provided that no representation is hereby deemed to be made by the Trustee as to the correctness or accuracy of any such CUSIP number printed in the notice or on such Securities, and that reliance may be placed only on the other identification numbers printed on such Securities. The Company shall promptly notify the Trustee of any change in any CUSIP number. Section 2.14. Deposit of Moneys. Prior to 11:00 a.m. New York City time on each interest payment date and maturity date with respect to each Series of Securities, the Company shall have deposited with the Paying Agent in immediately available funds money sufficient to make cash payments due on such interest payment date or maturity date, as the case may be, in a timely manner which permits the Paying Agent to remit payment to the Holders on such interest payment date or maturity date, as the case may be. Section 2.15. Book-Entry Provisions for Global Security. (a) Any Global Security of a Series initially shall (i) be registered in the name of the depository who shall be identified in the Authorizing Resolution or supplemental indenture relating to such Securities (the "Depository") or the nominee of such Depository, (ii) be delivered to the Trustee as custodian for such Depository and (iii) bear any required legends. -21- Members of, or participants in, the Depository ("Agent Members") shall have no rights under this Indenture with respect to any Global Security held on their behalf by the Depository, or the Trustee as its custodian, or under the Global Security, and the Depository may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of the Global Security for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depository or impair, as between the Depository and its Agent Members, the operation of customary practices governing the exercise of the rights of a Holder of any Security. (b) Transfers of any Global Security shall be limited to transfers in whole, but not in part, to the Depository, its successors or their respective nominees. Interests of beneficial owners in the Global Security may be transferred or exchanged for definitive Securities in accordance with the rules and procedures of the Depository. In addition, definitive Securities shall be transferred to all beneficial owners in exchange for their beneficial interests in a Global Security if (i) the Depository notifies the Company that it is unwilling or unable to continue as Depository for the Global Security and a successor depository is not appointed by the Company within 90 days of such notice or (ii) an Event of Default has occurred and is continuing and the Registrar has received a request from the Depository to issue definitive Securities. (c) In connection with any transfer or exchange of a portion of the beneficial interest in any Global Security to beneficial owners pursuant to paragraph (b), the Registrar shall (if one or more definitive Securities are to be issued) reflect on its books and records the date and a decrease in the principal amount of the Global Security in an amount equal to the principal amount of the beneficial interest in the Global Security to be transferred, and the Company and the Guarantors shall execute, and the Trustee shall authenticate and deliver, one or more definitive Securities of like tenor and amount. (d) In connection with the transfer of an entire Global Security to beneficial owners pursuant to paragraph (b), the Global Security shall be deemed to be surrendered to the Trustee for cancellation, and the Company and the Guarantors shall execute, and the Trustee shall authenticate and deliver, to each beneficial owner identified by the Depository in exchange for its beneficial interest in the Global Security, an equal aggregate principal amount of definitive Securities of authorized denominations. (e) The Holder of any Global Security may grant proxies and otherwise authorize any person, including Agent Members and persons that may hold interests through Agent Members, to take any action which a Holder is entitled to take under this Indenture or the Securities of such Series. -22- (f) Each Global Security shall also bear the following legend on the face thereof: Unless and until it is exchanged in whole or in part for securities in definitive form, this security may not be transferred except as a whole by the depository to a nominee of the depository, or by any such nominee of the depository, or by the depository or nominee of such successor depository or any such nominee to a successor depository or a nominee of such successor depository. Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC"), to an issuer or its agent for registration of transfer, exchange or payment, and any certificate issued is registered in the name of Cede & Co. or such other name as is requested by an authorized representative of DTC (and any payment hereon 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. Transfers of this global security shall be limited to transfers in whole, but not in part, to nominees of Cede & Co. or to a successor thereof or such successor's nominee and transfers of portions of this global security shall be limited to transfers made in accordance with the restrictions set forth in Section 2.17 of the Indenture referred to herein. Section 2.16. Restrictive Legends. Restrictive Legends. Each Global Security and Physical Security that constitutes a Restricted Security or is sold in compliance with Regulation S shall bear the following legend (the "Private Placement Legend") on the face thereof until after the second anniversary of the later of the Issue Date and the last date on which the Company or any Affiliate was the owner of such Security (or any predecessor note) (or such shorter period of time as permitted by Rule 144(k) under the Securities Act or any successor provision thereunder), or such longer period of time as may be required under the Securities Act or applicable state securities laws in the opinion of counsel for the Company, unless otherwise agreed by the Company and the Holder thereof: This security has not been registered under the Securities Act of 1933, as amended (the "Securities Act"), and neither this security nor any interest or participation herein (or therein) may be offered, sold, assigned, transferred, pledged, encumbered or otherwise disposed of in the absence of such registration or unless such transaction is exempt from, or not subject to, the registration requirements of the Securities Act or any applicable state securities laws. The -23- holder hereof, by its acceptance of this security, agrees for the benefit of the issuer that this security may not be offered, sold, pledged or otherwise transferred prior to the expiration of the holding period under Rule 144(k) under the Securities Act which is applicable to this security (the "Resale Restriction Termination Date") other than (1) to either issuer or its subsidiaries, (2) so long as this security is eligible for resale pursuant to Rule 144A under the Securities Act ("Rule 144A"), to a person who the seller reasonably believes is a "qualified institutional buyer" within the meaning of Rule 144A purchasing for its own account or for the account of a qualified institutional buyer, in each case to whom notice is given that the resale, pledge or other transfer is being made in reliance on Rule 144A (as indicated by the box checked by the transferor on the certificate of transfer on the reverse of this security if this security is not in book-entry form), (3) to a non-"U.S. person" in an "offshore transaction" (as such terms are defined in Regulation S under the Securities Act) in accordance with Regulation S under the Securities Act (as indicated by the box checked by the transferor on the certificate of transfer on the reverse of this security if this security is not in book-entry form), (4) to an institutional "accredited investor" (as defined in Rule 501 (a)(1), (2), (3) or (7) of the Securities Act (an "Institutional Accredited Investor")) that, prior to such transfer, furnishes the trustee for the securities a signed letter containing certain representations and agreements (the form of which can be obtained from the trustee), (5) pursuant to any other available exemption from, or transaction not subject to, the registration requirements of the Securities Act, including the exemption provided by Rule 144 under the Securities Act, if available, or (6) pursuant to an effective registration statement under the Securities Act, subject in each of the foregoing cases to any requirement of law that the disposition of its property or the property of such investor account or accounts be at all times within its or their control, and subject to the right of the issuer or the Trustee for the securities prior to any such sale, pledge or other transfer pursuant to clause (4) or (5) above to require the delivery of an opinion of counsel, certifications and/or other information satisfactory to each of them. This legend will be removed upon request of the holder on or after the Resale Restriction Termination Date. Section 2.17. Special Transfer Provisions. (a) Transfers to Non-QIB Institutional Accredited Investors and Non-U.S. Persons. The following provisions shall apply with respect to the registration of any proposed transfer of a Security constituting a Restricted Security to any Institutional Accredited Investor which is not a QIB or to any Non-U.S. Person: -24- (i) the Registrar shall register the transfer of any Security constituting a Restricted Security whether or not such Security bears the Private Placement Legend, if (x) the requested transfer is after the second anniversary of the Issue Date (provided, however, that neither the Company nor any Affiliate of the Company has held any beneficial interest in such Security, or portion thereof, at any time on or prior to the second anniversary of the Issue Date) or (y) (1) in the case of a transfer to an Institutional Accredited Investor which is not a QIB (excluding Non-U.S. Persons), the proposed transferee has delivered to the Registrar a certificate substantially in the form of Exhibit C hereto and any legal opinions and certifications required thereby or (2) in the case of a transfer to a Non-U.S. Person, the proposed transferor has delivered to the Registrar a certificate substantially in the form of Exhibit D hereto; and (ii) if the proposed transferor is an Agent Member holding a beneficial interest in the Global Security, upon receipt by the Registrar of (x) the certificate, if any, required by paragraph (i) above and (y) written instructions given in accordance with the Depository's and the Registrar's procedures, whereupon (a) the Registrar shall reflect on its books and records the date and (if the transfer does not involve a transfer of outstanding Physical Securities) a decrease in the principal amount of such Global Security in an amount equal to the principal amount of the beneficial interest in the Global Security to be transferred, and (b) the Company shall execute, the Guarantors shall execute the Guarantee on, and the Trustee shall authenticate and deliver, one or more Physical Securities of like tenor and amount. (b) Transfers to QIBs. The following provisions shall apply with respect to the registration of any proposed transfer of a Security constituting a Restricted Security to a QIB (excluding transfers to Non-U.S. Persons): (i) the Registrar shall register the transfer if such transfer is being made by a proposed transferor who has checked the box provided for on the form of Security stating, or has otherwise advised the Company and the Registrar in writing, that the sale has been made in compliance with the provisions of Rule 144A to a transferee who has signed the certification provided for on the form of Security stating, or has otherwise advised the Company and the Registrar in writing, that it is purchasing the Security for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a QIB within the meaning of Rule 144A, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as it has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon its foregoing representations in order to claim the exemption from registration provided by Rule 144A; and -25- (ii) if the proposed transferee is an Agent Member, and the Securities to be transferred consist of Physical Securities which after transfer are to be evidenced by an interest in a Global Security, upon receipt by the Registrar of written instructions given in accordance with the Depository's and the Registrar's procedures, the Registrar shall reflect on its books and records the date and an increase in the principal amount of such Global Security in an amount equal to the principal amount of the Physical Securities to be transferred, and the Trustee shall cancel the Physical Securities so transferred. (c) Private Placement Legend. Upon the transfer, exchange or replacement of Securities not bearing the Private Placement Legend, the Registrar shall deliver Securities that do not bear the Private Placement Legend. Upon the transfer, exchange or replacement of Securities bearing the Private Placement Legend, the Registrar shall deliver only Securities that bear the Private Placement Legend unless (i) the requested transfer is after the second anniversary of the Issue Date (provided, however, that neither the Company nor any Affiliate of the Company has held any beneficial interest in such Security, or portion thereof, at any time prior to or on the second anniversary of the Issue Date), or (ii) there is delivered to the Registrar an Opinion of Counsel reasonably satisfactory to the Company and the Trustee to the effect that neither such legend nor the related restrictions on transfer are required in order to maintain compliance with the provisions of the Securities Act. (d) General. By its acceptance of any Security bearing the Private Placement Legend, each Holder of such a Security acknowledges the restrictions on transfer of such Security set forth in this Indenture and in the Private Placement Legend and agrees that it will transfer such Security only as provided in this Indenture. The Registrar shall retain copies of all letters, notices and other written communications received pursuant to Section 2.06 or this Section 2.17. The Company shall have the right to inspect and make copies of all such letters, notices or other written communications at any reasonable time during the Registrar's normal business hours upon the giving of reasonable written notice to the Registrar. (e) Transfers of Securities Held by Affiliates. Any certificate (i) evidencing a Security that has been transferred to an Affiliate of the Company within two years after the Issue Date, as evidenced by a notation on the Assignment Form for such transfer or in the representation letter delivered in respect thereof or (ii) evidencing a Security that has been acquired from an Affiliate (other than by an Affiliate) in a transaction or a chain of transactions not involving any public offering, shall, until two years after the last date on which either the Company or any Affiliate of the Company was an owner of such Security, in each case, bear a legend in substantially the form set forth in Section 2.16, unless otherwise agreed by the Company (with written notice thereof to the Trustee). -26- ARTICLE THREE REDEMPTION Section 3.01. Notices to Trustee. Securities of a Series that are redeemable prior to maturity shall be redeemable in accordance with their terms and, unless the Authorizing Resolution or supplemental indenture provides otherwise, in accordance with this Article. If the Company wants to redeem Securities pursuant to Paragraph 5 of the Securities, it shall notify the Trustee in writing of the Redemption Date and the principal amount of Securities to be redeemed. Any such notice may be cancelled at any time prior to notice of such redemption being mailed to Holders. Any such cancelled notice shall be void and of no effect. If the Company wants to credit any Securities previously redeemed, retired or acquired against any redemption pursuant to Paragraph 6 of the Securities, it shall notify the Trustee of the amount of the credit and it shall deliver any Securities not previously delivered to the Trustee for cancellation with such notice. The Company shall give each notice provided for in this Section 3.01 at least 30 days before the notice of any such redemption is to be mailed to Holders (unless a shorter notice shall be satisfactory to the Trustee). Section 3.02. Selection of Securities to be Redeemed. If fewer than all of the Securities of a Series are to be redeemed, the Trustee shall select the Securities to be redeemed by a method the Trustee considers fair and appropriate. The Trustee shall make the selection from Securities outstanding not previously called for redemption and shall promptly notify the Company of the serial numbers or other identifying attributes of the Securities so selected. The Trustee may select for redemption portions of the principal of Securities that have denominations larger than the minimum denomination for the Series. Securities and portions of them it selects shall be in amounts equal to the minimum denomination for the Series or an integral multiple thereof. Provisions of this Indenture that apply to Securities called for redemption also apply to portions of Securities called for redemption. -27- Section 3.03. Notice of Redemption. At least 30 days but not more than 60 days before a redemption date, the Company shall mail a notice of redemption by first-class mail, postage prepaid, to each Holder of Securities to be redeemed. The notice shall identify the Securities to be redeemed and shall state: (1) the redemption date; (2) the redemption price; (3) the name and address of the Paying Agent; (4) that Securities called for redemption must be surrendered to the Paying Agent to collect the redemption price; (5) that interest on Securities called for redemption ceases to accrue on and after the redemption date; and (6) that the Securities are being redeemed pursuant to the mandatory redemption or the optional redemption provisions, as applicable. At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at its expense; provided, however, that the Company shall deliver to the Trustee at least 15 days prior to the date on which notice of redemption is to be mailed or such shorter period as may be satisfactory to the Trustee, an Officers' Certificate requesting that the Trustee give such notice and setting forth the information to be stated in such notice as provided in the preceding paragraph. Section 3.04. Effect of Notice of Redemption. Once notice of redemption is mailed, Securities called for redemption become due and payable on the redemption date and at the redemption price as set forth in the notice of redemption. Upon surrender to the Paying Agent, such Securities shall be paid at the redemption price, plus accrued interest to the redemption date. Section 3.05. Deposit of Redemption Price. On or before the redemption date, the Company shall deposit with the Paying Agent immediately available funds sufficient to pay the redemption price of and accrued interest on all Securities to be redeemed on that date. -28- Section 3.06. Securities Redeemed in Part. Upon surrender of a Security that is redeemed in part, the Company and the Guarantors shall execute and the Trustee shall authenticate for each Holder a new Security equal in principal amount to the unredeemed portion of the Security surrendered. ARTICLE FOUR COVENANTS Section 4.01. Payment of Securities. The Company shall pay the principal of and interest on a Series on the dates and in the manner provided in the Securities of the Series. An installment of principal or interest shall be considered paid on the date it is due if the Paying Agent holds on that date money designated for and sufficient to pay the installment. The Company shall pay interest on overdue principal at the rate borne by the Series; it shall pay interest on overdue installments of interest at the same rate. Section 4.02. Maintenance of Office or Agency. The Company shall maintain the office or agency required under Section 2.03. The Company shall give prior written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the address of the Trustee. Section 4.03. Compliance Certificate. The Company shall deliver to the Trustee within 120 days after the end of each fiscal year of the Company an Officers' Certificate stating whether or not the signers know of any Default by the Company in performing any of its obligations under this Indenture. If they do know of such a Default, the certificate shall describe the Default. Section 4.04. Payment of Taxes; Maintenance of Corporate Existence; Maintenance of Properties. The Company will: (a) cause to be paid and discharged all lawful taxes, assessments and governmental charges or levies imposed upon the Company and its Restricted Subsidiaries -29- or upon the income or profits of the Company and its Restricted Subsidiaries or upon property or any part thereof belonging to the Company and its Restricted Subsidiaries before the same shall be in default, as well as all lawful claims for labor, materials and supplies which, if unpaid, might become a lien or charge upon such property or any part thereof; provided, however, that the Company shall not be required to cause to be paid or discharged any such tax, assessment, charge, levy or claim so long as the validity or amount thereof shall be contested in good faith by appropriate proceedings and the nonpayment thereof does not, in the judgment of the Company, materially adversely affect the ability of the Company and the Restricted Subsidiaries to pay all obligations under this Indenture when due; and provided further that the Company shall not be required to cause to be paid or discharged any such tax, assessment, charge, levy or claim if, in the judgment of the Company, such payment shall not be advantageous to the Company in the conduct of its business and if the failure so to pay or discharge does not, in its judgment, materially adversely affect the ability of the Company and the Restricted Subsidiaries to pay all obligations under this Indenture when due; (b) cause to be done all things necessary to preserve and keep in full force and effect the corporate existence of the Company and each of its Restricted Subsidiaries and to comply with all applicable laws; provided, however, that nothing in this subsection (b) shall prevent a consolidation or merger of the Company or any Restricted Subsidiary not prohibited by the provisions of Article Five, Article Nine or any other provision or the Authorizing Resolution or supplemental indenture pertaining to a Series, and the Company need not maintain the corporate existence of an immaterial Restricted Subsidiary which is not a Guarantor; and (c) at all times keep, maintain and preserve all the property of the Company and the Restricted Subsidiaries in good repair, working order and condition (reasonable wear and tear excepted) and from time to time make all needful and proper repairs, renewals, replacements, betterments and improvements thereto, so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however, that nothing in this subsection (c) shall prevent the Company from discontinuing the operation and maintenance of any such properties if such discontinuance is, in the judgment of the Company, desirable in the conduct of its business and not disadvantageous in any material respect to the ability of the Company and the Restricted Subsidiaries to pay all obligations under this Indenture when due. Section 4.05. Additional Guarantors. If the Company or any of the Guarantors transfers or causes to be transferred, in one transaction or a series of related transactions, any property to any Restricted Subsidiary of the Company that is not a Guarantor, or if the Company or any of the Guarantors shall organize, -30- acquire or otherwise invest in another Subsidiary which becomes a Restricted Subsidiary, then such transferee or acquired or other Subsidiary shall (i) execute and deliver to the Trustee a supplemental indenture in form reasonably satisfactory to the Trustee pursuant to which such Subsidiary shall unconditionally guarantee all of the Company's obligations under the Securities of any Series that has the benefit of Guarantees of other Subsidiaries of the Company and this Indenture (as it relates to all such Series) on the terms set forth in this Indenture and (ii) deliver to the Trustee an Opinion of Counsel that such supplemental indenture has been duly authorized, executed and delivered by such Subsidiary and constitutes a legal, valid, binding and enforceable obligation of such Subsidiary. Thereafter, such Subsidiary shall be a Guarantor for all purposes of this Indenture (as it relates to all such Series). Section 4.06. Waiver of Stay, Extension or Usury Laws. The Company and the Guarantors covenant (to the extent that they may lawfully do so) that they will not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury law or other law that would prohibit or forgive the Company or any Guarantor from paying all or any portion of the principal of or interest on the Securities as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Indenture; and (to the extent that may lawfully do so) the Company and the Guarantors hereby expressly waive all benefit or advantage of any such law, and covenant that they will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. ARTICLE FIVE SUCCESSOR CORPORATION Section 5.01. When Company May Merge, etc. The Company shall not consolidate with or merge with or into, any other corporation, or transfer all or substantially all of its assets to, any entity unless permitted by law and unless (1) the resulting, surviving or transferee entity, which shall be a corporation organized and existing under the laws of the United States or a State thereof, assumes by supplemental indenture, in a form reasonably satisfactory to the Trustee, all of the obligations of the Company under the Securities and this Indenture and (2) immediately after giving effect to, and as a result of, such transaction, no Default or Event of Default shall have occurred and be continuing. Thereafter such successor corporation or corporations shall succeed to and be substituted for the Company with the same effect as if it had been named herein as the "Company" and all such obligations of the predecessor corporation shall terminate. -31- The Company shall deliver to the Trustee prior to the consummation of the proposed transaction an Officers' Certificate to the foregoing effect and an Opinion of Counsel stating that the proposed transaction and such supplemental indenture comply with this Indenture. To the extent that an Authorizing Resolution or supplemental indenture pertaining to any Series provides for different provisions relating to the subject matter of this Article Five, the provisions in such Authorizing Resolution or supplemental indenture shall govern for purposes of such Series. ARTICLE SIX DEFAULTS AND REMEDIES Section 6.01. Events of Default. An "Event of Default" on a Series occurs if, voluntarily or involuntarily, whether by operation of law or otherwise, any of the following occurs: (1) the failure by the Company to pay interest on any Security of such Series when the same becomes due and payable and the continuance of any such failure for a period of 30 days; (2) the failure by the Company to pay the principal or premium of any Security of such Series when the same becomes due and payable at maturity, upon acceleration or otherwise; (3) the failure by the Company or any Restricted Subsidiary to comply with any of its agreements or covenants in, or provisions of, the Securities of such Series, the Guarantees (as they relate thereto) or this Indenture (as they relate thereto) and such failure continues for the period and after the notice specified below (except in the case of a default with respect to any Change of Control Provisions or Article Five (or any replacement provisions as contemplated by Article Five), which will constitute Events of Default with notice but without passage of time); (4) the acceleration of any Indebtedness (other than Non-Recourse Indebtedness) of the Company or any Restricted Subsidiary in an amount of $20 million or more, individually or in the aggregate, and such acceleration does not cease to exist, or such Indebtedness is not satisfied, in either case within five days after such acceleration; (5) the failure by the Company or any Restricted Subsidiary to make any principal or interest payment in an amount of $20 million or more, individually or in the -32- aggregate, in respect of Indebtedness (other than Non-Recourse Indebtedness) of the Company or any Restricted Subsidiary within five days of such principal or interest becoming due and payable (after giving effect to any applicable grace period set forth in the documents governing such Indebtedness); (6) a final judgment or judgments in an amount of $20 million or more, individually or in the aggregate, for the payment of money having been entered by a court or courts of competent jurisdiction against the Company or any of its Restricted Subsidiaries and such judgment or judgments is not satisfied, stayed, annulled or rescinded within 60 days of being entered; (7) the Company or any Restricted Subsidiary that is a Significant Subsidiary pursuant to or within the meaning of any Bankruptcy Law: (A) commences a voluntary case, (B) consents to the entry of an order for relief against it in an involuntary case, (C) consents to the appointment of a Custodian of it or for all or substantially all of its property, or (D) makes a general assignment for the benefit of its creditors; (8) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (A) is for relief against the Company or any Restricted Subsidiary that is a Significant Subsidiary as debtor in an involuntary case, (B) appoints a Custodian of the Company or any Restricted Subsidiary that is a Significant Subsidiary or a Custodian for all or substantially all of the property of the Company or any Restricted Subsidiary that is a Significant Subsidiary, or (C) orders the liquidation of the Company or any Restricted Subsidiary that is a Significant Subsidiary, and the order or decree remains unstayed and in effect for 60 days; or (9) any Guarantee of a Guarantor which is a Significant Subsidiary ceases to be in full force and effect (other than in accordance with the terms of such Guarantee and the Indenture) or is declared null and void and unenforceable or found to be invalid -33- or any Guarantor denies its liability under its Guarantee (other than by reason of release of a Guarantor from its Guarantee in accordance with the terms of the Indenture and the Guarantee). A Default as described in sub-clause (3) above will not be deemed an Event of Default until the Trustee notifies the Company, or the Holders of at least 25 percent in principal amount of the then outstanding Securities of the applicable Series notify the Company and the Trustee, of the Default and (except in the case of a default with respect to any Change of Control Provisions or Article Five (or any replacement provisions as contemplated by Article Five)) the Company does not cure the Default within 60 days after receipt of the notice. The notice must specify the Default, demand that it be remedied and state that the notice is a "Notice of Default." If such a Default is cured within such time period, it ceases. The term "Custodian" means any receiver, trustee, assignee, liquidator, custodian or similar official under any Bankruptcy Law. Section 6.02. Acceleration. If an Event of Default (other than an Event of Default with respect to the Company resulting from sub-clauses (7) or (8) above), shall have occurred and be continuing under the Indenture, the Trustee by notice to the Company, or the Holders of at least 25 percent in principal amount of the Securities of the applicable Series then outstanding by notice to the Company and the Trustee, may declare all Securities of such Series to be due and payable immediately. Upon such declaration of acceleration, the amounts due and payable on the Securities of such Series will be due and payable immediately. If an Event of Default with respect to the Company specified in sub-clauses (7) or (8) above occurs, all amounts due and payable on the Securities of such Series will ipso facto become and be immediately due and payable without any declaration, notice or other act on the part of the Trustee and the Company or any Holder. The Holders of a majority in principal amount of the Securities of such Series then outstanding by written notice to the Trustee and the Company may waive any Default or Event of Default (other than any Default or Event of Default in payment of principal or interest) with respect to such Series of Securities under the Indenture. Holders of a majority in principal amount of the then outstanding Securities of such Series may rescind an acceleration with respect to such Series and its consequence (except an acceleration due to nonpayment of principal or interest on the Securities of such Series) if the rescission would not conflict with any judgment or decree and if all existing Events of Default have been cured or waived. No such rescission shall extend to or shall affect any subsequent Event of Default, or shall impair any right or power consequent thereon. -34- Section 6.03. Other Remedies. If an Event of Default on a Series occurs and is continuing, the Trustee may pursue any available remedy by proceeding at law or in equity to collect the payment of principal of or interest on the Series or to enforce the performance of any provision in the Securities or this Indenture applicable to the Series. The Trustee may maintain a proceeding even if it does not possess any of the Securities or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Securityholder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. No remedy is exclusive of any other remedy. All available remedies are cumulative. Section 6.04. Waiver of Existing Defaults. Subject to Section 10.02, the Holders of a majority in principal amount of the outstanding Securities of a Series on behalf of all the Holders of the Series by notice to the Trustee may waive an existing Default on such Series and its consequences. When a Default is waived, it is cured and stops continuing, and any Event of Default arising therefrom shall be deemed to have been cured; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon. Section 6.05. Control by Majority. The Holders of a majority in principal amount of the outstanding Securities of a Series may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on it with respect to such Series. The Trustee, however, may refuse to follow any direction (i) that conflicts with law or this Indenture, (ii) that, subject to Section 7.01, the Trustee determines is unduly prejudicial to the rights of other Securityholders, or (iii) that would involve the Trustee in personal liability. Section 6.06. Limitation on Suits. A Securityholder of a Series may not pursue any remedy with respect to this Indenture or the Series unless: (1) the Holder gives to the Trustee written notice of a continuing Event of Default on the Series; (2) the Holders of at least a majority in principal amount of the outstanding Securities of the Series make a written request to the Trustee to pursue the remedy; -35- (3) such Holder or Holders offer to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense; (4) the Trustee does not comply with the request within 60 days after receipt of the request and the offer of indemnity; and (5) no written request inconsistent with such written request shall have been given to the Trustee pursuant to this Section 6.06. A Securityholder may not use this Indenture to prejudice the rights of another Securityholder or to obtain a preference or priority over another Securityholder. Section 6.07. Rights of Holders to Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder to receive payment of principal of and interest on the Security, on or after the respective due dates expressed in the Security, or to bring suit for the enforcement of any such payment on or after such respective dates, is absolute and unconditional and shall not be impaired or affected without the consent of the Holder. Section 6.08. Collection Suit by Trustee. If an Event of Default in payment of interest or principal specified in Section 6.01(1) or (2) occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company for the whole amount of principal and interest remaining unpaid. Section 6.09. Trustee May File Proofs of Claim. The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements, and advances of the Trustee, its agents and counsel) and the Securityholders allowed in any judicial proceedings relative to the Company, its creditors or its property, and unless prohibited by applicable law or regulation, may vote on behalf of the Holders in any election of a Custodian, and shall be entitled and empowered to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same and any Custodian in any such judicial proceeding is hereby authorized by each Securityholder to make such payments to the Trustee. Nothing herein shall be deemed to authorize the Trustee to authorize or consent to or vote for or accept or adopt on behalf of any Securityholder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder or to authorize the Trustee -36- to vote in respect of the claim of any Securityholder except as aforesaid for the election of the Custodian. Section 6.10. Priorities. If the Trustee collects any money pursuant to this Article, it shall pay out the money in the following order: First: to the Trustee for amounts due under Section 7.07; Second: to Securityholders of the Series for amounts due and unpaid on the Series for principal and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Series for principal and interest, respectively; and Third: to the Company or the Guarantors as their interests may appear. The Trustee may fix a record date and payment date for any payment to Securityholders pursuant to this Section 6.10. Section 6.11. Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having the due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.07 or a suit by Holders of more than 10% in principal amount of the Series. ARTICLE SEVEN TRUSTEE Section 7.01. Duties of Trustee. (a) If an Event of Default has occurred and is continuing, the Trustee shall, prior to the receipt of directions from the Holders of a majority in principal amount of the Securities, exercise its rights and powers and use the same degree of care and skill in their exercise as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. -37- (b) Except during the continuance of an Event of Default: (1) The Trustee need perform only those duties that are specifically set forth in this Indenture and no others and no implied covenants or obligations shall be read into this Indenture against the Trustee. (2) In the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. The Trustee, however, shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture but need not confirm or investigate the accuracy of mathematical calculations or other facts or matters stated therein. (c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that: (1) This paragraph does not limit the effect of paragraph (b) of this Section. (2) The Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts. (3) The Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05 or any other direction of the Holders permitted hereunder. (d) Every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b) and (c) of this Section. (e) The Trustee may refuse to perform any duty or exercise any right or power unless it receives indemnity satisfactory to it against any loss, liability or expense. (f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. (g) None of the provisions contained in this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if there shall be reasonable grounds for believing that the repayment of such funds or adequate indemnity against such liability is not reasonably assured to it. -38- Section 7.02. Rights of Trustee. Subject to Section 7.01: (a) The Trustee may rely and shall be protected in acting or refraining from acting on any document, resolution, certificate, instrument, report, or direction believed by it to be genuine and to have been signed or presented by the proper person. The Trustee need not investigate any fact or matter stated in the document, resolution, certificate, instrument, report, or direction. (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel or both, which shall conform to Sections 11.04 and 11.05 hereof and containing such other statements as the Trustee reasonably deems necessary to perform its duties hereunder. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on the Officers' Certificate, Opinion of Counsel or any other direction of the Company permitted hereunder. (c) The Trustee may act through agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. (d) The Trustee shall not be liable for any action taken, suffered or omitted by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture. (e) The Trustee may consult with counsel, and the written advice of such counsel or any Opinion of Counsel as to matters of law shall be full and complete authorization and protection in respect of any action taken, omitted or suffered by it hereunder in good faith and in accordance with the advice or opinion of such counsel. (f) Unless otherwise specifically provided in the Indenture, any demand, request, direction or notice from the Company shall be sufficient if signed by an Officer of the Company. (g) For all purposes under this Indenture, the Trustee shall not be deemed to have notice or knowledge of any Event of Default (other than under Section 6.01(1) or 6.01(2)) unless a Trust Officer assigned to and working in the Trustee's corporate trust office has actual knowledge thereof or unless written notice of any Event of Default is received by the Trustee at its address specified in Section 11.02 hereof and such notice references the Securities generally, the Company or this Indenture. -39- Section 7.03. Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with the Company or its affiliates with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. The Trustee, however, must comply with Sections 7.10 and 7.11. Section 7.04. Trustee's Disclaimer. The Trustee makes no representation as to the validity or adequacy of this Indenture, the Securities or of any prospectus or offering memorandum used to sell the Securities; it shall not be accountable for the Company's use of the proceeds from the Securities; it shall not be accountable for any money paid to the Company, or upon the Company's direction, if made under and in accordance with any provision of this Indenture; it shall not be responsible for the use or application of any money received by any Paying Agent other than the Trustee; and it shall not be responsible for any statement of the Company in this Indenture or in the Securities other than its certificate of authentication. Section 7.05. Notice of Defaults. If a Default on a Series occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to each Securityholder of the Series notice of the Default (which shall specify any uncured Default known to it) within 90 days after it occurs. Except in the case of a default in payment of principal of or interest on a Series or a failure to comply with any Change of Control Provisions, the Trustee may withhold the notice if and so long as the board of directors of the Trustee, the executive or any trust committee of such directors and/or responsible officers of the Trustee in good faith determine(s) that withholding the notice is in the interests of Holders of the Series. Section 7.06. Reports by Trustee to Holders. Within 60 days after each May 15 beginning with the May 15 following the date of this Indenture, the Trustee shall mail to each Securityholder a brief report dated as of such May 15 that complies with TIA Section 313(a) (but if no event described in TIA Section 313(a)(2) has occurred within the twelve months preceding the reporting date no report need be transmitted). The Trustee also shall comply with TIA Section 313(b). A copy of each report at the time of its mailing to Securityholders shall be delivered to the Company and filed by the Trustee with the SEC and each national securities exchange on which the Securities are listed. The Company agrees to notify the Trustee of each national securities exchange on which the Securities are listed. -40- Section 7.07. Compensation and Indemnity. The Company shall pay to the Trustee or predecessor trustee from time to time reasonable compensation for their respective services subject to any written agreement between the Trustee and the Company. The Company shall reimburse the Trustee upon request for all reasonable out-of-pocket expenses incurred by it. Such expenses shall include the reasonable compensation and expenses of the Trustee's agents and counsel. The Company shall indemnify the Trustee and each predecessor trustee, its officers, directors, employees and agents and hold it harmless against any loss, liability or expense incurred or made by or on behalf of it in connection with the administration of this Indenture or the trust hereunder and its duties hereunder including the costs and expenses of defending itself against or investigating any claim in the premises. The Trustee shall notify the Company promptly of any claim for which it may seek indemnity. The Company need not reimburse any expense or indemnify against any loss or liability incurred by the Trustee through the Trustee's, or its officers', directors', employees' or agents' negligence or bad faith. To ensure the Company's payment obligations in this Section, the Trustee shall have a claim prior to the Securities on all money or property held or collected by the Trustee, except that held in trust to pay principal of or interest on particular Securities. When the Trustee incurs expenses or renders services in connection with an Event of Default specified in Section 6.01 or in connection with Article 6 hereof, the expenses (including the reasonable fees and expenses of its counsel) and the compensation for services in connection therewith are to constitute expenses of administration under any bankruptcy law. Section 7.08. Replacement of Trustee. The Trustee may resign by so notifying the Company. The Holders of a majority in principal amount of the outstanding Securities may remove the Trustee by so notifying the removed Trustee in writing and may appoint a successor trustee with the Company's consent. Such resignation or removal shall not take effect until the appointment by the Securityholders or the Company as hereinafter provided of a successor trustee and the acceptance of such appointment by such successor trustee. The Company may remove the Trustee and any Securityholder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor trustee for any or no reason, including if: (1) the Trustee fails to comply with Section 7.10 after written request by the Company or any bona fide Securityholder who has been a Securityholder for at least six months; (2) the Trustee is adjudged a bankrupt or an insolvent; -41- (3) a receiver or other public officer takes charge of the Trustee or its property; or (4) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor trustee. If a successor trustee does not take office within 45 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or any Holder may petition any court of competent jurisdiction for the appointment of a successor trustee. A successor trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Immediately after that, the retiring Trustee shall transfer all property held by it as Trustee to the successor trustee, the resignation or removal of the retiring Trustee shall become effective, and the successor trustee shall have all the rights, powers and duties of the Trustee under this Indenture. A successor trustee shall mail notice of its succession to each Securityholder. Section 7.09. Successor Trustee by Merger, etc. If the Trustee consolidates with, merges with or into or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the successor corporation without any further act shall be the successor trustee. Section 7.10. Eligibility; Disqualification. This Indenture shall always have a Trustee who satisfies the requirements of TIA Section 310(a)(1). The Trustee shall have a combined capital and surplus of at least $10,000,000 as set forth in its most recent published annual report of condition. The Trustee shall comply with TIA Section 310(b). Section 7.11. Preferential Collection of Claims Against Company. The Trustee shall comply with TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated therein. -42- ARTICLE EIGHT DISCHARGE OF INDENTURE Section 8.01. Defeasance upon Deposit of Moneys or U.S. Government Obligations. (a) The Company may, at its option and at any time, elect to have either paragraph (b) or paragraph (c) below be applied to the outstanding Securities of any Series upon compliance with the applicable conditions set forth in paragraph (d). (b) Upon the Company's exercise under paragraph (a) of the option applicable to this paragraph (b), the Company and the Guarantors shall be deemed to have been released and discharged from their respective obligations with respect to the outstanding Securities of a Series on the date the applicable conditions set forth below are satisfied (hereinafter, "Legal Defeasance"). For this purpose, such Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Securities of a Series, which shall thereafter be deemed to be "outstanding" only for the purposes of the Sections and matters under this Indenture referred to in (i) and (ii) below, and to have satisfied all its other obligations under such Securities and this Indenture insofar as such Securities are concerned, except for the following which shall survive until otherwise terminated or discharged hereunder: (i) the rights of Holders of outstanding Securities of a Series to receive solely from the trust fund described in paragraph (d) below and as more fully set forth in such paragraph, payments in respect of the principal of and interest on such Securities when such payments are due and (ii) obligations listed in Section 8.02, subject to compliance with this Section 8.01. The Company may exercise its option under this paragraph (b) notwithstanding the prior exercise of its option under paragraph (c) below with respect to such Securities. (c) Upon the Company's exercise under paragraph (a) of the option applicable to this paragraph (c), the Company and the Guarantors shall be released and discharged from the obligations under any covenant contained in Article Five, Section 4.05 and any other covenant contained in the Authorizing Resolution or supplemental indenture relating to such Series to the extent provided for therein, on and after the date the conditions set forth below are satisfied (hereinafter, "Covenant Defeasance"), and the Securities of such Series shall thereafter be deemed to be not "outstanding" for the purpose of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "outstanding" for all other purposes hereunder. For this purpose, such Covenant Defeasance means that, with respect to the outstanding Securities of a Series, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any -43- such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 6.01(3), but, except as specified above, the remainder of this Indenture and such Securities shall be unaffected thereby. (d) The following shall be the conditions to application of either paragraph (b) or paragraph (c) above to the outstanding Securities of the applicable Series: (1) The Company shall have irrevocably deposited in trust with the Trustee, pursuant to an irrevocable trust and security agreement in form and substance reasonably satisfactory to the Trustee, money in U.S. dollars or U.S. government obligations or a combination thereof in such amounts and at such times as are sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of and interest on the outstanding Securities of such Series to maturity or redemption; provided, however, that the Trustee (or other qualifying trustee) shall have received an irrevocable written order from the Company instructing the Trustee (or other qualifying trustee) to apply such money or the proceeds of such U.S. government obligations to said payments with respect to the Securities of such Series to maturity or redemption; (2) No Default or Event of Default shall have occurred and be continuing on the date of such deposit; (3) Such deposit will not result in a Default under this Indenture or a breach or violation of, or constitute a default under, any other material instrument or agreement to which the Company or any of its Subsidiaries is a party or by which it or any of their property is bound; (4) (i) In the event the Company elects paragraph (b) hereof, the Company shall deliver to the Trustee an Opinion of Counsel in the United States, in form and substance reasonably satisfactory to the Trustee, to the effect that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the Issue Date pertaining to such Series, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall state that, or (ii) in the event the Company elects paragraph (c) hereof, the Company shall deliver to the Trustee an Opinion of Counsel in the United States, in form and substance reasonably satisfactory to the Trustee, to the effect that, in the case of clauses (i) and (ii), Holders of the Securities of such Series will not recognize income, gain or loss for federal income tax purposes as a result of such deposit and the defeasance contemplated hereby and will be subject to federal income tax in the same amounts and in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred; -44- (5) The Company shall have delivered to the Trustee an Officers' Certificate, stating that the deposit under clause (1) was not made by the Company with the intent of preferring the Holders of the Securities of such Series over any other creditors of the Company or with the intent of defeating, hindering, delaying or defrauding any other creditors of the Company or others; (6) The Company shall have delivered to the Trustee an Opinion of Counsel, reasonably satisfactory to the Trustee, to the effect that, (A) the trust funds will not be subject to the rights of Holders of Indebtedness of the Company other than the Securities of such Series and (B) assuming no intervening bankruptcy of the Company between the date of deposit and the 91st day following the deposit and that no Holder of Securities of such Series is an insider of the Company, after the 91st day following the deposit, the trust funds will not be subject to any applicable bankruptcy, insolvency, reorganization or similar law affecting creditors' rights generally; and (7) The Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent specified herein relating to the defeasance contemplated by this Section 8.01 have been complied with. In the event all or any portion of the Securities of a Series are to be redeemed through such irrevocable trust, the Company must make arrangements satisfactory to the Trustee, at the time of such deposit, for the giving of the notice of such redemption or redemptions by the Trustee in the name and at the expense of the Company. (e) In addition to the Company's rights above under this Section 8.01, the Company may terminate all of its obligations under this Indenture with respect to a Series, and the obligations of the Guarantors shall terminate with respect to such Series (subject to Section 8.02), when: (1) All Securities of such Series theretofore authenticated and delivered (other than Securities which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 2.07 and Securities for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust) have been delivered to the Trustee for cancellation or all such Securities not theretofore delivered to the Trustee for cancellation have become due and payable and the Company has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust solely for that purpose an amount of money sufficient to pay and discharge the entire Indebtedness on the Securities not theretofore delivered to the Trustee for cancellation, for principal of and interest; -45- (2) The Company has paid or caused to be paid all other sums payable hereunder by the Company; (3) The Company has delivered irrevocable instructions to the Trustee to apply the deposited money toward the payment of the Securities at maturity or redemption, as the case may be; and (4) The Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, stating that all conditions precedent specified herein relating to the satisfaction and discharge of this Indenture have been complied with. Section 8.02. Survival of the Company's Obligations. Notwithstanding the satisfaction and discharge of the Indenture under Section 8.01, the Company's obligations in paragraph 9 of the Securities and Sections 2.03 through 2.07, 4.01, 7.07, 7.08, 8.04 and 8.05, however, shall survive until the Securities of an applicable Series are no longer outstanding. Thereafter, the Company's obligations in paragraph 9 of the Securities of such Series and Sections 7.07, 8.04 and 8.05 shall survive (as they relate to such Series). Section 8.03. Application of Trust Money. The Trustee shall hold in trust money or U.S. government obligations deposited with it pursuant to Section 8.01. It shall apply the deposited money and the money from U.S. government obligations in accordance with this Indenture to the payment of principal of and interest on the Securities of the defeased Series. Section 8.04. Repayment to the Company. The Trustee and the Paying Agent shall promptly pay to the Company upon request any excess money or securities held by them at any time. The Trustee and the Paying Agent shall pay to the Company upon request any money held by them for the payment of principal or interest that remains unclaimed for two years, provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once in a newspaper of general circulation in the City of New York or mail to each such Holder notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication or mailing, any unclaimed balance of such money then remaining will be repaid to the Company. After payment to the Company, Securityholders entitled to the money must look to the Company or any Guarantor for payment as general creditors unless applicable abandoned property law designates another person and all liability of the Trustee or such Paying Agent with respect to such money shall cease. -46- Section 8.05. Reinstatement. If the Trustee is unable to apply any money or U.S. government obligations in accordance with Section 8.01 by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company's and each Guarantor's obligations under this Indenture and the Securities relating to the Series shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.01 until such time as the Trustee is permitted to apply all such money or U.S. government obligations in accordance with Section 8.01; provided, however, that (a) if the Company has made any payment of interest on or principal of any Securities of the Series because of the reinstatement of their obligations, the Company shall be subrogated to the rights of the Holders of such Securities to receive such payment from the money or U.S. government obligations held by the Trustee and (b) unless otherwise required by any legal proceeding or any order or judgment of any court or governmental authority, the Trustee shall return all such money or U.S. government obligations to the Company promptly after receiving a written request therefor at any time, if such reinstatement of the Company's obligations has occurred and continues to be in effect. ARTICLE NINE GUARANTEES Section 9.01. Unconditional Guarantees. Subject to any other provisions set forth in the Authorizing Resolution or supplemental indenture relating to a particular Series, each Guarantor hereby unconditionally, jointly and severally, guarantees (each such guarantee to be referred to herein as the "Guarantee") to each Holder of Securities of such Series authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, that: (i) the principal of and interest on the Securities of such Series will be promptly paid in full when due, subject to any applicable grace period, whether at maturity, by acceleration or otherwise and interest on the overdue principal, if any, and interest on any interest of the Securities of such Series and all other obligations of the Company to the Holders or the Trustee hereunder or thereunder, except obligations to pay principal and interest on any other Series not so guaranteed, will be promptly paid in full or performed, all in accordance with the terms hereof and thereof; and (ii) in case of any extension of time of payment or renewal of any Securities of such Series or of any such other obligations, the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, subject to any applicable grace period, whether at stated maturity, by acceleration or otherwise, subject, however, in the case of clauses (i) and (ii) above, to the limitations set forth in Section 9.04. Each Guarantor hereby agrees that its obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Securities of such Series or this Indenture, the absence of any action to enforce the same, any -47- waiver or consent by any Holder of the Securities of such Series with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor. Each Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever and covenants that, subject to Section 9.03, this Guarantee will not be discharged except by complete performance of the obligations contained in the Securities of the applicable Series, this Indenture and in this Guarantee. If any Holder or the Trustee is required by any court or otherwise to return to the Company, any Guarantor, or any custodian, trustee, liquidator or other similar official acting in relation to the Company or any Guarantor, any amount paid by the Company or any Guarantor to the Trustee or such Holder, this Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect. Each Guarantor further agrees that, as between each Guarantor, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article Six for the purposes of this Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (y) in the event of any acceleration of such obligations as provided in Article Six, such obligations (whether or not due and payable) shall forthwith become due and payable by each Guarantor for the purpose of this Guarantee. Section 9.02. Severability. In case any provision of this Guarantee shall be invalid, illegal or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 9.03. Release of a Guarantor. Upon the sale or disposition (whether by merger, stock purchase, asset sale or otherwise) of a Guarantor (or all or substantially all its assets) to a Person which is not a Restricted Subsidiary and which sale or disposition is otherwise in compliance with the terms of this Indenture, or, unless the Company elects otherwise, if any Guarantor is designated as an Unrestricted Subsidiary in accordance with the terms of this Indenture, then such Guarantor (in the event of a sale or other disposition of Capital Stock of such Guarantor or a designation as an Unrestricted Subsidiary) or the Person acquiring such assets (in the event of a sale or other disposition of all or substantially all of the assets of such Guarantor) shall be deemed automatically and unconditionally released and discharged from all obligations under this Article Nine without any further action required on the part of the Trustee or any Holder. An Unrestricted Subsidiary that is a Guarantor shall be deemed automatically and unconditionally released and discharged from all obligations under this Article Nine upon -48- notice from the Company to the Trustee to such effect, without any further action required on the part of the Trustee or any Holder. The Trustee shall deliver an appropriate instrument evidencing any such release upon receipt of a request by the Company accompanied by an Officers' Certificate and Opinion of Counsel certifying as to the compliance with this Section 9.03. Any Guarantor not released in accordance with this Section 9.03 remains liable for the full amount of principal of and interest on the Securities as provided in this Article Nine. Section 9.04. Limitation of a Guarantor's Liability. Each Guarantor and by its acceptance hereof each Holder hereby confirms that it is the intention of all such parties that the guarantee by such Guarantor pursuant to its Guarantee not constitute a fraudulent transfer or conveyance for purposes of the Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar Federal or state law. To effectuate the foregoing intention, the Holders and such Guarantor hereby irrevocably agree that the obligations of such Guarantor under the Guarantee shall be limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of such Guarantor and after giving effect to any collections from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under its Guarantee or pursuant to Section 9.06, result in the obligations of such Guarantor under the Guarantee not constituting such fraudulent transfer or conveyance. Section 9.05. Guarantors May Consolidate, etc., on Certain Terms. Nothing contained in this Indenture or in any of the Securities shall prevent any consolidation or merger of a Guarantor with or into the Company or another Restricted Guarantor, or shall prevent any sale of assets or conveyance of the property of a Guarantor as an entirety or substantially as an entirety to the Company or another Guarantor that is a Restricted Subsidiary of the Company. Upon any such consolidation, merger, sale or conveyance, the Guarantee given by such Guarantor shall no longer have any force or effect. Section 9.06. Contribution. In order to provide for just and equitable contribution among the Guarantors, the Guarantors agree, inter se, that in the event any payment or distribution is made by any Guarantor (a "Funding Guarantor") under the Guarantee, such Funding Guarantor shall be entitled to a contribution from all other Guarantors in a pro rata amount based on the Adjusted Net Assets of each Guarantor (including the Funding Guarantor) for all payments, damages and expenses incurred by that Funding Guarantor in discharging the Company's obligations -49- with respect to any Securities or any other Guarantor's obligations with respect to the Guarantee. "Adjusted Net Assets" of such Guarantor at any date shall mean the lesser of the amount by which (x) the fair value of the property of such Guarantor exceeds the total amount of liabilities, including, without limitation, contingent liabilities (after giving effect to all other fixed and contingent liabilities incurred or assumed on such date and after giving effect to any collection from any other Subsidiary of the Guarantor in respect of the obligations of its Guarantee), but excluding liabilities under the Guarantee, of such Guarantor at such date and (y) the present fair salable value of the assets of such Guarantor at such date exceeds the amount that will be required to pay the probable liability of such Guarantor on its debts (after giving effect to all other fixed and contingent liabilities incurred or assumed on such date and after giving effect to any collection from any other Subsidiary of the Company in respect of the obligations of such Guarantor under its Guarantee), excluding debt in respect of the Guarantee of such Guarantor, as they become absolute and matured. Section 9.07. Waiver of Subrogation. Until all guaranteed obligations under this Indenture and with respect to all Securities of an applicable Series are paid in full, each Guarantor hereby irrevocably waives any claim or other rights which it may now or hereafter acquire against the Company that arise from the existence, payment, performance or enforcement of such Guarantor's obligations under the Guarantee and this Indenture, including, without limitation, any right of subrogation, reimbursement, exoneration, indemnification, and any right to participate in any claim or remedy of any Holder of Securities of the applicable Series against the Company, whether or not such claim, remedy or right arises in equity, or under contract, statute or common law, including, without limitation, the right to take or receive from the Company, directly or indirectly, in cash or other property or by set-off or in any other manner, payment or security on account of such claim or other rights. If any amount shall be paid to any Guarantor in violation of the preceding sentence and the Securities of the applicable Series shall not have been paid in full, such amount shall have been deemed to have been paid to such Guarantor for the benefit of, and held in trust for the benefit of, the Holders of the Securities of the applicable Series, and shall forthwith be paid to the Trustee for the benefit of such Holders to be credited and applied upon the Securities of the applicable Series, whether matured or unmatured, in accordance with the terms of this Indenture. Each Guarantor acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by this Indenture and that the waiver set forth in this Section 9.07 is knowingly made in contemplation of such benefits. Section 9.08. Execution of Guarantee. To evidence their guarantee to the Holders set forth in this Article Nine, the Guarantors hereby agree to execute the Guarantee in substantially the form included in Exhibit A or in any such other form set forth in the Authorizing Resolution or supplemental indenture -50- pertaining to the applicable Series, which shall be endorsed on each Security ordered to be authenticated and delivered by the Trustee. Each Guarantor hereby agrees that its Guarantee set forth in this Article Nine shall remain in full force and effect notwithstanding any failure to endorse on each Security a notation of such Guarantee. Each such Guarantee shall be signed on behalf of each Guarantor by two Officers, or an Officer and an Assistant Secretary or one Officer shall sign and one Officer or an Assistant Secretary (each of whom shall, in each case, have been duly authorized by all requisite corporate actions) shall attest to such Guarantee prior to the authentication of the Security on which it is endorsed, and the delivery of such Security by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of such Guarantee on behalf of such Guarantor. Such signatures upon the Guarantee may be by manual or facsimile signature of such officers and may be imprinted or otherwise reproduced on the Guarantee, and in case any such officer who shall have signed the Guarantee shall cease to be such officer before the Security on which such Guarantee is endorsed shall have been authenticated and delivered by the Trustee or disposed of by the Company, such Security nevertheless may be authenticated and delivered or disposed of as though the person who signed the Guarantee had not ceased to be such officer of the Guarantor. ARTICLE TEN AMENDMENTS, SUPPLEMENTS AND WAIVERS Section 10.01. Without Consent of Holders. The Company, the Guarantors and the Trustee may amend or supplement this Indenture or the Securities of a Series without notice to or consent of any Securityholder of such Series: (1) to cure any ambiguity, omission, defect or inconsistency; (2) to comply with Article Five; (3) to provide that specific provisions of this Indenture shall not apply to a Series not previously issued; (4) to create a Series and establish its terms; (5) to provide for uncertificated Securities in addition to or in place of certificated Securities; (6) to make any other change that does not adversely affect the rights of Securityholders; and -51- (7) to remove a Guarantor in respect of any Series which, in accordance with the terms of this Indenture applicable to the particular Series, ceases to be liable in respect of its Guarantee. After an amendment under this Section 10.01 becomes effective, the Company shall mail notice of such amendment to the Securityholders. Section 10.02. With Consent of Holders. The Company, the Guarantors and the Trustee may amend or supplement this Indenture or the Securities of a Series without notice to any Securityholder of such Series but with the written consent of the Holders of at least a majority in principal amount of the outstanding Securities of each such Series affected by the amendment. Each such Series shall vote as a separate class. The Holders of a majority in principal amount of the outstanding Securities of any Series may waive compliance by the Company with any provision of the Securities of such Series or of this Indenture relating to such Series without notice to any Securityholder. Without the consent of each Securityholder of a Series affected, however, an amendment, supplement or waiver, including a waiver pursuant to Section 6.04, may not: (1) reduce the amount of Securities of such Series whose Holders must consent to an amendment, supplement or waiver; (2) reduce the rate of or change the time for payment of interest, including defaulted interest, on any Security; (3) reduce the principal of or change the fixed maturity of any Security or alter the provisions (including related definitions) with respect to redemption of Securities pursuant to Article Three hereof or with respect to any obligations on the part of the Company to offer to purchase or to redeem Securities of a Series pursuant to the Authorizing Resolution or supplemental indenture pertaining to such Series; (4) modify the ranking or priority of the Securities of any Series or the Guarantee thereof; (5) release any Guarantor from any of its obligations under its Guarantee or this Indenture otherwise than in accordance with the terms of this Indenture; (6) make any change in Sections 6.04, 6.07 or this 10.02; (7) waive a continuing Default or Event of Default in the payment of the principal of or interest on any Security; or -52- (8) make any Security payable at a place or in money other than that stated in the Security, or impair the right of any Securityholder to bring suit as permitted by Section 6.07. An amendment of a provision included solely for the benefit of one or more Series does not affect the interests of Securityholders of any other Series. It shall not be necessary for the consent of the Holders under this Section to approve the particular form of any proposed supplement, but it shall be sufficient if such consent approves the substance thereof. Section 10.03. Compliance with Trust Indenture Act. Every amendment to or supplement of this Indenture or the Securities shall comply with the TIA as then in effect. Section 10.04. Revocation and Effect of Consents. A consent to an amendment, supplement or waiver by a Holder shall bind the Holder and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder's Security, even if notation of the consent is not made on any Security. Subject to the following paragraph, any such Holder or subsequent Holder, however, may revoke the consent as to his Security or portion of a Security. Such revocation shall be effective only if the Trustee receives the notice of revocation before the date the amendment, supplement or waiver becomes effective. The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Holders of Securities of any Series entitled to consent to any amendment, supplement or waiver, which record date shall be at least 10 days prior to the first solicitation of such consent. If a record date is fixed, then notwithstanding the last sentence of the immediately preceding paragraph, those Persons who were Holders at such record date (or their duly designated proxies), and only those Persons, shall be entitled to revoke any consent previously given, whether or not such Persons continue to be Holders after such record date. No such consent shall be valid or effective for more than 90 days after such record date. After an amendment, supplement or waiver becomes effective, it shall bind every Holder, unless it makes a change described in any of clauses (1) through (8) of Section 10.02, in which case, the amendment, supplement or waiver shall bind only each Holder of a Security who has consented to it and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder's Security; provided that any such waiver shall not impair or affect the right of any Holder to receive payment of principal of and interest on a Security, on or after the respective due dates expressed in such Security, or to -53- bring suit for the enforcement of any such payment on or after such respective dates without the consent of such Holder. Section 10.05. Notation on or Exchange of Securities. If an amendment, supplement or waiver changes the terms of a Security, the Company may require the Holder of the Security to deliver it to the Trustee, at which time the Trustee shall place an appropriate notation on the Security about the changed terms and return it to the Holder. Alternatively, if the Company or the Trustee so determines, the Company in exchange for the Security shall issue and the Trustee shall authenticate a new Security that reflects the changed terms. Section 10.06. Trustee to Sign Amendments, etc. Subject to Section 7.02(b), the Trustee shall sign any amendment, supplement or waiver authorized pursuant to this Article if the amendment, supplement or waiver does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If it does, the Trustee may but need not sign it. In signing or refusing to sign such amendment or supplemental indenture, the Trustee shall be entitled to receive and shall be fully protected in relying upon, an Officers' Certificate and an Opinion of Counsel as conclusive evidence that such amendment or supplemental indenture is authorized or permitted by this Indenture, that it is not inconsistent herewith, and that it will be valid and binding upon the Company in accordance with its terms. ARTICLE ELEVEN MISCELLANEOUS Section 11.01. Trust Indenture Act Controls. If any provision of this Indenture limits, qualifies or conflicts with another provision which is required to be included in this Indenture by the TIA, the required provision shall control. Section 11.02. Notices. Any order, consent, notice or communication shall be sufficiently given if in writing and delivered in person or mailed by first class mail, postage prepaid, addressed as follows: -54- if to the Company or to any Guarantor: D.R. Horton, Inc. 1901 Ascension Blvd., Suite 100 Arlington, Texas 76006 Attention: Chief Financial Officer if to the Trustee: American Stock Transfer & Trust Company 6201 15th Avenue Brooklyn, NY 11219 Attention: Corporate Trust Administration The Company or the Trustee by notice to the other may designate additional or different addresses for subsequent notices or communications. Any notice or communication mailed to a Securityholder shall be mailed to him by first class mail at his address as it appears on the registration books of the Registrar and shall be sufficiently given to him if so mailed within the time prescribed. Failure to mail a notice or communication to a Securityholder or any defect in it shall not affect its sufficiency with respect to other Securityholders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it except that notice to the Trustee shall only be effective upon receipt thereof by the Trustee. If the Company mails notice or communications to the Securityholders, it shall mail a copy to the Trustee at the same time. Section 11.03. Communications by Holders with Other Holders. Securityholders may communicate pursuant to TIA Section 312(b) with other Securityholders with respect to their rights under this Indenture or the Securities. The Company, the Trustee, the Registrar and anyone else shall have the protection of TIA Section 312(c). -55- Section 11.04. Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee: (1) an Officers' Certificate (which shall include the statements set forth in Section 11.05) stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and (2) an Opinion of Counsel (which shall include the statements set forth in Section 11.05) stating that, in the opinion of such counsel, all such conditions precedent and covenants, compliance with which constitutes a condition precedent, if any, provided for in this Indenture relating to the proposed action or inaction, have been complied with and that any such section does not conflict with the terms of the Indenture. Section 11.05. Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include: (1) a statement that the person making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of such person, such condition or covenant has been complied with. Section 11.06. Rules by Trustee and Agents. The Trustee may make reasonable rules for action by or a meeting of Securityholders. The Registrar or Paying Agent may make reasonable rules for its functions. -56- Section 11.07. Legal Holidays. A "Legal Holiday" is a Saturday, a Sunday, a legal holiday or a day on which banking institutions in Fort Worth, Texas and New York, New York are not required to be open. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. A Business Day is any day other than a Legal Holiday. Section 11.08. Governing Law. The laws of the State of New York shall govern this Indenture, the Securities of each Series and the Guarantees. Section 11.09. No Adverse Interpretation of Other Agreements. This 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 Indenture. Section 11.10. No Recourse Against Others. All liability described in paragraph 14 of the Initial Securities or paragraph 13 of the Exchange Securities of any director, officer, employee or stockholder, as such, of the Company is waived and released. Section 11.11. Successors and Assigns. All covenants and agreements of the Company in this Indenture and the Securities shall bind its successors and assigns. All agreements of the Trustee in this Indenture shall bind its successors and assigns. Section 11.12. Duplicate Originals. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. Section 11.13. Severability. In case any one or more of the provisions contained in this Indenture or in the Securities of a Series 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 Indenture or of such Securities. -57- Section 11.14. Ranking. The Securities issued under this Indenture will rank pari passu in right of payment with the securities under that certain indenture dated as of June 9, 1997, as supplemented, among the Company, the guarantors thereto and American Stock Transfer & Trust Company, as trustee. The Securities issued under this Indenture are hereby designated "Designated Senior Indebtedness" for purposes of (i) the indenture, dated as of September 11, 2000, as supplemented, among the Company, the guarantors thereto, and American Stock Transfer & Trust Company, as trustee and (ii) the indenture dated as of June 28, 2001, among the Company, as successor to Schuler Homes, Inc., the guarantors thereto and U.S. Bank Trust National Association, as trustee. -58- IN WITNESS WHEROF, the parties have caused this Indenture to be duly executed, all as of the date first above written. D.R. HORTON, INC. By: /s/ SAMUEL R. FULLER --------------------------------------- Samuel R. Fuller Executive Vice President, Treasurer and Chief Financial Officer S-1 AMERICAN STOCK TRANSFER & TRUST COMPANY, as Trustee By: /s/ HERBERT J. LEMMER ----------------------------- Name: Herbert J. Lemmer Title: Vice President S-2 GUARANTORS: C. RICHARD DOBSON BUILDERS, INC. CHI CONSTRUCTION COMPANY CHTEX OF TEXAS, INC. CONTINENTAL HOMES, INC. CONTINENTAL HOMES OF FLORIDA, INC. CONTINENTAL RESIDENTIAL, INC. D.R. HORTON, INC. - BIRMINGHAM D.R. HORTON, INC. - CHICAGO D.R. HORTON, INC. - DENVER D.R. HORTON, INC. - DIETZ-CRANE D.R. HORTON, INC. - GREENSBORO D.R. HORTON, INC. - JACKSONVILLE D.R. HORTON, INC. - LOUISVILLE D.R. HORTON, INC. - MINNESOTA D.R. HORTON, INC. - NEW JERSEY D.R. HORTON, INC. - PORTLAND D.R. HORTON, INC. - SACRAMENTO D.R. HORTON, INC. - TORREY D.R. HORTON LOS ANGELES HOLDING COMPANY, INC. D.R. HORTON SAN DIEGO HOLDING COMPANY, INC. DRH CAMBRIDGE HOMES, INC. DRH CONSTRUCTION, INC. DRH REGREM II, INC. DRH REGREM III, INC. DRH REGREM IV, INC. DRH REGREM V, INC. DRH SOUTHWEST CONSTRUCTION, INC. DRH TITLE COMPANY OF COLORADO, INC. DRH TUCSON CONSTRUCTION, INC. DRHI, INC. KDB HOMES, INC. MEADOWS I, LTD. MEADOWS VIII, LTD. MEADOWS IX, INC. MEADOWS X, INC. By:/s/ SAMUEL R. FULLER ---------------------------------------------- Samuel R. Fuller Treasurer S-3 CH INVESTMENTS OF TEXAS, INC. MEADOWS II, LTD. By: /s/ WILLIAM PECK ----------------------------------------- William Peck President S-4 CONTINENTAL HOMES OF TEXAS, L.P. By: CHTEX of Texas, Inc., its general partner By: /s/ SAMUEL R. FULLER --------------------------------------------- Samuel R. Fuller, Treasurer D.R. HORTON MANAGEMENT COMPANY, LTD. D.R. HORTON - EMERALD, LTD. D.R. HORTON - TEXAS, LTD. DRH REGREM VII, LP By: Meadows I, Ltd., its general partner By: /s/ SAMUEL R. FULLER --------------------------------------------- Samuel R. Fuller Treasurer SGS COMMUNITIES AT GRANDE QUAY, LLC By: Meadows IX, Inc., a member By: /s/ SAMUEL R. FULLER --------------------------------------------- Samuel R. Fuller Treasurer and By: Meadows X, Inc., a member By: /s/ SAMUEL R. FULLER --------------------------------------------- Samuel R. Fuller Treasurer DRH CAMBRIDGE HOMES, LLC DRH REGREM VIII, LLC By: D.R. Horton, Inc. - Chicago, a member By: /s/ SAMUEL R. FULLER --------------------------------------------- Samuel R. Fuller Treasurer S-5 ALLEGRA, LLC APLAM, LLC WESTERN PACIFIC HOUSING CO. WESTERN PACIFIC HOUSING-ANTIGUA, LLC WESTERN PACIFIC HOUSING-AVIARA, L.P. WESTERN PACIFIC HOUSING-BOARDWALK, LLC WESTERN PACIFIC HOUSING-BROADWAY, LLC WESTERN PACIFIC HOUSING-CANYON PARK, LLC WESTERN PACIFIC HOUSING-CARMEL, LLC WESTERN PACIFIC HOUSING-CARRILLO, LLC WESTERN PACIFIC HOUSING-COMMUNICATIONS HILL, LLC WESTERN PACIFIC HOUSING-CREEKSIDE, LLC WESTERN PACIFIC HOUSING-CULVER CITY, L.P. WESTERN PACIFIC HOUSING-LOMAS VERDES, LLC WESTERN PACIFIC HOUSING-LOST HILLS PARK, LLC WESTERN PACIFIC HOUSING-MCGONIGLE CANYON, LLC WESTERN PACIFIC HOUSING-MOUNTAINGATE, L.P. WESTERN PACIFIC HOUSING-NORCO ESTATES, LLC WESTERN PACIFIC HOUSING-OSO, L.P. WESTERN PACIFIC HOUSING-PARK AVENUE EAST, LLC WESTERN PACIFIC HOUSING-PARK AVENUE WEST, LLC WESTERN PACIFIC HOUSING-PLAYA VISTA, LLC WESTERN PACIFIC HOUSING-ROBINHOOD RIDGE, LLC WESTERN PACIFIC HOUSING-SANTA FE, LLC WESTERN PACIFIC HOUSING-SCRIPPS II, LLC WESTERN PACIFIC HOUSING-SCRIPPS, L.P. WESTERN PACIFIC HOUSING-SEACOVE, L.P. WESTERN PACIFIC HOUSING-STUDIO 528, LLC WESTERN PACIFIC HOUSING-TERRA BAY DUETS, LLC WESTERN PACIFIC HOUSING-TORRANCE, LLC WESTERN PACIFIC HOUSING-TORREY COMMERCIAL, LLC WESTERN PACIFIC HOUSING-TORREY MEADOWS, LLC WESTERN PACIFIC HOUSING-TORREY MULTI-FAMILY, LLC WESTERN PACIFIC HOUSING-TORREY VILLAGE CENTER, LLC WESTERN PACIFIC HOUSING-VINEYARD TERRACE, LLC WESTERN PACIFIC HOUSING-WINDEMERE, LLC WESTERN PACIFIC HOUSING-WINDFLOWER, L.P. WPH-CAMINO RUIZ, LLC WPH-HPH, LLC By: LAMCO Housing, Inc., its Member or General Partner By: /s/ SAMUEL R. FULLER ---------------------------------------------------- Samuel R. Fuller Vice President S-6 SCHULER HOMES OF ARIZONA LLC SHA CONSTRUCTION LLC By: SRHI LLC, its Member By: SLHR of Nevada, Inc., its Member By: /s/ SAMUEL R. FULLER ------------------------------------------- Samuel R. Fuller Vice President HPH HOMEBUILDERS 2000 L.P. PORTER GP LLC By: WPH-HPH, LLC, its General Partner or Member By: LAMCO Housing, Inc., its Member By: /s/ SAMUEL R. FULLER ------------------------------------------- Samuel R. Fuller Vice President AP LHI, INC. AP WESTERN GP CORPORATION AP WP OPERATING CORPORATION LAMCO HOUSING, INC. MELODY HOMES, INC. MELMORT CO. SCHULER HOMES OF CALIFORNIA, INC. SCHULER HOMES OF OREGON, INC. SCHULER HOMES OF WASHINGTON, INC. SCHULER MORTGAGE, INC. SCHULER REALTY HAWAII, INC. SCHULER REALTY/MAUI, INC. SHLR OF CALIFORNIA, INC. SHLR OF COLORADO, INC. SHLR OF NEVADA, INC. SHLR OF UTAH, INC. SHLR OF WASHINGTON, INC. VERTICAL CONSTRUCTION CORPORATION WESTERN PACIFIC FUNDING, INC. WESTERN PACIFIC HOUSING MANAGEMENT, INC. WESTERN PACIFIC HOUSING, INC. By: /s/ SAMUEL R. FULLER ---------------------------------------------------- Samuel R. Fuller Vice President S-7 D.R. HORTON-SCHULER HOMES, LLC By: Vertical Construction Corporation, its Manager By: /s/ SAMUEL R. FULLER ---------------------------------------- Samuel R. Fuller Vice President SRHI LLC By: SHLR of Nevada, Inc., its Member By: /s/ SAMUEL R. FULLER ---------------------------------------- Samuel R. Fuller Vice President SSHI LLC By: SHLR of Washington, Inc., its Member By: /s/ SAMUEL R. FULLER ---------------------------------------- Samuel R. Fuller Vice President WESTERN PACIFIC HOUSING-COPPER CANYON, LLC WESTERN PACIFIC HOUSING-PACIFIC PARK II, LLC WESTERN PACIFIC HOUSING-POINSETTIA, L.P. WESTERN PACIFIC HOUSING-DEL VALLE, LLC By: AP Western GP Corporation, its Member or General Partner By: /s/ SAMUEL R. FULLER ---------------------------------------- Samuel R. Fuller Vice President WESTERN PACIFIC HOUSING-RIVER RIDGE, LLC By: AP LHI, Inc., its Member By: /s/ SAMUEL R. FULLER ---------------------------------------- Samuel R. Fuller Vice President AP WP PARTNERS, L.P. By: AP WP Operating Corporation, its General Partner By: /s/ SAMUEL R. FULLER ---------------------------------------- Samuel R. Fuller Vice President S-8 EXHIBIT A NO. CUSIP NO.: _____ [TITLE OF SECURITY] D.R. HORTON, INC. A DELAWARE CORPORATION promises to pay to or registered assigns the principal sum of [Dollars]a on [Title of Security] Interest Payment Dates: and Record Dates: and 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 Or other currency. Insert corresponding provisions on reverse side of Security in respect of foreign currency denomination or interest payment requirement. A-1 D.R. HORTON, INC. [Title of Security], Series A 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 __________________ and ______________ of each year, commencing on __________________, 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 _______________, 20 , 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 [Insert record dates]. 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 or any of their Affiliates may act as Paying Agent, Registrar or co-Registrar. 4. Indenture. The Company issued the Securities under an Indenture dated as of April 11, 2002 ("Indenture"), among the Company, the Guarantors and the Trustee. The terms of the Securities and the Guarantees include those stated in the Indenture (including those terms set forth in the Authorizing Resolution or supplemental indenture pertaining to the Securities of the Series of which this Security is a part) 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 A-2 meanings given to those terms in the Indenture. The Securities include the Initial Securities and the Exchange Securities issued in exchange for the Initial Securities pursuant to the Registration Rights Agreement (as hereinafter defined). 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. Optional Redemption.(a) The Company may redeem the Securities at any time on or after ______________, ____, in whole or in part, at the following redemption prices (expressed as a percentage of their principal amount) together with interest accrued and unpaid to the date fixed for redemption: If redeemed during the twelve-month period commencing on ___________ and ending on ___________ in each of the following years Percentage [Insert provisions relating to redemption at option of Holders, if any] Selection of the Securities or portions thereof for redemption pursuant to the foregoing shall be made by the Trustee only on a pro rata basis or on as nearly a pro rata basis as is practicable (subject to the procedures of The Depository Trust Company), unless such method is otherwise prohibited. Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder whose Securities are to be redeemed at the registered address of such Holder. 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 the registered address of such Holder. Securities in denominations larger than $1,000 may be redeemed in part. On and after the redemption dates interest ceases to accrue on the Securities or portions thereof called for redemption, provided that if the Company shall - ---------- (a) If applicable. A-3 default in the payment of such Securities at the redemption price together with accrued interest, interest shall continue to accrue at the rate borne by the Securities. 6. Mandatory Redemption.(a) The Company shall redeem % of the aggregate principal amount of Securities originally issued under the Indenture on each of , which redemptions are calculated to retire % of the Securities originally issued prior to maturity. Such redemptions shall be made at a redemption price equal to 100% of the principal amount thereof, together with accrued interest to the redemption date. The Company may reduce the principal amount of Securities to be redeemed pursuant to this Paragraph 6 by the principal amount of any Securities previously redeemed, retired or acquired, otherwise than pursuant to this Paragraph 6, that the Company has delivered to the Trustee for cancellation and not previously credited to the Company's obligations under this Paragraph 6. Each such Security shall be received and credited for such purpose by the Trustee at the redemption price and the amount of such mandatory redemption payment shall be reduced accordingly. 7. Registration Rights Agreement. The Holder of this Security is entitled to the benefits of a Registration Rights Agreement, dated as of [ ], among the Company, the Guarantors and the Initial Purchasers named therein (as such may be amended from time to time, the "Registration Rights Agreement"). Capitalized terms used in this subsection but not defined herein have the meanings assigned to them in the Registration Rights Agreement. If (i) within 90 days after the Issue Date, neither the Exchange Offer Registration Statement nor the Shelf Registration Statement has been filed with the Commission; (ii) within 150 days after the Issue Date, the Exchange Offer Registration Statement or the Shelf Registration Statement, as applicable, has not been declared effective; (iii) within 180 days after the Issue Date, the Exchange Offer has not been consummated; or (iv) after either the Exchange Offer Registration Statement or the Shelf Registration Statement has been declared effective, such Registration Statement thereafter ceases to be effective or usable (subject, in the case of the Shelf Registration Statement, to the exceptions set forth in the Registration Rights Agreement) in connection with resales of Initial Securities or Exchange Securities in accordance with and during the periods specified in Sections 2 and 3 of the Registration Rights Agreement (each such event referred to in clauses (i) through (iv), a "Registration Default"), liquidated damages ("Liquidated Damages") will accrue on the Initial Securities and the Exchange Securities from and including the date on which any such Registration Default shall occur to but excluding the date on which all Registration Defaults have been cured. Liquidated - ---------- (a) If applicable. A-4 Damages will accrue at a rate equal to 0.25% per annum of the aggregate principal amount of the Securities during the 90-day period immediately following the occurrence of any Registration Default and shall increase by 0.25% per annum for each subsequent 90-day period during which such Registration Default continues, but in no event shall such Liquidated Damages exceed 1.00% per annum. 8. Denominations, Transfer, Exchange. The Securities are in registered form only without coupons in denominations of $1,000a 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. 9. Persons Deemed Owners. The registered Holder of this Security shall be treated as the owner of it for all purposes. 10. 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. 11. 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 of each Series affected by the amendment and any past default or compliance with any provision relating to any Series of 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 of such Series.(b) Without the consent of any Securityholder, the Company - ---------- (a) If applicable. Insert different or additional denominations and multiples. (b) If different terms apply, insert a brief summary thereof. A-5 and the Trustee may amend or supplement the Indenture or the Securities to cure any ambiguity, defect or inconsistency, to provide for uncertificated Securities in addition to or in place of certificated Securities, to create a Series and establish its terms, to remove a Guarantor in respect of any Series 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. 12. 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. 13. 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. 14. 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. 15. 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. 16. Authentication. This Security shall not be valid until the Trustee signs the certificate of authentication on the other side of this Security. 17. 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-6 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 Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. In connection with any transfer of this Security occurring prior to the date which is the earlier of (i) the date of the declaration by the Commission of the effectiveness of a registration statement under the Securities Act of 1933, as amended (the "Securities Act") covering resales of this Security (which effectiveness shall not have been suspended or terminated at the date of the transfer) and (ii) two years from the Issue Date, the undersigned confirms that it has not utilized any general solicitation or general advertising in connection with the transfer: [Check One] (1) __ to the Company or a subsidiary thereof; or (2) __ pursuant to and in compliance with Rule 144A under the Securities Act of 1933, as amended; or (3) __ to an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act of 1933, as amended) that has furnished to the Trustee a signed letter containing certain representations and agreements (the form of which letter can be obtained from the Trustee); or (4) __ outside the United States to a "foreign person" in compliance with Rule 904 of Regulation S under the Securities Act of 1933, as amended; or (5) __ pursuant to the exemption from registration provided by Rule 144 under the Securities Act of 1933, as amended; or (6) __ pursuant to an effective registration statement under the Securities Act of 1933, as amended; or (7) __ pursuant to another available exemption from the registration requirements of the Securities Act of 1933, as amended; and unless the box below is checked, the undersigned confirms that such Security is not being transferred to an "affiliate" of the Company as defined in Rule 144 under the Securities Act of 1933, as amended (an "Affiliate"): [ ] The transferee is an Affiliate of the Company. Unless one of the items is checked, the Trustee will refuse to register any of the Securities evidenced by this certificate in the name of any person other than the registered Holder thereof; provided, however, that if item (3), (4), (5) or (7) is checked, the Company or the Trustee may require, prior to registering any such transfer of the Securities, in their sole discretion, such written legal opinions, certifications (including an investment letter in the case of box (3) or (7)) and other information as the Trustee or the Company has reasonably requested to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933, as amended. If none of the foregoing items are checked, the Trustee or Registrar shall not be obligated to register this Security in the name of any person other than the Holder hereof unless and until the conditions to any such transfer of registration set forth herein and in Section 2.14 of the Indenture shall have been satisfied. Dated: Signed: ---------------------- ---------------------------------- (Sign exactly as name appears on the other side of this Security) Signature Guarantee: -------------------------------------- (Signature must be guaranteed) SIGNATURE GUARANTEE Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED The undersigned represents and warrants that it is purchasing this Security for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act of 1933, as amended and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Dated: ---------------------- ---------------------------------------------- NOTICE: To be executed by an executive officer [FORM OF NOTATION ON SECURITY RELATING TO GUARANTEE] GUARANTEE [List of Guarantors] (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. [List of Guarantors] By: ----------------------------------------- Title: ----------------------------------- EXHIBIT B NO. CUSIP NO.: _______ [TITLE OF SECURITY] D.R. HORTON, INC. A DELAWARE CORPORATION promises to pay to or registered assigns the principal sum of [Dollars](a) on [Title of Security] Interest Payment Dates: and Record Dates: and 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) Or other currency. Insert corresponding provisions on reverse side of Security in respect of foreign currency denomination or interest payment requirement. B-1 D.R. HORTON, INC. [TITLE OF SECURITY] 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 __________________ and ______________ of each year, commencing on ________________ 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 _______________, 20 , 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 [Insert record dates] 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 or any of their Affiliates may act as Paying Agent, Registrar or co-Registrar. 4. Indenture. The Company issued the Securities under an Indenture dated as of April 11, 2002 ("Indenture"), among the Company, the Guarantors and the Trustee. This Security is one of the duly authorized Exchange Securities of the Company designated as its [ ]% Senior Notes due [ ] (the "Exchange Securities"). The terms of the Securities and the Guarantees include those stated in the Indenture (including those terms set forth in the Authorizing Resolution or supplemental indenture pertaining to the Securities of the Series of which this Security is a part) 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 B-2 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 Securities include the Initial Securities and the Exchange Securities issued in exchange for the Initial Securities pursuant to the Registration Rights Agreement (as hereinafter defined). 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. Optional Redemption.(a) The Company may redeem the Securities at any time on or after ______________, ____, in whole or in part, at the following redemption prices (expressed as a percentage of their principal amount) together with interest accrued and unpaid to the date fixed for redemption: If redeemed during the twelve-month period commencing on ___________ and ending on ___________ in each of the following years Percentage [Insert provisions relating to redemption at option of Holders, if any] Selection of the Securities or portions thereof for redemption pursuant to the foregoing shall be made by the Trustee only on a pro rata basis or on as nearly a pro rate basis as is practicable (subject to the procedures of The Depository Trust Company), unless such method is otherwise prohibited. Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder whose Securities are to be redeemed at the registered address of such Holder. 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 the registered address of such Holder. Securities in denominations larger than - ---------- (a) If applicable. B-3 $1,000 may be redeemed in part. On and after the redemption dates interest ceases to accrue on the Securities or portions thereof called for redemption, provided that if the Company shall default in the payment of such Security at the redemption price together with accrued interest, interest shall continue to accrue at the rate borne by the Securities. 6. Mandatory Redemption.(a) The Company shall redeem % of the aggregate principal amount of Securities originally issued under the Indenture on each of , which redemptions are calculated to retire % of the Securities originally issued prior to maturity. Such redemptions shall be made at a redemption price equal to 100% of the principal amount thereof, together with accrued interest to the redemption date. The Company may reduce the principal amount of Securities to be redeemed pursuant to this Paragraph 6 by the principal amount of any Securities previously redeemed, retired or acquired, otherwise than pursuant to this Paragraph 6, that the Company has delivered to the Trustee for cancellation and not previously credited to the Company's obligations under this Paragraph 6. Each such Security shall be received and credited for such purpose by the Trustee at the redemption price and the amount of such mandatory redemption payment shall be reduced accordingly. 7. Denominations, Transfer, Exchange. The Securities are in registered form only without coupons in denominations of $1,000(b) 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. 8. Persons Deemed Owners. The registered Holder of this Security shall be treated as the owner of it for all purposes. - ---------- (a) If applicable. (b) If applicable. Insert different or additional denominations and multiples. B-4 9. 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. 10. 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 of each Series affected by the amendment and any past default or compliance with any provision relating to any Series of 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 of such Series(a). 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 uncertificated Securities in addition to or in place of certificated Securities, to create a Series and establish its terms, to remove a Guarantor in respect of any Series 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. 11. 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. 12. 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. 13. 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 - ---------- (a) If different terms apply, insert a brief summary thereof. B-5 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. 14. 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. 15. Authentication. This Security shall not be valid until the Trustee signs the certificate of authentication on the other side of this Security. 16. 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). B-6 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 Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. B-7 [FORM OF NOTATION ON SECURITY RELATING TO GUARANTEE] GUARANTEE [List of Guarantors] (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. B-8 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. [List of Guarantors] By: -------------------------------------- B-9 EXHIBIT C Form of Certificate To Be Delivered in Connection with Transfers to Non-QIB Accredited Investors [Date] American Stock Transfer & Trust Company 6201 15th Avenue, 3rd Floor Brooklyn, NY 11219 Ladies and Gentlemen: In connection with our proposed purchase of [Name of Security] (the "Securities") of D.R. Horton, Inc., a Delaware corporation (the "Company"), we confirm that: 1. We have received a copy of the Offering Memorandum (the "Offering Memorandum"), dated [ ], relating to the Securities and such other information as we deem necessary in order to make our investment decision. We acknowledge that we have read and agreed to the matters stated in the section entitled "Notice to Investors" of such Offering Memorandum. 2. We understand that any subsequent transfer of the Securities is subject to certain restrictions and conditions set forth in the Indenture relating to the Securities (the "Indenture") as described in the Offering Memorandum and the undersigned agrees to be bound by, and not to resell, pledge or otherwise transfer the Securities except in compliance with, such restrictions and conditions and the Securities Act of 1933, as amended (the "Securities Act"), and all applicable state securities laws. 3. We understand that the offer and sale of the Securities have not been registered under the Securities Act, and that the Securities may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except as permitted in the following sentence. We agree, on our own behalf and on behalf of any accounts for which we are acting as hereinafter stated, that if we should sell any Securities, we will do so only (i) to the Company or any subsidiary thereof, (ii) inside the United States in accordance with Rule 144A under the Securities Act to a "qualified institutional buyer" (as defined in Rule 144A promulgated under the Securities Act), (iii) inside the United States to an institutional "accredited investor" (as defined below) that, prior to such transfer, furnishes (or has furnished on its behalf by a U.S. broker-dealer) to the Trustee (as defined in the Indenture) a signed letter containing certain representations and agreements relating to the restrictions on transfer of the Securities (the form of which letter can be obtained from the Trustee), (iv) outside the United States in accordance with Rule 904 of Regulation S promulgated under the Securities C-1 Act to non-U.S. persons, (v) pursuant to the exemption from registration provided by Rule 144 under the Securities Act (if available), or (vi) pursuant to an effective registration statement under the Securities Act, and we further agree to provide to any person purchasing any of the Securities from us a notice advising such purchaser that resales of the Securities are restricted as stated herein. 4. We understand that, on any proposed resale of any Securities, we will be required to furnish to the Trustee and the Company such certification, legal opinions and other information as the Trustee and the Company may reasonably require to confirm that the proposed sale complies with the foregoing restrictions. We further understand that the Securities purchased by us will bear a legend to the foregoing effect. 5. We are an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Securities, and we and any accounts for which we are acting are each able to bear the economic risk of our or their investment, as the case may be. 6. We are acquiring the Securities purchased by us for our account or for one or more accounts (each of which is an institutional "accredited investor") as to each of which we exercise sole investment discretion. You, the Company, the Trustee and others are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby. Very truly yours, [Name of Transferee] By: ------------------------------------- Name: Title: C-2 Exhibit D Form of Certificate To Be Delivered in Connection with Transfers Pursuant to Regulation S [Date] American Stock Transfer & Trust Company 6201 15th Avenue, 3rd Floor Brooklyn, NY 11219 Re: D.R. Horton, Inc. (the "Company") [Name of Security] (the "Securities") Ladies and Gentlemen: In connection with our proposed sale of $[ ] aggregate principal amount of the Securities, we confirm that such sale has been effected pursuant to and in accordance with Regulation S under the U.S. Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, we represent that: (1) the offer of the Securities was not made to a person in the United States; (2) either (a) at the time the buy order was originated, the transferee was outside the United States or we and any person acting on our behalf reasonably believed that the transferee was outside the United States, or (b) the transaction was executed in, on or through the facilities of a designated off-shore securities market and neither we nor any person acting on our behalf knows that the transaction has been pre-arranged with a buyer in the United States; (3) no directed selling efforts have been made in the United States in contravention of the requirements of Rule 903 or Rule 904 of Regulation S, as applicable; (4) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act; and (5) we have advised the transferee of the transfer restrictions applicable to the Securities. You, the Company and counsel for the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. Terms used in this certificate have the meanings set forth in Regulation S. D-1 Very truly yours, [Name of Transferor] By: --------------------------------- Authorized Signature D-2 EX-4.17 11 d96909ex4-17.txt 1ST SUPPLEMENTAL INDENTURE RE: 8.5% SENIOR NOTES EXHIBIT 4.17 EXECUTION COPY ================================================================================ D.R. HORTON, INC. AND THE GUARANTORS PARTY HERETO 8.5% SENIOR NOTES DUE 2012 ---------------------- FIRST SUPPLEMENTAL INDENTURE DATED AS OF APRIL 11, 2002 ---------------------- AMERICAN STOCK TRANSFER & TRUST COMPANY, TRUSTEE ================================================================================ TABLE OF CONTENTS
Page ---- ARTICLE ONE Scope of Supplemental Indenture; General ARTICLE TWO Certain Definitions ARTICLE THREE Covenants Section 3.01. Repurchase of Notes upon Change of Control........................25 Section 3.02. Limitations on Indebtedness.......................................26 Section 3.03. Limitations on Restricted Payments................................27 Section 3.04. Limitations on Transactions with Affiliates.......................29 Section 3.05. Limitations on Dispositions of Assets.............................30 Section 3.06. Limitations on Liens..............................................31 Section 3.07. Limitations on Restrictions Affecting Restricted Subsidiaries.....32 Section 3.08. Limitations on Mergers, Consolidations and Sales of Assets........33 Section 3.09. Reports to Holders of Notes.......................................34 ARTICLE FOUR Miscellaneous Section 4.01. Governing Law.....................................................34 Section 4.02. No Adverse Interpretation of Other Agreements.....................34 Section 4.03. No Recourse Against Others........................................35 Section 4.04. Successors and Assigns............................................35 Section 4.05. Duplicate Originals...............................................35 Section 4.06. Severability......................................................35
-i- FIRST SUPPLEMENTAL INDENTURE dated as of April 11, 2002 ("Supplemental Indenture"), to the Indenture dated as of April 11, 2002 (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 senior debt securities ("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 8.5% Senior Notes due 2012. The 8.5% Senior Notes due 2012 shall be substantially in the form attached hereto as Exhibit A (the "Initial Notes"), and the 8.5% Senior Notes due 2012 to be offered in exchange for the Initial Notes pursuant to the terms of the Registration Rights Agreement, shall be substantially in the form attached hereto as Exhibit B (the "Exchange Notes" and together with the Initial Notes, 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 holders thereof the Company and the Guarantors mutually covenant and agree with the Trustee, for the equal and ratable benefit of the holders, that the Indenture is supplemented and amended, to the extent expressed herein, as follows: 2 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 not be limited in aggregate principal amount, 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 "8.5% Senior Notes due 2012." The Initial Notes shall be in the form of Exhibit A and the Exchange Notes shall be in the form of Exhibit B hereto. The Notes shall be guaranteed by the Guarantors as provided in such form and the Indenture. If required, the Notes may bear an appropriate legend regarding original issue discount for federal income tax purposes. ARTICLE TWO CERTAIN DEFINITIONS The following terms have the meanings set forth below in this Supplemental Indenture. Capitalized terms used but not defined herein have the meanings ascribed to such terms in the Indenture. To the extent terms defined herein differ from the Indenture the terms defined herein will govern. "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. 3 "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. "Affiliate Transaction" has the meaning set forth in Section 3.03 hereof. "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 any Person of any Property having a fair market value in any transaction or series of related transactions of at least $10 million. 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, (v) any sale, transfer, conveyance, lease or other disposition of assets and properties of the Company that is governed by Section 3.08 hereof, or (iv) dispositions of mortgage loans and related assets and mortgage-backed securities in the ordinary course of a mortgage lending business. "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. "Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in New York, New York are authorized or obligated by law or executive order to close. 4 "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 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 5 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 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 Indebtedness 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 6 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. "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 (other than a Mortgage 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 7 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, (v) any extraordinary gain or loss together with any related provision for taxes, realized by the Company or any Restricted Subsidiary and (vi) any non-recurring expense recorded by the Company or any Restricted Subsidiary in connection with a merger accounted for as a "pooling-of-interests" transaction; provided, further, that for purposes of calculating Consolidated Net Income solely as it relates to 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 8 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 modified 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 any 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 9 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 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. "Event of Default" means: (1) the failure by the Company to pay interest on any Note when the same becomes due and payable and the continuance of any such failure for a period of 30 days; (2) the failure by the Company to pay the principal or premium of any Note when the same becomes due and payable at maturity, upon acceleration or otherwise; (3) the failure by the Company or any Restricted Subsidiary to comply with any of its agreements or covenants in, or provisions of, the Notes, the Guarantees or the Indenture and such failure continues for the period and after the notice specified below (except in the case of a default under Section 3.01 or 3.08, which will constitute Events of Default with notice but without passage of time); (4) the acceleration of any Indebtedness (other than Non-Recourse Indebtedness) of the Company or any Restricted Subsidiary that has an outstanding principal amount of $25 million or more, individually or in the aggregate, and such acceleration does not cease to exist, or such Indebtedness is not satisfied, in either case within 30 days after such acceleration; (5) the failure by the Company or any Restricted Subsidiary to make any principal or interest payment in an amount of $25 million or more, individually or in the aggregate, in respect of Indebtedness (other than Non-Recourse Indebtedness) of the Company or any Restricted Subsidiary within 30 days of such principal or interest becoming due and payable (after giving effect to any applicable grace period set forth in the documents governing such Indebtedness); 10 (6) a final judgment or judgments that exceed $25 million or more, individually or in the aggregate, for the payment of money having been entered by a court or courts of competent jurisdiction against the Company or any of its Restricted Subsidiaries and such judgment or judgments is not satisfied, stayed, annulled or rescinded within 60 days of being entered; (7) the Company or any Restricted Subsidiary that is a Significant Subsidiary pursuant to or within the meaning of any Bankruptcy Law: (A) commences a voluntary case, (B) consents to the entry of an order for relief against it in an involuntary case, (C) consents to the appointment of a Custodian of it or for all or substantially all of its property, or (D) makes a general assignment for the benefit of its creditors; (8) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (A) is for relief against the Company or any Restricted Subsidiary that is a Significant Subsidiary as debtor in an involuntary case, (B) appoints a Custodian of the Company or any Restricted Subsidiary that is a Significant Subsidiary or a Custodian for all or substantially all of the property of the Company or any Restricted Subsidiary that is a Significant Subsidiary, or (C) orders the liquidation of the Company or any Restricted Subsidiary that is a Significant Subsidiary, and the order or decree remains unstayed and in effect for 60 days; or (9) any Guarantee of a Guarantor which is a Significant Subsidiary ceases to be in full force and effect (other than in accordance with the terms of such Guarantee and the Indenture) or is declared null and void and unenforceable or found to be invalid or any Guarantor denies its liability under its Guarantee (other than by reason of release of a Guarantor from its Guarantee in accordance with the terms of the Indenture and the Guarantee). "Exchange Notes" has the meaning provided in the Recitals. 11 "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 from time to time. "Guarantors" means (i) initially, on the Issue Date, each of: Allegra, LLC, a California limited liability company; AP LHI, Inc., a California corporation; AP Western GP Corporation, a Delaware corporation; AP WP Operating Corporation, a Delaware corporation; AP WP Partners, L.P., a Delaware limited partnership; APLAM, LLC, a California limited liability company; C. Richard Dobson Builders, Inc., a Virginia corporation; CH Investments of Texas, Inc., a Delaware corporation; CHI Construction Company, an Arizona corporation; CHTEX of Texas, Inc., a Delaware corporation; Continental Homes of Florida, Inc., a Florida corporation; Continental Homes of Texas, L.P., a Texas limited partnership; Continental Homes, Inc., a Delaware corporation; Continental Residential, Inc., a California corporation; D.R. Horton - Emerald, Ltd., a Texas limited partnership; D.R. Horton - Texas, Ltd., a Texas limited partnership; D.R. Horton Los Angeles Holding Company, Inc., a California corporation; D.R. Horton Management Company, Ltd., a Texas limited partnership; D.R. Horton San Diego Holding Company, Inc., a California corporation; D.R. Horton, Inc. - Birmingham, an Alabama corporation; D.R. Horton, Inc. - Chicago, a Delaware corporation; D.R. Horton, Inc. - Denver, a Delaware corporation; D.R. Horton, Inc. - Dietz-Crane, a Delaware corporation; D.R. Horton, Inc. - Greensboro, a Delaware corporation; D.R. Horton, Inc. - Jacksonville, a Delaware corporation; 12 D.R. Horton, Inc. - Louisville, a Delaware corporation; D.R. Horton, Inc. - Minnesota, a Delaware corporation; D.R. Horton, Inc. - New Jersey, a Delaware corporation; D.R. Horton, Inc. - Portland, a Delaware corporation; D.R. Horton, Inc. - Sacramento, a California corporation; D.R. Horton, Inc. - Torrey, a Delaware corporation; D.R. Horton-Schuler Homes, LLC, a Delaware limited liability company; DRH Cambridge Homes, Inc., a California corporation; DRH Cambridge Homes, LLC, a Delaware limited liability company; DRH Construction, Inc., a Delaware corporation; DRH Regrem II, Inc., a Delaware corporation; DRH Regrem III, Inc., a Delaware corporation; DRH Regrem IV, Inc., a Delaware corporation; DRH Regrem V, Inc., a Delaware corporation; DRH Regrem VII, LP, a Texas limited partnership; DRH Regrem VIII, LLC, a Delaware limited liability company; DRH Southwest Construction, Inc., a California corporation; DRH Title Company of Colorado, Inc., a Colorado corporation; DRH Tucson Construction, Inc., a Delaware corporation; DRHI, Inc., a Delaware corporation; HPH Homebuilders 2000 L.P., a California limited partnership; KDB Homes, Inc., a Delaware corporation; LAMCO Housing, Inc., a California corporation; Meadows I, Ltd., a Delaware limited partnership; Meadows II, Ltd., a Delaware limited partnership; Meadows VIII, Ltd., a Delaware limited partnership; Meadows IX, Inc., a New Jersey corporation; Meadows X, Inc., a New Jersey corporation; Melody Homes, Inc., a Delaware corporation; Melmort Co., a Colorado corporation; Porter GP LLC, a Delaware limited liability company; Schuler Homes of Arizona LLC, a Delaware limited liability company; Schuler Homes of California, Inc., a California corporation; Schuler Homes of Oregon, Inc., an Oregon corporation; Schuler Homes of Washington, Inc., a Washington corporation; Schuler Mortgage, Inc., a Delaware corporation; Schuler Realty Hawaii, Inc., a Hawaii corporation; Schuler Realty/Maui, Inc., a Hawaii corporation; SGS Communities at Grande Quay, LLC, a New Jersey limited liability company; SHA Construction LLC, a Delaware limited liability company; 13 SHLR of California, Inc., a California corporation; SHLR of Colorado, Inc., a Colorado corporation; SHLR of Nevada, Inc., a Nevada corporation; SHLR of Utah, Inc., a Utah corporation; SHLR of Washington, Inc., a Washington corporation; SRHI LLC, a Delaware limited liability company; SSHI LLC, a Delaware limited liability company; Vertical Construction Corporation, a Delaware corporation; Western Pacific Funding, Inc., a California corporation; Western Pacific Housing Co., a California corporation; Western Pacific Housing Management, Inc., a California corporation; Western Pacific Housing, Inc., a Delaware corporation; Western Pacific Housing-Antigua, LLC, a Delaware limited liability company; Western Pacific Housing-Aviara, L.P., a California limited partnership; Western Pacific Housing-Boardwalk, LLC, a Delaware limited liability company; Western Pacific Housing-Broadway, LLC, a Delaware limited liability company; Western Pacific Housing-Canyon Park, LLC, a Delaware limited liability company; Western Pacific Housing-Carmel, LLC, a Delaware limited liability company; Western Pacific Housing-Carrillo, LLC, a Delaware limited liability company; Western Pacific Housing-Communications Hill, LLC, a Delaware limited liability company; Western Pacific Housing-Copper Canyon, LLC, a Delaware limited liability company; Western Pacific Housing-Creekside, LLC, a Delaware limited liability company; Western Pacific Housing-Culver City, L.P., a California limited partnership; Western Pacific Housing-Del Valle, LLC, a Delaware limited liability company; Western Pacific Housing-Lomas Verdes, LLC, a Delaware limited liability company; Western Pacific Housing-Lost Hills Park, LLC, a Delaware limited liability company; Western Pacific Housing-McGonigle Canyon, LLC, a Delaware limited liability company; Western Pacific Housing-Mountaingate, L.P., a California limited partnership; Western Pacific Housing-Norco Estates, LLC, a Delaware limited liability company; Western Pacific Housing-Oso, L.P., a California limited partnership; 14 Western Pacific Housing-Pacific Park II, LLC, a Delaware limited liability company; Western Pacific Housing-Park Avenue East, LLC, a Delaware limited liability company; Western Pacific Housing-Park Avenue West, LLC, a Delaware limited liability company; Western Pacific Housing-Playa Vista, LLC, a Delaware limited liability company; Western Pacific Housing-Poinsettia, L.P., a California limited partnership; Western Pacific Housing-River Ridge, LLC, a Delaware limited liability company; Western Pacific Housing-Robinhood Ridge, LLC, a Delaware limited liability company; Western Pacific Housing-Santa Fe, LLC, a Delaware limited liability company; Western Pacific Housing-Scripps II, LLC, a Delaware limited liability company; Western Pacific Housing-Scripps, L.P., a California limited partnership; Western Pacific Housing-Seacove, L.P., a California limited partnership; Western Pacific Housing-Studio 528, LLC, a Delaware limited liability company; Western Pacific Housing-Terra Bay Duets, LLC, a Delaware limited liability company; Western Pacific Housing-Torrance, LLC, a Delaware limited liability company; Western Pacific Housing-Torrey Commercial, LLC, a Delaware limited liability company; Western Pacific Housing-Torrey Meadows, LLC, a Delaware limited liability company; Western Pacific Housing-Torrey Multi-Family, LLC, a Delaware limited liability company; Western Pacific Housing-Torrey Village Center, LLC, a Delaware limited liability company; Western Pacific Housing-Vineyard Terrace, LLC, a Delaware limited liability company; Western Pacific Housing-Windemere, LLC, a Delaware limited liability company; Western Pacific Housing-Windflower, L.P., a California limited partnership; WPH-Camino Ruiz, LLC, a Delaware limited liability company; WPH-HPH, LLC, a Delaware limited liability company; 15 and (ii) each of the Company's Subsidiaries which becomes a guarantor of Notes pursuant to the provisions of the Indenture. An Unrestricted Subsidiary may become a Guarantor if it (x) is so designated by resolution of the Board of Directors of the Company and (y) executes a supplemental indenture satisfactory to the Trustee. "Holder" means the Person in whose name a Note is registered in the books of the Registrar for the Notes. "incurrence" has the meaning set forth in Section 3.01. "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 or similar instrument 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 respect 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. "Indenture" has the meaning provided in the Recitals. "Initial Notes" has the meaning provided in the Recitals. 16 "Initial Purchasers" means Salomon Smith Barney Inc., Banc of America Securities LLC, Credit Lyonnais Securities (USA) Inc., and Fleet Securities, Inc. "Intangible Assets" of the Company means all unamortized debt discount and expense, unamortized deferred charges, goodwill, patents, trademarks, service marks, trade names, copyrights, write-ups 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" means, with respect to the Notes, the sum of interest and any Liquidated Damages on the Notes. "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, amortization of other financing fees and expenses, the interest portion of any deferred payment obligation, amortization of discount or premium, if any, and all other 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 Indebtedness permitted to be incurred under this Supplemental Indenture. 17 "Investment Grade" shall mean BBB- or higher by S&P or Baa3 or higher by Moody's or the equivalent of such ratings by S&P or Moody's. "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 agreement, capital lease or other title retention agreement relating to such Property. "Liquidated Damages" shall have the meaning provided in paragraph 6 of the Initial Note. "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. "Moody's" means Moody's Investors Service, Inc. or any successor to its debt rating business. "Mortgage Subsidiary" means any Subsidiary of the Company substantially all of whose operations consist of the mortgage lending business. "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 18 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 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. "Notes" has the meaning provided in the Recitals. "Paying Agent" means the Trustee or any successor paying agent. "Permitted Indebtedness" means (i) Indebtedness under Credit Facilities which does not exceed $1.0 billion principal amount outstanding at any one time; (ii) Indebtedness in respect of obligations of the Company and its Subsidiaries to the trustees under indentures for debt securities; (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 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 19 Subsidiary under any Currency Agreements or Interest Protection Agreements in a notional amount no greater than the payments due (at the time the related Currency Agreement or Interest Protection Agreement is entered into) with respect to the Indebtedness or currency being hedged; (v) Purchase Money Indebtedness; (vi) Capitalized Lease Obligations; (vii) obligations for, pledge of assets in respect of, and guaranties of, bond financings of political subdivisions or enterprises thereof in the ordinary course of business; (viii) Indebtedness secured only by office buildings owned or occupied by the Company or any Restricted Subsidiary, which Indebtedness does not exceed $20 million aggregate principal amount outstanding at any one time; (ix) Indebtedness under warehouse lines of credit, repurchase agreements and Indebtedness secured by mortgage loans and related assets of mortgage lending Subsidiaries in the ordinary course of a mortgage lending business; and (x) Indebtedness of the Company or any Restricted Subsidiary which, together with all other Indebtedness under this clause (x), 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 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 $1 million shall have been approved by the Board of Directors of the Company or a committee thereof consisting of disinterested members; (vii) Investments in joint ventures in a Real Estate Business with unaffiliated third parties in an aggregate amount at any time outstanding not to exceed 10% of Consolidated Tangible Assets at such time; (viii) Investments in interests in issuances of collateralized mortgage obligations, mortgages, mortgage loan securities or other mortgage related assets; and (ix) Investments in an aggregate amount outstanding not to exceed $100 million. "Permitted Liens" means (i) Liens for taxes, assessments or governmental or quasi-government charges or claims that (a) are not yet delinquent, (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, or (c) encumber solely property abandoned or in the process of being abandoned, (ii) statutory Liens of 20 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 Employee Retirement Income Security Act of 1974, as amended) incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, (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, utility services, developer's or other obligations to make on-site or off-site improvements 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, dedications, assessment district or similar liens in connection with municipal or special district financing, rights-of-way, restrictions, reservations, other similar charges, burdens, and other similar charges or encumbrances not materially interfering with the ordinary 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 incurred pursuant to clause (viii) or (ix) 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 consolidated 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 and Indebtedness incurred pursuant to clause (ix) of the definition of Permitted Indebtedness) 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 21 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 right of first refusal, right of first offer, option, contract or other agreement to sell an asset; provided, that 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 other similar instruments or providing earnest money obligations, escrows or similar purpose undertakings or indemnifications in the ordinary course of business of the Company and its Restricted Subsidiaries, (xviii) Liens for homeowner and property owner association developments and assessments, (xix) Liens securing Refinancing Indebtedness; provided, that such Liens extend only to the assets securing the Indebtedness being refinanced, and (xx) Liens incurred in the ordinary course of business as security for the obligations of the Company and its Restricted Subsidiaries with respect to indemnification in respect of title insurance providers. "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. 22 "Rating Agencies" shall mean (1) S&P and (2) Moody's. "Real Estate Business" means homebuilding, housing construction, real estate development or construction and related real estate activities, including the provision of mortgage financing or title insurance. "Refinancing Indebtedness" means Indebtedness (to the extent not Permitted Indebtedness) that refunds, refinances or 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. "Registrar" means American Stock Transfer & Trust Company or any successor registrar of the Notes. "Registration Rights Agreement" means that certain registration rights agreement by and among the Company, the Guarantors and the Initial Purchasers dated as of April 11, 2002. "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). 23 "Restricted Subsidiary" means any Subsidiary of the Company which is not an Unrestricted Subsidiary. "S&P" means Standard and Poor's Ratings Group or any successor to its debt rating business. "Securities" has the meaning provided in the Recitals. "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. "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. "Successor" has the meaning set forth in Section 3.08. "Supplemental Indenture" has the meaning provided in the Preamble. "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 24 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. In accordance with the foregoing, and not in limitation thereof, Investments made by any Person in any Subsidiary of such Person prior to such Person's merger with the Company or any Restricted Subsidiary (but not in contemplation or anticipation of such merger) shall not be counted as an Investment by the Company or such Restricted Subsidiary if such Subsidiary of such Person is designated as an Unrestricted Subsidiary. 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, 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 and (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. 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. 25 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 part of such Holder's Notes on a date (the "Repurchase Date") that is no later than 90 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. 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) Until the Notes are rated Investment Grade by both Rating Agencies (after which time the following covenant will no longer be in effect), 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 26 represented by the Notes and (v) any guarantee of Indebtedness incurred under Credit Facilities in compliance with this Indenture. (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) Until the Notes are rated Investment Grade by both Rating Agencies (after which time the following covenant will no longer be in effect), 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 April 1, 1998 and ending on the 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 27 proceeds of and the fair market value of Property received by the Company from (1) any capital contribution to the Company after June 9, 1997 or any issue or sale after June 9, 1997 of Qualified Stock (other than to any Subsidiary of the Company) and (2) the issue or sale after June 9, 1997 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) $86.0 million, which is equal to the aggregate principal amount of the Company's 6-7/8% Convertible Subordinated Notes due 2002 that were converted into the Company's Common Equity prior to the Issue Date, plus (d) in the case of the disposition or repayment of any Investment constituting a Restricted Payment made after the June 9, 1997, 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 (e) with respect to any Unrestricted Subsidiary that is redesignated as a Restricted Subsidiary after June 9, 1997 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 June 9, 1997 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 (f) $50 million minus (g) the aggregate amount of all Restricted Payments (other than Restricted Payments referred to in clause (C) of the immediately succeeding paragraph) made after June 9, 1997 through the Issue Date. (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 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 $20 million in the aggregate since the Issue Date; provided, however, that each Restricted Payment described 28 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 do 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) Until the Notes are rated Investment Grade by both Rating Agencies (after which time the following covenant will no longer be in effect), the Company will not, and will not cause or permit any Restricted Subsidiary to, make any loan, advance, guarantee 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. 29 (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 $10 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 $50 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 Section 3.03, (iv) any transaction between or among the Company and one or more Restricted 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. Until the Notes are rated Investment Grade by both Rating Agencies (after which time the following covenant will no longer be in effect), 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 Indebtedness subordinated to the Notes) 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. 30 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 for the Notes and, if the Company or a Restricted Subsidiary elects or is required to do so, repay, purchase or redeem any other unsubordinated Indebtedness (on a pro rata basis if the amount available for such repayment, purchase or redemption 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 repayment, purchase or redemption) 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 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. 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 3.07. 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 31 encumbrance or restriction (other than encumbrances or restrictions imposed by law or by judicial or regulatory action or by provisions 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 3.08. 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, 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 32 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) unless prior to such transaction the Notes are rated Investment Grade by both Rating Agencies (after which this clause (iv) shall not apply), 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 3.09. 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 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. 33 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 Initial Note and paragraph 12 of the Exchange Note of any director, officer, employee or stockholder, as such, of the Company or any Guarantor 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. 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. [Signature Pages Follow] 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: /s/ SAMUEL R. FULLER --------------------------------------------- Samuel R. Fuller Executive Vice President, Treasurer and Chief Financial Officer S-1 AMERICAN STOCK TRANSFER & TRUST COMPANY, as Trustee By: /s/ HERBERT J. LEMMER ----------------------------------- Name: Herbert J. Lemmer Title: Vice President S-2 GUARANTORS: C. RICHARD DOBSON BUILDERS, INC. CHI CONSTRUCTION COMPANY CHTEX OF TEXAS, INC. CONTINENTAL HOMES, INC. CONTINENTAL HOMES OF FLORIDA, INC. CONTINENTAL RESIDENTIAL, INC. D.R. HORTON, INC. - BIRMINGHAM D.R. HORTON, INC. - CHICAGO D.R. HORTON, INC. - DENVER D.R. HORTON, INC. - DIETZ-CRANE D.R. HORTON, INC. - GREENSBORO D.R. HORTON, INC. - JACKSONVILLE D.R. HORTON, INC. - LOUISVILLE D.R. HORTON, INC. - MINNESOTA D.R. HORTON, INC. - NEW JERSEY D.R. HORTON, INC. - PORTLAND D.R. HORTON, INC. - SACRAMENTO D.R. HORTON, INC. - TORREY D.R. HORTON LOS ANGELES HOLDING COMPANY, INC. D.R. HORTON SAN DIEGO HOLDING COMPANY, INC. DRH CAMBRIDGE HOMES, INC. DRH CONSTRUCTION, INC. DRH REGREM II, INC. DRH REGREM III, INC. DRH REGREM IV, INC. DRH REGREM V, INC. DRH SOUTHWEST CONSTRUCTION, INC. DRH TITLE COMPANY OF COLORADO, INC. DRH TUCSON CONSTRUCTION, INC. DRHI, INC. KDB HOMES, INC. MEADOWS I, LTD. MEADOWS VIII, LTD. MEADOWS IX, INC. MEADOWS X, INC. By: /s/ SAMUEL R. FULLER ------------------------------------------------- Samuel R. Fuller Treasurer First Supplemental Indenture S-3 CH INVESTMENTS OF TEXAS, INC. MEADOWS II, LTD. By: /s/ WILLIAM PECK ------------------------------------------------ William Peck President First Supplemental Indenture S-4 CONTINENTAL HOMES OF TEXAS, L.P. By: CHTEX of Texas, Inc., its general partner By: /s/ SAMUEL R. FULLER ------------------------------------------- Samuel R. Fuller, Treasurer D.R. HORTON MANAGEMENT COMPANY, LTD. D.R. HORTON - EMERALD, LTD. D.R. HORTON - TEXAS, LTD. DRH REGREM VII, LP By: Meadows I, Ltd., its general partner By: /s/ SAMUEL R. FULLER ------------------------------------------- Samuel R. Fuller Treasurer SGS COMMUNITIES AT GRANDE QUAY, LLC By: Meadows IX, Inc., a member By: /s/ SAMUEL R. FULLER ------------------------------------------- Samuel R. Fuller Treasurer and By: Meadows X, Inc., a member By: /s/ SAMUEL R. FULLER ------------------------------------------- Samuel R. Fuller Treasurer DRH CAMBRIDGE HOMES, LLC DRH REGREM VIII, LLC By: D.R. Horton, Inc. - Chicago, a member By: /s/ SAMUEL R. FULLER ------------------------------------------- Samuel R. Fuller Treasurer First Supplemental Indenture S-5 ALLEGRA, LLC APLAM, LLC WESTERN PACIFIC HOUSING CO. WESTERN PACIFIC HOUSING-ANTIGUA, LLC WESTERN PACIFIC HOUSING-AVIARA, L.P. WESTERN PACIFIC HOUSING-BOARDWALK, LLC WESTERN PACIFIC HOUSING-BROADWAY, LLC WESTERN PACIFIC HOUSING-CANYON PARK, LLC WESTERN PACIFIC HOUSING-CARMEL, LLC WESTERN PACIFIC HOUSING-CARRILLO, LLC WESTERN PACIFIC HOUSING-COMMUNICATIONS HILL, LLC WESTERN PACIFIC HOUSING-CREEKSIDE, LLC WESTERN PACIFIC HOUSING-CULVER CITY, L.P. WESTERN PACIFIC HOUSING-LOMAS VERDES, LLC WESTERN PACIFIC HOUSING-LOST HILLS PARK, LLC WESTERN PACIFIC HOUSING-MCGONIGLE CANYON, LLC WESTERN PACIFIC HOUSING-MOUNTAINGATE, L.P. WESTERN PACIFIC HOUSING-NORCO ESTATES, LLC WESTERN PACIFIC HOUSING-OSO, L.P. WESTERN PACIFIC HOUSING-PARK AVENUE EAST, LLC WESTERN PACIFIC HOUSING-PARK AVENUE WEST, LLC WESTERN PACIFIC HOUSING-PLAYA VISTA, LLC WESTERN PACIFIC HOUSING-ROBINHOOD RIDGE, LLC WESTERN PACIFIC HOUSING-SANTA FE, LLC WESTERN PACIFIC HOUSING-SCRIPPS II, LLC WESTERN PACIFIC HOUSING-SCRIPPS, L.P. WESTERN PACIFIC HOUSING-SEACOVE, L.P. WESTERN PACIFIC HOUSING-STUDIO 528, LLC WESTERN PACIFIC HOUSING-TERRA BAY DUETS, LLC WESTERN PACIFIC HOUSING-TORRANCE, LLC WESTERN PACIFIC HOUSING-TORREY COMMERCIAL, LLC WESTERN PACIFIC HOUSING-TORREY MEADOWS, LLC WESTERN PACIFIC HOUSING-TORREY MULTI-FAMILY, LLC WESTERN PACIFIC HOUSING-TORREY VILLAGE CENTER, LLC WESTERN PACIFIC HOUSING-VINEYARD TERRACE, LLC WESTERN PACIFIC HOUSING-WINDEMERE, LLC WESTERN PACIFIC HOUSING-WINDFLOWER, L.P. WPH-CAMINO RUIZ, LLC WPH-HPH, LLC By: LAMCO Housing, Inc., its Member or General Partner By: /s/ SAMUEL R. FULLER ------------------------------------------- Samuel R. Fuller Vice President First Supplemental Indenture S-6 SCHULER HOMES OF ARIZONA LLC SHA CONSTRUCTION LLC By: SRHI LLC, its Member By: SLHR of Nevada, Inc., its Member By: /s/ SAMUEL R. FULLER ----------------------------- Samuel R. Fuller Vice President HPH HOMEBUILDERS 2000 L.P. PORTER GP LLC By: WPH-HPH, LLC, its General Partner or Member By: LAMCO Housing, Inc., its Member By: /s/ SAMUEL R. FULLER ----------------------------- Samuel R. Fuller Vice President AP LHI, INC. AP WESTERN GP CORPORATION AP WP OPERATING CORPORATION LAMCO HOUSING, INC. MELODY HOMES, INC. MELMORT CO. SCHULER HOMES OF CALIFORNIA, INC. SCHULER HOMES OF OREGON, INC. SCHULER HOMES OF WASHINGTON, INC. SCHULER MORTGAGE, INC. SCHULER REALTY HAWAII, INC. SCHULER REALTY/MAUI, INC. SHLR OF CALIFORNIA, INC. SHLR OF COLORADO, INC. SHLR OF NEVADA, INC. SHLR OF UTAH, INC. SHLR OF WASHINGTON, INC. VERTICAL CONSTRUCTION CORPORATION WESTERN PACIFIC FUNDING, INC. WESTERN PACIFIC HOUSING MANAGEMENT, INC. WESTERN PACIFIC HOUSING, INC. By: /s/ SAMUEL R. FULLER ----------------------------------------------- Samuel R. Fuller Vice President First Supplemental Indenture S-7 D.R. HORTON-SCHULER HOMES, LLC By: Vertical Construction Corporation, its Manager By: /s/ SAMUEL R. FULLER ----------------------------------------------- Samuel R. Fuller Vice President SRHI LLC By: SHLR of Nevada, Inc., its Member By: /s/ SAMUEL R. FULLER ----------------------------------------------- Samuel R. Fuller Vice President SSHI LLC By: SHLR of Washington, Inc., its Member By: /s/ SAMUEL R. FULLER ----------------------------------------------- Samuel R. Fuller Vice President WESTERN PACIFIC HOUSING-COPPER CANYON, LLC WESTERN PACIFIC HOUSING-PACIFIC PARK II, LLC WESTERN PACIFIC HOUSING-POINSETTIA, L.P. WESTERN PACIFIC HOUSING-DEL VALLE, LLC By: AP Western GP Corporation, its Member or General Partner By: /s/ SAMUEL R. FULLER ----------------------------------------------- Samuel R. Fuller Vice President WESTERN PACIFIC HOUSING-RIVER RIDGE, LLC By: AP LHI, Inc., its Member By: /s/ SAMUEL R. FULLER ----------------------------------------------- Samuel R. Fuller Vice President AP WP PARTNERS, L.P. By: AP WP Operating Corporation, its General Partner By: /s/ SAMUEL R. FULLER ----------------------------------------------- Samuel R. Fuller Vice President First Supplemental Indenture S-8 EXHIBIT A NO. CUSIP NO.: ------- 8.5% SENIOR NOTES DUE 2012 D.R. HORTON, INC. A DELAWARE CORPORATION promises to pay to or registered assigns the principal sum of Dollars on April 15, 2012 8.5% Senior Notes Due 2012 Interest Payment Dates: April 15 and October 15, commencing October 15, 2002. Record Dates: April 1 and October 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 Notes referred to in the within mentioned Indenture. By: ----------------------------------------- Authorized Signatory A-1 D.R. HORTON, INC. 8.5% SENIOR NOTES DUE 2012 1. Interest. D.R. HORTON, INC. (the "Company"), a Delaware corporation, promises to pay interest on the principal amount of this Note at the rate per annum shown above. The Company will pay interest semiannually on April 15 and October 15 of each year, commencing October 15, 2002, until the principal is paid or made available for payment. Interest on the Notes 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 April 11, 2002, provided that, if there is no existing default in the payment of interest, and if this Note 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 Notes (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 Notes at the close of business on the April 1 and October 1 immediately preceding the interest payment date. Holders must surrender Notes 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 or any of their Affiliates may act as Paying Agent, Registrar or co-Registrar. 4. Indenture. The Company issued the Notes under an Indenture dated as of April 11, 2002, as supplemented ("Indenture"), among the Company, the Guarantors and the Trustee. The terms of the Notes and the Guarantees include those stated in the Indenture and those made part of the Indenture (including those terms set forth in the Authorizing Resolution or supplemental indenture pertaining to the Securities of the Series of which this Note is a part) by reference to the Trust Indenture Act of 1939 ("TIA") as in effect on the date of the Indenture. The Notes and the Guarantees are subject to all such terms, and Holders 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 Notes include the Initial Notes and the A-2 Exchange Notes issued in exchange for the Initial Notes pursuant to the Registration Rights Agreement (as hereinafter defined). The Company will furnish to any Holder 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. Optional Redemption. Except as set forth below, the Notes are not redeemable prior to April 15, 2007. Thereafter, the Notes will be redeemable in whole or in part, from time to time at the option of the Company, at the following redemption prices (expressed as percentages of principal amount) if redeemed during the twelve month period beginning with April 15 of the year indicated below, in each case together with accrued and unpaid interest (including any Liquidated Damages), if any, thereon to the date of redemption:
Year Percentage ---- ---------- 2007...................................... 104.250% 2008...................................... 102.833% 2009...................................... 101.417% 2010 and thereafter....................... 100.000%
In addition, the Company may redeem Notes, at any time and from time to time, on or prior to April 15, 2005, with the net cash proceeds of one or more Public Equity Offerings by the Company, at a redemption price equal to 108.5% of the principal amount of such Notes, plus accrued and unpaid interest (including any Liquidated Damages), if any, to the date of redemption; provided, that at least 65% of the aggregate principal amount of Notes, excluding any Notes held by the Company or any of its Affiliates, remains outstanding immediately after the occurrence of such redemption. Notice of any such redemption must be given within 60 days after the date of the closing of the relevant Public Equity Offering. Selection of the Notes or portions thereof for redemption pursuant to the foregoing shall be made by the Trustee only on a pro rata basis or on as nearly a pro rata basis as is practicable (subject to the procedures of The Depository Trust Company), unless such method is otherwise prohibited. Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder whose Notes are to be redeemed at the registered address of such Holder. Notes in denominations larger than $1,000 may be redeemed in part. On and after the redemption date, interest ceases to accrue on the Notes or portions thereof called for redemption, provided that if the Company shall default in the payment of such Notes at the redemption price together with accrued interest, interest shall continue to accrue at the rate borne by the Notes. A-3 6. Registration Rights Agreement. The Holder of this Note is entitled to the benefits of a Registration Rights Agreement, dated as of April 11, 2002, among the Company, the Guarantors and the Initial Purchasers named therein (as such may be amended from time to time, the "Registration Rights Agreement"). Capitalized terms used in this subsection but not defined herein have the meanings assigned to them in the Registration Rights Agreement. If (i) within 90 days after the Issue Date, neither the Exchange Offer Registration Statement nor the Shelf Registration Statement has been filed with the Commission; (ii) within 150 days after the Issue Date, the Exchange Offer Registration Statement or the Shelf Registration Statement, as applicable, has not been declared effective; (iii) within 180 days after the Issue Date, the Exchange Offer has not been consummated; or (iv) after either the Exchange Offer Registration Statement or the Shelf Registration Statement has been declared effective, such Registration Statement thereafter ceases to be effective or usable (subject, in the case of the Shelf Registration Statement, to the exceptions set forth in the Registration Rights Agreement) in connection with resales of Initial Notes or Exchange Notes in accordance with and during the periods specified in Sections 2 and 3 of the Registration Rights Agreement (each such event referred to in clauses (i) through (iv), a "Registration Default"), liquidated damages ("Liquidated Damages") will accrue on the Initial Notes and the Exchange Notes from and including the date on which any such Registration Default shall occur to but excluding the date on which all Registration Defaults have been cured. Liquidated Damages will accrue at a rate equal to 0.25% per annum of the aggregate principal amount of the Notes during the 90-day period immediately following the occurrence of any Registration Default and shall increase by 0.25% per annum for each subsequent 90-day period during which such Registration Default continues, but in no event shall such Liquidated Damages exceed 1.00% per annum. 7. Denominations, Transfer, Exchange. The Notes are in registered form only without coupons in denominations of $1,000 and integral multiples of $1,000. A Holder may transfer or exchange Notes by presentation of such Notes to the Registrar or a co-Registrar with a request to register the transfer or to exchange them for an equal principal amount of Notes 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 Note selected for redemption, except the unredeemed part thereof if the Note is redeemed in part, or transfer or exchange any Notes for a period of 15 days before a selection of Notes to be redeemed. 8. Persons Deemed Owners. The registered Holder of this Note shall be treated as the owner of it for all purposes. A-4 9. 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. 10. Amendment, Supplement, Waiver. Subject to certain exceptions, the Indenture or the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the outstanding Notes and any past default or compliance with any provision relating to the Notes may be waived in a particular instance with the consent of the Holders of a majority in principal amount of the outstanding Notes. Without the consent of any Holder, the Company and the Trustee may amend or supplement the Indenture or the Notes to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, 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 Holder. 11. Successor Corporation. When a successor corporation assumes all the obligations of its predecessor under the Notes and the Indenture, the predecessor corporation will be released from those obligations. 12. 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. 13. 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 Notes or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Notes. 14. 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. A-5 15. Authentication. This Note shall not be valid until the Trustee signs the certificate of authentication on the other side of this Note. 16. Abbreviations. Customary abbreviations may be used in the name of a Holder 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-6 ASSIGNMENT FORM If you the Holder want to assign this Note, fill in the form below: I or we assign and transfer this Note 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 Note 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 Note) SIGNATURE GUARANTEE Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. In connection with any transfer of this Note occurring prior to the date which is the earlier of (i) the date of the declaration by the Commission of the effectiveness of a registration statement under the Securities Act of 1933, as amended (the "Securities Act") covering resales of this Note (which effectiveness shall not have been suspended or terminated at the A-7 date of the transfer) and (ii) two years from the Issue Date, the undersigned confirms that it has not utilized any general solicitation or general advertising in connection with the transfer: [Check One] (1) __ to the Company or a subsidiary thereof; or (2) __ pursuant to and in compliance with Rule 144A under the Securities Act of 1933, as amended; or (3) __ to an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act of 1933, as amended) that has furnished to the Trustee a signed letter containing certain representations and agreements (the form of which letter can be obtained from the Trustee); or (4) __ outside the United States to a "foreign person" in compliance with Rule 904 of Regulation S under the Securities Act of 1933, as amended; or (5) __ pursuant to the exemption from registration provided by Rule 144 under the Securities Act of 1933, as amended; or (6) __ pursuant to an effective registration statement under the Securities Act of 1933, as amended; or (7) __ pursuant to another available exemption from the registration requirements of the Securities Act of 1933, as amended; and unless the box below is checked, the undersigned confirms that such Note is not being transferred to an "affiliate" of the Company as defined in Rule 144 under the Securities Act of 1933, as amended (an "Affiliate"): A-8 [ ] The transferee is an Affiliate of the Company. Unless one of the items is checked, the Trustee will refuse to register any of the Notes evidenced by this certificate in the name of any person other than the registered Holder thereof; provided, however, that if item (3), (4), (5) or (7) is checked, the Company or the Trustee may require, prior to registering any such transfer of the Notes, in their sole discretion, such written legal opinions, certifications (including an investment letter in the case of box (3) or (7)) and other information as the Trustee or the Company has reasonably requested to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933, as amended. If none of the foregoing items are checked, the Trustee or Registrar shall not be obligated to register this Note in the name of any person other than the Holder hereof unless and until the conditions to any such transfer of registration set forth herein and in Section 2.14 of the Indenture shall have been satisfied. Dated: Signed: -------------------- ---------------------------------- (Sign exactly as name appears on the other side of this Note) Signature Guarantee: ----------------------------------- (Signature must be guaranteed) SIGNATURE GUARANTEE Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. A-9 TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED The undersigned represents and warrants that it is purchasing this Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act of 1933, as amended and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Dated: -------------- ------------------------------------------------ NOTICE: To be executed by an executive officer A-10 [FORM OF NOTATION ON SECURITY RELATING TO GUARANTEE] GUARANTEE [List of Guarantors] (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 Notes, whether at maturity, by acceleration or otherwise, the due and punctual payment of interest on the overdue principal and interest, if any, on the Notes, 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 Notes 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 Note by accepting a Note 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 Note by accepting a Note 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. A-11 The Guarantee shall not be valid or obligatory for any purpose until the certificate of authentication on the Notes 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. [List of Guarantors] By: ------------------------------------ Title: A-12 EXHIBIT B NO. CUSIP NO.: ------- 8.5% SENIOR NOTES DUE 2012 D.R. HORTON, INC. A DELAWARE CORPORATION promises to pay to or registered assigns the principal sum of Dollars on April 15, 2012 8.5% Senior Notes Due 2012 Interest Payment Dates: April 15 and October 15, commencing October 15, 2002. Record Dates: April 1 and October 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 Notes referred to in the within mentioned Indenture. By: -------------------------------------- Authorized Signatory B-1 D.R. HORTON, INC. 8.5% SENIOR NOTES DUE 2012 1. Interest. D.R. HORTON, INC. (the "Company"), a Delaware corporation, promises to pay interest on the principal amount of this Note at the rate per annum shown above. The Company will pay interest semiannually on April 15 and October 15 of each year, commencing October 15, 2002, until the principal is paid or made available for payment. Interest on the Notes 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 April 11, 2002, provided that, if there is no existing default in the payment of interest, and if this Note 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 Notes (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 Notes at the close of business on the April 1 and October 1 immediately preceding the interest payment date. Holders must surrender Notes 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 or any of their Affiliates may act as Paying Agent, Registrar or co-Registrar. 4. Indenture. The Company issued the Notes under an Indenture dated as of April 11, 2002, as supplemented ("Indenture"), among the Company, the Guarantors and the Trustee. This Note is one of the duly authorized Exchange Notes of the Company designated as its 8.5% Senior Notes due 2012 (the "Exchange Notes"). The terms of the Notes and the Guarantees include those stated in the Indenture (including those terms set forth in the Authorizing Resolution or supplemental indenture pertaining to the Securities of the Series of which this Note is a part) 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 Notes and the Guarantees are subject to all such terms, and Holders 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. B-2 The Notes include the Initial Notes and the Exchange Notes issued in exchange for the Initial Notes pursuant to the Registration Rights Agreement (as hereinafter defined). The Company will furnish to any Holder 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. Optional Redemption. Except as set forth below, the Notes are not redeemable prior to April 15, 2007. Thereafter, the Notes will be redeemable in whole or in part, from time to time at the option of the Company, at the following redemption prices (expressed as percentages of principal amount) if redeemed during the twelve month period beginning with April 15 of the year indicated below, in each case together with accrued and unpaid interest (including any Liquidated Damages), if any, thereon to the date of redemption:
Year Percentage ---- ---------- 2007...................................... 104.250% 2008...................................... 102.833% 2009...................................... 101.417% 2010 and thereafter....................... 100.000%
In addition, the Company may redeem Notes, at any time and from time to time, on or prior to April 15, 2005, with the net cash proceeds of one or more Public Equity Offerings by the Company, at a redemption price equal to 108.5% of the principal amount of such Notes, plus accrued and unpaid interest (including any Liquidated Damages), if any, to the date of redemption; provided, that at least 65% of the aggregate principal amount of Notes, excluding any Notes held by the Company or any of its Affiliates, remains outstanding immediately after the occurrence of such redemption. Notice of any such redemption must be given within 60 days after the date of the closing of the relevant Public Equity Offering. Selection of the Notes or portions thereof for redemption pursuant to the foregoing shall be made by the Trustee only on a pro rata basis or on as nearly a pro rata basis as is practicable (subject to the procedures of The Depository Trust Company), unless such method is otherwise prohibited. Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder whose Notes are to be redeemed at the registered address of such Holder. Notes in denominations larger than $1,000 may be redeemed in part. On and after the redemption date, interest ceases to accrue on the Notes or portions thereof called for redemption, provided that if the Company shall default in the payment of such Notes at the redemption price together with accrued interest, interest shall continue to accrue at the rate borne by the Notes. B-3 6. Denominations, Transfer, Exchange. The Notes are in registered form only without coupons in denominations of $1,0001 and integral multiples of $1,000. A Holder may transfer or exchange Notes by presentation of such Notes to the Registrar or a co-Registrar with a request to register the transfer or to exchange them for an equal principal amount of Notes 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 Note selected for redemption, except the unredeemed part thereof if the Note is redeemed in part, or transfer or exchange any Notes for a period of 15 days before a selection of Notes to be redeemed. 7. Persons Deemed Owners. The registered Holder of this Note 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 Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the outstanding Notes and any past default or compliance with any provision relating to the Notes may be waived in a particular instance with the consent of the Holders of a majority in principal amount of the outstanding Notes. Without the consent of any Holder, the Company and the Trustee may amend or supplement the Indenture or the Notes to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, 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 Holder. - ---------- a If applicable. Insert different or additional denominations and multiples. B-4 10. Successor Corporation. When a successor corporation assumes all the obligations of its predecessor under the Notes 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 Notes or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Notes. 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 Note shall not be valid until the Trustee signs the certificate of authentication on the other side of this Note. 15. Abbreviations. Customary abbreviations may be used in the name of a Holder 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). B-5 ASSIGNMENT FORM If you the Holder want to assign this Note, fill in the form below: I or we assign and transfer this Note 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 Note 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 Note) SIGNATURE GUARANTEE Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. B-6 [FORM OF NOTATION ON SECURITY RELATING TO GUARANTEE] GUARANTEE [List of Guarantors] (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 Notes, whether at maturity, by acceleration or otherwise, the due and punctual payment of interest on the overdue principal and interest, if any, on the Notes, 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 Notes 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 Note by accepting a Note 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 Note by accepting a Note 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. B-7 The Guarantee shall not be valid or obligatory for any purpose until the certificate of authentication on the Notes 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. [List of Guarantors] By: ---------------------------------- B-8 EX-4.18 12 d96909ex4-18.txt REGISTRATION RIGHTS RE: 8.5% SENIOR NOTES EXHIBIT 4.18 EXECUTION COPY D.R. HORTON, INC. $250,000,000 8.5% SENIOR NOTES DUE 2012 REGISTRATION RIGHTS AGREEMENT New York, New York April 11, 2002 Salomon Smith Barney Inc. Banc of America Securities LLC Credit Lyonnais Securities (USA) Inc. Fleet Securities, Inc. c/o Salomon Smith Barney Inc. as Representative of the Initial Purchasers 388 Greenwich Street New York, New York 10013 Ladies and Gentlemen: D.R. Horton, Inc., a corporation organized under the laws of the state of Delaware (the "Company"), proposes to issue and sell to you (the "Initial Purchasers") its 8.5% Senior Notes due 2012 (the "Notes") upon the terms set forth in a purchase agreement dated as of April 4, 2002 (the "Purchase Agreement") relating to the initial placement of the Notes (the "Initial Placement"). The Notes are to be issued under an indenture dated as of April 11, 2002 (the "Base Indenture") and a supplemental indenture dated as of April 11, 2002 (the "Supplemental Indenture" and together with the Base Indenture, the "Indenture") among the Company, the guarantors listed on the signature pages hereto (the "Guarantors" and, together with the Company, the "Issuers") and American Stock Transfer & Trust Company , as trustee (the "Trustee"). The Notes will have the benefit of the guarantees (the "Guarantees" and, together with the Notes, the "Securities") provided for in the Indenture. To induce the Initial Purchasers to purchase the Securities pursuant to the Purchase Agreement and to satisfy a condition of your obligations thereunder, the Issuers agree with you for your benefit and the benefit of the holders from time to time of the Securities and New Securities (as defined below) (including the Initial Purchasers) (each a "Holder" and, together, the "Holders"), as follows: 1. Definitions. Capitalized terms used herein without definition shall have their respective meanings set forth in the Purchase Agreement. As used in this Agreement, the following capitalized defined terms shall have the following meanings: -2- "Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations of the Commission promulgated thereunder. "Affiliate" of any specified Person shall mean any other Person that, directly or indirectly, is in control of, is controlled by, or is under common control with, such specified Person. For purposes of this definition, "control" of a Person shall mean the power, direct or indirect, to direct or cause the direction of the management and policies of such Person whether by contract or otherwise; and the terms "controlling" and "controlled" shall have meanings correlative to the foregoing. "Broker-Dealer" shall mean any broker or dealer registered as such under the Exchange Act. "Business Day" shall mean any day other than a Saturday, a Sunday or a legal holiday or a day on which banking institutions or trust companies are authorized or obligated by law to close in New York City. "Commission" shall mean the Securities and Exchange Commission. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission promulgated thereunder. "Exchange Offer Registration Period" shall mean the earlier of (i) the 180 day period following the consummation of the Registered Exchange Offer and (ii) the period following the consummation of the Registered Exchange Offer and the date upon which all Exchanging Dealers have sold all New Securities held by them; provided that the period referred to in clause (ii) above shall be exclusive of any period during which any stop order shall be in effect suspending the effectiveness of the Exchange Offer Registration Statement. "Exchange Offer Registration Statement" shall mean a registration statement of the Issuers on an appropriate form under the Act with respect to the Registered Exchange Offer, all amendments and supplements to such registration statement, including post-effective amendments thereto, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. "Exchanging Dealer" shall mean any Holder (which may include any Initial Purchaser) that is a Broker-Dealer and elects to exchange for New Securities any Securities that it acquired for its own account as a result of market-making activities or other trading activities (but not directly from any Issuer or any Affiliate of any Issuer ). "Guarantees" shall have the meaning set forth in the preamble hereto. "Guarantors" shall have the meaning set forth in the preamble hereto. -3- "Holder" shall have the meaning set forth in the preamble hereto. "Indenture" shall have the meaning set forth in the preamble hereto. "Initial Placement" shall have the meaning set forth in the preamble hereto. "Initial Purchasers" shall have the meaning set forth in the preamble hereto. "Issuers" shall have the meaning set forth in the preamble hereto. "Losses" shall have the meaning set forth in Section 6(d) hereof. "Majority Holders" shall mean the Holders of a majority of the aggregate principal amount of Securities registered under a Registration Statement. "Managing Underwriters" shall mean the investment banker or investment bankers and manager or managers that shall administer an underwritten offering. "New Securities" shall mean debt securities of the Issuers identical in all material respects to the Securities (except that the liquidated damages provisions and the transfer restrictions shall be modified or eliminated, as appropriate) and to be issued under the Indenture or the New Securities Indenture. "New Securities Indenture" shall mean an indenture among the Issuers and the New Securities Trustee, identical in all material respects to the Indenture (except that liquidated damages provisions will be modified or eliminated, as appropriate). "New Securities Trustee" shall mean a bank or trust company reasonably satisfactory to the Initial Purchasers, as trustee with respect to the New Securities under the New Securities Indenture. "Notes" shall have the meaning set forth in the preamble hereto. "Offering Memorandum" shall have the meaning set forth in the Purchase Agreement. "Person" shall mean an individual, partnership, corporation, limited liability company, trust or unincorporated organization, or a government agency or a political subdivision thereof. "Prospectus" shall mean the prospectus included in any Registration Statement (including, without limitation, a prospectus that discloses information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A -4- under the Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Securities or the New Securities covered by such Registration Statement, and all amendments and supplements thereto and all material incorporated by reference therein. "Purchase Agreement" shall have the meaning set forth in the preamble hereto. "Registered Exchange Offer" shall mean the proposed offer of the Issuers to issue and deliver to the Holders of the Securities that are not prohibited by any law or policy of the Commission from participating in such offer, in exchange for the Securities, a like aggregate principal amount of the New Securities on the terms customary for such an offer. "Registration Statement" shall mean any Exchange Offer Registration Statement or Shelf Registration Statement that covers any of the Securities or the New Securities pursuant to the provisions of this Agreement, any amendments and supplements to such registration statement, including post-effective amendments (in each case including the Prospectus contained therein), all exhibits thereto and all material incorporated by reference therein. "Securities" shall have the meaning set forth in the preamble hereto. "Shelf Registration" shall mean a registration effected pursuant to Section 3 hereof. "Shelf Registration Period" shall have the meaning set forth in Section 3(c) hereof. "Shelf Registration Statement" shall mean a "shelf" registration statement of the Issuers pursuant to the provisions of Section 3 hereof which covers some or all of the Securities or New Securities, as applicable, on an appropriate form under Rule 415 under the Act, or any similar rule that may be adopted by the Commission, amendments and supplements to such registration statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. "Trustee" shall have the meaning set forth in the preamble hereto. "underwriter" shall mean any underwriter of Securities or New Securities in connection with an offering thereof under a Shelf Registration Statement. 2. Registered Exchange Offer. (a) The Issuers shall prepare and use their reasonable best efforts to file with the Commission, not later than 90 days following the date of the original issuance of the Securities (or if such 90th day is not a Business Day, the next succeeding Business Day), the Exchange Offer Registration Statement with respect to the -5- Registered Exchange Offer. The Issuers shall use their reasonable best efforts to cause the Exchange Offer Registration Statement to become effective under the Act within 150 days of the date of the original issuance of the Securities (or if such 150th day is not a Business Day, the next succeeding Business Day). (b) Upon the effectiveness of the Exchange Offer Registration Statement, the Issuers shall promptly commence the Registered Exchange Offer, it being the objective of such Registered Exchange Offer to enable each Holder electing to exchange Securities for New Securities (assuming that such Holder is not an Affiliate of any Issuers, acquires the New Securities in the ordinary course of such Holder's business, has no arrangements with any Person to participate in the distribution of the New Securities and is not prohibited by any law or policy of the Commission from participating in the Registered Exchange Offer) to trade such New Securities from and after their receipt without any limitations or restrictions under the Act and without material restrictions under the securities laws of a substantial proportion of the several states of the United States. (c) In connection with the Registered Exchange Offer, the Issuers shall: (i) mail to each Holder a copy of the Prospectus forming part of the Exchange Offer Registration Statement, together with an appropriate letter of transmittal and related documents; (ii) keep the Registered Exchange Offer open for not less than 20 Business Days and not more than 30 Business Days after the date notice thereof is mailed to the Holders (or, in each case, longer if required by applicable law); (iii) if required by any Exchanging Dealer, use their reasonable best efforts to keep the Exchange Offer Registration Statement continuously effective under the Act, supplemented and amended as required under the Act, in order to permit the Prospectus contained in such Exchange Offer Registration Statement to be lawfully delivered by such Exchanging Dealer during the Exchange Offer Registration Period; (iv) utilize the services of a depositary for the Registered Exchange Offer with an address in the Borough of Manhattan in New York City, which may be the Trustee, the New Securities Trustee or an Affiliate of either of them; (v) permit Holders to withdraw tendered Securities at any time prior to the close of business, New York time, on the last Business Day on which the Registered Exchange Offer is open; (vi) prior to effectiveness of the Exchange Offer Registration Statement, provide a supplemental letter to the Commission (A) stating that the Issuers are -6- conducting the Registered Exchange Offer in reliance on the position of the Commission in Exxon Capital Holdings Corporation (pub. avail. May 13, 1988) and Morgan Stanley and Co., Inc. (pub. avail. June 5, 1991); and (B) including a representation that the Issuers have not entered into any arrangement or understanding with any Person to distribute the New Securities to be received in the Registered Exchange Offer and that, to the best of the Issuers' information and belief, each Holder participating in the Registered Exchange Offer is acquiring the New Securities in the ordinary course of business and has no arrangement or understanding with any Person to participate in the distribution of the New Securities; and (vii) comply in all respects with all applicable laws. (d) As soon as practicable after the close of the Registered Exchange Offer, the Issuers shall: (i) accept for exchange all Securities tendered and not validly withdrawn pursuant to the Registered Exchange Offer; (ii) deliver to the Trustee for cancellation in accordance with Section 4(s) all Securities so accepted for exchange; and (iii) cause the New Securities Trustee promptly to authenticate and deliver to each Holder of Securities a principal amount of New Securities equal to the principal amount of the Securities of such Holder so accepted for exchange. (e) Each Holder is hereby deemed to acknowledge and agree that any Broker-Dealer and any such Holder using the Registered Exchange Offer to participate in a distribution of the New Securities (x) could not under Commission policy as in effect on the date of this Agreement rely on the position of the Commission in Morgan Stanley and Co., Inc. (pub. avail. June 5, 1991) and Exxon Capital Holdings Corporation (pub. avail. May 13, 1988), as interpreted in the Commission's letter to Shearman & Sterling dated July 2, 1993 and similar no-action letters; and (y) must comply with the registration and prospectus delivery requirements of the Act in connection with any secondary resale transaction which must be covered by an effective registration statement containing the selling security holder information required by Item 507 or 508, as applicable, of Regulation S-K under the Act if the resales are of New Securities obtained by such Holder in exchange for Securities acquired by such Holder directly from any Issuer or one of its Affiliates. Accordingly, each Holder participating in the Registered Exchange Offer shall be required to represent to the Issuers that, at the time of the consummation of the Registered Exchange Offer: (i) any New Securities received by such Holder will be acquired in the ordinary course of business; -7- (ii) such Holder will have no arrangement or understanding with any Person to participate in the distribution of the Securities or the New Securities within the meaning of the Act; and (iii) such Holder is not an Affiliate of any Issuer. (f) If any Initial Purchaser determines that it is not eligible to participate in the Registered Exchange Offer with respect to the exchange of Securities constituting any portion of an unsold allotment, at the request of such Initial Purchaser, the Issuers shall issue and deliver to such Initial Purchaser or the Person purchasing New Securities registered under a Shelf Registration Statement as contemplated by Section 3 hereof from such Initial Purchaser, in exchange for such Securities, a like principal amount of New Securities. The Issuers shall use their reasonable best efforts to cause the CUSIP Service Bureau to issue the same CUSIP number for such New Securities as for New Securities issued pursuant to the Registered Exchange Offer. 3. Shelf Registration. (a) If (i) due to any change in law or applicable interpretations thereof by the Commission's staff, the Issuers determine upon advice of their outside counsel that they are not permitted to effect the Registered Exchange Offer as contemplated by Section 2 hereof; (ii) for any other reason the Registered Exchange Offer is not consummated within 180 days of the date hereof; (iii) any Initial Purchaser so requests with respect to Securities that are not eligible to be exchanged for New Securities in the Registered Exchange Offer and that are held by it following consummation of the Registered Exchange Offer; (iv) any Holder (other than an Initial Purchaser) notifies the Company prior to the 20th day following consummation of the Registered Exchange Offer that it is not eligible to participate in the Registered Exchange Offer because of applicable law or the applicable interpretations of the Commission's staff; or (v) in the case of any Initial Purchaser that participates in the Registered Exchange Offer or acquires New Securities pursuant to Section 2(f) hereof, such Initial Purchaser does not receive freely tradable New Securities in exchange for Securities constituting any portion of an unsold allotment (it being understood that (x) the requirement that an Initial Purchaser deliver a Prospectus containing the information required by Item 507 or 508 of Regulation S-K under the Act in connection with sales of New Securities acquired in exchange for such Securities shall not result in such New Securities being not "freely tradable"; and (y) the requirement that an Exchanging Dealer deliver a Prospectus in connection with sales of New Securities acquired in the Registered Exchange Offer in exchange for Securities acquired as a result of market-making activities or other trading activities shall not result in such New Securities being not "freely tradable"), the Issuers shall effect a Shelf Registration Statement in accordance with subsection (b) below; provided, however that the Issuers shall only be required to register Securities under the Shelf Registration Statement for persons who have identified themselves to the Issuers as Holders thereof. If in the judgment of the Company's Board of Directors exercised reasonably and in good faith, the use of the Shelf -8- Registration Statement and the disclosure required to be made therein would materially interfere with a valid business purpose of the Issuers, the Company may deliver a notice to such effect to the Holders, and upon receipt of such notice, the Holders shall cease distribution of the Securities or New Securities under a Shelf Registration Statement for the period of time (the "Shelf Delay Period") set forth in such notice (which shall not be greater than 60 days). Notwithstanding the foregoing, there shall not be more than two Shelf Delay Periods declared in any one calendar year; provided that such Shelf Delay Periods shall not exceed 90 days in the aggregate in any one calendar year. The Company shall use its reasonable best efforts to minimize the length of any Shelf Delay Period and shall promptly notify the Holders upon the termination thereof. (b) The Issuers shall as promptly as practicable (but in no event more than 45 days after so required or requested pursuant to this Section 3) file with the Commission and thereafter shall use their reasonable best efforts to cause to be declared effective under the Act within 135 days after so required or requested pursuant to this Section 3 a Shelf Registration Statement relating to the offer and sale of the Securities or the New Securities, as applicable, by the Holders thereof from time to time in accordance with the methods of distribution elected by such Holders and set forth in such Shelf Registration Statement; provided, however, that no Holder (other than an Initial Purchaser) shall be entitled to have the Securities held by it covered by such Shelf Registration Statement unless such Holder agrees in writing to be bound by all of the provisions of this Agreement applicable to such Holder; and provided, further, that with respect to New Securities received by an Initial Purchaser in exchange for Securities constituting any portion of an unsold allotment, the Issuers may, if permitted by interpretations by the Commission's staff, file a post-effective amendment to the Exchange Offer Registration Statement containing the information required by Item 507 or 508 of Regulation S-K, as applicable, in satisfaction of their obligations under this subsection with respect thereto, and any such Exchange Offer Registration Statement, as so amended, shall be referred to herein as, and governed by the provisions herein applicable to, a Shelf Registration Statement. (c) The Issuers shall use their reasonable best efforts to keep the Shelf Registration Statement continuously effective, supplemented and amended as required by the Act, in order to permit the Prospectus forming part thereof to be usable by Holders for a period of two years from the date the Shelf Registration Statement is declared effective by the Commission or such shorter period that will terminate when all the Securities or New Securities, as applicable, covered by the Shelf Registration Statement (i) have been sold pursuant to the Shelf Registration Statement or (ii) are distributed to the public pursuant to Rule 144 under the Act or are salable pursuant to Rule 144(k) under the Act (in any such case, such period being called the "Shelf Registration Period"). The Issuers shall be deemed not to have used their reasonable best efforts to keep the Shelf Registration Statement effective during the requisite period if any of them voluntarily takes any action that would result in Holders of -9- Securities or New Securities covered thereby not being able to offer and sell such Securities or New Securities during that period, unless (A) such action is required by applicable law or (B) such action is taken by such Issuer in good faith and for valid business reasons (not including avoidance of such Issuer's obligations hereunder), including the acquisition or divestiture of assets, so long as the Issuers promptly thereafter comply with the requirements of Section 4(k) hereof, if applicable. 4. Additional Registration Procedures. In connection with any Shelf Registration Statement and, to the extent applicable, any Exchange Offer Registration Statement, the following provisions shall apply: (a) The Issuers shall: (i) furnish to you, not less than five Business Days prior to the filing thereof with the Commission, a copy of the Exchange Offer Registration Statement or the Shelf Registration Statement, as the case may be, and each amendment thereto and each amendment or supplement, if any, to the Prospectus included therein (including all documents incorporated by reference therein after the initial filing) and shall use their reasonable best efforts to reflect in each such document, when so filed with the Commission, such comments as you reasonably propose; (ii) include the information set forth in Annex A hereto on the facing page of the Exchange Offer Registration Statement, in Annex B hereto in the forepart of the Exchange Offer Registration Statement in a section setting forth details of the Exchange Offer, in Annex C hereto in the underwriting or plan of distribution section of the Prospectus contained in the Exchange Offer Registration Statement, and in Annex D hereto in the letter of transmittal delivered pursuant to the Registered Exchange Offer; (iii) if reasonably requested by an Initial Purchaser, include the information required by Item 507 or 508 of Regulation S-K, as applicable, in the Prospectus contained in the Exchange Offer Registration Statement; and (iv) in the case of the Shelf Registration Statement, include the names of the Holders that notify the Company of their intention to sell Securities or New Securities pursuant to the Shelf Registration Statement as selling security holders. (b) The Issuers shall cause such Registration Statement and the related Prospectus and any amendment or supplement thereto, as of the effective date of such Registration Statement or such amendment or supplement: -10- (i) to comply in all material respects with the Act and the rules and regulations of the Commission; and (ii) (other than with respect to information included therein in reliance upon or in conformity with information furnished to the Company by or on behalf of any Holder specifically for use therein) not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading. (c) The Issuers shall advise you, the Holders of Securities or New Securities covered by any Shelf Registration Statement and any Exchanging Dealer under any Exchange Offer Registration Statement that has provided in writing to the Issuers a telephone or facsimile number and address for notices, and, if requested by you or any such Holder or Exchanging Dealer, shall confirm such advice in writing (which notice pursuant to clauses (ii)-(v) of this Section 4(c) shall be accompanied by an instruction to suspend the use of the Prospectus until the Issuers shall have remedied the basis for such suspension): (i) when a Registration Statement or any amendment thereto has been filed with the Commission and when the Registration Statement or any post-effective amendment thereto has become effective; (ii) of any request by the Commission for any amendment or supplement to the Registration Statement or the Prospectus or for additional information; (iii) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose; (iv) of the receipt by any Issuer of any notification with respect to the suspension of the qualification of the Securities or New Securities included therein for sale in any jurisdiction or the initiation of any proceeding for such purpose; and (v) of the happening of any event that requires any change in the Registration Statement or the Prospectus so that, as of such date, the statements therein are not misleading and do not omit to state a material fact required to be stated therein or necessary to make the statements therein (in the case of the Prospectus, in the light of the circumstances under which they were made) not misleading. (d) The Issuers shall use their reasonable best efforts to obtain the withdrawal of any order suspending the effectiveness of any Registration Statement or the qualification of the securities included therein for sale in any jurisdiction at the earliest possible time. -11- (e) The Issuers shall furnish to each Holder of Securities or New Securities covered by any Shelf Registration Statement, without charge, at least one copy of such Shelf Registration Statement and any post-effective amendment thereto, including all material incorporated therein by reference, and, if the Holder so requests in writing, all exhibits thereto (including exhibits incorporated by reference therein). (f) The Issuers shall, during the Shelf Registration Period, deliver to each Holder of Securities or New Securities covered by any Shelf Registration Statement, without charge, as many copies of the Prospectus (including each preliminary Prospectus) included in such Shelf Registration Statement and any amendment or supplement thereto as such Holder may reasonably request. The Issuers consent, subject to the provisions of this Agreement, to the use of the Prospectus or any amendment or supplement thereto by each of the selling Holders of Securities or New Securities in connection with the offering and sale of the Securities or New Securities covered by the Prospectus, or any amendment or supplement thereto, included in the Shelf Registration Statement. (g) The Issuers shall furnish to each Exchanging Dealer which so requests, without charge, at least one copy of the Exchange Offer Registration Statement and any post-effective amendment thereto, including all material incorporated by reference therein, and, if the Exchanging Dealer so requests in writing, all exhibits thereto (including exhibits incorporated by reference therein). (h) The Issuers shall promptly deliver to each Initial Purchaser, each Exchanging Dealer and each other Person required to deliver a Prospectus during the Exchange Offer Registration Period, without charge, as many copies of the Prospectus included in such Exchange Offer Registration Statement and any amendment or supplement thereto as any such Person may reasonably request. The Issuers consent, subject to the provisions of this Agreement, to the use of the Prospectus or any amendment or supplement thereto by any Initial Purchaser, any Exchanging Dealer and any such other Person that may be required to deliver a Prospectus following the Registered Exchange Offer in connection with the offering and sale of the New Securities covered by the Prospectus, or any amendment or supplement thereto, included in the Exchange Offer Registration Statement. (i) Prior to the Registered Exchange Offer or any other offering of Securities or New Securities pursuant to any Registration Statement, the Issuers shall use their reasonable best efforts to arrange, if necessary, for the qualification of the Securities or the New Securities for sale under the laws of such U.S. jurisdictions as any Holder shall reasonably request in writing and will maintain such qualification in effect so long as reasonably required; provided that in no event shall any Issuer be obligated to qualify to do business in any jurisdiction where it is not then so qualified or to take any action that would subject it to service of process in suits, other than those arising out of the Initial Placement, the Registered Exchange -12- Offer or any offering pursuant to a Shelf Registration Statement, or taxation in any such jurisdiction where it is not then so subject. (j) The Issuers shall cooperate with the Holders to facilitate the timely preparation and delivery of certificates representing New Securities or Securities to be issued or sold pursuant to any Registration Statement free of any restrictive legends and in such denominations and registered in such names as Holders may request. (k) Upon the occurrence of any event contemplated by subsections (c)(ii) through (v) above, the Issuers shall (unless they shall have invoked a Shelf Delay Period with respect to such occurrence) promptly prepare a post-effective amendment to the applicable Registration Statement or an amendment or supplement to the related Prospectus or file any other required document so that, as thereafter delivered, the Prospectus will not include an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. In such circumstances, the period of effectiveness of the Exchange Offer Registration Statement provided for in Section 2 and the Shelf Registration Statement provided for in Section 3(b) shall each be extended by the number of days from and including the date of the giving of a notice of suspension pursuant to Section 4(c) to and including the date when the Initial Purchasers, the Holders and any known Exchanging Dealer shall have received such amended or supplemented Prospectus pursuant to this Section 4. (l) Not later than the effective date of any Registration Statement, the Issuers shall provide a CUSIP number for the Securities or the New Securities, as the case may be, registered under such Registration Statement and provide the Trustee with printed certificates for such Securities or New Securities, in a form eligible for deposit with The Depository Trust Company. (m) The Issuers shall comply with all applicable rules and regulations of the Commission and shall make generally available to their security holders as soon as practicable after the effective date of the applicable Registration Statement an earnings statement satisfying the provisions of Section 11(a) of the Act and Rule 158 thereunder. (n) The Issuers shall cause the Indenture or the New Securities Indenture, as the case may be, to be qualified under the Trust Indenture Act in a timely manner. (o) The Issuers may require each Holder of Securities or New Securities to be sold pursuant to any Shelf Registration Statement to furnish to the Issuers such information regarding the Holder and the distribution of such Securities or New Securities as the Issuers may from time to time reasonably require for inclusion in such Registration Statement. The Issuers may exclude from such Shelf Registration Statement the Securities or New Securities -13- of any Holder that unreasonably fails to furnish such information within a reasonable time after receiving such request. (p) In the case of any Shelf Registration Statement, the Issuers shall enter into such agreements and take all other appropriate actions (including if requested an underwriting agreement in customary form) in order to expedite or facilitate the registration or the disposition of the Securities or New Securities and in connection therewith, if an underwriting agreement is entered into, cause the same to contain indemnification provisions and procedures no less favorable than those set forth in Section 6 (or such other provisions and procedures acceptable to the Majority Holders and the Managing Underwriters, if any, with respect to all parties to be indemnified pursuant to Section 6). (q) In the case of any Shelf Registration Statement, the Issuers shall: (i) cause the officers, directors and employees of any Issuer to (x) supply all relevant information (including all financial and other records, pertinent corporate documents of the Issuers and their subsidiaries) and (y) make available all relevant properties, reasonably requested by the Holders or any such underwriter, attorney, accountant or agent in connection with any such Shelf Registration Statement as is customary for similar due diligence examinations; provided, however, that any information that is designated in writing by any Issuer, in good faith, as confidential at the time of delivery of such information shall be kept confidential by the Holders or any such underwriter, attorney, accountant or agent, unless such disclosure is made in connection with a court proceeding or required by law, or such information becomes available to the public generally or through a third party without an accompanying obligation of confidentiality; (ii) make such representations and warranties to the Holders of Securities or New Securities registered thereunder and the underwriters, if any, in form, substance and scope as are customarily made by issuers to underwriters in primary underwritten offerings and covering the matters set forth in the Purchase Agreement; (iii) use their reasonable best efforts to obtain opinions of counsel to the Issuers and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the Managing Underwriters, if any) addressed to each selling Holder and the underwriters, if any, covering such matters as are customarily covered in opinions requested in underwritten offerings and such other matters as may be reasonably requested by such Holders and underwriters; (iv) use their reasonable best efforts to obtain "cold comfort" letters and updates thereof from the independent certified public accountants of the Company (and, if necessary, any other independent certified public accountants of any Issuer or -14- any subsidiary of any Issuer or of any business acquired by any Issuer for which financial statements and financial data are, or are required to be, included in the Registration Statement), addressed to each selling Holder registered thereunder and the underwriters, if any, in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with primary underwritten offerings; and (v) deliver such documents and certificates as may be reasonably requested by the Majority Holders and the Managing Underwriters, if any, including those to evidence compliance with Section 4(k) and with any customary conditions contained in the underwriting agreement or other agreement entered into by the Issuers. The actions set forth in clauses (iii), (iv), (v) and (vi) of this Section 4(q) shall be performed at (A) the effectiveness of such Registration Statement and each post-effective amendment thereto; and (B) each closing under any underwriting or similar agreement as and to the extent required thereunder. (r) In the case of any Exchange Offer Registration Statement, the Issuers shall, upon reasonable request by the Initial Purchasers: (i) cause the officers, directors and employees of any Issuer to supply all relevant information (including all financial and other records, pertinent corporate documents and properties of the Issuers and their subsidiaries) reasonably requested by any Initial Purchaser or any such attorney, accountant or agent retained by any Initial Purchaser in connection with any such Registration Statement as is customary for similar due diligence examinations; provided, however, that any information that is designated in writing by any Issuer, in good faith, as confidential at the time of delivery of such information shall be kept confidential by such Initial Purchaser or any such attorney, accountant or agent, unless such disclosure is made in connection with a court proceeding or required by law, or such information becomes available to the public generally or through a third party without an accompanying obligation of confidentiality; (ii) make such representations and warranties to the Initial Purchasers, in form, substance and scope as are customarily made by issuers to underwriters in primary underwritten offerings and covering the matters set forth in the Purchase Agreement; (iii) use their reasonable best efforts to obtain opinions of counsel to the Issuers and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the Initial Purchasers and their counsel), addressed to the Initial Purchasers, covering such matters as are customarily covered in -15- opinions requested in underwritten offerings and such other matters as may be reasonably requested by the Initial Purchasers or their counsel; (iv) use their reasonable best efforts to obtain "cold comfort" letters and updates thereof from the independent certified public accountants of the Company (and, if necessary, any other independent certified public accountants of any Issuer or any subsidiary of any Issuer or of any business acquired by any Issuer for which financial statements and financial data are, or are required to be, included in the Registration Statement), addressed to the Initial Purchasers, in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with primary underwritten offerings, or if requested by the Initial Purchasers or their counsel in lieu of a "cold comfort" letter, an agreed-upon procedures letter under Statement on Auditing Standards No. 35, covering matters requested by the Initial Purchasers or their counsel; and (v) deliver such documents and certificates as may be reasonably requested by the Initial Purchasers or their counsel, including those to evidence compliance with Section 4(k) and with conditions customarily contained in underwriting agreements. The foregoing actions set forth in clauses (iii), (iv), (v), and (vi) of this Section 4(r) shall be performed at the close of the Registered Exchange Offer and the effective date of any post-effective amendment to the Exchange Offer Registration Statement. (s) If a Registered Exchange Offer is to be consummated, upon delivery of the Securities by Holders to the Issuers (or to such other Person as directed by the Issuers) in exchange for the New Securities, the Issuers shall mark, or caused to be marked, on the Securities so exchanged that such Securities are being canceled in exchange for the New Securities. In no event shall the Securities be marked as paid or otherwise satisfied. (t) The Issuers will use their reasonable best efforts (i) if the Securities have been rated prior to the initial sale of such Securities, to confirm such ratings will apply to the Securities or the New Securities, as the case may be, covered by a Registration Statement; or (ii) if the Securities were not previously rated, to cause the Securities or New Securities covered by a Registration Statement to be rated with at least one nationally recognized statistical rating agency, if so requested by Majority Holders with respect to the related Registration Statement or by any Managing Underwriters. (u) In the event that any Broker-Dealer shall underwrite any Securities or New Securities or participate as a member of an underwriting syndicate or selling group or "assist in the distribution" (within the meaning of the Conduct Rules of the National Association of Securities Dealers, Inc.) thereof, whether as a Holder or as an underwriter, a placement -16- or sales agent or a broker or dealer in respect thereof, or otherwise, the Issuers will assist such Broker-Dealer in complying with the requirements of such Conduct Rules, including without limitations by: (1) if such Conduct Rules shall so require, engaging a "qualified independent underwriter" (as defined in such Conduct Rules), at the cost of such Broker-Dealer, to participate in the preparation of the Registration Statement, to exercise usual standards of due diligence with respect thereto and, if any portion of the offering contemplated by such Registration Statement is an underwritten offering or is made through a placement or sales agent, to recommend the yield of such Securities or New Securities; (2) indemnifying any such qualified independent underwriter to the extent of the indemnification of underwriters provided in Section 6 hereof; and (3) providing such information to such Broker-Dealer as may be required in order for such Broker-Dealer to comply with the requirements of such Conduct Rules. (v) Each Holder agrees that, upon receipt of the notice referred to in paragraphs (iii) through (v) of Section 4(c) hereof (in each case, a "Suspension Notice"), such Holder will forthwith discontinue disposition of Securities or New Securities, as applicable, pursuant to the applicable Registration Statement until (i) such Holder is advised in writing by the Issuers that the use of the Prospectus included in such Registration Statement may be resumed, and has received copies of any additional or supplemental filings that are incorporated by reference in such Prospectus or (ii) such Holder has received copies of the supplemented or amended Prospectus contemplated by Section 4(k) hereof (in each case, the "Recommencement Date"). Each Holder receiving a Suspension Notice hereby agrees that it will either (i) discard or destroy any Prospectuses, other than permanent file copies, then in such Holder's possession which have been replaced by the Issuers with more recently dated Prospectuses or (ii) deliver to the Issuers all copies, other than permanent file copies, then in such Holder's possession of the Prospectus covering such Securities or New Securities that was current at the time of receipt of the Suspension Notice. (w) The Issuers shall use their reasonable best efforts to take all other steps necessary to effect the registration of the Securities or the New Securities, as the case may be, covered by a Registration Statement. 5. Registration Expenses. The Issuers shall bear all expenses incurred in connection with the performance of their obligations under Sections 2, 3 and 4 hereof and, in the event of any Shelf Registration Statement, will reimburse the Holders for the reasonable fees and disbursements of one firm or counsel designated by the Majority Holders to act as counsel for the Holders in connection therewith, and, in the case of any Exchange Offer Registration Statement, will reimburse the Initial Purchasers for the reasonable fees and -17- disbursements of one firm or counsel designated to act as counsel for the Initial Purchasers in connection therewith. 6. Indemnification and Contribution. (a) Each of the Issuers jointly and severally agrees to indemnify and hold harmless each Holder of Securities or New Securities, as the case may be, covered by any Registration Statement (including each Initial Purchaser and, with respect to any Prospectus delivery as contemplated in Section 4(h) hereof, each Exchanging Dealer), the directors, officers, employees and agents of each such Holder and each Person who controls any such Holder within the meaning of either the Act or the Exchange Act against any and all losses, claims, damages or liabilities, joint or several, to which they or any of them may become subject under the Act, the Exchange Act or other Federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement as originally filed or in any amendment thereof, or in any preliminary Prospectus or the Prospectus, or in any amendment thereof or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein, in the light of the circumstances under which they were made, or necessary to make the statements therein not misleading, and jointly and severally agrees to reimburse each such indemnified party, as incurred, for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that (i) the Issuers will not be liable in any case to the extent that any such loss, claim, damage or liability arises out of or is based upon any such untrue statement or alleged untrue statement or omission or alleged omission made therein in reliance upon and in conformity with written information furnished to the Issuers by or on behalf of any such Holder specifically for inclusion therein and (ii) with respect to any untrue statement or omission or alleged untrue statement or omission made in any preliminary Prospectus relating to a Registration Statement, the indemnity agreement contained in this subsection (a) shall not inure to the benefit of any Holder from whom the Person asserting any such losses, claims, damages or liabilities purchased the Securities or New Securities concerned, to the extent that a Prospectus relating to such Securities or New Securities was required to be delivered by such Holder under the Act in connection with such purchase and any such loss, claim, damage or liability of such Holder results from the fact that there was not sent or given to such Person at or prior to the written confirmation of the sale of such Securities or New Securities to such Person, a copy of the final Prospectus if the Issuers had previously furnished copies thereof to such Holder and if the final Prospectus would have cured the defect giving rise to such loss, claim or damage. This indemnity agreement will be in addition to any liability which the Issuers may otherwise have. Each of the Issuers also jointly and severally agrees to indemnify or contribute as provided in Section 6(d) to Losses of each underwriter of Securities or New Securities, as -18- the case may be, registered under a Shelf Registration Statement, their directors, officers, employees or agents and each Person who controls such underwriter on substantially the same basis as that of the indemnification of the Initial Purchasers and the selling Holders provided in this Section 6(a) and shall, if requested by any Holder, enter into an underwriting agreement reflecting such agreement, as provided in Section 4(p) hereof. (b) Each Holder of Securities or New Securities covered by a Registration Statement (including each Initial Purchaser and, with respect to any Prospectus delivery as contemplated in Section 4(h), each Exchanging Dealer) severally and not jointly agrees to indemnify and hold harmless the Issuers, each of their respective directors, each of their respective officers who signs such Registration Statement and each Person who controls any Issuer within the meaning of either the Act or the Exchange Act, to the same extent as the foregoing indemnity from the Issuers to each such Holder, but only with reference to written information relating to such Holder furnished to the Company by or on behalf of such Holder specifically for inclusion in the documents referred to in the foregoing indemnity. This indemnity agreement will be in addition to any liability which any such Holder may otherwise have. (c) Promptly after receipt by an indemnified party under this Section 6 or notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 6, notify the indemnifying party in writing of the commencement thereof; but the failure so to notify the indemnifying party (i) will not relieve it from liability under paragraph (a) or (b) above unless and to the extent it did not otherwise learn of such action and such failure results in the forfeiture by the indemnifying party of substantial rights and defenses; and (ii) will not, in any event, relieve the indemnifying party from any obligations to any indemnified party other than the indemnification obligation provided in paragraph (a) or (b) above. The indemnifying party shall be entitled to appoint counsel of the indemnifying party's choice at the indemnifying party's expense to represent the indemnified party in any action for which indemnification is sought (in which case the indemnifying party shall not thereafter be responsible for the fees and expenses of any separate counsel retained by the indemnified party or parties except as set forth below); provided, however, that such counsel shall be reasonably satisfactory to the indemnified party. Notwithstanding the indemnifying party's election to appoint counsel to represent the indemnified party in an action, the indemnified party shall have the right to employ separate counsel (including local counsel), and the indemnifying party shall bear the reasonable fees, costs and expenses of such separate counsel if (i) the use of counsel chosen by the indemnifying party to represent the indemnified party would present such counsel with a conflict of interest; (ii) the actual or potential defendants in, or targets of, any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be legal defenses available to it and/or other indemnified parties which are different from or additional to those available to the indemnifying party; (iii) the indemnifying party shall not have employed counsel reasonably satisfactory to the indemnified party to represent the indemnified -19- party within a reasonable time after notice of the institution of such action; or (iv) the indemnifying party shall authorize the indemnified party to employ separate counsel at the expense of the indemnifying party. An indemnifying party will not, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified parties are actual or potential parties to such claim or action) unless such settlement, compromise or consent includes an unconditional release of each indemnified party from all liability arising out of such claim, action, suit or proceeding. (d) In the event that the indemnity provided in paragraph (a) or (b) of this Section 6 is unavailable to or insufficient to hold harmless an indemnified party for any reason, then each applicable indemnifying party shall have a joint and several obligation to contribute to the aggregate losses, claims, damages and liabilities (including legal or other expenses reasonably incurred in connection with investigating or defending same) (collectively "Losses") to which such indemnified party may be subject in such proportion as is appropriate to reflect the relative benefits received by such indemnifying party, on the one hand, and such indemnified party, on the other hand, from the Initial Placement and the Registration Statement which resulted in such Losses; provided, however, that in no case shall any Initial Purchaser or any subsequent Holder of any Security or New Security be responsible, in the aggregate, for any amount in excess of the purchase discount or commission applicable to such Security, or in the case of a New Security, applicable to the Security that was exchangeable into such New Security, as set forth on the cover page of the Offering Memorandum, nor shall any underwriter be responsible for any amount in excess of the underwriting discount or commission applicable to the securities purchased by such underwriter under the Registration Statement which resulted in such Losses. If the allocation provided by the immediately preceding sentence is unavailable for any reason, the indemnifying party and the indemnified party shall contribute in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of such indemnifying party, on the one hand, and such indemnified party, on the other hand, in connection with the statements or omissions which resulted in such Losses as well as any other relevant equitable considerations. The benefits received by the Issuers shall be deemed to be the total net proceeds from the Initial Placement (before deducting expenses) received by the Company. The benefits received by the Initial Purchasers shall be deemed to be the issue price discount (equal to the principal amount of the Securities less their issue price as set forth on the cover page of the Offering Memorandum). The benefits received by any other Holders shall be deemed to be equal to the value of receiving Securities or New Securities, as applicable, registered under the Act. Benefits received by any underwriter shall be deemed to be equal to the total underwriting discounts and commissions, as set forth on the cover page of the Prospectus forming a part of the Registration Statement which resulted in such Losses. Relative fault shall be determined by reference to, among other things, whether any alleged untrue statement or omission relates to information provided by the indemnifying party, on the one -20- hand, or by the indemnified party, on the other hand, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The parties agree that it would not be just and equitable if contribution were determined by pro rata allocation (even if the Holders were treated as one entity for such purpose) or any other method of allocation which does not take account of the equitable considerations referred to above. Notwithstanding the provisions of this paragraph (d), 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. For purposes of this Section, each Person who controls a Holder within the meaning of either the Act or the Exchange Act and each director, officer, employee and agent of such Holder shall have the same rights to contribution as such Holder, and each Person who controls any Issuer within the meaning of either the Act or the Exchange Act, each officer of any Issuer who shall have signed the Registration Statement and each director of any Issuer shall have the same rights to contribution as the Issuers, subject in each case to the applicable terms and conditions of this paragraph (d). (e) The provisions of this Section 6 will remain in full force and effect, regardless of any investigation made by or on behalf of any Holder or the Issuers or any of the officers, directors or controlling Persons referred to in this Section 6, and will survive the sale by a Holder of securities covered by a Registration Statement. 7. Underwritten Registrations. (a) If any of the Securities or New Securities, as the case may be, covered by any Shelf Registration Statement are to be sold in an underwritten offering, the Managing Underwriters shall be selected by the Majority Holders and approved by the Company, which approval shall not be unreasonably withheld. (b) No Person may participate in any underwritten offering pursuant to any Shelf Registration Statement, unless such Person (i) agrees to sell such Person's Securities or New Securities, as the case may be, on the basis reasonably provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements; and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements. 8. No Inconsistent Agreements. No Issuer has, as of the date hereof, entered into, nor shall it, on or after the date hereof, enter into, any agreement with respect to its securities that is inconsistent with the rights granted to the Holders herein or otherwise conflicts with the provisions hereof. 9. Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, qualified, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the -21- Issuers have obtained the written consent of the Majority Holders (or, after the consummation of any Registered Exchange Offer in accordance with Section 2 hereof, the Holders of a majority of the aggregate principal amount of New Securities); provided that, with respect to any matter that directly or indirectly affects the rights of any Initial Purchaser hereunder, the Issuers shall obtain the written consent of each such Initial Purchaser against which such amendment, qualification, supplement, waiver or consent is to be effective. Notwithstanding the foregoing (except the foregoing proviso), a waiver or consent to departure from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders whose Securities or New Securities, as the case may be, are being sold pursuant to a Registration Statement and that does not directly or indirectly affect the rights of other Holders, may be given by the Majority Holders, determined on the basis of Securities or New Securities, as the case may be, being sold rather than registered under such Registration Statement. 10. Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, first-class mail, telex, telecopier or air courier guaranteeing overnight delivery: (a) if to a Holder, at the most current address given by such holder to the Issuers in accordance with the provisions of this Section 10, which address initially is, with respect to each Holder, the address of such Holder maintained by the Registrar under the Indenture, with a copy in like manner to Salomon Smith Barney Inc.; (b) if to you, initially at the address set forth in the Purchase Agreement; and (c) if to the Issuers, initially at the address of the Company set forth in the Purchase Agreement. All such notices and communications shall be deemed to have been duly given when received. The Initial Purchasers or the Issuers by notice to the other parties may designate additional or different addresses for subsequent notices or communications. 11. Successors. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties, including, without the need for an express assignment or any consent by the Issuers thereto, subsequent Holders of Securities and New Securities. The Issuers hereby agree to extend the benefits of this Agreement to any Holder of Securities or New Securities, and any such Holder may specifically enforce the provisions of this Agreement as if an original party hereto. 12. Counterparts. This Agreement may be in signed counterparts, each of which shall an original and all of which together shall constitute one and the same agreement. -22- 13. Headings. The headings used herein are for convenience only and shall not affect the construction hereof. 14. Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed in the State of New York. 15. Severability. In the event that any one of more of the provisions contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired or affected thereby, it being intended that all of the rights and privileges of the parties shall be enforceable to the fullest extent permitted by law. 16. Securities Held by the Issuers, etc. Whenever the consent or approval of Holders of a specified percentage of principal amount of Securities or New Securities is required hereunder, Securities or New Securities, as applicable, held by any Issuer or its Affiliates (other than subsequent Holders of Securities or New Securities if such subsequent Holders are deemed to be Affiliates solely by reason of their holdings of such Securities or New Securities) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage. If the foregoing is in accordance with your understanding of our agreement, please sign and return to us the enclosed duplicate hereof, whereupon this Agreement and your acceptance shall represent a binding agreement between the Issuers and the Initial Purchasers. Very truly yours, D.R. HORTON, INC. By: /s/ SAMUEL R. FULLER ---------------------------------------- Samuel R. Fuller Executive Vice President, Treasurer and Chief Financial Officer Registration Rights Agreement S-1 GUARANTORS: C. RICHARD DOBSON BUILDERS, INC. CHI CONSTRUCTION COMPANY CHTEX OF TEXAS, INC. CONTINENTAL HOMES, INC. CONTINENTAL HOMES OF FLORIDA, INC. CONTINENTAL RESIDENTIAL, INC. D.R. HORTON, INC. - BIRMINGHAM D.R. HORTON, INC. - CHICAGO D.R. HORTON, INC. - DENVER D.R. HORTON, INC. - DIETZ-CRANE D.R. HORTON, INC. - GREENSBORO D.R. HORTON, INC. - JACKSONVILLE D.R. HORTON, INC. - LOUISVILLE D.R. HORTON, INC. - MINNESOTA D.R. HORTON, INC. - NEW JERSEY D.R. HORTON, INC. - PORTLAND D.R. HORTON, INC. - SACRAMENTO D.R. HORTON, INC. - TORREY D.R. HORTON LOS ANGELES HOLDING COMPANY, INC. D.R. HORTON SAN DIEGO HOLDING COMPANY, INC. DRH CAMBRIDGE HOMES, INC. DRH CONSTRUCTION, INC. DRH REGREM II, INC. DRH REGREM III, INC. DRH REGREM IV, INC. DRH REGREM V, INC. DRH SOUTHWEST CONSTRUCTION, INC. DRH TITLE COMPANY OF COLORADO, INC. DRH TUCSON CONSTRUCTION, INC. DRHI, INC. KDB HOMES, INC. MEADOWS I, LTD. MEADOWS VIII, LTD. MEADOWS IX, INC. MEADOWS X, INC. By: /s/ SAMUEL R. FULLER ---------------------------------------- Samuel R. Fuller Treasurer Registration Rights Agreement S-2 CH INVESTMENTS OF TEXAS, INC. MEADOWS II, LTD. By: /s/ WILLIAM PECK -------------------------------------- William Peck President Registration Rights Agreement S-3 CONTINENTAL HOMES OF TEXAS, L.P. By: CHTEX of Texas, Inc., its general partner By: /s/ SAMUEL R. FULLER ----------------------------------------- Samuel R. Fuller, Treasurer D.R. HORTON MANAGEMENT COMPANY, LTD. D.R. HORTON - EMERALD, LTD. D.R. HORTON - TEXAS, LTD. DRH REGREM VII, LP By: Meadows I, Ltd., its general partner By: /s/ SAMUEL R. FULLER ---------------------------------------- Samuel R. Fuller Treasurer SGS COMMUNITIES AT GRANDE QUAY, LLC By: Meadows IX, Inc., a member By: /s/ SAMUEL R. FULLER ---------------------------------------- Samuel R. Fuller Treasurer and By: Meadows X, Inc., a member By: /s/ SAMUEL R. FULLER ---------------------------------------- Samuel R. Fuller Treasurer DRH CAMBRIDGE HOMES, LLC DRH REGREM VIII, LLC By: D.R. Horton, Inc. - Chicago, a member By: /s/ SAMUEL R. FULLER ---------------------------------------- Samuel R. Fuller Treasurer Registration Rights Agreement S-4 ALLEGRA, LLC APLAM, LLC WESTERN PACIFIC HOUSING CO. WESTERN PACIFIC HOUSING-ANTIGUA, LLC WESTERN PACIFIC HOUSING-AVIARA, L.P. WESTERN PACIFIC HOUSING-BOARDWALK, LLC WESTERN PACIFIC HOUSING-BROADWAY, LLC WESTERN PACIFIC HOUSING-CANYON PARK, LLC WESTERN PACIFIC HOUSING-CARMEL, LLC WESTERN PACIFIC HOUSING-CARRILLO, LLC WESTERN PACIFIC HOUSING-COMMUNICATIONS HILL, LLC WESTERN PACIFIC HOUSING-CREEKSIDE, LLC WESTERN PACIFIC HOUSING-CULVER CITY, L.P. WESTERN PACIFIC HOUSING-LOMAS VERDES, LLC WESTERN PACIFIC HOUSING-LOST HILLS PARK, LLC WESTERN PACIFIC HOUSING-MCGONIGLE CANYON, LLC WESTERN PACIFIC HOUSING-MOUNTAINGATE, L.P. WESTERN PACIFIC HOUSING-NORCO ESTATES, LLC WESTERN PACIFIC HOUSING-OSO, L.P. WESTERN PACIFIC HOUSING-PARK AVENUE EAST, LLC WESTERN PACIFIC HOUSING-PARK AVENUE WEST, LLC WESTERN PACIFIC HOUSING-PLAYA VISTA, LLC WESTERN PACIFIC HOUSING-ROBINHOOD RIDGE, LLC WESTERN PACIFIC HOUSING-SANTA FE, LLC WESTERN PACIFIC HOUSING-SCRIPPS II, LLC WESTERN PACIFIC HOUSING-SCRIPPS, L.P. WESTERN PACIFIC HOUSING-SEACOVE, L.P. WESTERN PACIFIC HOUSING-STUDIO 528, LLC WESTERN PACIFIC HOUSING-TERRA BAY DUETS, LLC WESTERN PACIFIC HOUSING-TORRANCE, LLC WESTERN PACIFIC HOUSING-TORREY COMMERCIAL, LLC WESTERN PACIFIC HOUSING-TORREY MEADOWS, LLC WESTERN PACIFIC HOUSING-TORREY MULTI-FAMILY, LLC WESTERN PACIFIC HOUSING-TORREY VILLAGE CENTER, LLC WESTERN PACIFIC HOUSING-VINEYARD TERRACE, LLC WESTERN PACIFIC HOUSING-WINDEMERE, LLC WESTERN PACIFIC HOUSING-WINDFLOWER, L.P. WPH-CAMINO RUIZ, LLC WPH-HPH, LLC By: LAMCO Housing, Inc., its Member or General Partner By: /s/ SAMUEL R. FULLER -------------------------------------- Samuel R. Fuller Vice President Registration Rights Agreement S-5 SCHULER HOMES OF ARIZONA LLC SHA CONSTRUCTION LLC By: SRHI LLC, its Member By: SLHR of Nevada, Inc., its Member By: /s/ SAMUEL R. FULLER --------------------------- Samuel R. Fuller Vice President HPH HOMEBUILDERS 2000 L.P. PORTER GP LLC By: WPH-HPH, LLC, its General Partner or Member By: LAMCO Housing, Inc., its Member By: /s/ SAMUEL R. FULLER --------------------------- Samuel R. Fuller Vice President AP LHI, INC. AP WESTERN GP CORPORATION AP WP OPERATING CORPORATION LAMCO HOUSING, INC. MELODY HOMES, INC. MELMORT CO. SCHULER HOMES OF CALIFORNIA, INC. SCHULER HOMES OF OREGON, INC. SCHULER HOMES OF WASHINGTON, INC. SCHULER MORTGAGE, INC. SCHULER REALTY HAWAII, INC. SCHULER REALTY/MAUI, INC. SHLR OF CALIFORNIA, INC. SHLR OF COLORADO, INC. SHLR OF NEVADA, INC. SHLR OF UTAH, INC. SHLR OF WASHINGTON, INC. VERTICAL CONSTRUCTION CORPORATION WESTERN PACIFIC FUNDING, INC. WESTERN PACIFIC HOUSING MANAGEMENT, INC. WESTERN PACIFIC HOUSING, INC. By: /s/ SAMUEL R. FULLER -------------------------------------- Samuel R. Fuller Vice President Registration Rights Agreement S-6 D.R. HORTON-SCHULER HOMES, LLC By: Vertical Construction Corporation, its Manager By: /s/ SAMUEL R. FULLER -------------------------------------- Samuel R. Fuller Vice President SRHI LLC By: SHLR of Nevada, Inc., its Member By: /s/ SAMUEL R. FULLER -------------------------------------- Samuel R. Fuller Vice President SSHI LLC By: SHLR of Washington, Inc., its Member By: /s/ SAMUEL R. FULLER -------------------------------------- Samuel R. Fuller Vice President WESTERN PACIFIC HOUSING-COPPER CANYON, LLC WESTERN PACIFIC HOUSING-PACIFIC PARK II, LLC WESTERN PACIFIC HOUSING-POINSETTIA, L.P. WESTERN PACIFIC HOUSING-DEL VALLE, LLC By: AP Western GP Corporation, its Member or General Partner By: /s/ SAMUEL R. FULLER -------------------------------------- Samuel R. Fuller Vice President WESTERN PACIFIC HOUSING-RIVER RIDGE, LLC By: AP LHI, Inc., its Member By: /s/ SAMUEL R. FULLER -------------------------------------- Samuel R. Fuller Vice President AP WP PARTNERS, L.P. By: AP WP Operating Corporation, its General Partner By: /s/ SAMUEL R. FULLER -------------------------------------- Samuel R. Fuller Vice President Registration Rights Agreement S-7 The foregoing Agreement is hereby confirmed and accepted as of the date first above written. SALOMON SMITH BARNEY INC. BANC OF AMERICA SECURITIES LLC CREDIT LYONNAIS SECURITIES (USA) INC. FLEET SECURITIES, INC. By: SALOMON SMITH BARNEY INC., as Representative of the Initial Purchasers By: /s/ MARC E. SCHNEIDER ---------------------------------------------- Name: Marc E. Schneider Title: Director S-8 ANNEX A Each Broker-Dealer that receives New Securities for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such New Securities. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a Broker-Dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a Broker-Dealer in connection with resales of New Securities received in exchange for Securities where such Securities were acquired by such Broker-Dealer as a result of market-making activities or other trading activities. Each of the Issuers has agreed that, starting on the Expiration Date (as defined herein) and ending on the earlier of (i) the close of business on the 180th day after the Expiration Date (extended by the number of days during such period that any stop order shall be in effect suspending the effectiveness of the Exchange Offer Registration Statement (as defined herein)) and (ii) the close of business on the date upon which all such Broker-Dealers have sold all New Securities held by them, it will make this Prospectus available, as amended or supplemented, to any Broker-Dealer for use in connection with any such resale. See "Plan of Distribution." ANNEX B Each Broker-Dealer that receives New Securities for its own account in exchange for Securities, where such Securities were acquired by such Broker-Dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such New Securities. See "Plan of Distribution." ANNEX C PLAN OF DISTRIBUTION Each Broker-Dealer that receives New Securities for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such New Securities. This Prospectus, as it may be amended or supplemented from time to time, may be used by a Broker-Dealer in connection with resales of New Securities received in exchange for Securities where such Securities were acquired as a result of market-making activities or other trading activities. The Issuers have agreed that, starting on the Expiration Date and ending on the earlier of (i) the close of business on the 180th day after the Expiration Date (extended by the number of days during such period that any stop order shall be in effect suspending the effectiveness of the Exchange Offer Registration Statement (as defined herein)) and (ii) the close of business on the date upon which all such Broker-Dealers have sold all New Securities held by them, they will make this Prospectus, as amended or supplemented, available to any Broker-Dealer for use in connection with any such resale. In addition, until __________, 200_, all dealers effecting transactions in the New Securities may be required to deliver a prospectus. The Issuers will not receive any proceeds from any sale of New Securities by Brokers-Dealers. New Securities received by Broker-Dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the New Securities or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or at negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such Broker-Dealer and/or the purchasers of any such New Securities. Any Broker-Dealer that resells New Securities that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that participates in a distribution of such New Securities may be deemed to be an "underwriter" within the meaning of the Act, and any profit of any such resale of New Securities and any commissions or concessions received by any such Persons may be deemed to be underwriting compensation under the Act. The Letter of Transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a Broker-Dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For a period that is the earlier of (i) the close of business on the 180th day after the Expiration Date (extended by the number of days during such period that any stop order shall be in effect suspending the effectiveness of the Exchange Offer Registration Statement (as defined herein)) and (ii) the close of business on the date upon which all such Broker-Dealers have sold all New Securities held by them, the Issuers will promptly send additional copies of -2- this Prospectus and any amendment or supplement to this Prospectus to any Broker-Dealer that requests such documents in the Letter of Transmittal. The Issuers have agreed to pay all expenses incident to the Exchange Offer (including the expenses of one counsel for the holders of the Securities) other than commissions or concessions of any brokers or dealers and will indemnify the holders of the Securities (including any Broker-Dealers) against certain liabilities, including liabilities under the Act. [If applicable, add information required by Regulation S-K Items 507 and/or 508.] ANNEX D CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Name: ------------------------------ Address: ------------------------------ ------------------------------ If the undersigned is not a Broker-Dealer, the undersigned represents that it acquired the New Securities in the ordinary course of its business, it is not engaged in, and does not intend to engage in, a distribution of New Securities and it has not arrangements or understandings with any Person to participate in a distribution of the New Securities. If the undersigned is a Broker-Dealer that will receive New Securities for its own account in exchange for Securities, it represents that the Securities to be exchanged for New Securities were acquired by it as a result of market-making activities or other trading activities and acknowledges that it will deliver a prospectus in connection with any resale of such New Securities; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Act. EX-10.2 13 d96909ex10-2.txt INDEMNIFICATION AGREEMENT - JAMES K. SCHULER EXHIBIT 10.2 INDEMNIFICATION AGREEMENT This Indemnification Agreement ("Agreement") is made as of the 21st day of February, 2001, by and between D.R. Horton, Inc., a Delaware corporation (the "Company"), and James K. Schuler, a director and officer of the Company (the "Indemnitee"). RECITALS A. The Indemnitee has been elected as a director and officer of the Company and the Company desires the Indemnitee to serve in such capacities. The Indemnitee is willing, subject to certain conditions including without limitation the execution and performance of this Agreement by the Company, to serve in such capacities. B. In addition to the indemnification to which the Indemnitee is entitled under the certificate of incorporation of the Company (the "Certificate"), the Company may in its discretion obtain at its sole expense insurance protecting its officers and directors including the Indemnitee against certain losses arising out of actual or threatened actions, suits or proceedings to which such persons may be made or threatened to be made parties. If such insurance is obtained, there can be no assurance that such insurance will not be cancelled by the insurer or that the Company will elect not to continue or renew such insurance. Accordingly, and in order to induce the Indemnitee to serve in his present capacities, the Company and Indemnitee agree as follows: 1. Continued Service. The Indemnitee will serve as a director of the Company so long as he is duly elected and qualified in accordance with the bylaws of the Company (the "Bylaws") or until he resigns in writing in accordance with applicable law and will continue to serve as an officer of the Company at the pleasure of its Board of Directors (the "Board") so long as he is duly appointed or elected by the Board or until he resigns in writing in accordance with applicable law. 2. Initial Indemnity. (a) The Company shall indemnify the Indemnitee when he was or is a party or is threatened to be made a party to any pending, threatened or completed action, suit or proceeding, whether civil, administrative, investigative or criminal (other than an action by or in the name of the Company), by reason of the fact that he is or was or had agreed to become a director or officer of the Company, or is or was serving or had agreed to serve at the written request of the Company as director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, in any such case owned or controlled by the Company, or by reason of any action alleged to have been taken or omitted in such capacity, against any and all costs, charges and expenses, including without limitation, attorneys' and others' fees and expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by the Indemnitee in connection therewith and any appeal therefrom if the Indemnitee acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent shall not, of itself, create a presumption that the Indemnitee did not satisfy the foregoing standard of conduct to the extent applicable thereto. (b) The Company shall indemnify the Indemnitee when he was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding by or in the right of the Company to procure a judgment in its favor by reason of the fact that he is or was or had agreed to become a director or officer of the Company, or is or was serving or had agreed to serve at the written request of the Company as a director, officer, employee or agent of another corporation, partnership, joint -2- venture, trust or other enterprise, in any such case owned or controlled by the Company, against costs, charges and expenses (including attorneys' and others' fees and expenses) actually and reasonably incurred by him in connection with the defense or settlement thereof or any appeal therefrom if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company and except that no indemnification shall be made in respect of any claim, issue or matter as to which the Indemnitee shall have been adjudged to be liable to the Company unless and only to the extent that the Court of Chancery or the court in which such action, suit or proceeding was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, the Indemnitee is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. (c) To the extent that the Indemnitee has been successful on the merits or otherwise, including without limitation the dismissal of an action without prejudice, in defense of any action, suit or proceeding referred to in Sections 2(a) or 2(b) hereof or in defense of any claim, issue or matter therein, he shall be indemnified against costs, charges and expenses (including attorneys' and others' fees and expenses) actually and reasonably incurred by him in connection therewith. (d) Any indemnification under Sections 2(a) or 2(b) (unless ordered by a court) shall be made by the Company only as authorized in the specific case upon a determination in accordance with Section 4 hereof or any applicable provision of the Certificate, Bylaws, other agreement, resolution or otherwise. Such determination shall be made (i) by the Board, by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding or (ii) if such a quorum of disinterested directors is not available or so directs, by independent legal counsel (designated in the manner provided below in this -3- subsection (d)) in a written opinion or (iii) by the stockholders of the Company (the "Stockholders"). Independent legal counsel shall be designated by vote of a majority of the disinterested directors; provided, however, that if the Board is unable or fails to so designate, such designation shall be made by the Indemnitee subject to the approval of the Company (which approval shall not be unreasonably withheld). Independent legal counsel shall not be any person or firm who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or the Indemnitee in an action to determine the Indemnitee's rights under this Agreement. The Company agrees to pay the reasonable fees and expenses of such independent legal counsel and to indemnify fully such counsel against costs, charges and expenses (including attorneys' and others' fees and expenses) actually and reasonably incurred by such counsel in connection with this Agreement or the opinion of such counsel pursuant hereto. (e) All expenses (including attorneys' and others' fees and expenses) incurred by the Indemnitee in his capacity as a director or officer of the Company in defending a civil or criminal action, suit or proceeding shall be paid by the Company in advance of the final disposition of such action, suit or proceeding in the manner prescribed by Section 4(b) hereof. (f) The Company shall not adopt any amendment to the Certificate or Bylaws the effect of which would be to deny, diminish or encumber the Indemnitee's rights to indemnity pursuant to the Certificate, Bylaws, the General Corporation Law of the State of Delaware (the "DGCL") or any other applicable law as applied to any act or failure to act occurring in whole or in part prior to the date (the "Effective Date") upon which the amendment was approved by the Board or the Stockholders, as the case may be. In the event that the Company shall adopt any amendment to the Certificate or Bylaws the effect -4- of which is to so deny, diminish or encumber the Indemnitee's rights to indemnity, such amendment shall apply only to acts or failures to act occurring entirely after the Effective Date thereof unless the Indemnitee shall have voted in favor of such adoption as a director or holder of record of the Company's voting stock, as the case may be. 3. Additional Indemnification. (a) Pursuant to Section 145(f) of the DGCL, without limiting any right which the Indemnitee may have pursuant to Section 2 hereof, the Certificate, the Bylaws, the DGCL, any policy of insurance or otherwise, but subject to the limitations on the maximum permissible indemnity which may exist under applicable law at the time of any request for indemnity hereunder determined as contemplated by Section 3(a) hereof, the Company shall indemnify the Indemnitee against any amount which he is or becomes legally obligated to pay relating to or arising out of any claim made against him because of any act, failure to act or neglect or breach of duty, including any actual or alleged error, misstatement or misleading statement, which he commits, suffers, permits or acquiesces in while acting in his capacity as a director of the Company, or, at the written request of the Company, as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, in any such case owned or controlled by the Company. The payments which the Company is obligated to make pursuant to this Section 3 shall include without limitation damages, judgments, settlements and charges, costs, expenses, expenses of investigation and expenses of defense of legal actions, suits, proceedings or claims and appeals therefrom, and expenses of appeal, attachment or similar bonds; provided, however, that the Company shall not be obligated under this Section 3(a) to make any payment in connection with any claim against the Indemnitee: -5- (i) to the extent of any fine or similar governmental imposition which the Company is prohibited by applicable law from paying which results in a final, nonappealable order; or (ii) to the extent based upon or attributable to the Indemnitee gaining in fact a personal profit to which he was not legally entitled, including without limitation profits made from the purchase and sale by the Indemnitee of equity securities of the Company which are recoverable by the Company pursuant to Section 16(b) of the Securities Exchange Act of 1934, and profits arising from transactions in publicly traded securities of the Company which were effected by the Indemnitee in violation of Section 10(b) of the Securities Exchange Act of 1934, including Rule l0b-5 promulgated thereunder. The determination of whether the Indemnitee shall be entitled to indemnification under this Section 3(a) may be, but shall not be required to, be made in accordance with Section 4(a) hereof. If that determination is so made, it shall be binding upon the Company and the Indemnitee for all purposes. (b) Expenses (including without limitation attorneys' and others' fees and expenses) incurred by Indemnitee in defending any actual or threatened civil or criminal action, suit, proceeding or claim shall be paid by the Company in advance of the final disposition thereof as authorized in accordance with Section 4(b) hereof. 4. Certain Procedures Relating to Indemnification and Advancement of Expenses. (a) Except as otherwise permitted or required by the DGCL, for purposes of pursuing his rights to indemnification under Sections 2(a), 2(b) or 3(a) hereof, as the case may be, the Indemnitee may, but shall not be required to, (i) submit to the Board a sworn statement of request for indemnification substantially -6- in the form of Exhibit 1 attached hereto and made a part hereof (the "Indemnification Statement") averring that he is entitled to indemnification hereunder; and (ii) present to the Company reasonable evidence of all indemnification amounts for which payment is requested. Submission of an Indemnification Statement to the Board shall create a presumption that the Indemnitee is entitled to indemnification under Sections 2(a), 2(b) or 3(a) hereof, as the case may be, and the Board shall be deemed to have determined that the Indemnitee is entitled to such indemnification unless within 30 calendar days after submission of the Indemnification Statement the Board shall determine by vote of a majority of the directors at a meeting at which a quorum is present, based upon clear and convincing evidence (sufficient to rebut the foregoing presumption) and the Indemnitee shall have received notice within such period in writing of such determination that the Indemnitee is not so entitled to indemnification, which notice shall disclose with particularity the evidence in support of the Board's determination. The foregoing notice shall be sworn to by all persons who participated in the determination and voted to deny indemnification. The provisions of this Section 4(a) are intended to be procedural only and shall not affect the right of the Indemnitee to indemnification under this Agreement and any determination by the Board that the Indemnitee is not entitled to indemnification and any failure to make the payments requested in the Indemnification Statement shall be subject to judicial review as provided in Section 6 hereof. (b) For purposes of determining whether to authorize advancement of expenses pursuant to Section 2(e) hereof, the Indemnitee shall submit to the Board a sworn statement of request for advancement of expenses substantially in the form of Exhibit 2 attached hereto and made a part hereof (the "Undertaking"), averring that (i) he has reasonably incurred or will reasonably incur actual expenses in -7- defending an actual civil or criminal action, suit, proceeding or claim and (ii) he undertakes to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Company under this Agreement or otherwise. For purposes of requesting advancement of expenses pursuant to Section 3(b) hereof, the Indemnitee may, but shall not be required to, submit an Undertaking or such other form of request as he determines to be appropriate (an "Expense Request"). Upon receipt of an Undertaking or Expense Request, as the case may be, the Board shall within 10 calendar days authorize immediate payment of the expenses stated in the Undertaking or Expense Request, as the case may be, whereupon such payments shall immediately be made by the Company. No security shall be required in connection with any Undertaking or Expense Request and any Undertaking or Expense Request shall be accepted without reference to the Indemnitee's ability to make repayment. 5. Subrogation; Duplication of Payments. (a) In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of the Indemnitee, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable the Company effectively to bring suit to enforce such rights. (b) The Company shall not be liable under this Agreement to make any payment in connection with any claim made against the Indemnitee to the extent the Indemnitee has actually received payment (under any insurance policy, the Certificate, the Bylaws or otherwise) of the amounts otherwise payable hereunder. 6. Enforcement. (a) If a claim for indemnification made to the Company pursuant to Section 4 hereof is not paid in full by the Company within 30 calendar days after a written claim has been received -8- by the Company, the Indemnitee may at any time thereafter bring suit against the Company to recover the unpaid amount of the claim. (b) In any action brought under Section 6(a) hereof, it shall be a defense to a claim for indemnification pursuant to Sections 2(a) or 2(b) hereof (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the Undertaking, if any is required, has been tendered to the Company) that the Indemnitee has not met the standards of conduct which make it permissible under the DGCL for the Company to indemnify the Indemnitee for the amount claimed, but the burden of proving such defense shall be on the Company. Neither the failure of the Company (including the Board, independent legal counsel or the Stockholders) to have made a determination prior to commencement of such action that indemnification of the Indemnitee is proper in the circumstances because he has met the applicable standard of conduct set forth in the DGCL, nor an actual determination by the Company (including the Board, independent legal counsel or the Stockholders) that the Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the Indemnitee has not met the applicable standard of conduct. (c) It is the intent of the Company that the Indemnitee not be required to incur the expenses associated with the enforcement of his rights under this Agreement by litigation or other legal action because the cost and expense thereof would substantially detract from the benefits intended to be extended to the Indemnitee hereunder. Accordingly, if it should appear to the Indemnitee that the Company has failed to comply with any of its obligations under the Agreement or in the event that the Company or any other person takes any action to declare the Agreement void or unenforceable, or institutes any action, suit or proceeding designed (or having the effect of being designed) to deny, or to recover from, the Indemnitee -9- the benefits intended to be provided to the Indemnitee hereunder, the Company irrevocably authorizes the Indemnitee from time to time to retain counsel of his choice, at the expense of the Company as hereafter provided, to represent the Indemnitee in connection with the initiation or defense of any litigation or other legal action, whether by or against the Company or any director, officer, stockholder or other person affiliated with the Company, in any jurisdiction. Regardless of the outcome thereof, the Company shall pay and be solely responsible for any and all costs, charges and expenses, including without limitation attorneys' and others' fees and expenses, reasonably incurred by the Indemnitee (i) as a result of the Company's failure to perform this Agreement or any provision thereof or (ii) as a result of the Company or any person contesting the validity or enforceability of this Agreement or any provision thereof as aforesaid. 7. Merger or Consolidation. In the event that the Company shall be a constituent corporation in a consolidation, merger or other reorganization, the Company, if it shall not be the surviving, resulting or other corporation therein, shall require as a condition thereto the surviving, resulting or acquiring corporation to agree to indemnify the Indemnitee to the full extent provided in Section 3 hereof. Whether or not the Company is the resulting, surviving or acquiring corporation in any such transaction, the Indemnitee shall also stand in the same position under this Agreement with respect to the resulting, surviving or acquiring corporation as he would have with respect to the Company if its separate existence had continued. 8. Nonexclusivity and Severability. (a) The right to indemnification provided by this Agreement shall not be exclusive of any other rights to which the Indemnitee may be entitled under the Certificate, Bylaws, the DGCL, any other statute, insurance policy, agreement, vote of Stockholders or of directors or otherwise, both as to actions in his official capacity and as to actions in another capacity -10- while holding such office, and shall continue after the Indemnitee has ceased to be a director, officer, employee or agent and shall inure to the benefit of his heirs, executors and administrators. (b) If any provision of this Agreement or the application of any provision hereof to any person or circumstances is held invalid, unenforceable or otherwise illegal, the remainder of this Agreement and the application of such provision to other persons or circumstances shall not be affected, and the provision so held to be invalid, unenforceable or otherwise illegal shall be reformed to the extent (and only to the extent) necessary to make it enforceable, valid and legal. 9. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to the principles of conflict of laws thereof. 10. Modification; Survival. This Agreement contains the entire agreement of the parties relating to the subject matter hereof. This Agreement may be modified only by an instrument in writing signed by both parties hereto. The provisions of this Agreement shall survive the death, disability, or incapacity of the Indemnitee or the termination of the Indemnitee's service as a director of the Company and shall inure to the benefit of the Indemnitee's heirs, executors and administrators. 11. Certain Terms. For purposes of this Agreement, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on Indemnitee with respect to any employee benefit plan; and references to "serving at the request of the Company" shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, the Indemnitee with respect to an employee benefit plan, its participants or beneficiaries; references to the masculine shall include the feminine; references to the singular shall include the plural and vice versa; and if the Indemnitee acted in good faith and in a manner he reasonably believed -11- to be in the interest of the participants and beneficiaries of an employee benefit plan he shall be deemed to have acted in a manner "not opposed to the best interests of the Company" as referred to herein. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first above written. D.R. HORTON, INC. By: /s/ Donald R. Horton -------------------------------- Donald R. Horton, Chairman of the Board /s/ James K. Schuler -------------------------------- James K. Schuler -12- EXHIBIT 1 INDEMNIFICATION STATEMENT STATE OF ) ---------- ) ) COUNTY OF ) ---------- I, ______________________________, being first duly sworn, do depose and say as follows: 1. This Indemnification Statement is submitted pursuant to the Indemnification Agreement, dated as of ____________________, 200__, between D.R. Horton, Inc., a Delaware corporation (the "Company"), and the undersigned. 2. I am requesting indemnification against charges, costs, expenses (including attorneys' and others' fees and expenses), judgments, fines and amounts paid in settlement, all of which (collectively, "Liabilities") have been or will be incurred by me in connection with an actual or threatened action, suit, proceeding or claim to which I am a party or am threatened to be made a party. 3. With respect to all matters related to any such action, suit, proceeding or claim, I am entitled to be indemnified as herein contemplated pursuant to the aforesaid Indemnification Agreement. 4. Without limiting any other rights which I have or may have, I am requesting indemnification against Liabilities which have or may arise out of ________________________________________________________________________________ ________________________________________________________________________________ _______________________________________________________________________________. -1- Name: --------------------------- Subscribed and sworn to before me, a Notary Public in and for said County and State, this _____ day of _________________, 200__. [Seal] --------------------------- My commission expires the ____ day of ________________, 200___. -2- EXHIBIT 2 UNDERTAKING STATE OF ) ---------- ) ) COUNTY OF ) ---------- I, ___________________________, being first duly sworn do depose and say as follows: 1. This Undertaking is submitted pursuant to the Indemnification Agreement, dated as of ____________________, 200___, between D.R. Horton, Inc., a Delaware corporation (the "Company"), and the undersigned. 2. I am requesting advancement of certain costs, charges and expenses which I have incurred or will incur in defending an actual or pending civil or criminal action, suit, proceeding or claim. 3. I hereby undertake to repay this advancement of expenses if it shall ultimately be determined that I am not entitled to be indemnified by the Company under the aforesaid Indemnification Agreement or otherwise. 4. The costs, charges and expenses for which advancement is requested are, in general, all expenses related to _______________________________________ _______________________________________________________________________________. Name: ------------------------- Subscribed and sworn to before me, a Notary Public in and for said County and State, this _____ day of _________________, 200__. [Seal] ------------------------- My commission expires the ____ day of ________________, 200___. -1- EX-10.4 14 d96909ex10-4.txt FORM OF INCENTIVE STOCK OPTION AGREEMENT EXHIBIT 10.4 D. R. HORTON, INC. Form of Incentive Stock Option Agreement (Term Vesting) WHEREAS, _____________________________ (hereinafter called the "Participant") has become an employee of D.R. Horton, Inc., a Delaware corporation (hereinafter called the "Company"), or one of its Subsidiaries (as defined herein) as a result of the merger of Schuler Homes, Inc. ("Schuler") with and into the Company, with the Company as the surviving corporation, pursuant to the Agreement and Plan of Merger, dated as of October 22, 2001, as amended (the "Merger Agreement"), between the Company and Schuler; WHEREAS, pursuant to Section 2.1.6 of the Merger Agreement and the terms of the Amended and Restated 1992 Stock Option Plan and the Amended and Restated 2000 Stock Incentive Plan of Schuler (the "Schuler Stock Option Plans"), each outstanding stock option held by the Participant to purchase shares of common stock of Schuler has been terminated and is being replaced with a comparable option to purchase Common Stock of the Company; WHEREAS, the grant of Option Rights to the Participant effective February 21, 2002 (the "Date of Grant") and the execution of a Stock Option Agreement in the form hereof has been duly authorized by a resolution of the Committee duly adopted on February 21, 2002 and incorporated herein by reference; WHEREAS, the option granted hereby is intended to be an "incentive stock option" within the meaning of that term under Section 422A of the Code and it is intended that such grant shall not constitute a "modification" as defined in Section 424 of the Code, because it will constitute the issuance or substitution of a new option for an old option in a corporate merger under Section 424(a) of the Code, pursuant to an exception from the modification rules in Section 424(h)(3)(A) of the Code; and WHEREAS, pursuant to Section 424(a) of the Code, the excess of the aggregate fair market value of the shares subject to the Company option immediately after the substitution over the aggregate option price of such shares is not more than the excess of the aggregate fair market value of all shares subject to the Schuler option immediately before such substitution over the option price of such shares; and the new Company option does not give the Participant additional benefits which he didn't have under the old Schuler option; NOW, THEREFORE, effective as of the Date of Grant the Company hereby grants to the Participant an incentive stock option pursuant to the Company's 1991 Stock Incentive Plan (the "Plan") to purchase (INSERT NUMBER OF REPLACED SCHULER OPTIONS TIMES STOCK EXCHANGE RATIO (0.598)) shares of Common Stock at the price of (INSERT EXERCISE PRICE OF REPLACED SCHULER OPTIONS DIVIDED BY STOCK EXCHANGE RATIO (0.598)) Dollars ($_________ ) per share, and agrees to cause certificates for any shares purchased hereunder to be delivered to the Participant upon payment of the aggregate Option Price in full, all subject, however, to the terms and conditions hereinafter set forth and in the Plan, which is incorporated herein by reference and, in the event of any conflict between the Plan and this Agreement, the terms of the Plan shall prevail. Capitalized terms used in this Agreement that are not otherwise defined in this Agreement are used as defined in the Plan. Stock Option Agreement- Incentive Stock Option (Replacement of Schuler Stock Options) 2 1. (A) This option (until terminated as hereinafter provided) shall become exercisable as follows:
Time Period After Number of Shares for Which Date of Grant Option is Exercisable ------------- ---------------------
(INSERT VESTING SCHEDULE REMAINING FROM REPLACED SCHULER OPTION) Except as otherwise provided in paragraph 3, this option shall be exercisable only if the Participant shall have been in the continuous employ of the Company or any Subsidiary from the date hereof until this option is exercised. For the purposes of this paragraph, leaves of absence approved by the Board for illness, disability, military or governmental service, or other cause, shall be considered as employment. The Participant shall be deemed to be in the employ of the Company or any Subsidiary for so long as such Participant continues to render periodic services to the Company or any Subsidiary as an employee. The Participant shall be deemed to be an employee and to continue in the Company's employ for so long as the Participant continues in the employ of the Company or one or more of its Subsidiaries, subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance. To the extent exercisable, this option may be exercised in whole or in part from time to time. (B) Notwithstanding the provisions of subparagraph (A) of this paragraph 1, this option shall be exercisable to the extent of 100% of the shares hereinabove specified upon the occurrence of any Change in Control (as hereinafter defined) of the Company. For purposes of this Agreement, a "Change in Control" means the occurrence of any of the following events: (i) A merger, consolidation or reorganization of the Company into or with another corporation or other legal person if the stockholders of the Company, immediately before such merger, consolidation or reorganization, do not, Stock Option Agreement- Incentive Stock Option (Replacement of Schuler Stock Options) 3 immediately following such merger, consolidation or reorganization, then own directly or indirectly, more than 50% of the combined voting power of the then-outstanding voting securities of the corporation or other legal person resulting from such merger, consolidation or reorganization in substantially the same proportion as their ownership of Voting Securities (as hereinafter defined) immediately prior to such merger, consolidation or reorganization; (ii) The Company sells all or substantially all of its assets to another corporation or other legal person, or there is a complete liquidation or dissolution of the Company; (iii) There is a report filed on Schedule 13D or Schedule 14D-1 (or any successor schedule, form or report) each as promulgated pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act"), disclosing that any person (as the term "person" is used in Section 13(d)(3) or Section 14(d) (2) of the Exchange Act) has become the beneficial owner (as the term "beneficial owner" is defined under Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) of securities representing 20% or more of the combined voting power of the then-outstanding voting securities of the Company ("Voting Securities") (computed in accordance with the standards for the computation of total percentage ownership for the purposes of Schedule 13D or Schedule 14D-1 (or any successor schedule, form or report)); or (iv) The Company files a report or proxy statement with the Securities and Exchange Commission pursuant to the Exchange Act disclosing in response to Form 8-K or Schedule 14A (or any successor schedule, form or report or item therein) that a change in control of the Company has occurred or will occur in the future pursuant to any then-existing contract or transaction. Notwithstanding the provisions set forth in (iii) or (iv) above, a "Change in Control" shall not be deemed to have occurred for purposes of this Agreement solely because (i) the Company, (ii) any Subsidiary, or (iii) any employee stock ownership plan or any other employee benefit plan of the Company or any Subsidiary either files or becomes obligated to file a report or a proxy statement under or in response to Schedule 13D, Schedule 14D-1, Form 8-K or Schedule 14A (or any successor schedule, form or report or item therein) under the Exchange Act disclosing beneficial ownership by it of Voting Securities, whether in excess of 20% or otherwise, or because the Company reports that a change in control of the Company has occurred or will occur in the Stock Option Agreement- Incentive Stock Option (Replacement of Schuler Stock Options) 4 future by reason of such beneficial ownership. For purposes of calculating beneficial ownership pursuant to this subparagraph (B), any Voting Securities held by Donald R. Horton as of the date hereof or received by Donald R. Horton in connection with any merger involving the Company and any affiliate of the Company shall not be included in the calculation of beneficial ownership. (C) Notwithstanding the provisions of subparagraph (A) of this paragraph 1, this option shall be exercisable to the extent of 100% of the shares hereinabove specified at the time the Participant ceases to be an employee of the Company or any Subsidiary upon the occurrence of the events described in subparagraph (B) or (D) of paragraph 3. (D) Notwithstanding the provisions of subparagraph (A) of this paragraph 1, this option shall be exercisable to the extent of 100% of the shares hereinabove specified if the Participant is involuntarily terminated as an employee of the Company and its Subsidiaries without Cause for Termination (and not on account of death or disability) within six months from the Date of Grant. For purposes of this subparagraph (D) of this paragraph 1, "Cause for Termination" shall mean any reason related to the violation of policies, rules or directions of any employer or its management, misconduct or negligence in performing assigned responsibilities, failure to meet performance goals or objectives or to fulfill customary duties, conduct damaging to property or other interests, fraud, misappropriation, dishonesty or abuse of alcohol or any controlled substance, or similar basis related to performance or character. 2. The Option Price shall be payable (a) in cash or by check acceptable to the Company, (b) by transfer to the Company of shares of Common Stock which have been owned by the Participant for more than six months prior to the date of exercise and which have an aggregate Market Value per Share on the date of exercise equal to the aggregate Option Price, (c) by a combination of the methods of payment set forth in clauses (a) or (b) above, or Stock Option Agreement- Incentive Stock Option (Replacement of Schuler Stock Options) 5 (d) through a broker-dealer sale and remittance procedure, pursuant to which the Participant shall provide irrevocable written instructions (i) to the designated broker-dealer to effect the immediate sale of the purchased shares and remit to the Company, out of the sale proceeds an amount equal to the aggregate option price payable for the purchased shares plus all applicable Federal and State income and employment taxes required to be withheld by the Company by reason of such purchase and (ii) to the Company to deliver the certificates for the purchased shares directly to such broker-dealer. 3. The nonvested portion of this option shall terminate immediately upon termination of employment. The vested portion of this option shall terminate on the earliest of the following dates: (A) Three months after delivery to the Participant by the Company or a Subsidiary of notice of termination of the Participant's employment with the Company or a Subsidiary other than for any matter that constitutes a violation of the standard of employee conduct set forth in the Company's Employee Manual as in effect on the date of such termination or delivery to the Company by the Participant of notice of the voluntary termination by the Participant of the Participant's employment with the Company or a Subsidiary; (B) Three months after the Participant ceases to be an employee of the Company or a Subsidiary by reason of retirement under a retirement plan of the Company or a Subsidiary, which retirement is at or after normal retirement age provided for in such retirement plan; (C) Immediately upon the delivery to the Participant by the Company or a Subsidiary of notice of termination of the Participant's employment with the Company or Stock Option Agreement- Incentive Stock Option (Replacement of Schuler Stock Options) 6 a Subsidiary for any matter that constitutes a violation of the standard of employee conduct set forth in the Company's Employee Manual as in effect on the date of such termination; (D) One year after the death or permanent disability of the Participant if the Participant dies or becomes permanently disabled while an employee of the Company or a Subsidiary; and (E) (INSERT EXPIRATION DATE FROM REPLACED SCHULER OPTION). Nothing contained in this option shall limit whatever right the Company or a Subsidiary might otherwise have to terminate the employment of the Participant. Except as otherwise provided in subparagraph (C) of paragraph 1, after the termination of the Participant's employment this option shall be exercisable for the same number of shares for which it was exercisable prior to such termination. In the event that the Participant's employment terminates on the same date that a Change in Control of the Company occurs, the Change in Control will be deemed to have occurred prior to the termination of the Participant's employment. 4. This option is not transferable or exercisable except as provided in Paragraph 9 of the Plan. 5. Notwithstanding the provisions of Paragraph 10 of the Plan, no adjustment shall be made to this option without the prior written consent of the Participant if any such adjustment would constitute a "modification" of this option within the meaning of Section 424(h) of the Code. Stock Option Agreement- Incentive Stock Option (Replacement of Schuler Stock Options) 7 6. If the Company shall be required to withhold any federal, state, local or foreign tax in connection with the exercise of this option, it shall be a condition to such exercise that the Participant pay or make provision satisfactory to the Company for payment of all such taxes. 7. Upon each exercise of this option, the Company as promptly as practicable shall mail or deliver to the Participant a stock certificate or certificates representing the shares then purchased, and shall pay all stamp taxes payable in connection therewith. The issuance of such shares and delivery of the certificate or certificates therefor shall, however, be subject to any delay necessary to complete (a) the listing of such shares on any stock exchange upon which shares of the same class are then listed, (b) such registration or qualification of such shares under any state or federal law, rule or regulation as the Company may determine to be necessary or advisable, and (c) the making of provision for the payment or withholding of any taxes required to be withheld pursuant to any applicable law, in respect of the exercise of this option or the receipt of such shares. 8. The term "Subsidiary" as used in this Agreement means any corporation, trust, joint venture, partnership or other unincorporated entity in which, at the time, the Company owns or controls, directly or indirectly, (i) in the case of a corporation, not less than 50% of the total combined voting power represented by all classes of stock issued by such corporation, or (ii) in the case of a trust, joint venture, partnership or other unincorporated entity, not less than 50% of the beneficial interest of such entity. A corporation shall be considered to be a Subsidiary of the Company if it is a member of an unbroken chain of corporations beginning with the Company if each of the corporations other than the last corporation in the unbroken chain owns stock possessing fifty percent or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. For purposes of this Agreement, the continuous employ Stock Option Agreement- Incentive Stock Option (Replacement of Schuler Stock Options) 8 of the Participant with the Company or a Subsidiary shall not be deemed interrupted, and the Participant shall not be deemed to have ceased to be an employee of the Company or any Subsidiary, by reason of the transfer of his employment among the Company and any of its Subsidiaries. EXECUTED at Arlington, Texas as of this 21st day of February, 2002. D. R. HORTON, INC. By ---------------------------- The undersigned Participant hereby acknowledges receipt of an executed original of this Incentive Stock Option Agreement and accepts the stock option granted thereunder. ------------------------------- Participant Stock Option Agreement- Incentive Stock Option (Replacement of Schuler Stock Options) 9 EX-10.5 15 d96909ex10-5.txt FORM OF NON-QUALIFIED STOCK OPTION AGREEMENT EXHIBIT 10.5 D.R. HORTON, INC. NON-QUALIFIED STOCK OPTION AGREEMENT (TERM VESTING) FEBRUARY 21, 2002 WHEREAS, _______________________ (hereinafter called the "Participant") has become an employee of D.R. Horton, Inc., a Delaware corporation (hereinafter called the "Company"), or one of its Subsidiaries as a result of the merger of Schuler Homes, Inc. ("Schuler") with and into the Company, with the Company as the surviving corporation, pursuant to the Agreement and Plan of Merger, dated as of October 22, 2001, as amended (the "Merger Agreement"), between the Company and Schuler; WHEREAS, pursuant to Section 2.1.6 of the Merger Agreement and the terms of the Amended and Restated 1992 Stock Option Plan and the Amended and Restated 2000 Stock Incentive Plan of Schuler (the "Schuler Stock Option Plans"), each outstanding stock option held by the Participant to purchase shares of common stock of Schuler has been terminated and is being replaced with a comparable option to purchase Common Stock of the Company; WHEREAS, the grant of Option Rights to the Participant effective February 21, 2002 (the "Date of Grant") and the execution of a Stock Option Agreement in the form hereof has been duly authorized by a resolution of the Committee duly adopted on February 21, 2002 and incorporated herein by reference; and WHEREAS, the option granted hereby is intended to be a non-qualified stock option and shall not be treated as an "incentive stock option" within the meaning of that term under Section 422A of the Code; NOW, THEREFORE, effective as of the Date of Grant, the Company hereby grants to the Participant a non-qualified option pursuant to the Company's 1991 Stock Incentive Plan (the "Plan") to purchase (INSERT NUMBER OF REPLACED SCHULER OPTIONS TIMES STOCK EXCHANGE RATIO (0.598)) shares of Common Stock at the price of (INSERT EXERCISE PRICE OF REPLACED SCHULER OPTIONS DIVIDED BY STOCK EXCHANGE RATIO (0.598)) Dollars (_______________) per share, and agrees to cause certificates for any shares purchased hereunder to be delivered to the Participant upon payment of the aggregate Option Price in full, all subject, however, to the terms and conditions hereinafter set forth and in the Plan, which is incorporated herein by reference and, in the event of any conflict between the Plan and this Agreement, the terms of the Plan shall prevail. Capitalized terms used in this Agreement that are not otherwise defined in this Agreement are used as defined in the Plan. 1. (A) This option (until terminated as hereinafter provided) shall become exercisable as follows: (INSERT VESTING SCHEDULE REMAINING FROM REPLACED SCHULER OPTION)
TIME PERIOD NUMBER OF SHARES FOR AFTER DATE OF GRANT WHICH OPTION IS EXERCISABLE ------------------- --------------------------- ------------------- --------------------------- ------------------- --------------------------- ------------------- --------------------------- ------------------- --------------------------- ------------------- --------------------------- ------------------- ---------------------------
Except as otherwise provided in paragraph 3, this option shall be exercisable only if the Participant shall have been in the continuous employ of the Company or any Subsidiary from Stock Option Agreement- Non-Qualified Stock Option (Replacement of Schuler Stock Options) 2 the date hereof until this option is exercised. For the purposes of this paragraph, leaves of absence approved by the Board for illness, disability, military or governmental service, or other cause, shall be considered as employment. The Participant shall be deemed to be in the employ of the Company or any Subsidiary for so long as such Participant continues to render periodic services to the Company or any Subsidiary, whether as an employee, a non-employee member of the Company's or its Subsidiary's Board of Directors, or similar governing body, or an independent consultant or advisor. The Participant shall be deemed to be an employee and to continue in the Company's employ for so long as the Participant continues in the employ of the Company or one or more of its Subsidiaries, subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance. To the extent exercisable, this option may be exercised in whole or in part from time to time. (B) Notwithstanding the provisions of subparagraph (A) of this paragraph 1, this option shall be exercisable to the extent of 100% of the shares hereinabove specified upon the occurrence of any Change in Control (as hereinafter defined) of the Company. For purposes of this Agreement, a "Change in Control" means the occurrence of any of the following events: (i) A merger, consolidation or reorganization of the Company into or with another corporation or other legal person if the stockholders of the Company, immediately before such merger, consolidation or reorganization, do not, immediately following such merger, consolidation or reorganization, then own directly or indirectly, more than 50% of the combined voting power of the then-outstanding voting securities of the corporation or other legal person resulting from such merger, consolidation or reorganization in substantially the same proportion as their ownership of Voting Securities (as hereinafter defined) immediately prior to such merger, consolidation or reorganization; (ii) The Company sells all or substantially all of its assets to another Stock Option Agreement- Non-Qualified Stock Option (Replacement of Schuler Stock Options) 3 corporation or other legal person, or there is a complete liquidation or dissolution of the Company; (iii) There is a report filed on Schedule 13D or Schedule 14D-1 (or any successor schedule, form or report), each as promulgated pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act"), disclosing that any person (as the term "person" is used in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) has become the beneficial owner (as the term "beneficial owner" is defined under Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) of securities representing 20% or more of the combined voting power of the then-outstanding voting securities of the Company ("Voting Securities") (computed in accordance with the standards for the computation of total percentage ownership for the purposes of Schedule 13D or Schedule 14D-1 (or any successor schedule, form or report)); or (iv) The Company files a report or proxy statement with the Securities and Exchange Commission pursuant to the Exchange Act disclosing in response to Form 8-K or Schedule 14A (or any successor schedule, form or report or item therein) that a change in control of the Company has occurred or will occur in the future pursuant to any then-existing contract or transaction. Notwithstanding the provisions set forth in (iii) or (iv) above, a "Change in Control" shall not be deemed to have occurred for purposes of this Agreement solely because (i) the Company, (ii) any Subsidiary, or (iii) any employee stock ownership plan or any other employee benefit plan of the Company or any Subsidiary either files or becomes obligated to file a report or a proxy statement under or in response to Schedule 13D, Schedule 14D-1, Form 8-K or Schedule 14A (or any successor schedule, form or report or item therein) under the Exchange Act disclosing beneficial ownership by it of Voting Securities, whether in excess of 20% or otherwise, or because the Company reports that a change in control of the Company has occurred or will occur in the future by reason of such beneficial ownership. For purposes of calculating beneficial ownership pursuant to this subparagraph (B), any Voting Securities held by Donald R. Horton as of the date hereof or received by Donald R. Horton in connection with any merger involving the Company and any Stock Option Agreement- Non-Qualified Stock Option (Replacement of Schuler Stock Options) 4 affiliate of the Company shall not be included in the calculation of beneficial ownership. (C) Notwithstanding the provisions of subparagraph (A) of this paragraph 1, this option shall be exercisable to the extent of 100% of the shares hereinabove specified at the time the Participant ceases to be an employee of the Company or any Subsidiary upon the occurrence of the events described in subparagraph (B) or (D) of paragraph 3. (D) Notwithstanding the provisions of subparagraph (A) of this paragraph 1, this option shall be exercisable to the extent of 100% of the shares hereinabove specified if the Participant is involuntarily terminated as an employee of the Company and its Subsidiaries without Cause for Termination (and not on account of death or disability) within six months from the Date of Grant. For purposes of this subparagraph (D) of this paragraph 1, "Cause for Termination" shall mean any reason related to the violation of policies, rules or directions of any employer or its management, misconduct or negligence in performing assigned responsibilities, failure to meet performance goals or objectives or to fulfill customary duties, conduct damaging to property or other interests, fraud, misappropriation, dishonesty or abuse of alcohol or any controlled substance, or similar basis related to performance or character. 2. The Option Price shall be payable (a) in cash or by check acceptable to the Company, (b) by transfer to the Company of shares of Common Stock which have been owned by the Participant for more than six months prior to the date of exercise and which have an aggregate Market Value per Share on the date of exercise equal to the aggregate Option Price, (c) by a combination of the methods of payment set forth in clauses (a) or (b) above, or (d) through a broker-dealer sale and remittance procedure, pursuant to which the Participant shall provide Stock Option Agreement- Non-Qualified Stock Option (Replacement of Schuler Stock Options) 5 irrevocable written instructions (i) to the designated broker-dealer to effect the immediate sale of the purchased shares and remit to the Company, out of the sale proceeds an amount equal to the aggregate option price payable for the purchased shares plus all applicable Federal and State income and employment taxes required to be withheld by the Company by reason of such purchase and (ii) to the Company to deliver the certificates for the purchased shares directly to such broker-dealer. 3. The nonvested portion of this option shall terminate immediately upon termination of employment. The vested portion of this option shall terminate on the earliest of the following dates: (A) Three months after delivery to the Participant by the Company or a Subsidiary of notice of termination of the Participant's employment with the Company or a Subsidiary other than for any matter that constitutes a violation of the standard of employee conduct set forth in the Company's Employee Manual as in effect on the date of such termination, or delivery to the Company by the Participant of notice of the voluntary termination by the Participant of the Participant's employment with the Company or a Subsidiary; (B) One year after the Participant ceases to be an employee of the Company or a Subsidiary by reason of retirement under a retirement plan of the Company or a Subsidiary, which retirement is at or after normal retirement age provided for in such retirement plan; (C) Immediately upon the delivery to the Participant by the Company or a Subsidiary of notice of termination of the Participant's employment with the Company or a Subsidiary for any matter that constitutes a violation of the standard of employee conduct set Stock Option Agreement- Non-Qualified Stock Option (Replacement of Schuler Stock Options) 6 forth in the Company's Employee Manual as in effect on the date of such termination; (D) Two years after the death or permanent disability of the Participant if the Participant dies or becomes permanently disabled while an employee of the Company or a Subsidiary; and (E) (INSERT EXPIRATION DATE FROM REPLACED SCHULER OPTION). Nothing contained in this option shall limit whatever right the Company or a Subsidiary might otherwise have to terminate the employment of the Participant. Except as otherwise provided in subparagraph (C) of paragraph 1, after the termination of the Participant's employment this option shall be exercisable for the same number of shares for which it was exercisable prior to such termination. In the event that the Participant's employment terminates on the same date that a Change in Control of the Company occurs, the Change in Control will be deemed to have occurred prior to the termination of the Participant's employment. 4. This option is not transferable or exercisable except as provided in Paragraph 9 of the Plan. 5. If the Company shall be required to withhold any federal, state, local or foreign tax in connection with the exercise of this option, it shall be a condition to such exercise that the Participant pay or make provision satisfactory to the Company for payment of all such taxes. 6. Upon each exercise of this option, the Company as promptly as practicable shall mail or deliver to the Participant a stock certificate or certificates representing the shares then purchased, and shall pay all stamp taxes payable in connection therewith. The issuance of such Stock Option Agreement- Non-Qualified Stock Option (Replacement of Schuler Stock Options) 7 shares and delivery of the certificate or certificates therefor shall, however, be subject to any delay necessary to complete (a) the listing of such shares on any stock exchange upon which shares of the same class are then listed, (b) such registration or qualification of such shares under any state or federal law, rule or regulation as the Company may determine to be necessary or advisable, and (c) the making of provision for the payment or withholding of any taxes required to be withheld pursuant to any applicable law, in respect of the exercise of this option or the receipt of such shares. EXECUTED at Arlington, Texas as of the date first above written. D. R. HORTON, INC. By ------------------------------ The undersigned Participant hereby acknowledges receipt of an executed original of this Non-Qualified Stock Option Agreement and accepts the stock option granted thereunder. -------------------------------- Participant Stock Option Agreement- Non-Qualified Stock Option (Replacement of Schuler Stock Options) 8 -----END PRIVACY-ENHANCED MESSAGE-----