FIFTH SUPPLEMENTAL INDENTURE

 

FIFTH SUPPLEMENTAL INDENTURE , dated as of May 5, 2009 (the “ Supplemental Indenture ”), to the Indenture (defined below) among The Ryland Group, Inc. (the “ Company ”), a Maryland corporation, each of the Guarantors named herein (the “ Guarantors ”), and The Bank of New York Mellon Trust Company, N.A. (as successor to JPMorgan Chase Bank, N.A. f/k/a Chemical Bank), as trustee (the “ Trustee ”).

 

RECITALS

 

WHEREAS , the Company has heretofore executed and delivered to the Trustee an Indenture, dated as of June 28, 1996 (the “ Base Indenture ”), providing for the issuance from time to time of its notes and other evidences of senior debt securities, to be issued in one or more series as therein provided (“ Securities ”);

 

WHEREAS , pursuant to the terms of the Base Indenture, the Company desires to provide for the establishment of a new series of its Securities to be known as its 8.4% Senior Notes due 2017 (the “ Notes ”), the form and substance of such Notes and the terms, provisions and conditions thereof to be set forth as provided in the Base Indenture and this Supplemental Indenture (together, the “ Indenture ”);

 

WHEREAS , pursuant to the terms of the Notes, the Guarantors will fully and unconditionally guarantee the obligations of the Company under the Notes and the Indenture, on a senior and unsubordinated basis (the “ Subsidiary Guarantees ”); and

 

WHEREAS , the Company has requested that the Trustee execute and deliver this Supplemental Indenture and all requirements necessary to make this Supplemental Indenture a valid instrument in accordance with its terms, and to make the Notes, when executed by the Company and authenticated and delivered by the Trustee, the valid obligations of the Company, and to make the Subsidiary Guarantees, when executed by the Guarantors and authenticated and delivered by the Trustee, the valid obligations of the Guarantors, and all acts and things necessary have been done and performed to make this Supplemental Indenture enforceable in accordance with its terms, and the execution and delivery of this Supplemental Indenture has been duly authorized in all respects.

 

WITNESSETH:

 

NOW, THEREFORE , for and in consideration of the premises contained herein, each party agrees for the benefit of each other party and for the equal and ratable benefit of the Holders of the Notes, as follows:

 

ARTICLE ONE

 

DEFINITIONS

 

Section 1.01 .    Capitalized terms used but not defined in this Supplemental Indenture shall have the meanings ascribed to them in the Base Indenture.

 

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Section 1.02 .    References in this Supplemental Indenture to article and section numbers shall be deemed to be references to article and section numbers of this Supplemental Indenture unless otherwise specified.

 

Section 1.03 .    For purposes of this Supplemental Indenture, the following terms have the meanings ascribed to them as follows:

 

“ Attributable Debt ” means, in respect of a Sale and Leaseback Transaction, the present value (discounted at the weighted average effective interest cost per annum of the outstanding debt securities of all series, compounded semiannually) of the obligation of the lessee for rental payments during the remaining term of the lease included in such transaction, including any period for which such lease has been extended or may, at the option of the lessor, be extended or, if earlier, until the earliest date on which the lessee may terminate such lease upon payment of a penalty (in which case the obligation of the lessee for rental payments shall include such penalty), after excluding all amounts required to be paid on account of maintenance and repairs, insurance, taxes, assessments, water and utility rates and similar charges.

 

“ Base Indenture ” has the meaning provided in the recitals.

 

“ Beneficial Owner ” has the meaning provided in Section 2.03.

 

“ 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 generally accepted accounting principles, and the amount of such obligations will be the capitalized amount thereof determined in accordance with generally accepted accounting principles.

 

“ Change of Control Offer ” has the meaning provided in Section 3.05.

 

“ Change of Control Payment ” has the meaning provided in Section 3.05.

 

“ Change of Control Payment Date ” has the meaning provided in Section 3.05.

 

“ Consolidated Net Tangible Assets ” means the total amount of assets which would be included on a combined balance sheet of the Restricted Subsidiaries (not including the Company) together with the total amount of assets that would be included on the Company’s balance sheet, not including its subsidiaries, under generally accepted accounting principles (less applicable reserves and other properly deductible items) after deducting therefrom:

 

(1)                               all short-term liabilities, except for liabilities payable by their terms more than one year from the date of determination (or renewable or extendible at the option of the obligor for a period ending more than one year after such date) and liabilities in respect of retiree benefits other than pensions for which the Restricted Subsidiaries are required to accrue pursuant to Statement of Financial Accounting Standards No. 106;

 

(2)                               investments in subsidiaries that are not Restricted Subsidiaries; and

 

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(3)                               all goodwill, trade names, trademarks, patents, unamortized debt discount, unamortized expense incurred in the issuance of debt and other tangible assets.

 

“ Covenant Defeasance ” has the meaning provided in Article Eight.

 

“ Depositary ” has the meaning provided in Section 2.03.

 

“ Exchange Act ” has the meaning provided in Section 3.05.

 

“ Financial Services Segment ” means the business segment of the Company and its Subsidiaries engaged in mortgage banking (including mortgage origination, loan servicing, mortgage brokerage and title and escrow businesses), master servicing and related activities, including, without limitation, a Subsidiary which facilitates the financing of mortgage loans and mortgage-backed securities and the securitization of mortgage-backed bonds and other related activities, which segment currently consists principally of the activities of Ryland Mortgage Company and its Subsidiaries but excludes the Limited Purpose Subsidiaries.

 

“ Financial Services Subsidiaries ” means Subsidiaries of the Company included within the Financial Services Segment.

 

“ Guaranteed Obligations ” has the meaning provided in Section 6.01.

 

“ Guarantor ” means (a) initially, each of the Guarantors named on the signature pages of this Supplemental Indenture, and (b) each of the Company’s Subsidiaries which becomes a guarantor of the Notes pursuant to the provisions of this Supplemental Indenture, subject, in the case of either (a) or (b) to release of an entity as a Guarantor as provided in this Supplemental Indenture.

 

“ Holder ” means a Person in whose name a Note is registered on the Security Registrar’s books.

 

“ Homebuilding Segment ” means the business segment of the Company and its Subsidiaries engaged in the construction and sale of single-family attached and unattached dwellings and related activities, including all activities of the Company outside the Financial Services Segment but excluding the Limited-Purpose Subsidiaries.

 

“ Homebuilding Subsidiaries ” means Subsidiaries of the Company included within the Homebuilding Segment.

 

“ Indebtedness ” means (1) any liability of any person (A) for borrowed money, or (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 (other than a trade payable or a current liability arising in the ordinary course of business), or (C) for the payment of money relating to a Capitalized Lease Obligation or (D) for all Redeemable Capital Stock valued at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends; (2) any liability of others described in the preceding clause (1) that such person has guaranteed or that is otherwise its legal liability; (3) all

 

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Indebtedness referred to in (but not excluded from) clauses (1) and (2) above of other persons and all dividends of other persons, the payment of which is secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Security Interest upon or in property (including, without limitation, accounts and contract rights) owned by such person, even though such person has not assumed or become liable for the payment of such Indebtedness; and (4) any amendment, supplement, modification, deferral, renewal, extension or refunding or any liability of the types referred to in clauses (1), (2) and (3) above.

 

“ Indenture ” has the meaning provided in the recitals.

 

“ Interest Payment Date ” has the meaning provided in Section 2.04.

 

“ Legal Defeasance ” has the meaning provided in Article Eight.

 

“ Limited-Purpose Subsidiaries ” means subsidiaries of the Company included within the Limited-Purpose Subsidiaries Segment.

 

“ Limited-Purpose Subsidiaries Segment ” means the business segment of the Company and its Subsidiaries which facilitates, through special-purpose entities created or existing solely for such purpose, the financing of mortgage loans and mortgage-backed securities and the securitization of mortgage loans and other related activities.

 

“ Maximum Liability ” has the meaning provided in Section 6.08.

 

“ Non-Paying Guarantor ” has the meaning provided in Section 6.08.

 

“ Non-Recourse Indebtedness ” means the Company’s or any of the Company’s Subsidiaries’ Indebtedness or other obligations secured by a lien on property to the extent that the liability for the Indebtedness or other obligations is limited to the security of the property without liability for any deficiency, including liability by reason of any agreement between the Company or any Subsidiary to provide additional capital or maintain the financial condition of or otherwise support the credit of the Subsidiary incurring the Indebtedness.

 

“ Non-Recourse Land Financing ” means any Indebtedness of the Company or any Restricted Subsidiary for which the holder of such Indebtedness has no recourse, directly or indirectly, to the Company or such Restricted Subsidiary for the principal of, premium, if any, and interest on such Indebtedness, and for which the Company or such Restricted Subsidiary is not, directly or indirectly, obligated or otherwise liable for the principal of, premium, if any, and interest on such Indebtedness, except pursuant to mortgages, deeds of trust or other Security Interests or other recourse obligations or liabilities in respect of specific land or other real property interests of the Company or such Restricted Subsidiary; provided that recourse obligations or liabilities of the Company or such Restricted Subsidiary solely for indemnities, covenants or breach of any warranty, representation or covenant in respect of any Indebtedness will not prevent Indebtedness from being classified as Non-Recourse Land Financing.

 

“ Notes ” has the meaning provided in the recitals.

 

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“ Paying Guarantor ” has the meaning provided in Section 6.08.

 

“ Person ” means any individual, corporation, partnership, joint venture, association, joint stock company, trust, unincorporated organization, limited liability company, government or any agency or political subdivision hereof or any other entity.

 

“ Pro Rata Share ” has the meaning provided in Section 6.08.

 

“ Redeemable Capital Stock ” means any capital stock of the Company or any Subsidiary that, either by its terms, by the terms of any security into which it is convertible or exchangeable or otherwise, (1) is or upon the happening of an event or passage of time would be required to be redeemed on or prior to the final stated maturity of the securities or (2) is redeemable at the option of the holder thereof at any time prior to such final stated maturity or (3) is convertible into or exchangeable for debt securities at any time prior to such final stated maturity.

 

“ Restricted Subsidiary ” means any Subsidiary of the Company that is not a Financial Services Subsidiary.

 

“ Sale and Leaseback Transaction ” means a sale or transfer made by the Company or a Restricted Subsidiary (except a sale or transfer made to the Company or another Restricted Subsidiary) of any property which is either (1) a manufacturing facility, office building or warehouse whose book value equals or exceeds 1% of Consolidated Net Tangible Assets as of the date of determination or (2) another property (not including a model home) which exceeds 5% of Consolidated Net Tangible Assets as of the date of determination, if such sale or transfer is made with the agreement, commitment or intention of leasing such property to the Company or a Restricted Subsidiary.

 

“ Secured Debt ” means any Indebtedness which is secured by (1) a Security Interest in any of the Company’s property or the property of any Restricted Subsidiary or (2) a Security Interest in shares of stock owned directly or indirectly by the Company or a Restricted Subsidiary in a corporation or in equity interests owned by the Company or a Restricted Subsidiary in a partnership or other entity not organized as a corporation or in the Company’s rights or the rights of a Restricted Subsidiary in respect of Indebtedness of a corporation, partnership or other entity in which the Company or a Restricted Subsidiary has an equity interest; provided that “Secured Debt” shall not include Non-Recourse Land Financing that consists exclusively of “land under development,” “land held for future development” or “improved lots and parcels,” as such categories of assets are determined in accordance with generally accepted accounting principles. The securing in the foregoing manner of any such Indebtedness which immediately prior thereto was not Secured Debt shall be deemed to be the creation of Secured Debt at the time security is given.

 

“ Securities ” has the meaning provided in the recitals.

 

“ Security Interest ” means any mortgage, pledge, lien, encumbrance or other security interest which secures the payment or performance of an obligation.

 

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“ Senior Indebtedness ” means the principal of (and premium, if any, on) and interest on (including interest accruing after the occurrence of an Event of Default or after the filing of a petition initiating any proceeding pursuant to any bankruptcy law whether or not such interest is an allowable claim in any such proceeding) and other amounts due on or in connection with any of the Company’s Indebtedness, whether outstanding on the date hereof or hereafter created, incurred or assumed, unless, in the case of any particular Indebtedness, the instrument creating or evidencing the same or pursuant to which the same is outstanding expressly provides that such Indebtedness shall not be senior in right of payment to the debt securities. Notwithstanding the foregoing, “Senior Indebtedness” shall not include (1) the Company’s Indebtedness that is expressly subordinated in right of payment to any of the Company’s Senior Indebtedness, (2) the Company’s Indebtedness that by operation of law is subordinate to any of the Company’s general unsecured obligations, (3) the Company’s Indebtedness to any Subsidiary, (4) Indebtedness incurred in violation of the restrictions set forth in Sections 3.01 and 3.02 , (5) to the extent it might constitute Indebtedness, any liability for federal, state or local taxes or other taxes, owed or owing by the Company, and (6) to the extent it might constitute Indebtedness, trade account payables owed or owing by the Company.

 

“ Subsidiary ” means any corporation of which at the time of determination by the Company, directly and/or indirectly through one or more Subsidiaries, owns more than 50% of the shares of Voting Stock.

 

“ Subsidiary Guarantees ” has the meaning provided in the recitals.

 

“ Supplemental Indenture ” has the meaning provided in the preamble.

 

“ Voting Stock ” means any class or classes of capital stock pursuant to which the holders thereof have the general voting power under ordinary circumstances to elect at least a majority of the board of directors, managers or trustees of any person (irrespective of whether or not, at the time, stock of any other class or classes shall have, or might have, voting power by reason of the happening of any contingency).

 

“ Wholly Owned Subsidiary ” of a Person means (i) any Subsidiary all of the outstanding voting securities of which shall at the time be owned or controlled, directly or indirectly, any such Person or one or more Wholly Owned Subsidiaries of such Person, or by such Person and one or more Wholly Owned Subsidiaries of such Person, or (ii) any partnership, limited liability company, association, joint venture or similar business organization all of the ownership interests (having ordinary voting power) of which shall at the time be owned or controlled, directly or indirectly, any such Person or one or more Wholly Owned Subsidiaries of such Person, or by such Person and one or more Wholly Owned Subsidiaries of such Person.

 

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ARTICLE TWO

 

GENERAL TERMS AND CONDITIONS OF THE NOTES

 

Section 2.01 .    Designation and Principal Amount .

 

The Notes are hereby authorized and are designated the 8.4% Senior Notes due 2017, unlimited in aggregate principal amount.  The Notes issued on the date hereof pursuant to the terms of this Indenture will be in an aggregate principal amount of $230,000,000, which amount shall be set forth in the written order of the Company for the authentication and delivery of the Notes pursuant to Section 303 of the Indenture.  In addition, the Company may issue, from time to time in accordance with the provisions of this Indenture, additional Notes ranking equally and ratably with the Notes issued hereunder in all respects (or in all respects except for the payment of interest following the Issue Date of such further Notes), so that such further Notes shall be consolidated and form a single series with the Notes and shall be governed by the terms of this Indenture.

 

Section 2.02 .    Maturity .

 

The principal amount of the Notes will be payable on May 15, 2017.

 

Section 2.03 .    Form and Payment .

 

The Notes will be issued as global notes, in fully registered book-entry form without coupons in denominations of $1,000 and integral multiples thereof.

 

Principal, premium, if any, and/or interest, if any, on the global notes representing the Notes will be made to The Depository Trust Company (the “ Depositary ”).

 

The global notes representing the Notes will be deposited with, or on behalf of, the Depositary and will be registered in the name of the Depositary or a nominee of the Depositary.  No global note may be transferred except as a whole by a nominee of the Depositary to the Depositary or to another nominee of the Depositary, or by the Depositary or such nominee to a successor of the Depositary or a nominee of such successor.

 

So long as the Depositary or its nominee is the registered owner of a global note, the Depositary or its nominee, as the case may be, will be the sole Holder of the Notes represented thereby for all purposes under the Indenture.  Except as otherwise provided herein, each actual purchaser of each Note represented by a global note (“ Beneficial Owner ”) will not be entitled to receive physical delivery of certificated Notes and will not be considered the holders thereof for any purpose under the Indenture, and no global note representing the Notes shall be exchangeable or transferable.  Accordingly, each Beneficial Owner must rely on the procedures of the Depositary and, if such Beneficial Owner is not a participant, on the procedures of the participant through which such Beneficial Owner owns its interest in order to exercise any rights of a Holder under such global note or the Indenture.

 

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The global notes representing the Notes will be exchangeable for certificated Notes of like tenor and terms and of differing authorized denominations aggregating a like principal amount, only if (i) the Depositary notifies the Company that it is unwilling or unable to continue as Depositary for the global debt securities, (ii) the Depositary ceases to be a clearing agency registered under the Exchange Act and a successor to the Depository is not appointed by the Company within 90 days, (iii) the Company in its sole discretion determines that the global notes shall be exchangeable for certificated Notes and notifies the Trustee in writing of such determination or (iv) there shall have occurred and be continuing an Event of Default under the Indenture with respect to the Notes.  Upon any such exchange, the certificated Notes shall be registered in the names of the Beneficial Owners of the global notes representing the Notes, which names shall be provided by the Depositary’s relevant participants (as identified by the Depositary) to the Trustee.  In such event the Company will execute, and subject to Section 303 of the Indenture, the Trustee, upon receipt of an Officer’s Certificate evidencing such determination by the Company, will authenticate and deliver the Notes in definitive registered form without coupons, in authorized denominations, and in an aggregate principal amount equal to the principal amount of the global notes in exchange for such global notes.  Upon the exchange of the global notes for such Notes in definitive registered form without coupons, in authorized denominations, the global notes shall be cancelled by the Trustee.  Such Notes in definitive registered form issued in exchange for the global notes shall be registered in such names and in such authorized denominations as the Depositary, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Trustee in writing.  The Trustee shall deliver such Notes to the Depositary for delivery to the Persons in whose names such Notes are so registered.

 

Section 2.04 .    Interest .

 

The Notes shall bear interest at a rate equal to 8.4% per year.  Interest on the Notes shall accrue from May 5, 2009, or from the most recent interest payment date to which interest has been paid or duly provided upon for the Notes, as the case may be.  Interest on the Notes shall be payable semiannually in arrears on May 15 and November 15, commencing November 15, 2009 (each an “ Interest Payment Date ”), to the persons in whose names the Notes are registered at the close of business on May 1 and November 1 (whether or not a Business Day), as the case may be, preceding such Interest Payment Date.

 

ARTICLE THREE

 

ADDITIONAL COVENANTS

 

Section 3.01 .    Restrictions on Secured Debt .

 

The Company will not, and will not cause or permit a Restricted Subsidiary to, create, incur, assume or guarantee any Secured Debt unless the Notes will be secured equally and ratably with (or prior to) such Secured Debt, with certain exceptions. This restriction does not prohibit the creation, incurrence, assumption or guarantee of Secured Debt that is secured by:

 

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(i)                                Security Interests on model homes, homes held for sale, homes that are under contract for sale, contracts for the sale of homes, land (improved or unimproved), manufacturing plants, warehouses or office buildings and fixtures and equipment located thereat, or thereon;

 

(ii)                          Security Interests on property at the time of its acquisition by the Company or a Restricted Subsidiary, which Security Interests secure obligations assumed by the Company or a Restricted Subsidiary, or on the property of a corporation or other entity at the time it is merged into or consolidated with the Company or a Restricted Subsidiary (other than Secured Debt created in contemplation of the acquisition of such property or the consummation of such a merger or where the Security Interest attaches to or affects the Company’s property or the property of a Restricted Subsidiary prior to such transaction);

 

(iii)                       Security Interests arising from conditional sales agreements or title retention agreements with respect to property acquired by the Company or a Restricted Subsidiary; and

 

(iv)                        Security Interests securing Indebtedness of a Restricted Subsidiary owing to the Company or to another Restricted Subsidiary that is a Wholly Owned Subsidiary by the Company.

 

Additionally, such permitted Secured Debt includes any amendment, restatement, supplement, renewal, replacement, extension, refinancing or refunding, in whole or in part, of Secured Debt permitted at the time of the original incurrence thereof.

 

The Company and its Restricted Subsidiaries may create, incur, assume or guarantee Secured Debt, without equally or ratably securing the Notes, if immediately thereafter the sum of (i) the aggregate principal amount of all Secured Debt outstanding (excluding Secured Debt permitted under clauses (i) through (iv) above and any Secured Debt in relation to which the Notes have been secured equally and ratably (or prior to)) and (ii) all Attributable Debt in respect of Sale and Leaseback Transactions (excluding Attributable Debt in respect of Sale and Leaseback Transactions satisfying the conditions set forth in clauses (i), (ii) and (iii) of Section 3.02 as of the date of determination would not exceed 20% of Consolidated Net Tangible Assets.

 

The provisions described above with respect to limitations on Secured Debt are not applicable to Non-Recourse Land Financing by virtue of the definition of Secured Debt, and will not restrict or limit the Company’s or its Restricted Subsidiaries’ ability to create, incur, assume or guarantee any unsecured Indebtedness, or the ability of any subsidiary which is not a Restricted Subsidiary to create, incur, assume or guarantee any secured or unsecured Indebtedness.

 

Section 3.02 .    Restrictions on Sale and Leaseback Transactions .

 

The Company will not, and will not permit any Restricted Subsidiary to, enter into any Sale and Leaseback Transaction, unless:

 

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(i)                                   notice is promptly given to the Trustee in writing of the Sale and Leaseback Transaction;

 

(ii)                              fair value is received by the Company or the relevant Restricted Subsidiary for the property sold (as determined in good faith pursuant to a resolution of the Board of Directors of the Company delivered to the Trustee); and

 

(iii)                       the Company or a Restricted Subsidiary, within 365 days after the completion of the Sale and Leaseback Transaction, apply an amount equal to the net proceeds therefrom either:

 

(x)                             to the redemption, repayment or retirement of debt securities of any series under the Indenture (including the cancellation by the Trustee of any debt securities of any series delivered by the Company to the Trustee) or Senior Indebtedness of the Company, or

 

(y)                             to the purchase by the Company or any Restricted Subsidiary of property substantially similar to the property sold or transferred.

 

The Company and its Restricted Subsidiaries may enter into a Sale and Leaseback Transaction if immediately thereafter the sum of (1) the aggregate principal amount of all Secured Debt outstanding (excluding Secured Debt permitted under clauses (i) through (iv) of Section 3.01 or Secured Debt in relation to which the Notes have been secured equally and ratably (or prior to)) and (2) all Attributable Debt in respect of Sale and Leaseback Transactions (excluding Attributable Debt in respect of Sale and Leaseback Transactions satisfying the conditions set forth in clauses (i), (ii) and (iii) in the preceding paragraph) as of the date of determination would not exceed 20% of Consolidated Net Tangible Assets.

 

Section 3.03 .    Future Subsidiaries .

 

The Company shall promptly secure the execution and delivery to the Trustee of a Guarantee in substantially the form of Exhibit A hereto with respect to the Notes, from each Subsidiary whether now existing or formed and organized after the date hereof, if such Subsidiary (a) is a Wholly Owned Subsidiary of the Company, (b) is included in the Homebuilding Segment and (c) guarantees any indebtedness of the Company, or guarantees obligations of any other Subsidiary as a guarantor of any indebtedness of the Company; provided that a Subsidiary whose sole purpose is to serve as a joint venturer, partner, member or shareholder in a joint venture, partnership, limited liability company or corporation that include one or more joint venturers, partners, members or shareholders that are not Affiliates of the Company shall not be required to deliver a Guarantee.  Each such Subsidiary that does not deliver a Guarantee on the date hereof shall execute and deliver a Guarantee in accordance with Section 6.02 within 30 days after it meets the criteria set forth in the preceding sentence and the Company shall furnish to the Trustee an Officers’ Certificate stating that all conditions precedent, if any, provided for in the Base Indenture and this Supplemental Indenture relating to the proposed action have been complied with, and an Opinion of Counsel stating that, in the opinion of such counsel, all such conditions precedent have been complied with.  Thereafter,

 

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such Subsidiary shall (unless released in accordance with the terms hereof) be a Guarantor for all purposes hereof with respect to the Notes.

 

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