PROSPECTUS SUPPLEMENT FILE PURSUANT TO RULE 424(b)(5)
(To Prospectus Dated April 16, 1999) REGISTRATION NO. 333-76175
$150,000,000
D.R. HORTON, INC.
9.75% SENIOR SUBORDINATED NOTES DUE 2010
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The notes will bear interest at a rate of 9.75% per year. Interest on the
notes is payable March 15 and September 15 of each year, beginning on March 15,
2001. The notes will mature on September 15, 2010. Pursuant to our equity
clawback provision, we may redeem the notes at any time before September 15,
2003, at a price of 109.75% plus accrued interest, with the net cash proceeds of
one or more public equity offerings so long as at least two-thirds of the
aggregate principal amount of notes issued under the indenture remain
outstanding. Upon a change of control we are required to make a mandatory
repurchase offer for the notes.
The notes will be unsecured and will rank junior in right of payment to all
of our existing and future senior indebtedness and will rank equal with any
other senior subordinated indebtedness that we may incur in the future. The
notes will be guaranteed by our existing and future restricted subsidiaries.
We have applied to list the notes on the New York Stock Exchange. Our common
stock NYSE symbol is DHI.
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INVESTING IN THE NOTES INVOLVES CERTAIN RISKS. SEE "RISK FACTORS" BEGINNING
ON PAGE S-6.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus supplement or the related prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
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PER NOTE TOTAL
-------- ------------
Public Offering Price 99.214% $148,821,000
Underwriting Discount 0.249% $ 373,500
Proceeds to D.R. Horton (before expenses) 98.965% $148,447,500
Interest on the notes will accrue from September 11, 2000 to the date of
delivery.
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The underwriter is offering the notes subject to various conditions. The
underwriter expects to deliver the notes to purchasers on or about
September 11, 2000.
--------------
SALOMON SMITH BARNEY
September 6, 2000
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT
MAKING ANY OFFER OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT
PERMITTED. YOU SHOULD NOT ASSUME THE INFORMATION PROVIDED BY THIS PROSPECTUS
SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN
THE DATE ON THE FRONT OF THIS PROSPECTUS SUPPLEMENT.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
Forward-Looking Statements.................................. i
Prospectus Supplement Summary............................... S-1
Risk Factors................................................ S-6
Use of Proceeds............................................. S-10
Capitalization.............................................. S-11
Business.................................................... S-12
Description of Notes........................................ S-19
Underwriting................................................ S-52
Legal Matters............................................... S-53
Experts..................................................... S-53
PROSPECTUS
Forward-Looking Statements.................................. 2
The Company................................................. 3
Securities We May Offer..................................... 4
Use of Proceeds............................................. 4
Ratio of Earnings to Fixed Charges.......................... 5
Description of Debt Securities.............................. 5
Description of Common Stock and Preferred Stock............. 10
Description of Warrants..................................... 11
Plan of Distribution........................................ 12
Legal Matters............................................... 13
Experts..................................................... 13
Where You Can Find More Information......................... 14
Incorporation of Certain Documents by Reference............. 14
FORWARD-LOOKING STATEMENTS
The statements contained in this prospectus supplement, the accompanying
prospectus and the information incorporated by reference include forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. These forward-looking statements involve risks, uncertainties and other
factors that may cause our actual results to differ materially from the results
we discuss in the forward-looking statements. These risks, uncertainties and
other factors include, but are not limited to:
- our substantial leverage;
- changes in general economic and business conditions;
- changes in interest rates and the availability of mortgage financing;
- governmental regulations and environmental matters;
- changes in costs and availability of material, supplies and labor;
- competitive conditions within our industry;
- the availability of capital;
- our ability to effect our growth strategies successfully; and
- the success of our diversification efforts.
See the section entitled "Risk Factors."
i
PROSPECTUS SUPPLEMENT SUMMARY
THIS IS ONLY A SUMMARY OF THE OFFERING. TO FULLY UNDERSTAND THE INVESTMENT
YOU ARE CONTEMPLATING, YOU MUST CONSIDER THIS PROSPECTUS SUPPLEMENT, THE
ACCOMPANYING PROSPECTUS AND THE DETAILED INFORMATION INCORPORATED INTO THEM BY
REFERENCE, INCLUDING THE FINANCIAL STATEMENTS AND THEIR ACCOMPANYING NOTES.
UNLESS THE CONTEXT OTHERWISE REQUIRES, THE TERMS "D.R. HORTON," THE "COMPANY,"
"WE" AND "OUR" REFER TO D.R. HORTON, INC., A DELAWARE CORPORATION, AND ITS
PREDECESSORS AND SUBSIDIARIES.
THE COMPANY
We are a national homebuilder. We construct and sell single-family homes in
metropolitan areas of the Mid-Atlantic, Midwest, Southeast, Southwest and West
regions of the United States. We offer high quality homes, designed principally
for first-time and move-up home buyers. Our homes generally range in size from
1,000 to 5,000 square feet and range in price from $80,000 to $600,000. For the
year ended September 30, 1999, we closed 18,395 homes with an average sales
price approximating $166,100. For the nine months ended June 30, 2000, we closed
13,866 homes with an average sales price approximating $179,800.
We are one of the largest and most geographically diversified homebuilders
in the United States, with operating divisions in 23 states and 39 markets. The
markets we operate in include: Albuquerque, Atlanta, Austin, Birmingham,
Charleston, Charlotte, Chicago, Cincinnati, Columbia, Dallas/Fort Worth, Denver,
Greensboro, Greenville, Hilton Head, Houston, Jacksonville, Killeen, Las Vegas,
Los Angeles, Louisville, Minneapolis/St. Paul, Myrtle Beach, Nashville, New
Jersey, Newport News, Orlando, Phoenix, Portland, Raleigh/Durham, Richmond,
Sacramento, Salt Lake City, San Antonio, San Diego, St. Louis, South Florida,
Tucson, Suburban Washington, D.C. and Wilmington.
We build homes under the following names: D.R. Horton, Arappco, Cambridge,
Continental, Dobson, Mareli, Milburn, Regency, RMP, SGS, Torrey and Trimark.
Our principal executive offices are at 1901 Ascension Blvd., Suite 100,
Arlington, Texas 76006, our telephone number is (817) 856-8200, and our internet
address is www.drhorton.com.
RECENT DEVELOPMENTS
We have recently formed ventures, called Encore Venture Partners II
(California) L.P. and Encore Venture Partners II (Texas) L.P., which, together
with our existing Encore Venture Partners, L.P., invest in technology start-up
and emerging growth companies. The Encore investments are intended to include
e-commerce opportunities that build on our homebuilding and financial services
businesses and other opportunities that represent a diversification from the
real estate industry. We may invest up to $125 million in the Encore companies
over a four-year period if suitable investments are found. Richard Beckwitt
resigned from his position as our President to join the professionals who are
leading this investment effort. Mr. Beckwitt has continued as a director of our
company, and Donald J. Tomnitz, our Vice Chairman and Chief Executive Officer,
assumed the role of President. As of August 31, 2000, we had made investments
totaling approximately $29.3 million in technology companies through the Encore
companies. None of the Encore companies is a restricted subsidiary or a
guarantor under the indentures for our outstanding senior notes or the notes
being offered hereby.
S-1
THE OFFERING
Securities Offered........................ $150 million aggregate principal amount of 9.75% Senior
Subordinated Notes due 2010.
Maturity Date............................. September 15, 2010.
Interest Payment Dates.................... Interest will accrue from the date of issuance and will
be payable semi-annually on each March 15 and September
15, commencing March 15, 2001.
Guarantees................................ Each guarantor is our wholly owned subsidiary that is a
restricted subsidiary under the indenture for these
notes. However, not all of our wholly owned subsidiaries
are guarantors of these notes. If we cannot make
payments on the notes when they are due, the guarantor
subsidiaries must make them.
Equity Clawback........................... At any time before September 15, 2003, we may redeem
these notes with the net cash proceeds of one or more
public equity offerings by us, at a redemption price
equal to 109.75% of the principal amount of the notes,
plus accrued and unpaid interest, if any, to the date of
redemption, so long as at least two-thirds of the
aggregate principal amount of notes issued under the
indenture remain outstanding.
Change of Control......................... Upon a change of control as described in the section
"Description of Notes," you will have the right to
require us to purchase some or all of your notes at 101%
of the principal amount, plus accrued and unpaid
interest to the date of purchase. We can give no
assurance that upon such an event we will have
sufficient funds to purchase any of your notes.
Ranking................................... These notes are our general obligations and will not be
secured by any collateral. Your right to payment under
these notes will be:
- junior to the rights of our secured creditors to
the extent of their security in our assets;
- junior to the rights of creditors under our senior
debt, including our revolving credit facility;
- equal with the rights of creditors under any other
senior subordinated debt that we may incur in the
future; and
- senior to the rights of creditors under debt that
we may incur in the future that is expressly
subordinated to these notes.
The guarantees of our existing and future restricted
subsidiaries will also not be secured by any collateral.
Your right to payment under any guarantee will be:
- junior to the rights of secured creditors to the
extent of their security in the guarantors'
assets;
S-2
- junior to the rights of creditors under the
guarantors' senior debt, including the guarantors'
guarantee of our senior notes and our revolving
credit facility;
- equal with the rights of creditors under any other
senior subordinated debt that the guarantors may
incur in the future; and
- senior to the rights of creditors under any debt
that the guarantors may incur in the future that
is expressly subordinated to the guarantees.
At June 30, 2000, assuming we had completed this
offering on that date and all proceeds were used to
reduce other indebtedness, D.R. Horton, Inc. and the
guarantors would have had approximately
$1,307.4 million of debt (including these notes)
outstanding. Of this debt, $13.7 million would have been
secured debt, $1,144.9 million would have been unsecured
debt senior to these notes, and none would have been
equal or subordinated to these notes. In addition, at
such date, our non-guarantor subsidiaries had
approximately $82.2 million of debt outstanding to which
the notes have been effectively subordinated even though
such debt does not constitute senior debt.
Certain Covenants......................... We will issue the notes under an indenture. The
indenture, among other things, restricts our ability and
the ability of our restricted subsidiaries to:
- borrow money;
- pay dividends on our common stock;
- repurchase our common stock;
- make investments in subsidiaries that are not
restricted;
- use assets as security for debt that is not senior
debt and for other transactions;
- sell assets outside the ordinary course of
business;
- merge with or into other companies; and
- enter into certain transactions with our
affiliates.
For more details, see the section "Description of Notes"
under the heading "Certain Covenants."
Use of Proceeds........................... We will use the net proceeds from the offering to repay
outstanding debt under our revolving credit facility and
for general corporate purposes. For more details, see
the section "Use of Proceeds."
S-3
SUMMARY CONSOLIDATED FINANCIAL INFORMATION AND OPERATING DATA
The following summary consolidated financial information for the three years
ended September 30, 1999, is derived from audited consolidated financial
statements. On April 20, 1998, we consummated a merger with Continental Homes
Holding Corp. which was treated as a pooling of interests for accounting
purposes. Therefore, all financial amounts have been restated as if we had been
combined throughout the periods presented. The following summary consolidated
financial information for the nine months ended June 30, 1999 and 2000, is
derived from unaudited consolidated financial statements.
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, JUNE 30,
--------------------------------------- -----------------------
1997 1998 1999 1999 2000
---------- ------------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
INCOME STATEMENT DATA:
Revenues:
Homebuilding................ $1,567,455 $2,155,049 $3,118,960 $2,176,564 $2,532,094
Financial services.......... 10,967 21,892 37,251 26,097 34,926
Gross profit.................. 274,871 389,439 558,214 398,673 467,221
Income from continuing
operations before income
taxes:
Homebuilding................ 105,584 152,003 250,737 172,355 199,425
Financial services.......... 2,966 7,096 13,089 9,841 10,306
Net income.................... 64,962 93,380 159,827 110,449 130,033
Ratio of earnings to fixed
charges(1).................. 2.88x 3.13x 4.10x 3.95x 3.27x
SELECTED OPERATING DATA--
HOMEBUILDING:
Gross profit margin........... 17.5% 18.1% 17.9% 18.3% 18.5%
Number of homes closed........ 10,038 13,944 18,395 12,971 13,866
New sales orders, net
(homes)(2).................. 10,551 15,952 18,911 14,445 14,380
New sales orders, net
($value)(2)................. 1,595,683 2,533,181 3,266,220 2,445,532 2,718,978
Sales backlog at end of period
(homes)(3).................. 3,961 6,341 7,309 8,267 7,823
Sales backlog at end of period
($value)(3)................. 609,226 1,052,894 1,356,550 1,471,432 1,582,214
OTHER FINANCIAL DATA:
Depreciation and
amortization................ 6,642 9,400 20,293 14,112 15,899
Interest incurred(4).......... 51,169 70,436 80,976 58,294 80,573
EBITDA(5):
Homebuilding................ 151,783 234,950(6) 340,505 235,599 268,920
Consolidated................ 155,413 244,651(6) 358,723 248,667 284,240
Ratio of EBITDA to interest
incurred:
Homebuilding................ 3.01x 3.44x 4.45x 4.25x 3.52x
Consolidated................ 3.04x 3.47x 4.43x 4.27x 3.53x
S-4
AS OF SEPTEMBER 30, AS OF JUNE 30,
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1997 1998 1999 1999 2000
---------- ------------- ---------- ---------- ----------
BALANCE SHEET DATA:
Inventories................... $1,024,268 $1,358,033 $1,866,108 $1,812,884 $2,182,486
Total assets.................. 1,248,323 1,667,835 2,361,808 2,238,938 2,667,924
Total debt:
Homebuilding................ 632,552 826,007 1,086,273 1,055,740 1,306,825
Financial services.......... 18,188 28,497 104,350 81,902 82,201
Stockholders' equity.......... 427,866 549,436 797,609 768,050 907,885
- ------------------------
(1) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of the sum of income from continuing operations before income taxes,
interest amortized to cost of sales, interest expense and the portion of
rent expense deemed to represent interest. Fixed charges consist of interest
incurred, whether expensed or capitalized, including amortization of debt
issuance costs, if applicable, and the portion of rent expense deemed to
represent interest.
(2) Represents homes placed under contract during the period, net of
cancellations. See the section "Business-Marketing and Sales."
(3) Represents homes under contract but not yet closed at the end of the period.
See the section "Business-Marketing and Sales."
(4) Interest incurred consists of all interest costs, whether expensed or
capitalized, including amortization of debt issuance costs, if applicable.
(5) Earnings before interest, taxes, depreciation and amortization (EBITDA)
consists of the sum of income from continuing operations before income
taxes, interest amortized to cost of sales, interest expense, depreciation
and amortization. EBITDA is a widely accepted indicator of a company's
ability to service debt. However, EBITDA should not be considered as an
alternative to operating income or to cash flows from operating activities
(as determined in accordance with generally accepted accounting principles)
and should not be construed as an indication of our operating performance or
as a measure of our liquidity.
(6) EBITDA for fiscal 1998 is computed before approximately $11,917 in one-time
costs associated with the April 1998 merger with Continental.
S-5
RISK FACTORS
Before purchasing these notes, you should consider all of the information
set forth in this prospectus supplement, the accompanying prospectus, and the
information incorporated by reference and, in particular, you should evaluate
the risk factors set forth below.
OUR SUBSTANTIAL DEBT COULD ADVERSELY AFFECT OUR FINANCIAL HEALTH AND PREVENT US
FROM FULFILLING OUR OBLIGATIONS UNDER THESE NOTES.
We have a significant amount of debt. As of June 30, 2000, assuming we had
completed the offering on that date and all proceeds were used to reduce other
indebtedness, our consolidated debt would have been $1,389.7 million. This
offering will not reduce our debt.
POSSIBLE CONSEQUENCES. The amount of our debt could have important
consequences to you. For example, it could:
- limit our ability to obtain future financing for working capital, capital
expenditures, acquisitions, debt service requirements or other
requirements;
- require us to dedicate a substantial portion of our cash flow from
operations to the payment on our debt and reduce our ability to use our
cash flow for other purposes;
- limit our flexibility in planning for, or reacting to, the changes in our
business;
- place us at a competitive disadvantage because we have more debt than some
of our competitors; and
- make us more vulnerable in the event of a downturn in our business or in
general economic conditions.
DEPENDENCE ON FUTURE PERFORMANCE. Our ability to meet our debt service and
other obligations will depend upon our future performance. We are engaged in
businesses that are substantially affected by changes in economic cycles. Our
revenues and earnings vary with the level of general economic activity in the
markets we serve. Our businesses are also affected by financial, political,
business and other factors, many of which are beyond our control. The factors
that affect our ability to generate cash can also affect our ability to raise
additional funds for these purposes through the sale of equity securities, the
refinancing of debt, or the sale of assets. Changes in prevailing interest rates
may affect our ability to meet our debt service obligations, because borrowings
under our revolving credit facility bear interest at floating rates. We have
entered into "interest rate swap" agreements for only a portion of our
outstanding borrowings.
Based on our current level of operations, we believe our cash flow from
operations, available cash and available borrowings under our revolving credit
facility will be adequate to meet our future liquidity needs for the long term.
We cannot assure you, however, that in the future our business will generate
sufficient cash flow from operations or that borrowings will be available to us
under our revolving credit facility in an amount sufficient to enable us to pay
our indebtedness, including these notes, or to fund our other liquidity needs.
We may need to refinance all or a portion of our debt, including these
notes, on or before maturity. We cannot assure you that we will be able to
refinance any of our debt, including our revolving credit facility and these
notes, on commercially reasonable terms or at all.
INDENTURE AND CREDIT FACILITY RESTRICTIONS. The indentures governing these
notes and our other outstanding public debt and our revolving credit facility
impose restrictions on our operations and activities. The most significant
restrictions relate to debt incurrence, lien incurrence, sales of assets and
cash distributions by us and require us to comply with certain financial
covenants. If we fail to comply
S-6
with any of these restrictions or covenants, the trustees or the banks, as
appropriate, could cause our debt to become due and payable prior to maturity.
BECAUSE OF THE CYCLICAL NATURE OF OUR INDUSTRY, FUTURE CHANGES IN GENERAL
ECONOMIC, REAL ESTATE CONSTRUCTION OR OTHER BUSINESS CONDITIONS COULD ADVERSELY
AFFECT OUR BUSINESS.
CYCLICAL INDUSTRY. The homebuilding industry is cyclical and is
significantly affected by changes in general and local economic conditions, such
as:
- employment levels;
- availability of financing for home buyers;
- interest rates;
- consumer confidence; and
- housing demand.
An oversupply of alternatives to new homes, such as rental properties and
used homes, could depress prices and reduce margins for the sale of new homes.
INVENTORY RISKS. Inventory risk can be substantial for homebuilders. We
must continuously seek and make acquisitions of land for expansion into new
markets and for replacement and expansion of land inventory within our current
markets. The risks inherent in purchasing and developing land increase as
consumer demand for housing decreases. Thus, we may have bought and developed
land on which we cannot build and sell homes. As a result of our growth and
acquisitions, we are developing more land than we were in recent years. The
market value of undeveloped land, building lots and housing inventories can
fluctuate significantly as a result of changing market conditions. We cannot
assure you that the measures we employ to manage inventory risks will be
successful.
In addition, inventory carrying costs can be significant and can result in
losses in a poorly performing project or market. In the event of significant
changes in economic or market conditions, we may have to sell homes at a loss.
SUPPLY RISKS. The homebuilding industry has from time to time experienced
significant difficulties, including:
- shortages of qualified trades people;
- reliance on local subcontractors, who may be inadequately capitalized;
- shortages of materials; and
- volatile increases in the cost of materials, particularly increases in the
price of lumber, framing and cement, which are significant components of
home construction costs.
RISKS FROM NATURE. Weather conditions and natural disasters, such as
hurricanes, tornadoes, earthquakes, floods and fires, can harm the homebuilding
business. The climates and geology of many of the states in which we operate,
including California, Florida, Georgia, North Carolina, Oregon, South Carolina
and Texas, present increased risks of natural disaster.
As a result of all of the foregoing, in the future, potential customers may
be less willing or able to buy our homes, or we may take longer or pay more
costs to build them. We may not be able to recapture increased costs by raising
prices in many cases because we fixed our prices up to six months in advance of
delivery by signing home sales contracts. In addition, some home buyers may
cancel or not honor their home sales contracts altogether.
S-7
FUTURE INCREASES IN INTEREST RATES OR REDUCTIONS IN MORTGAGE AVAILABILITY COULD
PREVENT POTENTIAL CUSTOMERS FROM BUYING OUR HOMES AND ADVERSELY AFFECT OUR
BUSINESS.
Virtually all our customers finance their acquisitions through lenders
providing mortgage financing. Increases in interest rates or decreases in
availability of mortgage financing could depress the market for new homes
because of the increased monthly mortgage costs to potential home buyers. Even
if potential customers do not need financing, changes in interest rates and
mortgage availability could make it harder for them to sell their homes to
potential buyers who need financing. This could adversely affect our results of
operations.
In addition, we believe that the availability of FHA and VA mortgage
financing is an important factor in marketing many of our homes. Any limitations
or restrictions on the availability of such financing could adversely affect our
sales.
GOVERNMENTAL REGULATIONS COULD INCREASE THE COST AND AVAILABILITY OF OUR
DEVELOPMENT AND HOMEBUILDING PROJECTS AND ADVERSELY AFFECT OUR BUSINESS.
We are subject to extensive and complex regulations that affect the
development and homebuilding process, including zoning, density and building
standards. These regulations often provide broad discretion to the administering
governmental authorities. This can delay or increase the cost of development or
homebuilding.
We also are subject to a variety of local, state and federal laws and
regulations concerning protection of the environment. These environmental laws
may result in delays, may cause us to incur substantial compliance and other
costs, and can prohibit or severely restrict development and homebuilding
activity in environmentally sensitive regions or areas.
HOMEBUILDING IS VERY COMPETITIVE, AND COMPETITIVE CONDITIONS COULD ADVERSELY
AFFECT OUR BUSINESS.
The homebuilding industry is highly competitive and fragmented. Homebuilders
compete not only for home buyers, but also for desirable properties, financing,
raw materials and skilled labor. We compete with other local, regional and
national homebuilders, including those with a sales presence on the Internet,
often within larger subdivisions designed, planned and developed by such
homebuilders. The competitive conditions in the homebuilding industry could
result in:
- difficulty in acquiring suitable land at acceptable prices;
- increased selling incentives;
- lower sales; or
- delays in construction.
OUR FUTURE GROWTH REQUIRES ADDITIONAL CAPITAL WHOSE AVAILABILITY IS NOT ASSURED.
Our operations require significant amounts of cash. We will be required to
seek additional capital, whether from sales of equity or debt or additional bank
borrowings, for the future growth and development of our business. We can give
no assurance as to the terms or availability of such additional capital.
Moreover, the indentures for our outstanding debt contain provisions that may
restrict the debt we may incur in the future. If we are not successful in
obtaining sufficient capital, it could reduce our sales and may adversely affect
our future growth and results of operations.
WE CANNOT ASSURE YOU THAT OUR GROWTH STRATEGIES WILL BE SUCCESSFUL.
Since July 1993, we have acquired many homebuilding companies. Although we
are currently focusing on internal growth and diversification, in the future, we
may acquire additional companies. We
S-8
can give no assurance that we will continue to be able to successfully identify
and integrate future acquisitions. Moreover, we can give no assurance that we
will be able to implement successfully our operating and growth strategies in
each of our markets or our diversification efforts.
WE MAY NOT HAVE THE ABILITY TO RAISE FUNDS NECESSARY TO FINANCE ANY CHANGE OF
CONTROL OFFER REQUIRED BY THE INDENTURE.
If a change of control occurs as described in the section "Description of
Notes" under the heading "Certain Covenants," we would be required to offer to
purchase your notes at 101% of their principal amount, together with all accrued
and unpaid interest, if any. If a purchase offer obligation arises under the
indenture governing your notes, a change of control will have also occurred
under one or more of the other indentures governing our debt, including senior
debt. Moreover, a change of control may also result in the acceleration under
our revolving credit facility. Because the debt under our revolving credit
facility is senior to these notes, the acceleration would prohibit the purchase
of these notes until the revolving credit debt is paid or the related default is
waived. If a purchase offer were required under the indentures for our other
debt or our revolving credit debt were accelerated, we can give no assurance
that we would have sufficient funds to pay the purchase price for all debt that
we are required to repurchase or repay. After giving effect to this offering, we
would not have sufficient funds available to purchase all of such outstanding
debt upon a change of control.
YOUR RIGHT TO RECEIVE PAYMENTS IS JUNIOR TO EXISTING AND FUTURE DEBT.
These notes and the guarantees will rank junior to existing third party debt
of us and the guarantors, including borrowings under our revolving credit
facility and our senior notes. These notes and the guarantees will also rank
junior to future third party debt, other than (1) debt that is expressly
subordinated to any other debt, (2) debt that expressly provides that it is not
senior in right of payment to these notes or the guarantees, as the case may be,
and (3) debt incurred in violation of the indenture. These notes and the
guarantees will not rank junior to trade payables or taxes.
As a result of the subordination of these notes and the guarantees to senior
debt, in the event of a bankruptcy, liquidation or reorganization relating to us
or a guarantor, amounts that would otherwise be distributable to you will be
required to be paid to holders of senior debt. In such event, holders of senior
debt are entitled to be paid in full before any payment may be made to you. We
may not have sufficient assets remaining to pay amounts due to you after holders
of senior debt are paid. In addition, claims of trade creditors are not
subordinated. Therefore, you may receive less, ratably, than trade creditors in
any such proceeding.
In the event of a payment default on senior debt, all payments on these
notes and the guarantees will be blocked until payments due on senior debt are
paid in full. In the event of a non-payment default on designated senior debt,
all payments on these notes and the guarantees may be blocked for a period of up
to 179 consecutive days.
Assuming we had completed this offering on June 30, 2000, and after giving
effect to the application of the estimated net proceeds of this offering, these
notes and the guarantees would have been subordinated to approximately
$1,144.9 million of senior debt, and approximately $508.2 million would have
been available for borrowing as additional senior debt under our revolving
credit facility. We and the guarantors may be permitted to borrow substantial
additional debt, including senior debt, in the future under the terms of the
indenture. In addition, at June 30, 2000, our unrestricted subsidiaries that are
not guarantors had approximately $82.2 million of debt outstanding, to which the
notes would have been effectively subordinated even though such debt does not
constitute senior debt.
S-9
FEDERAL AND STATE LAWS ALLOW COURTS, UNDER SPECIFIC CIRCUMSTANCES, TO VOID
GUARANTEES AND TO REQUIRE YOU TO RETURN PAYMENTS RECEIVED FROM GUARANTORS.
Although you will be direct creditors of the guarantors by virtue of the
guarantees, existing or future creditors of any guarantor could avoid or
subordinate such guarantor's guarantee under the fraudulent conveyance laws if
they were successful in establishing that:
- such guarantee was incurred with fraudulent intent; or
- such guarantor did not receive fair consideration or reasonably equivalent
value for issuing its guarantee; and
- was insolvent at the time of the guarantee;
- was rendered insolvent by reason of the guarantee;
- was engaged in a business or transaction for which its assets
constituted unreasonably small capital to carry on its business; or
- intended to incur, or believed that it would incur, debt beyond its
ability to pay such debt as it matured.
The measures of insolvency for purposes of determining whether a fraudulent
conveyance occurred would vary depending upon the laws of the relevant
jurisdiction and upon the valuation assumptions and methodology applied by the
court. Generally, however, a company would be considered insolvent for purposes
of the foregoing if:
- the sum of the company's debts, including contingent, unliquidated and
unmatured liabilities, is greater than all of such company's property at a
fair valuation, or
- if the present fair saleable value of the company's assets is less than
the amount that will be required to pay the probable liability on its
existing debts as they become absolute and matured.
WE CANNOT ASSURE YOU THAT AN ACTIVE TRADING MARKET WILL DEVELOP FOR THESE NOTES.
These notes are a new issue of securities. There is no active public trading
market for these notes. We have applied for listing of these notes and the
guarantees on the New York Stock Exchange; however, we can give no assurance
that these notes and guarantees will be so listed. The underwriter has advised
us that, if these notes are not listed on a securities exchange, it currently
intends to make a market in these notes, but the underwriter is not obligated to
do so and may discontinue any such market-making at any time. As a consequence,
we cannot assure you that an active trading market will develop for your notes,
that you will be able to sell your notes, or that, even if you can sell your
notes, you will be able to sell them at an acceptable price.
USE OF PROCEEDS
The net proceeds to us from the sale of these notes in this offering are
estimated to be approximately $148.2 million. We intend to use the proceeds from
the offering for repayment of outstanding debt under our revolving credit
facility and general corporate purposes. Amounts repaid under our revolving
credit facility will remain available for future borrowing. Borrowings under our
revolving credit facility have been used for our homebuilding operations,
acquisitions, working capital and other general corporate purposes. See footnote
2 to "Capitalization." Borrowings under our revolving credit facility bear
interest at an effective rate equal to the lesser of the 90-day LIBOR plus 0.75%
or the New York federal funds rate plus 0.90%.
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CAPITALIZATION
The following table sets forth our capitalization at June 30, 2000, as
adjusted to reflect the sale of these notes and the application of the estimated
net proceeds of the offering.
AS OF JUNE 30, 2000
------------------------
ACTUAL ADJUSTED(1)
---------- -----------
(DOLLARS IN THOUSANDS)
Homebuilding debt:
Notes payable under revolving credit facility(2).......... $ 415,000 $ 266,803
Notes payable-other, secured.............................. 13,693 13,693
8 3/8% senior notes due 2004, net......................... 148,448 148,448
10 1/2% senior notes due 2005, net........................ 199,265 199,265
10% senior notes due 2006, net............................ 147,368 147,368
8% senior notes due 2009, net............................. 383,051 383,051
9 3/4% senior subordinated notes due 2010, net............ -- 148,821
---------- ----------
Total homebuilding debt................................... 1,306,825 1,307,449
Notes payable under mortgage warehouse facility............. 82,201 82,201
---------- ----------
Total debt................................................ 1,389,026 1,389,650
---------- ----------
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, 64,415,074 shares issued and outstanding.... 644 644
Additional capital........................................ 420,857 420,857
Retained earnings......................................... 523,331 523,331
Treasury stock............................................ (36,947) (36,947)
---------- ----------
Total stockholders' equity................................ 907,885 907,885
---------- ----------
Total capitalization...................................... $2,296,911 $2,297,535
========== ==========
- ------------------------
(1) Adjusted to reflect the sale of $150 million of these notes and the
application of the estimated net proceeds to repay debt under our revolving
credit facility.
(2) We have an $825 million unsecured revolving credit facility with 12
financial institutions. The revolving credit facility matures in
April 2002, and includes $50 million reserved for use as standby letters of
credit. Additionally, we have another $25 million standby letter of credit
agreement and a $22.5 million non-renewable letter of credit facility
acquired with the Cambridge acquisition. The revolving credit facility and
our indentures contain covenants which, taken together, limit investments in
inventory, stock repurchases, cash dividends and other restricted payments,
incurrence of indebtedness, asset dispositions and creation of liens, and
require certain levels of tangible net worth.
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BUSINESS
As we noted in the summary, we are a national homebuilder. As such, we
construct and sell high quality single-family homes, principally for first-time
and move-up home buyers. Although we have historically positioned ourselves as a
custom builder, in the last four years we have acquired three volume
homebuilding companies (Continental, Torrey and Cambridge) which enable us to
compete across a broader product offering.
OPERATING STRATEGY
We believe that the following operating strategies have enabled us to
achieve consistent growth and profitability:
GEOGRAPHIC DIVERSITY
From 1978 to late 1987, excluding Continental Homes locations, our
homebuilding activities were conducted in the Dallas/Fort Worth area. We then
instituted a policy of diversifying geographically, entering the following
markets, both through startup operations and acquisitions, in the years shown:
YEAR ENDED MARKETS
- ---------- -------
1987 Phoenix
1988 Atlanta, Orlando
1989 Charlotte
1990 Houston
1991 Suburban Washington, D.C.
1992 Chicago, Cincinnati, Raleigh/Durham, South Florida
1993 Austin, Los Angeles, Salt Lake City, San Diego
1994 Minneapolis/St. Paul, Las Vegas, San Antonio
1995 Birmingham, Denver, Greensboro, St. Louis
1996 Albuquerque
1997 Greenville, Nashville, New Jersey, Tucson
1998 Charleston, Hilton Head, Jacksonville, Killeen, Louisville,
Myrtle Beach, Newport News, Portland, Richmond, Sacramento,
Wilmington
1999 Columbia
We continually monitor the sales and margins achieved in each of the
subdivisions in which we operate as part of our evaluation of the use of our
capital. While we believe there are significant growth opportunities in our
existing markets, we also intend to continue our policy of diversification by
seeking to enter new markets. We believe our diversification strategy mitigates
the effects of local and regional economic cycles and enhances our growth
potential. Typically, we will not invest material amounts in real estate,
including raw land, developed lots, models and speculative homes, or overhead in
start-up operations in new markets, until such markets demonstrate significant
growth potential and acceptance of our products.
ACQUISITIONS
As an integral component of our operational strategy of continued expansion,
we continually evaluate opportunities for strategic acquisitions. We believe
that expanding our operations through the acquisition of existing homebuilding
companies affords us several benefits not found in start-up operations. Such
benefits include:
- Established land positions and inventories;
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- Existing relationships with land owners, developers, subcontractors and
suppliers;
- Brand name recognition; and
- Proven product acceptance by home buyers in the market.
In evaluating potential acquisition candidates, we seek homebuilding
companies that have an excellent reputation, a track record of profitability and
a strong management team with an entrepreneurial orientation. We limit the risks
associated with acquiring a going concern by conducting extensive operational,
financial and legal due diligence on each acquisition and by only acquiring
homebuilding companies that we believe will have an immediate positive impact on
our earnings. During the last six fiscal years, we have made 14 acquisitions. We
will continue to evaluate potential future acquisition opportunities that
satisfy our acquisition criteria in both existing and new markets.
DECENTRALIZED OPERATIONS
We decentralize our homebuilding activities to give more operating
flexibility to our local division presidents. We have 47 separate operating
divisions, some of which are in the same market area. Generally, each operating
division consists of a division president, an office manager and staff, a sales
manager and staff, a construction manager and construction superintendents. We
believe that division presidents, who are intimately familiar with local
conditions, make better decisions regarding local operations. Our division
presidents receive performance bonuses based upon achieving targeted operating
levels in their operating divisions.
OPERATING DIVISION RESPONSIBILITIES
Each operating division is responsible for:
- Site selection which involves
-- A feasibility study;
-- Soil and environmental reviews;
-- Review of existing zoning and other governmental requirements; and
-- Review of the need for and extent of offsite work required to meet
local building codes.
- Negotiating lot option or similar contracts;
- Overseeing land development;
- Planning homebuilding schedules;
- Selecting building plans and architectural schemes;
- Obtaining all necessary building approvals; and
- Developing marketing plans.
CORPORATE OFFICE CONTROLS
The corporate office controls key risk elements through centralized:
- Financing;
- Cash management;
- Risk management;
- Accounting and management reporting;
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- Payment of subcontractor invoices;
- Administration of payroll and employee benefits;
- Final approval of land and lot acquisitions;
- Capital allocation; and
- Oversight of inventory levels.
COST MANAGEMENT
We control our overhead costs by centralizing administrative and accounting
functions and by limiting the number of field administrative personnel and
middle level management positions. We also minimize advertising costs by
participating in promotional activities, publications and newsletters sponsored
by local real estate brokers, mortgage companies, utility companies and trade
associations.
We control construction costs through the efficient design of our homes and
by obtaining favorable pricing from certain subcontractors and national vendors
based on the high volume of services and products they provide to us. We also
control construction costs by monitoring expenses on each house through our
purchase order system. We control capital and overhead costs by monitoring our
inventory levels through our management information systems.
MARKETS
Homebuilding activities are conducted in five geographic regions, consisting
of:
GEOGRAPHIC REGION MARKETS
- ----------------- ------------------------------------------------------------
Mid-Atlantic......... Charleston, Charlotte, Columbia, Greensboro, Greenville,
Hilton Head, Myrtle Beach, New Jersey, Newport News,
Raleigh/Durham, Richmond, Suburban Washington, D.C.,
Wilmington
Midwest.............. Chicago, Cincinnati, Louisville, Minneapolis/St. Paul, St.
Louis
Southeast............ Atlanta, Birmingham, Jacksonville, Nashville, Orlando, South
Florida
Southwest............ Albuquerque, Austin, Dallas/Fort Worth, Houston, Killeen,
Phoenix, San Antonio, Tucson
West................. Denver, Las Vegas, Los Angeles, Portland, Sacramento, Salt
Lake City, San Diego
When entering new markets or conducting operations in existing markets,
among the things we consider are:
- Regional economic conditions;
- Job growth;
- Land availability;
- Local land development process;
- Consumer tastes;
- Competition; and
- Secondary home sales activity.
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Our homebuilding revenues, which include land and lot sales, by geographic
region are:
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30 JUNE 30
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(DOLLARS IN MILLIONS)
Mid-Atlantic................. $ 180.5 $ 372.2 $ 540.6 $ 386.7 $ 437.2
Midwest...................... 95.9 130.4 347.1 223.8 318.6
Southeast.................... 246.4 384.5 429.6 297.5 348.7
Southwest.................... 694.3 789.6 1,068.0 767.2 843.9
West......................... 350.4 478.3 733.7 501.4 583.7
-------- -------- -------- -------- --------
Total...................... $1,567.5 $2,155.0 $3,119.0 $2,176.6 $2,532.1
======== ======== ======== ======== ========
LAND POLICIES
Typically, we acquire land and enter into lot option contracts to acquire
developed building lots only after necessary "entitlements" have been obtained,
I.E., when we have the right to begin development or construction. Before we
acquire lots or tracts of land, we will, among other things, complete a
feasibility study, which includes soil tests, independent environmental studies
and other engineering work, and determine that all necessary zoning and other
governmental entitlements required to develop and use the property for home
construction have been acquired. At June 30, 2000, about 54% of our total lot
position of 89,730 lots was being or had been developed by us. Although we
purchase and develop land primarily to support our own homebuilding activities,
occasionally we sell lots and land to other developers and homebuilders.
We also use lot option contracts, where we purchase the right, but not the
obligation, to buy building lots at predetermined prices on a takedown schedule
commensurate with anticipated home closings. Lot option contracts generally are
on a nonrecourse basis, thereby limiting our financial exposure to earnest money
deposits given to property sellers. This enables us to control significant lot
positions with minimal capital investment and substantially reduces the risks
associated with land ownership and development. A summary of our land/lot
position at June 30, 2000 is:
Finished lots we own........................................ 8,930
Lots under development we own............................... 39,523
------
Total lots owned............................................ 48,453
Lots available under lot option and similar contracts....... 41,277
------
Total land/lot position..................................... 89,730
======
We limit our exposure to real estate inventory risks by:
- Generally commencing construction of homes under contract only after
receipt of a satisfactory down payment and, where applicable, the buyer's
receipt of mortgage approval;
- Limiting the number of speculative homes (homes started without an
executed sales contract) built in each subdivision;
- Closely monitoring local market and demographic trends, housing
preferences and related economic developments, such as new job
opportunities, local growth initiatives and personal income trends;
- Utilizing lot option contracts, where possible; and
- Limiting the size of acquired land parcels to smaller tracts of land.
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CONSTRUCTION
Our home designs are prepared by architects in each of our markets to appeal
to local tastes and preferences of the community. We also offer optional
interior and exterior features to enhance the basic home design and to promote
our sales efforts.
Substantially all of our construction work is performed by subcontractors.
Our construction supervisors monitor the construction of each home, participate
in material design and building decisions, coordinate the activities of
subcontractors and suppliers, subject the work of subcontractors to quality and
cost controls and monitor compliance with zoning and building codes.
Subcontractors typically are retained for a specific subdivision pursuant to a
contract that obligates the subcontractor to complete construction at a fixed
price. Agreements with our subcontractors and suppliers generally are negotiated
for each subdivision. We compete with other homebuilders for qualified
subcontractors, raw materials and lots in the markets where we operate.
Construction time for our homes depends on the weather, availability of
labor, materials and supplies, size of the home, and other factors. We typically
complete the construction of a home within four months.
We do not maintain significant inventories of construction materials, except
for work in process materials for homes under construction. Typically, the
construction materials used in our operations are readily available from
numerous sources. We have contracts exceeding one year with certain suppliers of
our building materials that are cancelable at our option with a 30 day notice.
In recent years, we have not experienced any significant delays in construction
due to shortages of materials or labor.
MARKETING AND SALES
We market and sell our homes through commissioned employees and independent
real estate brokers. We typically conduct home sales from sales offices located
in furnished model homes in each subdivision. At June 30, 2000, we owned 716
model homes, which we generally do not offer for sale until the completion of a
subdivision. Our sales personnel assist prospective home buyers by providing
them with floor plans, price information, tours of model homes and the selection
of options and other custom features. We train and inform our sales personnel as
to the availability of financing, construction schedules, and marketing and
advertising plans.
In addition to using model homes, we typically build a limited number of
speculative homes in each subdivision to enhance our marketing and sales
activities. Construction of these speculative homes also is necessary to satisfy
the requirements of relocated personnel and independent brokers, who often
represent home buyers requiring a completed home within 60 days. We sell a
majority of these speculative homes while under construction or immediately
following completion. The number of speculative homes is influenced by local
market factors, such as new employment opportunities, significant job
relocations, growing housing demand and the length of time we have built in the
market. Depending upon the seasonality of each market, we attempt to limit our
speculative homes in each subdivision. At June 30, 2000, we averaged less than
six speculative homes, in various stages of construction, in each subdivision.
We advertise on a limited basis in newspapers and in real estate broker,
mortgage company and utility publications, brochures, newsletters and
billboards. To minimize advertising costs, we attempt to operate in subdivisions
in conspicuous locations that permit us to take advantage of local traffic
patterns. We also believe that model homes play a significant role in our
marketing efforts. Consequently, we expend significant effort in creating an
attractive atmosphere in our model homes. In addition, we use our internet
website to market the location, price range, and availability of our homes.
Our sales contracts require a down payment of at least $500. The contracts
include a financing contingency which permits customers to cancel if they cannot
obtain mortgage financing at prevailing
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interest rates within a specified period, typically four to six weeks, and may
include other contingencies, such as the sale of an existing home. We include a
home sale in our sales backlog when the sales contract is signed and we have
received the initial down payment. We do not recognize revenue upon the sale of
a home until it is closed and title passes to the home buyer. The average period
between the signing of a sales contract for a home and closing is approximately
three to five months.
CUSTOMER SERVICE AND QUALITY CONTROL
Our operating divisions are responsible for pre-closing, quality control
inspections and responding to customers' post-closing needs. We believe that
prompt and courteous response to home buyers' needs during and after
construction reduces post-closing repair costs, enhances our reputation for
quality and service, and ultimately leads to significant repeat and referral
business from the real estate community and home buyers. We provide our home
buyers with a limited one-year warranty on workmanship and building materials.
The subcontractors who perform most of the actual construction also provide
warranties of workmanship to us and are generally prepared to respond to us and
the homeowner promptly upon request. In most cases, we supplement our one-year
warranty by purchasing a ten-year limited warranty from a third party. To cover
our potential warranty obligations, we accrue an estimated amount for future
warranty costs.
CUSTOMER FINANCING
We provide mortgage financing services principally to purchasers of homes we
build and sell. CH Mortgage, a wholly-owned subsidiary, provides mortgage
banking services in Arizona, Colorado, Florida, Georgia, Illinois, Kentucky,
Minnesota, Nevada, New Mexico, North and South Carolina, Oregon and Texas. D.R.
Horton Mortgage Company, Ltd., a joint venture formed in 1998 with a third
party, presently provides services in California. On a combined basis, related
mortgage banking entities provided mortgage financing services for about 65% of
the homes closed during the year ended September 30, 1999, in the markets we
serve. We anticipate expanding these mortgage activities to other markets in
which we conduct homebuilding operations.
In other markets where we currently do not provide mortgage financing, we
work with a variety of mortgage lenders that make available to home buyers a
range of conventional mortgage financing programs. By making information about
these programs available to prospective home buyers and maintaining a
relationship with such mortgage lenders, we are able to coordinate and expedite
the entire sales transaction by ensuring that mortgage commitments are received
and that closings take place on a timely and efficient basis.
TITLE SERVICES
Through our subsidiaries, Century Title, DRH Title Company of Texas, Ltd.,
DRH Title Company of Florida, Inc., DRH Title Company of Minnesota, Inc., Metro
Title Company, Custom Title Company and Travis County Title Company, we serve as
a title insurance agent by providing title insurance policies and closing
services to purchasers of homes we build and sell in the Dallas/Fort Worth,
Austin, Orlando, Minneapolis, Phoenix, San Antonio, South Florida and suburban
Washington, D.C. markets. We assume no underwriting risk associated with these
title policies.
EMPLOYEES
At June 30, 2000, we employed 3,521 persons, of whom 926 were sales and
marketing personnel, 1,087 were executive, administrative and clerical
personnel, 1,083 were involved in construction, and 425 worked in mortgage and
title operations. Fewer than 25 of our employees are covered by collective
bargaining agreements. Some of the subcontractors which we use are represented
by labor unions or
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are subject to collective bargaining agreements. We believe that our relations
with our employees and subcontractors are good.
COMPETITION
The single family residential housing industry is highly competitive and we
compete in each of our markets with numerous other national, regional and local
homebuilders, often with larger subdivisions designed, planned and developed by
such homebuilders. Our homes compete on the basis of quality, price, design,
mortgage financing terms and location.
GOVERNMENTAL REGULATION AND ENVIRONMENTAL MATTERS
The housing, mortgage and title insurance industries are subject to
extensive and complex regulations. We and our subcontractors must comply with
various federal, state and local laws and regulations, including zoning, density
and development requirements, building, environmental, advertising and consumer
credit rules and regulations, as well as other rules and regulations in
connection with our development, homebuilding, sales and financial services
activities. These include requirements affecting the development process, as
well as building materials to be used, building designs and minimum elevation of
properties. Our homes are inspected by local authorities where required, and
homes eligible for insurance or guarantees provided by the FHA and VA are
subject to inspection by them. These regulations often provide broad discretion
to the administering governmental authorities. This can delay or increase the
cost of development or homebuilding.
We also are subject to a variety of local, state and federal statutes,
ordinances, rules and regulations concerning protection of the environment. The
particular environmental laws for each site vary greatly according to location,
environmental condition and the present and former uses of the site and
adjoining properties. These environmental laws may result in delays, may cause
us to incur substantial compliance and other costs, and can prohibit or severely
restrict development and homebuilding activity in certain environmentally
sensitive regions or areas.
Our internal mortgage activities and title insurance agencies must also
comply with various federal and state laws, consumer credit rules and
regulations and other rules and regulations unique to such activities.
Additionally, mortgage loans and title activities originated under the FHA, VA,
FNMA and GNMA are subject to rules and regulations imposed by those agencies.
S-18
DESCRIPTION OF NOTES
The following description of the particular terms of the Notes supplements
and, to the extent inconsistent therewith, replaces the description of the
general terms of the Debt Securities set forth under the heading "Descriptions
of Debt Securities" in the accompanying Prospectus, to which description
reference is hereby made. The Notes will be issued under an Indenture dated as
of September 11, 2000, as supplemented (the "INDENTURE"), among the Company, the
Guarantors and American Stock Transfer and Trust Company, as trustee (the
"TRUSTEE"). The following is a summary of the material terms and provisions of
the Notes. The terms of the Notes include those set forth in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of
1939, as amended (the "TRUST INDENTURE ACT"), as in effect on the date of the
Indenture. The Notes are subject to all such terms, and prospective purchasers
of the Notes are referred to the Indenture and the Trust Indenture Act for a
statement of such terms. As used in this "Description of Notes," the term
"COMPANY" refers to D.R. Horton, Inc. and not any of its Subsidiaries.
Definitions of certain terms are set forth under "Certain Definitions" and
throughout this description. Capitalized terms that are used but not otherwise
defined herein have the meanings assigned to them in the Indenture, and those
definitions are incorporated herein by reference.
GENERAL
The Notes will bear interest from the date the Notes are first issued under
the Indenture at the rate PER ANNUM shown on the cover page of this Prospectus
Supplement, payable semiannually on March 15 and September 15 of each year,
commencing March 15, 2001, to Holders of record at the close of business on
March 1 or September 1, as the case may be, immediately preceding each such
interest payment date. The Notes will mature on September 15, 2010, and will be
issued in denominations of $1,000 and integral multiples thereof.
The Notes will be limited to an aggregate principal amount of $200.0
million, of which $150.0 million will be issued in the Offering. Additional
Notes of up to $50.0 million aggregate amount may be issued in one or more
series from time to time subject to the limitations set forth under "Certain
Covenants--Limitations on Indebtedness." The Notes will be guaranteed by each of
the Guarantors pursuant to the guarantees (the "GUARANTEES") described below.
The Guarantors currently do not include our subsidiaries that are engaged in
the financial services segment. These subsidiaries currently do not guarantee
our senior notes. In addition, the Notes will not initially be guaranteed by
several of our insignificant subsidiaries.
The Notes will be general unsecured senior subordinated obligations of the
Company and will be subordinated in right of payment to all Senior Indebtedness
of the Company. The Guarantees will be general unsecured senior subordinated
obligations of the Guarantors and will be subordinated in right of payment to
all Guarantor Senior Indebtedness.
Secured creditors and holders of Senior Indebtedness of the Company and
Guarantor Senior Indebtedness of the Guarantors will have a claim on the assets
of the Company and the Guarantors prior to claims of Holders of the Notes
against those assets. At June 30, 2000, as adjusted to give effect to the
transactions described under "Use of Proceeds," the Company and the Guarantors
would have had approximately $1,144.9 million of Senior Indebtedness and
Guarantor Senior Indebtedness outstanding.
EQUITY CLAWBACK
Except as set forth in the following sentence, the Notes are not redeemable.
Pursuant to the equity clawback provision, the Company may redeem Notes, at any
time prior to September 15, 2003, with the net cash proceeds of one or more
Public Equity Offerings by the Company, at a redemption price
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equal to 109.75% of the principal amount of such Notes, plus accrued and unpaid
interest, if any, to the date of redemption; PROVIDED, HOWEVER, that after each
such redemption not less than two-thirds of the aggregate principal amount of
Notes (excluding any Notes held by the Company or any of its Affiliates) issued
under the Indenture remain outstanding. 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. On and after the redemption date, interest ceases to accrue on the
Notes or portions thereof called for redemption.
There will be no sinking fund for the Notes.
SUBORDINATION OF THE NOTES
The payment of the principal of, premium, if any, and interest on the Notes
will be subordinated in right of payment, to the extent and in the manner
provided in the Indenture, to the prior payment in full in cash of all Senior
Indebtedness, whether outstanding on the date of the Indenture or thereafter
incurred.
Upon any payment or distribution of assets or securities of the Company of
any kind or character, whether in cash, property or securities (excluding any
payment or distribution of Permitted Junior Securities), upon any dissolution or
winding up or liquidation or reorganization of the Company, whether voluntary or
involuntary or in bankruptcy, insolvency, receivership or other proceedings, all
Senior Indebtedness will first be paid in full in cash before the Holders of the
Notes or the Trustee on behalf of such Holders will be entitled to receive any
payment by the Company of the principal of, premium, if any, or interest on the
Notes, or any payment by the Company to acquire any of the Notes for cash,
property or securities, or any distribution with respect to the Notes of any
cash, property or securities (excluding any payment or distribution of Permitted
Junior Securities). Before any payment may be made by, or on behalf of, the
Company of the principal of, premium, if any, or interest on the Notes upon any
such dissolution or winding up or liquidation or reorganization, any payment or
distribution of assets or securities of the Company of any kind or character,
whether in cash, property or securities (excluding any payment or distribution
of Permitted Junior Securities), to which the Holders of the Notes or the
Trustee on their behalf would be entitled, but for the subordination provisions
of the Indenture, will be made by the Company or by any receiver, trustee in
bankruptcy, liquidation trustee, agent or other Person making such payment or
distribution, directly to the holders of the Senior Indebtedness (PRO RATA to
such holders on the basis of the respective amounts of Senior Indebtedness held
by such holders) or their representatives or to the trustee or trustees or agent
or agents under any agreement or indenture pursuant to which any of such Senior
Indebtedness may have been issued, as their respective interests may appear, to
the extent necessary to pay all such Senior Indebtedness in full in cash after
giving effect to any prior or concurrent payment, distribution or provision
therefor to or for the holders of such Senior Indebtedness.
No direct or indirect payment (excluding any payment or distribution of
Permitted Junior Securities) by or on behalf of the Company of principal of,
premium, if any, or interest on or to purchase, redeem or defease the Notes,
except from those funds held in trust for the benefit of Holders of any Notes
pursuant to the procedures set forth in "Defeasance of Indenture" below, whether
pursuant to the terms of the Notes, upon acceleration or otherwise, shall be
made if, at the time of such payment, there exists a default in the payment of
all or any portion of the obligations on any Senior Indebtedness, whether at
maturity, on account of mandatory redemption, prepayment or purchase,
acceleration or otherwise, that continues beyond any applicable period of grace,
and such
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default shall not have been cured or waived or the benefits of this sentence
waived by or on behalf of the holders of such Senior Indebtedness. In addition,
during the continuance of any non-payment event of default with respect to any
Designated Senior Indebtedness pursuant to which the maturity thereof may be
immediately accelerated, and upon receipt by the Trustee of written notice (a
"PAYMENT BLOCKAGE NOTICE") from the holder or holders of such Designated Senior
Indebtedness or the trustee or agent acting on behalf of such Designated Senior
Indebtedness, then, unless and until such event of default has been cured or
waived or has ceased to exist or such Designated Senior Indebtedness has been
discharged or repaid in full in cash or the benefits of these provisions have
been waived by the holders of such Designated Senior Indebtedness, no direct or
indirect payment (excluding any payment or distribution of Permitted Junior
Securities) shall be made by or on behalf of the Company of principal of,
premium, if any, or interest on or to purchase, redeem or defease the Notes,
except from those funds held in trust for the benefit of Holders of any Notes
pursuant to the procedures set forth in "Defeasance of Indenture" below, during
a period (a "PAYMENT BLOCKAGE PERIOD") commencing on the date of receipt of such
notice by the Trustee and ending 179 days thereafter, unless the maturity of
such Designated Senior Indebtedness is theretofore accelerated. Notwithstanding
anything in the subordination provisions of the Indenture or in the Notes to the
contrary, (x) in no event shall a Payment Blockage Period extend beyond 179 days
from the date the Payment Blockage Notice in respect thereof was given,
(y) there shall be a period of at least 181 consecutive days in each 360-day
period when no Payment Blockage Period is in effect and (z) not more than one
Payment Blockage Period may be commenced with respect to the Notes during any
period of 360 consecutive days. However, if the Payment Blockage Notice is not
given on behalf of creditors under a Credit Facility, a representative of such
creditors may, subject to the limitations set forth in clause (y) of the
preceding sentence, give one additional notice during the Payment Blockage
Period. No non-payment event of default that existed or was continuing on the
date of commencement of any Payment Blockage Period with respect to the
Designated Senior Indebtedness initiating such Payment Blockage Period may be,
or be made, the basis for the commencement of any other Payment Blockage Period
by the holder or holders of such Designated Senior Indebtedness or the trustee
or agent acting on behalf of such Designated Senior Indebtedness, whether or not
within a period of 360 consecutive days, unless such event of default has been
cured or waived for a period of not less than 90 consecutive days.
The failure to make any payment or distribution for or on account of the
Notes by reason of the provisions of the Indenture described under this
"Subordination of the Notes" will not be construed as preventing the occurrence
of any Event of Default in respect of the Notes. See "Events of Default" below.
By reason of the subordination provisions described above, in the event of
the insolvency of the Company, funds which would otherwise be payable to the
Holders of the Notes will be paid to the holders of Senior Indebtedness to the
extent necessary to pay the Senior Indebtedness in full in cash, and the Company
may be unable to meet fully its obligations with respect to the Notes.
THE GUARANTEES
Each of the Guarantors will (so long as it remains a Restricted Subsidiary)
unconditionally guarantee on a joint and several basis all of the Company's
obligations under the Notes, including its obligations to pay principal,
premium, if any, and interest with respect to the Notes. The Guarantees will be
general unsecured senior subordinated obligations of the Guarantors and will be
subordinated in right of payment to Guarantor Senior Indebtedness of the
Guarantors. The obligations of each Guarantor are limited to the maximum amount
which, 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 its contribution obligations under
the Indenture, will result in the obligations of such Guarantor under its
Guarantee not constituting a fraudulent conveyance or fraudulent transfer
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under federal or state law. Each Guarantor that makes a payment or distribution
under a Guarantee shall be entitled to a contribution from each other Guarantor
in an amount pro rata, based on the net assets of each Guarantor, determined in
accordance with GAAP. Except as provided in "Certain Covenants" below, the
Company is not restricted from selling or otherwise disposing of any of the
Guarantors.
The Indenture will require that each existing and future Restricted
Subsidiary be a Guarantor. The Company will be permitted to cause any
Unrestricted Subsidiary to be a Guarantor.
The Indenture will provide that if all or substantially all of the assets of
any Guarantor or all of the Capital Stock of any Guarantor is sold (including by
consolidation, merger, issuance or otherwise) or disposed of (including by
liquidation, dissolution or otherwise) by the Company or any of its
Subsidiaries, or, unless the Company elects otherwise, if any Guarantor is
designated an Unrestricted Subsidiary in accordance with the terms of the
Indenture, then such Guarantor (in the event of a sale or other disposition of
all of the 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 any of
its obligations under the Indenture without any further action on the part of
the Trustee or any Holder of the Notes.
An Unrestricted Subsidiary that is a Guarantor shall be deemed automatically
and unconditionally released and discharged from all obligations under its
Guarantee upon notice from the Company to the Trustee to such effect, without
any further action required on the part of the Trustee or any Holder.
A sale of assets or Capital Stock of a Guarantor may constitute an Asset
Disposition subject to the "Limitations on Disposition of Assets" covenant.
Each Guarantee will, to the extent set forth in the Indenture, be
subordinated in right of payment to the prior payment in full of all Guarantor
Senior Indebtedness of the Guarantor thereof and will be subject to the rights
of holders of Designated Senior Indebtedness of such Guarantor to initiate
blockage periods, upon terms substantially comparable to the subordination of
the Notes to all Senior Indebtedness of the Company.
CERTAIN COVENANTS
The following is a summary of certain covenants that will be contained in
the Indenture. Such covenants will be applicable (unless waived or amended as
permitted by the Indenture) so long as any of the Notes are outstanding or until
the Notes are defeased pursuant to provisions described under "Defeasance of
Indenture."
REPURCHASE OF NOTES UPON CHANGE OF CONTROL. 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.
On or before the thirtieth day after any Change of Control, the Company is
obligated to mail, or cause to be mailed, to all Holders of record of Notes a
notice regarding the Change of Control and the repurchase right. The notice
shall state the Repurchase Date, the date by which the repurchase right must be
exercised, the price for the Notes and the procedure which the Holder must
follow to exercise such right. Substantially simultaneously with mailing of the
notice, the Company shall cause a copy of such notice to be published in a
newspaper of general circulation in the Borough of Manhattan, The City of New
York. To exercise such right, the Holder of such Note must deliver at least ten
days prior to the Repurchase Date written notice to the Company (or an agent
designated by the Company for such purpose) of the Holder's exercise of such
right, together with the Note with respect to which the
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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.
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.
With respect to any disposition of assets, the phrase "all or substantially
all" as used in the Indenture (including as set forth under "Limitations on
Mergers, Consolidations and Sales of Assets" below) varies according to the
facts and circumstances of the subject transaction, has no clearly established
meaning under New York law (which governs the Indenture) and is subject to
judicial interpretation. Accordingly, in certain circumstances there may be a
degree of uncertainty in ascertaining whether a particular transaction would
involve a disposition of "all or substantially all" of the assets of the
Company, and therefore it may be unclear as to whether a Change of Control has
occurred and whether the Holders have the right to require the Company to
repurchase Notes.
None of the provisions relating to a repurchase upon a Change of Control is
waivable by the Board of Directors of the Company. The Company could, in the
future, enter into certain transactions, including certain recapitalizations of
the Company, that would not result in a Change of Control, but would increase
the amount of Indebtedness outstanding at such time.
The Indenture will require the payment of money for Notes or portions
thereof validly tendered to and accepted for payment by the Company pursuant to
a Change of Control offer. In the event that a Change of Control has occurred
under the Indenture, a change of control will also have occurred under the
indentures governing the Company's 8- 3/8% Senior Notes due 2004, 10- 1/2%
Senior Notes due 2005 and 8% Senior Notes due 2009 and may have also occurred
under the indenture governing the Company's 10% Senior Notes due 2006. If a
Change of Control were to occur, there can be no assurance that the Company
would have sufficient funds to pay the purchase price for all Notes and amounts
due under other Indebtedness that the Company may be required to repurchase or
repay. After giving effect to this Offering and the application of the estimated
net proceeds therefrom as set forth under "Use of Proceeds," the Company would
not have sufficient funds available to purchase all of the outstanding Notes
pursuant to a Change of Control offer. In the event that the Company were
required to purchase outstanding Notes pursuant to a Change of Control offer,
the Company expects that it would need to seek third-party financing to the
extent it does not have available funds to meet its purchase obligations.
However, there can be no assurance that the Company would be able to obtain such
financing. In addition, a Change of Control may also result in the acceleration
of the debt under the Credit Facilities. Because the debt under the Credit
Facilities is senior to the Notes, the acceleration would prohibit the purchase
of the Notes until the obligations under the Credit Facilities were paid in full
or the related default were waived.
Failure by the Company to purchase the Notes when required upon a Change of
Control will result in an Event of Default with respect to the Notes. These
provisions could have the effect of deterring hostile or friendly acquisitions
of the Company where the Person attempting the acquisition views itself as
unable to finance the purchase of the principal amount of Notes which may be
tendered to the Company upon the occurrence of a Change of Control.
LIMITATIONS ON INDEBTEDNESS. The Indenture will provide that, 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.
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Notwithstanding the foregoing, the provisions of the Indenture will not
prevent the incurrence of:
(1) Permitted Indebtedness,
(2) Refinancing Indebtedness,
(3) Non-Recourse Indebtedness,
(4) any Guarantee of Indebtedness of the Company represented by the
Notes and
(5) any guarantee of Indebtedness incurred under Credit Facilities in
compliance with the Indenture.
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,
(1) may classify such item of Indebtedness under and comply with either
of such paragraphs (or any of such definitions), as applicable,
(2) may classify and divide such item of Indebtedness into more than one
of such paragraphs (or definitions), as applicable, and
(3) may elect to comply with such paragraphs (or definitions), as
applicable, in any order.
LIMITATIONS ON SENIOR SUBORDINATED INDEBTEDNESS. The Company will not, and
will not cause or permit any Guarantor to, directly or indirectly, incur any
Indebtedness that purports by its terms (or by the terms of any agreement
governing such Indebtedness) to rank senior in right of payment to the Notes and
subordinated in right of payment to any other Indebtedness of the Company or of
such Guarantor, as the case may be.
LIMITATIONS ON RESTRICTED PAYMENTS. The Indenture will provide that, 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:
(1) 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;
(2) immediately after giving effect to such Restricted Payment, the
Company could incur at least $1.00 of Indebtedness pursuant to the first
paragraph of the "Limitations on Indebtedness" covenant; and
(3) 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 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
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(d) in the case of the disposition or repayment of any Investment
constituting a Restricted Payment made after 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.
The foregoing clauses (2) and (3) 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 the 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 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 (3)
of the immediately preceding paragraph.
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.
In determining the "fair market value of Property" for purposes of clause
(3) of the first paragraph of this covenant, 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
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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.
LIMITATIONS ON TRANSACTIONS WITH AFFILIATES. The Indenture will provide
that, 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.
In addition, the Company will not, and will not cause or permit any
Restricted Subsidiary to, enter into an Affiliate Transaction unless:
(1) 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
(2) 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.
The Indenture will also provide that notwithstanding the foregoing, an
Affiliate Transaction will not include:
(1) 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,
(2) Capital Stock issuances to directors, officers and employees of the
Company or its Subsidiaries pursuant to plans approved by the stockholders
of the Company,
(3) any Restricted Payment otherwise permitted under the "Limitations on
Restricted Payments" covenant,
(4) 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 the
Indenture)) and
(5) 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.
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LIMITATIONS ON DISPOSITIONS OF ASSETS. The Indenture will provide that,
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.
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 repay, purchase or redeem Senior Indebtedness and/or
Guarantor Senior Indebtedness or (c) to the extent not used pursuant to clauses
(a) and (b), 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 Indebtedness that ranks pari passu with the Notes
(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 pari passu 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) or (c) 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 the first paragraph of this covenant 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.
LIMITATIONS ON LIENS. The Indenture will provide that 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 the Indenture and the Notes and/or the Guarantees, as the case may be, are
secured (i) in the case of an obligation that ranks pari passu with the Notes or
a Guarantee, on at least an equal and ratable basis with the obligation so
secured and (ii) in the case of an obligation that is subordinated to the Notes
or a Guarantee, on a basis that is senior in priority to the Lien securing such
obligation, in each case, until such time as such obligation is no longer
secured by a Lien.
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LIMITATIONS ON RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES. The
Indenture will provide that the Company will not, and will not cause or permit
any Restricted Subsidiary to, create, assume or otherwise cause or suffer to
exist or become effective any consensual encumbrance or restriction (other than
encumbrances or restrictions imposed by law or by judicial or regulatory action
or by provisions of leases and other agreements that restrict the assignability
thereof) on the ability of any Restricted Subsidiary to
(1) 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,
(2) make loans or advances to the Company or any other Restricted
Subsidiary, or
(3) 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 the 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 the
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 the 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.
LIMITATIONS ON MERGERS, CONSOLIDATIONS AND SALES OF ASSETS. The Indenture
will provide that 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 the 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:
(1) the Person formed by or surviving such consolidation or merger (if
other than the Company or the Guarantor, as the case may be), or to which
such sale, lease, conveyance or other disposition or assignment will be made
(collectively, the "SUCCESSOR"), is a corporation or other
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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,
(2) immediately after giving effect to such transaction, no Default or
Event of Default has occurred and is continuing,
(3) 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 the Indenture and
(4) unless prior to such transaction the Notes are rated Investment
Grade by both Rating Agencies (after which this clause (4) shall not apply),
immediately after giving effect to such transaction, the Company could incur
at least $1.00 of Indebtedness pursuant to the first paragraph of the
"Limitation on Indebtedness" covenant.
The foregoing provisions shall not apply to:
(a) 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 as provided under "The Guarantees" above or
(b) a transaction the purpose of which is to change the state of
incorporation of the Company or any Guarantor.
REPORTS TO HOLDERS OF NOTES. The Company shall 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 shall
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.
EVENTS OF DEFAULT
The following are Events of Default under the Indenture:
(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 (whether or not prohibited by the subordination provisions of the
Indenture);
(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 (whether or not prohibited by the subordination provisions of the
Indenture);
(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
covenants described under "Certain Covenants--Repurchase of Notes upon
Change
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of Control" and "Limitations on Mergers, Consolidations and Sales of
Assets," 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);
(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).
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A Default as described in subclause (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 Notes notify the Company and
the Trustee, of the Default and (except in the case of a default with respect to
covenants described under "Certain Covenants--Repurchase of Notes upon Change of
Control" and "Limitations on Mergers, Consolidations and Sales of Assets") 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.
If an Event of Default (other than an Event of Default with respect to the
Company resulting from subclauses (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 Notes then outstanding
by notice to the Company and the Trustee, may declare all Notes to be due and
payable immediately. Upon such declaration of acceleration, the amounts due and
payable on the Notes will be due and payable immediately. If an Event of Default
with respect to the Company specified in subclauses (7) or (8) above occurs,
such an amount 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 Notes 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) on the Notes under the Indenture. Holders of a majority in
principal amount of the then outstanding Notes may rescind an acceleration and
its consequence (except an acceleration due to nonpayment of principal or
interest on the Notes) if the rescission would not conflict with any judgment or
decree and if all existing Events of Default (other than the non-payment of
accelerated principal) have been cured or waived.
The Holders may not enforce the provisions of the Indenture, the Notes or
the Guarantees except as provided in the Indenture. Subject to certain
limitations, Holders of a majority in principal amount of the Notes then
outstanding may direct the Trustee in its exercise of any trust or power,
PROVIDED, HOWEVER, that such direction does not conflict with the terms of the
Indenture. The Trustee may withhold from the Holders notice of any continuing
Default or Event of Default (except any Default or Event of Default in payment
of principal or interest on the Notes or that resulted from the failure to
comply with the covenant entitled "Repurchase of Notes upon Change of Control")
if the Trustee determines that withholding such notice is in the Holders'
interest.
The Company is required to deliver to the Trustee an annual statement
regarding compliance with the Indenture, and include in such statement, if any
Officer of the Company is aware of any Default or Event of Default, a statement
specifying such Default or Event of Default and what action the Company is
taking or proposes to take with respect thereto. In addition, the Company is
required to deliver to the Trustee prompt written notice of the occurrence of
any Default or Event of Default.
DEFEASANCE OF INDENTURE
The Indenture will permit the Company and the Guarantors to terminate all of
their respective obligations under the Indenture, other than the obligation to
pay interest on and the principal of the Notes and certain other obligations, at
any time by
(1) depositing in trust with the Trustee, under an irrevocable trust
agreement, money or U.S. government obligations in an amount sufficient to
pay principal of and interest on the Notes to their maturity, and
(2) complying with certain other conditions, including delivery to the
Trustee of an opinion of counsel or a ruling received from the Internal
Revenue Service to the effect that Holders will not
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recognize income, gain or loss for federal income tax purposes as a result
of the Company's exercise of such right and will be subject to federal
income tax on the same amount and in the same manner and at the same times
as would have been the case otherwise.
In addition, the Indenture will permit the Company and the Guarantors to
terminate all of their respective obligations under the Indenture (including the
obligations to pay interest on and the principal of the Notes and certain other
obligations), at any time by
(1) depositing in trust with the Trustee, under an irrevocable trust
agreement, money or U.S. government obligations in an amount sufficient to
pay principal of and interest on the Notes to their maturity, and
(2) complying with certain other conditions, including delivery to the
Trustee of an opinion of counsel or a ruling received from the Internal
Revenue Service to the effect that Holders will not recognize income, gain
or loss for federal income tax purposes as a result of the Company's
exercise of such right and will be subject to federal income tax on the same
amount and in the same manner and at the same times as would have been the
case otherwise, which opinion of counsel is based upon a change in the
applicable federal tax law since the date of the Indenture.
AMENDMENT, SUPPLEMENT AND WAIVER
Subject to certain exceptions, the Indenture, the Notes or the Guarantees
may be amended or supplemented with the consent (which may include consents
obtained in connection with a tender offer or exchange offer for Notes) of the
Holders of at least a majority in principal amount of the Notes then
outstanding, and any existing Default under, or compliance with any provision of
the Indenture may be waived (other than any continuing Default or Event of
Default in the payment of interest on or the principal of the Notes) with the
consent (which may include consents obtained in connection with a tender offer
or exchange offer for Notes) of the Holders of a majority in principal amount of
the Notes then outstanding. Without the consent of any Holder, the Company and
the Trustee may amend or supplement the Indenture, the Notes or the Guarantees
to cure any ambiguity, defect or inconsistency; to comply with the "Limitations
on Mergers, Consolidations and Sales of Assets" covenant set forth in the
Indenture; to provide for uncertificated Notes in addition to or in place of
certificated Notes; to make any change that does not adversely affect the legal
rights of any Holder; or to delete a Guarantor which, in accordance with the
terms of the Indenture, ceases to be liable on its Guarantee.
Without the consent of each Holder affected, the Company and the Trustee may
not:
(1) reduce the amount of Notes whose Holders must consent to an
amendment, supplement or waiver,
(2) reduce the rate of or change the time for payment of interest,
including default interest, on any Note,
(3) reduce the principal of or change the fixed maturity of any Note or
alter the provisions (including related definitions) with respect to
redemptions described under "Optional Redemption" or with respect to
mandatory offers to repurchase Notes described under "Limitations on
Dispositions of Assets" or "Repurchase of Notes upon Change of Control,"
(4) make any Note payable in money other than that stated in the Note,
(5) make any change in the "Waiver of Past Defaults and Compliance with
Indenture Provisions", "Rights of Holders to Receive Payment" or the "With
Consent of Holders" sections set forth in the Indenture,
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(6) amend or modify the definition of Senior Indebtedness or Guarantor
Senior Indebtedness or amend or modify the subordination provisions of the
Indenture in any manner adverse to the Holders of the Notes,
(7) release any Guarantor from any of its obligations under its
Guarantee or the Indenture otherwise than in accordance with the Indenture,
or
(8) waive a continuing Default or Event of Default in the payment of
principal of or interest on the Notes.
The right of any Holder to participate in any consent required or sought
pursuant to any provision of the Indenture (and the obligation of the Company to
obtain any such consent otherwise required from such Holder) may be subject to
the requirement that such Holder shall have been the Holder of record of any
Notes with respect to which such consent is required or sought as of a date
identified by the Trustee in a notice furnished to Holders in accordance with
the terms of the Indenture.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest (as defined in
the Indenture), it must eliminate such conflict or resign. In the ordinary
course of its business, the Trustee provides, and may continue to provide,
service to the Company as transfer agent for the common stock and as trustee for
other debt securities of the Company. The Trustee also acts as trustee under the
indenture governing the Company's 8 3/8% Senior Notes due 2004, 10 1/2% Senior
Notes due 2005 and 8% Senior Notes due 2009.
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
occurs and is not cured, the Trustee will be required, in the exercise of its
power, to use the degree of care of a prudent person in similar circumstances in
the conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request of any Holder, unless such Holder shall have offered to the
Trustee security and indemnity satisfactory to the Trustee.
GOVERNING LAW
The Indenture, the Notes and the Guarantees will be governed by the laws of
the State of New York without giving effect to principles of conflict of laws.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
terms used in the Indenture.
"ACQUIRED INDEBTEDNESS" means (1) 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 (2) 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
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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 (1) or (2) 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 (1) or at the time
of the acquisition of such assets in the case of clause (2), but shall not be
deemed Acquired Indebtedness.
"AFFILIATE" means, when used with reference to a specified Person, any
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with the Person specified. "ASSET ACQUISITION" means
(1) 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 (2) 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:
(1) a transaction between the Company and any Restricted Subsidiary or a
transaction between Restricted Subsidiaries,
(2) 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),
(3) a transaction involving the sale of Capital Stock of, or the
disposition of assets in, an Unrestricted Subsidiary,
(4) 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,
(5) any sale, transfer, conveyance, lease or other disposition of assets
and properties of the Company that is governed by the provisions relating to
"Limitations on Mergers, Consolidation and Sales of Assets," or
(6) 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.
"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
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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:
(1) U.S. dollars;
(2) 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;
(3) 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;
(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and (3) entered
into with any financial institution meeting the qualifications specified in
clause (3) above;
(5) 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
(6) investments in money market funds substantially all of the assets of
which consist of securities described in the foregoing clauses (1) through
(5).
"CHANGE OF CONTROL" means
(1) 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;
(2) 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;
(3) Continuing Directors cease to constitute at least a majority of the
Board of Directors of the Company; or
(4) the stockholders of the Company approve any plan or proposal for the
liquidation or dissolution of the Company; PROVIDED, HOWEVER, that a
liquidation or dissolution of the Company which is part of a transaction
that does not constitute a Change of Control under the proviso contained in
clause (1) above shall not constitute a Change of Control.
"COMMON EQUITY" of any Person means Capital Stock of such Person that is
generally entitled to (1) vote in the election of directors of such Person or
(2) if such Person is not a corporation, vote or
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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
(1) income taxes,
(2) Consolidated Interest Expense,
(3) depreciation and amortization expenses and other non-cash charges to
earnings and
(4) 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
(1) 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);
(2) any Asset Disposition or Asset Acquisition (including, without
limitation, any Asset Acquisition giving rise to the need to make such
calculation as a result of the Company or any Restricted Subsidiary
(including any Person that becomes a Restricted Subsidiary as a result of
any such Asset Acquisition) incurring Acquired Indebtedness at any time on
or after the first day of the Four Quarter Period and on or prior to the
Transaction Date), as if such Asset Disposition or Asset Acquisition
(including the incurrence or repayment of any such Indebtedness) and the
inclusion, notwithstanding clause (2) 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
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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 (2) thereof, as if it applied to the Person or assets involved before
they were acquired; and
(3) 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,"
(a) 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
(b) notwithstanding clause (a) 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:
(1) 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 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,
(2) except to the extent includable in Consolidated Net Income pursuant
to the foregoing clause (1), 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,
(3) 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
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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,
(4) 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,
(5) any extraordinary gain or loss together with any related provision
for taxes, realized by the Company or any Restricted Subsidiary, and
(6) 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 (3) of the first paragraph of the "Limitations on
Restricted Payments" covenant, clause (4)(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 (1) Intangible
Assets and (2) 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 the Indenture or who became a
director of the Company subsequent to such date and whose election, or
nomination for election by the Company's stockholders, was duly approved by a
majority of the Continuing Directors on the Board of Directors of the Company at
the time of such approval, either by a specific vote or by approval of the proxy
statement issued by the Company on behalf of the entire Board of Directors of
the Company in which such individual is named as nominee for director.
"CONTROL", when used with respect to any Person, means the power to direct
the management and policies of such Person, directly or indirectly, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "CONTROLLING" and "CONTROLLED" have meanings correlative to the foregoing.
"CREDIT FACILITIES" means, collectively, each of the credit facilities and
guidance lines of credit of the Company or one or more Restricted Subsidiaries
in existence on the date of the 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 be 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 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 any 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.
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"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.
"DESIGNATED SENIOR INDEBTEDNESS" means any Senior Indebtedness (a) under any
of the Credit Facilities or (b) which, at the time of determination, has an
aggregate commitment or principal amount outstanding of at least $25.0 million
if the instrument governing such Senior Indebtedness expressly states that such
Indebtedness is "Designated Senior Indebtedness" for purposes of the Indenture
and a Board Resolution setting forth such designation by the Company has been
filed with the Trustee.
"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, (1) 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 (2) 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 (1) 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 the provisions described under the caption "Certain Covenants--
Repurchase of Notes upon Change of Control" 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 the provisions described under the caption "Certain
Covenants--Repurchase of Notes upon Change of Control."
"EVENT OF DEFAULT" has the meaning set forth in "Events of Default."
"FAIR MARKET VALUE" means, with respect to any asset, the price (after
taking into account any liabilities relating to such assets) that would be
negotiated in an arm's-length transaction for cash between a willing seller and
a willing and able buyer, neither of which is under any compulsion to complete
the transaction, as such price is determined in good faith by the Board of
Directors of the Company or a duly authorized committee thereof, as evidenced by
a resolution of such Board or committee.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, as in effect on the date of the Indenture.
"GUARANTEE" means the guarantee of the Notes by each Guarantor under the
Indenture.
"GUARANTOR SENIOR INDEBTEDNESS" means, with respect to any Guarantor, at any
date, whether currently existing or hereafter incurred:
(a) all obligations under the Credit Facilities (whether for principal,
interest, fees, expenses or indemnities);
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(b) all indebtedness of such Guarantor for borrowed money or under any
reimbursement obligation relating to a letter of credit or other similar
instruments or evidenced by bond, note, debenture or similar instrument, or
such indebtedness of others guaranteed by the applicable Guarantor (to the
extent of the guarantee), and Capitalized Lease Obligations, including
principal, premium, if any, and interest (including Post-Petition Interest)
on such indebtedness, unless the instrument under which such indebtedness is
incurred expressly provides that such indebtedness is not senior or superior
in right of payment to such Guarantor's Guarantee, and all renewals,
extensions, modifications, amendments or refinancings thereof;
(c) all obligations of such Guarantor under Interest Protection
Agreements;
(d) all obligations of such Guarantor under Currency Agreements; and
(e) all obligations of such Guarantor with respect to the Company's 8%
Senior Notes due 2009, 8 3/8% Senior Notes due 2004 and 10 1/2% Senior Notes
due 2005 under an indenture dated June 9, 1997.
Notwithstanding the foregoing, Guarantor Senior Indebtedness shall not
include:
(1) to the extent that it may constitute indebtedness, any obligation
for federal, state, local or other taxes;
(2) any indebtedness between such Guarantor and any Subsidiary of such
Guarantor or any Unrestricted Subsidiary of the Company;
(3) to the extent that it may constitute indebtedness, any obligation in
respect of any trade payable incurred for the purchase of goods or
materials, or for services obtained, in the ordinary course of business;
(4) that portion of any indebtedness that is incurred in violation of
this Indenture;
(5) indebtedness evidenced by such Guarantor's Guarantee of the Notes;
(6) indebtedness of such Guarantor that is expressly subordinate or
junior in right of payment to any other indebtedness of such Guarantor; and
(7) to the extent that it may constitute indebtedness, any obligation
owing under leases (other than Capitalized Lease Obligations).
"GUARANTORS" means (i) initially, each of:
DRHI, Inc., a Delaware corporation;
Meadows I, Ltd., a Delaware corporation;
Meadows II, Ltd., a Delaware corporation;
Meadows IX, Inc., a New Jersey corporation;
Meadows X, Inc., a New Jersey corporation;
D.R. Horton, Inc.--Minnesota, a Delaware corporation;
D.R. Horton, Inc.--Greensboro, a Delaware corporation;
D.R. Horton, Inc.--Birmingham, an Alabama corporation;
D.R. Horton, Inc.--Chicago, a Delaware corporation;
D.R. Horton, Inc.--San Diego, a Delaware corporation;
D.R. Horton, Inc.--New Jersey, a Delaware corporation;
D.R. Horton, Inc.--Torrey, a Delaware corporation;
DRH Construction, Inc., a Delaware corporation;
D.R. Horton, Inc.--Louisville, a Delaware corporation;
D.R. Horton, Inc.--Denver, a Delaware corporation;
D.R. Horton San Diego Holding Company, Inc., a California corporation;
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D.R. Horton Los Angeles Holding Company, Inc., a California corporation;
SGS Communities at Grande Quay, L.L.C., a New Jersey limited liability
company;
D.R. Horton Management Company, Ltd., a Texas limited partnership;
D.R. Horton-Texas, Ltd., a Texas limited partnership;
D.R. Horton, Inc.--Sacramento, a California corporation;
DRH Cambridge Homes, Inc., a California corporation;
C. Richard Dobson Builders, Inc., a Virginia corporation;
DRH Tucson Construction, Inc., a Delaware corporation;
Continental Homes, Inc., a Delaware corporation;
KDB Homes, Inc., a Delaware corporation;
Continental Residential, Inc., a California corporation;
Continental Homes of Florida, Inc., a Florida corporation;
CHI Construction Company, an Arizona corporation;
CHTEX of Texas, Inc., a Delaware corporation;
CH Investments of Texas, Inc., a Delaware corporation;
Continental Homes of Texas, L.P., a Texas limited partnership;
D.R. Horton, Inc.--Portland, a Delaware corporation;
and (ii) each of the Company's Subsidiaries which becomes a guarantor of the
Notes pursuant to the provisions of the Indenture.
"HOLDER" means the Person in whose name a Note is registered in the books of
the Registrar for the Notes.
"INDEBTEDNESS" of any Person means, without duplication,
(1) 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 instruments
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),
(2) any Indebtedness of others that such Person has guaranteed to the
extent of the guarantee,
(3) 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
(4) 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 (2) above at such date, net of any
unamortized discount to be
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accounted for as Interest Expense in accordance with GAAP, and (c) in the case
of clause (4) above, the lesser of (x) the fair market value of any asset
subject to a Lien securing the Indebtedness of others on the date that the Lien
attaches and (y) the amount of the Indebtedness secured.
"INTANGIBLE ASSETS" of the Company means all unamortized debt discount and
expense, unamortized deferred charges, goodwill, patents, trademarks, service
marks, trade names, copyrights, 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 intangible
on the consolidated balance sheet of the Company and the Restricted Subsidiaries
prepared in accordance with GAAP.
"INTEREST EXPENSE" of any Person for any period means, without duplication,
the aggregate amount of (i) interest which, in conformity with GAAP, would be
set opposite the caption "interest expense" or any like caption on an income
statement for such Person (including, without limitation, imputed interest
included in Capitalized Lease Obligations, all commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing, the net costs (but reduced by net gains) associated with Currency
Agreements and Interest Protection Agreements, 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 (1) Interest Expense and (2) 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 the Indenture.
"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 ac-cordance
with GAAP.
"ISSUE DATE" means the date on which the Notes are originally issued under
the 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.
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"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 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 (1) 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 (2) 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
(a) environmental warranties and indemnities, or (b) indemnities for and
liabilities arising from fraud, misrepresentation, misapplication or non-payment
of rents, profits, insurance and condemnation proceeds and other sums actually
received by the borrower from secured assets to be paid to the lender, waste and
mechanics' liens.
"PERMITTED INDEBTEDNESS" means
(1) Indebtedness under Credit Facilities which does not exceed
$1.0 billion aggregate principal amount outstanding at any one time;
(2) Indebtedness in respect of obligations of the Company and its
Subsidiaries to the trustees under indentures for debt securities;
(3) 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 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
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Indebtedness" at the time the Restricted Subsidiary in question ceases to be
a Restricted Subsidiary;
(4) Indebtedness of the Company or any Restricted Subsidiary under any
Currency Agreements or Interest Protection Agreements in a notional amount
no greater than the payments due (at the time the related Currency Agreement
or Interest Protection Agreement is entered into) with respect to the
Indebtedness or currency being hedged;
(5) Purchase Money Indebtedness;
(6) Capitalized Lease Obligations;
(7) 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;
(8) 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;
(9) 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
(10) Indebtedness of the Company or any Restricted Subsidiary which,
together with all other Indebtedness under this clause (10), does not exceed
$30 million aggregate principal amount outstanding at any one time.
"PERMITTED INVESTMENT" means
(1) Cash Equivalents;
(2) 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;
(3) 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;
(4) 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;
(5) Investments in Currency Agreements or Interest Protection Agreements
described in the definition of Permitted Indebtedness;
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(6) 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;
(7) 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;
(8) Investments in interests in issuances of collateralized mortgage
obligations, mortgages, mortgage loan servicing or other mortgage related
assets; and
(9) Investments in an aggregate amount outstanding not to exceed
$100 million.
"PERMITTED JUNIOR SECURITIES" means any securities of the Company or any
other Person that are (1) Capital Stock or (2) subordinated in right of payment
to all Senior Indebtedness or Guarantor Senior Indebtedness, as the case may be,
that may at the time be outstanding, to substantially the same extent as, or to
a greater extent than, the Notes are subordinated as provided in the Indenture;
provided (a) such securities are not entitled to the benefits of covenants or
defaults materially more beneficial to the holders of such securities than those
in effect with respect to the Notes on the Issue Date and (b) such securities do
not provide for amortization (including sinking fund and mandatory prepayment
provisions) commencing prior to the date six months following the final
scheduled maturity date of the Senior Indebtedness or Guarantor Senior
Indebtedness, as the case may be (as modified by the plan of reorganization or
readjustment pursuant to which such securities are issued).
"PERMITTED LIENS" means:
(1) 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,
(2) statutory Liens of landlords and carriers', warehousemen's,
mechanics', suppliers', materialmen's, repairmen's or other Liens imposed by
law and arising in the ordinary course of business and with respect to
amounts that, to the extent applicable, either (a) are not yet delinquent or
(b) are being contested in good faith by appropriate proceedings and as to
which appropriate reserves have been established or other provisions have
been made in accordance with GAAP, if required,
(3) Liens (other than any Lien imposed by the Employer Retirement Income
Security Act of 1974, as amended) incurred or deposits made in the ordinary
course of business in connection with workers' compensation, unemployment
insurance and other types of social security,
(4) 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 (1)(a) of the definition of "Indebtedness"), in each
case incurred in the ordinary course of business of the Company and the
Restricted Subsidiaries,
(5) attachment or judgment Liens not giving rise to a Default or an
Event of Default,
(6) easements, dedications, assessment district or similar liens in
connection with municipal or special district financing, rights-of-way,
restrictions, reservations and other similar charges,
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burdens, and other similar charges or encumbrances not materially
interfering with the ordinary course of business of the Company and the
Restricted Subsidiaries,
(7) 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,
(8) Liens securing Indebtedness incurred pursuant to clause (8) or
(9) of the definition of Permitted Indebtedness,
(9) 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 (9) 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),
(10) 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,
(11) 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,
(12) 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,
(13) leases or subleases granted to others not materially interfering
with the ordinary course of business of the Company and the Restricted
Subsidiaries,
(14) purchase money security interests (including, without limitation,
Capitalized Lease Obligations); PROVIDED, that such Liens apply only to the
Property acquired and the related Indebtedness is incurred within 90 days
after the acquisition of such Property,
(15) 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,
(16) 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,
(17) 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,
(18) Liens for homeowner and property owner association developments and
assessments,
(19) Liens securing Refinancing Indebtedness; PROVIDED, that such Liens
extend only to the assets securing the Indebtedness being refinanced,
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(20) 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, and
(21) Liens securing Senior Indebtedness and Liens securing Guarantor
Senior Indebtedness.
"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.
"POST-PETITION INTEREST" means interest on any Senior Indebtedness accruing
subsequent to events of bankruptcy of the Company and its Subsidiaries at the
rate provided in the document evidencing such Senior Indebtedness, whether or
not such interest is an allowed claim enforceable against the debtor in a
bankruptcy case under bankruptcy law.
"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 (1) the aggregate principal amount of such
Indebtedness shall not exceed such purchase price or cost and (2) 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.
"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 the Indenture, but only to the extent that
(1) 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,
(2) 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,
(3) 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
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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
(4) such Refinancing Indebtedness is in an aggregate principal amount
that is equal to or less than the aggregate principal amount then
outstanding under the Indebtedness being refunded, refinanced or extended.
"RESTRICTED PAYMENT" means any of the following:
(1) 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);
(2) 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
(3) any Investment (other than any Permitted Investment), including any
Investment in an Unrestricted Subsidiary (including by the designation of a
Subsidiary of the Company as an Unrestricted Subsidiary).
"RESTRICTED SUBSIDIARY" means any Subsidiary of the Company which is not an
Unrestricted Subsidiary.
"S&P" means Standard and Poor's Ratings Group or any successor to its debt
rating business.
"SENIOR INDEBTEDNESS" means, at any date, whether currently existing or
hereafter incurred:
(a) all obligations under the Credit Facilities (whether for principal,
interest, fees, expenses or indemnities);
(b) all indebtedness of the Company for borrowed money or under any
reimbursement obligation relating to a letter of credit or other similar
instruments or evidenced by a bond, note, debenture or similar instrument,
or such indebtedness of others guaranteed by the Company (to the extent of
the guarantee), and Capitalized Lease Obligations, including principal,
premium, if any, and interest (including Post-Petition Interest) on such
indebtedness, unless the instrument under which such indebtedness is
incurred expressly provides that such indebtedness is not senior or superior
in right of payment to the Notes, and all renewals, extensions,
modifications, amendments or refinancings thereof;
(c) all obligations of the Company under Interest Protection Agreements;
(d) all obligations of the Company under Currency Agreements; and
(e) the Company's 8% Senior Notes due 2009, 8 3/8% Senior Notes due 2004
and 10 1/2% Senior Notes due 2005 under an indenture dated June 9, 1997.
Notwithstanding the foregoing, Senior Indebtedness shall not include:
(1) to the extent that it may constitute indebtedness, any obligation
for federal, state, local or other taxes;
(2) any indebtedness between the Company and any Subsidiary of the
Company;
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(3) to the extent that it may constitute indebtedness, any obligation in
respect of any trade payable incurred for the purchase of goods or
materials, or for services obtained, in the ordinary course of business;
(4) that portion of any indebtedness that is incurred in violation of
this Indenture;
(5) indebtedness evidenced by the Notes;
(6) indebtedness of the Company that is expressly subordinate or junior
in right of payment to any other indebtedness of the Company; and
(7) to the extent that it may constitute indebtedness, any obligation
owing under leases (other than Capitalized Lease Obligations).
"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.
"TRUSTEE" means the party named as such above until a successor replaces
such party in accordance with the applicable provisions of the 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, in each case, to the extent that the amount thereof
constitutes a Restricted Payment permitted by the Indenture, 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 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 (1) the net amount (the "DESIGNATION
AMOUNT") then outstanding of all previous Investments by the Company and the
Restricted Subsidiaries in such Subsidiary will be deemed to be a Restricted
Payment at the time of such designation and will reduce the amount available for
Restricted Payments under the "Limitations on Restricted Payments" covenant set
forth in the Indenture, to the extent provided therein, (2) the Company must be
permitted under the "Limitations on Restricted Payments" covenant set forth in
the Indenture to make the Restricted Payment deemed to have been made pursuant
to clause (1), and (3) after giving effect to such designation, no Default or
Event of Default shall have occurred or 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
S-49
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 (1) the Indebtedness of such Unrestricted Subsidiary as
of the date of such redesignation could then be incurred under the "Limitations
on Indebtedness" covenant and (2) 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 the first paragraph of the "Limitations on Indebtedness"
covenant. 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.
BOOK ENTRY, DELIVERY AND FORM
The Notes will be issued in the form of a fully registered Global Note (the
"GLOBAL NOTE"). The Global Note will be deposited on or about the Issue Date
with, or on behalf of, The Depository Trust Company (the "DEPOSITARY") and
registered in the name of Cede & Co., as nominee of the Depositary (such nominee
being referred to herein as the "GLOBAL NOTE HOLDER").
The Depositary is a limited-purpose trust company which was created to hold
securities for its participating organizations (collectively, the "PARTICIPANTS"
or the "DEPOSITARY'S PARTICIPANTS") and to facilitate the clearance and
settlement of transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants. The Depositary's
Participants include securities brokers and dealers (including the
Underwriters), banks and trust companies, clearing corporations and certain
other organizations. Access to the Depositary's system is also available to
other entities such as banks, brokers, dealers and trust companies
(collectively, the "INDIRECT PARTICIPANTS" or the "DEPOSITARY'S INDIRECT
PARTICIPANTS") that clear through or maintain a custodial relationship with a
participant, either directly or indirectly. Persons who are not Participants may
beneficially own securities held by or on behalf of the Depositary only through
the Depositary's Participants or the Depositary's Indirect Participants.
The Company expects that pursuant to procedures established by the
Depositary (i) upon deposit of the Global Note, the Depositary will credit the
accounts of Participants designated by the Underwriters with portions of the
principal amount of the Global Note and (ii) ownership of the Notes will be
shown on, and the transfer of ownership thereof will be effected only through,
records maintained by the Depositary (with respect to the interests of the
Depositary's Participants), the
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Depositary's Participants and the Depositary's Indirect Participants.
Prospective purchasers are advised that the laws of some states require that
certain Persons take physical delivery in definitive form of securities that
they own. Consequently, the ability to transfer Notes will be limited to such
extent.
So long as the Global Note Holder is the registered owner of any Notes, the
Global Note Holder will be considered the sole owner or holder of such Notes
outstanding under the Indenture. Except as provided below, owners of Notes will
not be entitled to have Notes registered in their names, will not receive or be
entitled to receive physical delivery of Notes in definitive form, and will not
be considered the Holders thereof under the Indenture for any purpose, including
with respect to the giving of any directions, instructions or approvals to the
Trustee thereunder. As a result, the ability of a Person having a beneficial
interest in Notes represented by the Global Note to pledge such interest to
Persons or entities that do not participate in the Depositary's system or to
otherwise take actions in respect of such interest may be affected by the lack
of a physical certificate evidencing such interest.
Neither the Company, the Trustee, the Paying Agent nor the Notes Registrar
will have any responsibility or liability for any aspect of the records relating
to or payments made on account of Notes by the Depositary, or for maintaining,
supervising or reviewing any records of the Depositary relating to such Notes.
Payments in respect of the principal, premium, if any, and interest on any
Notes registered in the name of a Global Note Holder on the applicable record
date will be payable by the Trustee to or at the direction of such Global Note
Holder in its capacity as the registered holder under the Indenture. Under the
terms of the Indenture, the Company and the Trustee may treat the Persons in
whose names the Notes, including the Global Notes, are registered as the owners
thereof for the purpose of receiving such payments and for any and all other
purposes whatsoever. Consequently, neither the Company nor the Trustee has or
will have any responsibility or liability for the payment of such amounts to
beneficial owners of Notes (including principal, premium, if any, and interest).
The Company believes, however, that it is currently the policy of the
Depositary to immediately credit the accounts of the relevant Participants with
such payment, in amounts proportionate to their respective holdings in principal
amount of beneficial interests in the relevant security as shown on the records
of the Depositary. Payments by the Depositary's Participants and the
Depositary's Indirect Participants to the beneficial owner of Notes will be
governed by standing instructions and customary practice and will be the
responsibility of the Depositary's Participants or the Depositary's Indirect
Par-ticipants.
As long as the Notes are represented by a Global Note, the Depositary's
nominee will be the holder of the Notes and therefore will be the only entity
that can exercise a right to repayment or repurchase of the Notes. See
"Covenants--Repurchase of Notes Upon a Change of Control" and "--Limitations on
Dispositions of Assets." Notice by Participants or Indirect Participants or by
owners of beneficial interests in a Global Note held through such Participants
or Indirect Participants of the exercise of the option to elect repayment of
beneficial interests in Notes represented by a Global Note must be transmitted
to the Depositary in accordance with its procedures on a form required by the
Depositary and provided to Participants. In order to ensure that the
Depositary's nominee will timely exercise a right to repayment with respect to a
particular Note, the beneficial owner of such Note must instruct the broker or
the Participant or Indirect Participant through which it holds an interest in
such Note to notify the Depositary of its desire to exercise a right to
repayment. Different firms have cut-off times for accepting instructions from
their customers and, accordingly, each beneficial owner should consult the
broker or other Participant or Indirect Participant through which it holds an
interest in a Note in order to ascertain the cut-off time by which such an
instruction must be given in order for timely notice to be delivered to the
Depositary. The Company will not be liable for any delay in delivery of notices
of the exercise of the option to elect repayment.
S-51
CERTIFICATED SECURITIES
Subject to certain conditions, any Person having a beneficial interest in
the Global Note may, upon request to the Company or the Trustee, exchange such
beneficial interest for Notes in the form of Certificated Securities. Upon any
such issuance, the Trustee is required to register such Notes in the name of,
and cause the same to be delivered to, such Person or Persons (or the nominee of
any thereof). In addition, if (i) the Company notifies the Trustee in writing
that the Depositary is no longer willing or able to act as a depositary and the
Company is unable to locate a qualified successor within 90 days or (ii) the
Company, at its option, notifies the Trustee in writing that it elects to cause
the issuance of Notes in the form of Certificated Securities under the
Indenture, then, upon surrender by the relevant Global Note Holder of its Global
Note, Notes in such form will be issued to each Person that such Global Note
Holder and the Depositary identify as the beneficial owner of the related Notes.
Neither the Company nor the Trustee shall be liable for any delay by the
related Global Note Holder or the Depositary in identifying the beneficial
owners of Notes and each such Person may conclusively rely on and shall be
protected in relying on, instructions from the Global Note Holder or of the
Depositary for all purposes (including with respect to the registration and
delivery, and the respective principal amounts, of the Notes to be issued).
SAME-DAY SETTLEMENT AND PAYMENT
The Indenture will require that payments in respect of the Notes (including
principal, premium, if any, and interest) be made by wire transfer of
immediately available funds to the accounts specified by the Global Note
Holders. The Company expects that secondary trading in the Certificated Notes
also will be settled in immediately available funds.
TRANSFER AND EXCHANGE
A holder may transfer or exchange the Notes in accordance with the
procedures set forth in the Indenture. 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 is not required to transfer or exchange any Note selected for
redemption. Also, the Registrar is not required to transfer or exchange any Note
for a period of 15 days before a selection of the Notes to be redeemed. The
registered Holder of a Note will be treated as the owner of it for all purposes.
UNDERWRITING
Subject to the terms and conditions stated in the underwriting agreement
dated the date hereof, Salomon Smith Barney Inc., which we refer to as the
underwriter, has agreed to purchase, and we have agreed to sell to the
underwriter, all of the notes.
The underwriting agreement provides that the obligation of the underwriter
to purchase the notes included in this offering is subject to approval of
certain legal matters by counsel and to certain other conditions. The
underwriter is obligated to purchase all the notes if it purchases any of the
notes.
The underwriter proposes to offer some of the notes directly to the public
at the public offering price set forth on the cover page of this prospectus
supplement. After the initial offering of the notes to the public, the public
offering price may be changed by the underwriter.
S-52
The following table shows the underwriter discounts and commissions we will
pay to the underwriter in connection with this offering (expressed as a
percentage of the principal amount of the notes).
PAID BY D.R. HORTON
-------------------
Per note................................................... 0.249%
In connection with the offering, the underwriter may purchase and sell notes
in the open market. These transactions may include over-allotment, covering
transactions and stabilizing transactions. Over-allotment involves sales of
notes in excess of the principal amount of notes to be purchased by the
underwriter in the offering, which creates a short position. Covering
transactions involve purchases of the notes in the open market after the
distribution has been completed in order to cover short positions. Stabilizing
transactions consist of certain bids or purchases of notes made for the purpose
of preventing or retarding a decline in the market price of the notes while the
offering is in progress.
The underwriter also may impose a penalty bid. Penalty bids permit the
underwriter to reclaim a selling concession from a dealer when the underwriter,
in covering short positions or marking stabilizing purchases, repurchases notes
originally sold by that dealer.
Any of these activities may cause the price of the notes to be higher than
the price that otherwise would exist in the open market in the absence of such
transactions. These transactions may be effected in the over-the-counter market
or otherwise and, if commenced, may be discontinued at any time.
We estimate that our total expenses of this offering will be $250,000.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, or to contribute to
payments the underwriters may be required to make in respect of any of those
liabilities.
LEGAL MATTERS
Gibson, Dunn & Crutcher LLP, Dallas, Texas, will issue an opinion about the
validity of the notes. Certain legal matters will be passed upon for the
underwriter by Cahill Gordon & Reindel, New York, New York.
EXPERTS
Ernst & Young LLP, independent auditors, have audited the consolidated
financial statements of D.R. Horton, Inc. appearing in our Annual Report on
Form 10-K for the year ended September 30, 1999, as set forth in their report
included in such financial statements and incorporated herein by reference. Such
auditors based their report in part on the report of Arthur Andersen LLP,
independent auditors. We incorporate by reference such consolidated financial
statements in this prospectus in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
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PROSPECTUS
D.R. HORTON, INC.
$600,000,000
DEBT SECURITIES, PREFERRED STOCK
COMMON STOCK
AND
WARRANTS
-----------------
We will provide specific terms of these securities in supplements to this
prospectus. You should read this prospectus and any supplement carefully before
you invest.
------------------------
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This prospectus is dated April 16, 1999
TABLE OF CONTENTS
Forward-looking Statements.................................. 2
The Company................................................. 3
Securities We May Offer..................................... 4
Use of Proceeds............................................. 4
Ratio of Earnings to Fixed Charges.......................... 5
Description of Debt Securities.............................. 5
Description of Common Stock And Preferred Stock............. 10
Description of Warrants..................................... 11
Plan of Distribution........................................ 12
Legal Matters............................................... 13
Experts..................................................... 13
Where You Can Find More Information......................... 14
Incorporation of Certain Documents by Reference............. 14
FORWARD-LOOKING STATEMENTS
The statements contained in this prospectus and the information incorporated
by reference include forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements involve risks, uncertainties and other factors that may cause our
actual results to differ materially from the results we discuss in the
forward-looking statements. These risks, uncertainties and other factors
include, but are not limited to:
- our substantial leverage,
- changes in general economic and business conditions,
- changes in interest rates and the availability of mortgage financing,
- governmental regulations and environmental matters,
- competitive conditions within our industry,
- the availability of capital, and
- the ability to effect acquisitions successfully.
2
THE COMPANY
HOMEBUILDING
D.R. Horton, Inc. is a national homebuilder. We construct and sell
single-family homes in metropolitan areas of the Mid-Atlantic, Midwest,
Southeast, Southwest and West regions of the United States. We offer high
quality homes, designed principally for first-time and move-up home buyers. Our
homes generally range in size from 1,000 to 5,000 square feet and range in price
from $80,000 to $600,000. For the year ended September 30, 1998, we closed
13,944 homes with an average sales price of approximately $153,300. For the
three months ended December 31, 1998, we closed 3,846 homes with an average
sales price of approximately $159,000.
OUR HOMEBUILDING MARKETS
We are one of the largest and most geographically diversified homebuilders
in the United States, with operating divisions in 23 states and 40 markets as of
March 31, 1999. The markets we operate in include: Albuquerque, Atlanta, Austin,
Baltimore, Birmingham, Charleston, Charlotte, Chicago, Cincinnati, Dallas/Fort
Worth, Denver, Greensboro, Greenville, Hilton Head, Houston, Jacksonville,
Killeen, Las Vegas, Los Angeles, Louisville, Minneapolis/St. Paul, Myrtle Beach,
Nashville, New Jersey, Newport News, Orlando, Pensacola, Phoenix, Portland,
Raleigh/Durham, Richmond, Sacramento, Salt Lake City, St. Louis, San Antonio,
San Diego, South Florida, Tucson, suburban Washington, D.C. and Wilmington.
We build homes under the following names: D.R. Horton, Arappco, Cambridge,
Continental, Dobson, Mareli, Milburn, Joe Miller, Regency, RMP, SGS, Torrey and
Trimark.
FORMATION
Donald R. Horton began our homebuilding business in 1978. In 1991 D.R.
Horton, Inc. was incorporated in Delaware to acquire the assets and businesses
of our predecessor companies which were residential home construction and
development companies owned or controlled by Mr. Horton. Since July 1993, we
have acquired 15 other homebuilding companies.
LOCATION OF EXECUTIVE OFFICES
Our principal executive offices are at 1901 Ascension Blvd., Suite 100,
Arlington, Texas 76006, and our telephone number is (817) 856-8200.
3
SECURITIES WE MAY OFFER
TYPES OF SECURITIES
The types of securities that we may offer and sell from time to time by this
prospectus are:
- debt securities, which we may issue in one or more series and which may
include guarantees of the debt securities by most of our subsidiaries,
- preferred stock, which we may issue in one or more series,
- common stock, or
- warrants entitling the holders to purchase common stock, preferred stock
or debt securities.
The aggregate initial offering price of all securities sold will not exceed
$600,000,000. We will determine when we sell securities, the amounts of
securities we will sell and the prices and other terms on which we will sell
them. We may sell securities to or through underwriters, through agents or
directly to purchasers.
ADDITIONAL INFORMATION
We will describe in a prospectus supplement, which we will deliver with this
prospectus, the terms of particular securities which we may offer in the future.
In each prospectus supplement we will include the following information:
- The type and amount of securities which we propose to sell;
- The initial public offering price of the securities;
- The names of the underwriters or agents, if any, through or to which we
will sell the securities;
- The compensation, if any, of those underwriters or agents;
- Information about securities exchanges or automated quotation systems on
which the securities will be listed or traded;
- United States federal income tax considerations applicable to the
securities; and
- Any other material information about the offering and sale of the
securities.
USE OF PROCEEDS
Except as may be stated in the applicable prospectus supplement, we intend
to use the net proceeds from the sale of the securities for general corporate
purposes, including acquisition, development and construction of new residential
properties, acquisition of companies in homebuilding and related businesses, and
repayment of existing indebtedness.
4
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth our ratio of earnings to fixed charges for
the five years ended September 30, 1998, and the three months ended
December 31, 1997 and 1998:
THREE
MONTHS ENDED
YEAR ENDED SEPTEMBER 30, DECEMBER 31,
---------------------------------------------------- -------------------
1994 1995 1996 1997 1998 1997 1998
-------- -------- -------- -------- -------- -------- --------
Ratio................................ 3.01 2.50 3.15 2.88 3.13 2.67 4.44
==== ==== ==== ==== ==== ==== ====
For purposes of computing the ratio of earnings to fixed charges, earnings
consist of the sum of pretax income from continuing operations, interest
amortized to cost of sales, interest expense and the portion of rent expense
deemed to represent interest. Fixed charges consist of interest incurred,
whether expensed or capitalized, including amortization of debt issuance costs,
if applicable, and the portion of rent expense deemed to represent interest. To
date, we have not issued any preferred stock; therefore, the ratios of earnings
to combined fixed charges and preferred stock dividend requirements are the same
as the ratios of earnings to fixed charges presented above.
DESCRIPTION OF DEBT SECURITIES
We may issue debt securities under one or more indentures, to be entered
into between us, most of our subsidiaries if they guarantee the debt securities,
and American Stock Transfer & Trust Company, New York, New York, as trustee, or
another trustee chosen by us, qualified to act as such under the Trust Indenture
Act of 1939 and appointed in a supplemental indenture with respect to a
particular series. The indentures are governed by the Trust Indenture Act.
The following is summary of the indentures. It does not restate the
indentures entirely. We urge you to read the indentures. We are filing the
indentures as exhibits to the registration statement of which this prospectus is
a part, and you may inspect them at the office of the trustee, or as described
under "Incorporation of Certain Documents By Reference". References below to an
"indenture" are references to the applicable indenture under which a particular
series of debt securities is issued.
TERMS OF THE DEBT SECURITIES
Our debt securities will be unsecured obligations of D.R. Horton, Inc. We
may issue them in one or more series. Authorizing resolutions or a supplemental
indenture will set forth the specific terms of each series of debt securities.
We shall provide a prospectus supplement for each series of debt securities that
will describe:
- the title of the debt securities and whether the debt securities are
senior, senior subordinated, or subordinated debt securities;
- the aggregate principal amount of the debt securities and any limit upon
the aggregate principal amount of the series of debt securities;
- the date or dates on which principal of the debt securities will be
payable and the amount of principal which will be payable;
- the rate or rates (which may be fixed or variable) at which the debt
securities will bear interest, if any, as well as the dates from which
interest will accrue, the dates on which interest will be payable and the
record date for the interest payable on any payment date;
- the currency or currencies in which principal, premium, if any, and
interest, if any, will be payable;
5
- the place or places where principal, premium, if any, and interest, if
any, on the debt securities will be payable and where debt securities
which are in registered form can be presented for registration of transfer
or exchange; and the identification of any depositary or depositaries for
any global debt securities;
- any provisions regarding our right to redeem or purchase debt securities
or the right of holders to require us to redeem or purchase debt
securities;
- the right, if any, of holders of the debt securities to convert them into
our common stock or other securities, including any provisions intended to
prevent dilution of the conversion rights;
- any provisions requiring or permitting us to make payments to a sinking
fund to be used to redeem debt securities or a purchase fund to be used to
purchase debt securities;
- the percentage of the principal amount at which debt securities will be
issued and, if other than the full principal amount thereof, the
percentage of the principal amount of the debt securities which is payable
if maturity of the debt securities is accelerated because of a default;
- the terms, if any, upon which debt securities may be subordinated to our
other indebtedness;
- any additions to, modifications of or deletions from the terms of the debt
securities with respect to events of default or covenants or other
provisions set forth in the indenture; and
- any other material terms of the debt securities, which may be different
than the terms set forth in this prospectus.
Each prospectus supplement will describe, as to the debt securities to which
it relates, any guarantees by our direct and indirect subsidiaries which may
guarantee the debt securities, including the terms of subordination, if any, of
any such guarantee.
The applicable prospectus supplement will also describe any material
covenants to which a series of debt securities will be subject.
EVENTS OF DEFAULT AND REMEDIES
An event of default with respect to any series of debt securities will be
defined in the indenture or applicable supplemental indenture as being:
- our default in payment of the principal of or premium, if any, on any of
the debt securities of such series;
- default for 30 days in payment of any installment of interest on any debt
security of such series beyond any applicable grace period;
- default by us or any guarantor subsidiary for 60 days after notice in the
observance or performance of any other covenants in the indenture or
applicable supplemental indenture relating to such series; and
- bankruptcy, insolvency or reorganization of our company or our significant
guarantor subsidiaries.
The indenture will provide that the trustee may withhold notice to the
holders of any series of debt securities of any default, except a default in
payment of principal, premium, if any, or interest, if any, with respect to such
series of debt securities, if the trustee considers it in the interest of the
holders of such series of debt securities to do so.
The indenture will provide that if any event of default has occurred and is
continuing with respect to any series of debt securities, the trustee or the
holders of not less than 25% in principal amount of such series of debt
securities then outstanding may declare the principal of all the debt securities
of
6
such series to be due and payable immediately. However, the holders of a
majority in principal amount of the debt securities of such series then
outstanding by written notice to the trustee and to us may waive any event of
default with respect to such series of debt securities, other than any event of
default in payment of principal or interest. Holders of a majority in principal
amount of the then outstanding debt securities of any series may rescind an
acceleration with respect to such series and its consequences, except an
acceleration due to nonpayment of principal or interest on such series, if the
rescission would not conflict with any judgement or decree and if all existing
events of default with respect to such series have been cured or waived.
The holders of a majority of the outstanding principal amount of the debt
securities of any series will have the right to direct the time, method and
place of conducting any proceedings for any remedy available to the trustee with
respect to such series, subject to limitations specified in the indenture.
DEFEASANCE
The indenture will permit us and our guarantor subsidiaries to terminate all
our respective obligations under the indenture as they relate to any particular
series of debt securities, other than the obligation to pay interest, if any, on
and the principal of the debt securities of such series and certain other
obligations, at any time by:
- depositing in trust with the trustee, under an irrevocable trust
agreement, money or U.S. government obligations in an amount sufficient to
pay principal of and interest, if any, on the debt securities of such
series to their maturity, and
- complying with other conditions, including delivery to the trustee of an
opinion of counsel or a ruling received from the Internal Revenue Service
to the effect that holders will not recognize income, gain or loss for
federal income tax purposes as a result of our exercise of such right and
will be subject to federal income tax on the same amount and in the same
manner and at the same times as would have been the case otherwise.
In addition, the indenture will permit us and our guarantor subsidiaries to
terminate all of our respective obligations under the indenture as they relate
to any particular series of debt securities, including the obligations to pay
interest, if any, on and the principal of the debt securities of such series and
certain other obligations, at any time by:
- depositing in trust with the trustee, under an irrevocable trust
agreement, money or U.S. government obligations in an amount sufficient to
pay principal of and interest, if any, on the debt securities of such
series to their maturity, and
- complying with other conditions, including delivery to the trustee of an
opinion of counsel or a ruling received from the Internal Revenue Service
to the effect that holders will not recognize income, gain or loss for
federal income tax purposes as a result of the our exercise of such right
and will be subject to federal income tax on the same amount and in the
same manner and at the same times as would have been the case otherwise,
which opinion of counsel is based upon a change in the applicable federal
tax law since the date of the indenture.
TRANSFER AND EXCHANGE
A holder will be able to transfer or exchange debt securities only in
accordance with the indenture. 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.
7
AMENDMENT, SUPPLEMENT AND WAIVER
Without the consent of any holder, we and the trustee may amend or
supplement the indenture, the debt securities or the guarantees of debt
securities to:
- cure any ambiguity, defect or inconsistency;
- create a series and establish its terms;
- provide for uncertificated debt securities in addition to or in place of
certificated debt securities;
- make any change that does not adversely affect the legal rights of any
holder; or
- delete a guarantor subsidiary which, in accordance with the terms of the
indenture, ceases to be liable on its guarantee of debt securities.
With the exceptions discussed below, we and the trustee may amend or
supplement the indenture, the debt securities or the guarantees of a particular
series with the consent of the holders of at least a majority in principal
amount of the debt securities of such series then outstanding. In addition, the
holders of a majority in principal amount of the debt securities of such series
then outstanding may waive any existing default under, or compliance with, any
provision of the indenture relating to a particular series of debt securities,
other than any event of default in payment of interest or principal. These
consents and waivers may be obtained in connection with a tender offer or
exchange offer for debt securities.
Without the consent of each holder affected, we and the trustee may not:
- reduce the amount of debt securities of such series whose holders must
consent to an amendment, supplement or waiver,
- reduce the rate of or change the time for payment of interest,
- reduce the principal of or change the fixed maturity of any debt security
or alter the provisions with respect to redemptions or mandatory offers to
repurchase debt securities,
- make any debt security payable at a place or in money other than that
stated in the debt security,
- modify the ranking or priority of the debt securities or any guarantee,
- release any guarantor from any of its obligations under its guarantee or
the indenture except in accordance with the indenture, or
- waive a continuing default in the payment of principal of or interest on
the debt securities.
The right of any holder to participate in any consent required or sought
pursuant to any provision of the indenture, and our obligation to obtain any
such consent otherwise required from such holder, may be subject to the
requirement that such holder shall have been the holder of record of any debt
securities with respect to which such consent is required or sought as of a date
identified by the trustee in a notice furnished to holders in accordance with
the indenture.
CONCERNING THE TRUSTEE
In the ordinary course of its business, American Stock Transfer and Trust
Company, the trustee, provides, and may continue to provide, service to us as
transfer agent for our common stock and trustee under an indenture relating to
our 8 3/8% Senior Notes due 2004 and our 8% Senior Notes due 2009. The indenture
will contain limitations on the rights of the trustee, should it become our
creditor, to obtain payment of claims in specified cases or to realize on
property received in respect of any such
8
claim as security or otherwise. The indenture will permit the trustee to engage
in other transactions; however, if it acquires any conflicting interest, it must
eliminate such conflict or resign.
The indenture will provide that in case an event of default occurs and is
not cured, the trustee will be required, in the exercise of its power, to use
the degree of care of a prudent person in similar circumstances in the conduct
of its own affairs. The trustee may refuse to perform any duty or exercise any
right or power under the indenture, unless it receives indemnity satisfactory to
it against any loss, liability or expense.
GOVERNING LAW
The laws of the State of New York will govern the indenture, the debt
securities and the guarantees of the debt securities.
9
DESCRIPTION OF COMMON STOCK AND PREFERRED STOCK
Our authorized capital stock is 200,000,000 shares of common stock, $.01 par
value, and 30,000,000 shares of preferred stock, $.10 par value. At April 9,
1999, 64,175,878 shares of common stock and no shares of preferred stock were
outstanding.
PREFERRED STOCK
We may issue preferred stock in series with any rights and preferences which
may be authorized by our board of directors. We will distribute a prospectus
supplement with regard to each particular series of preferred stock. Each
prospectus supplement will describe, as to the series of preferred stock to
which it relates:
- the title of the series of preferred stock;
- any limit upon the number of shares of the series of preferred stock which
may be issued;
- the preference, if any, to which holders of the series of preferred stock
will be entitled upon our liquidation;
- the date or dates on which we will be required or permitted to redeem the
preferred stock;
- the terms, if any, on which we or holders of the preferred stock will have
the option to cause the preferred stock to be redeemed or purchased;
- the voting rights, if any, of the holders of the preferred stock;
- the dividends, if any, which will be payable with regard to the series of
preferred stock, which may be fixed dividends or participating dividends
and may be cumulative or non-cumulative;
- the right, if any, of holders of the preferred stock to convert it into
another class of our stock or securities, including provisions intended to
prevent dilution of those conversion rights;
- any provisions by which we will be required or permitted to make payments
to a sinking fund to be used to redeem preferred stock or a purchase fund
to be used to purchase preferred stock; and
- any other material terms of the preferred stock.
Holders of shares of preferred stock will not have preemptive rights.
COMMON STOCK
Holders of our common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders. The vote of the
holders of a majority of the stock represented at a meeting at which a quorum is
present is generally required to take stockholder action, unless a greater vote
is required by law. The holders are not entitled to cumulative voting in the
election of directors. Accordingly, the holder or holders of a majority of the
outstanding shares of common stock will be able to elect our entire board of
directors.
Holders of common stock have no preemptive rights. They are entitled to such
dividends as may be declared by our board of directors out of funds legally
available for such purpose. The common stock is not entitled to any sinking
fund, redemption or conversion provisions. On our liquidation, dissolution or
winding up, the holders of common stock are entitled to share ratably in our net
assets remaining after the payment of all creditors and liquidation preferences
of preferred stock, if any. The outstanding shares of common stock are duly
authorized, validly issued, fully paid and nonassessable. There will be a
prospectus supplement relating to any offering of common stock offered by this
prospectus.
10
The transfer agent and registrar for the common stock is American Stock
Transfer & Trust Company, New York, New York, which currently serves as trustee
for our 8 3/8% Senior Notes due 2004 and 8% Senior Notes due 2009 and may also
serve as trustee under an indenture for debt securities offered by this
prospectus.
The following provisions in our charter or bylaws may make a takeover of our
company more difficult:
- an article in our charter prohibiting stockholder action by written
consent;
- an article in our charter requiring the affirmative vote of the holders of
two-thirds of the outstanding shares of common stock to remove a director;
- a bylaw limiting the persons who may call special meetings of stockholders
to our board of directors or a committee authorized to call a meeting by
the board or the bylaws; and
- bylaws providing time limitations for nominations for election to the
board of directors or for proposing matters which can be acted upon at
stockholders' meetings.
These provisions may delay stockholder actions with respect to business
combinations and the election of new members to our board of directors. As such,
the provisions could discourage open market purchases of our common stock
because a stockholder who desires to participate in a business combination or
elect a new director may consider them disadvantageous. Additionally, the
issuance of preferred stock could delay or prevent a change of control or other
corporate action.
As a Delaware corporation, we are subject to Section 203 of the Delaware
General Corporation Law. In general, Section 203 prevents an "interested
stockholder" from engaging in a "business combination" with us for three years
following the date that person became an interested stockholder, unless:
- before that person became an interested stockholder, our board of
directors approved the transaction in which the interested stockholder
became an interested stockholder or approved the business combination;
- upon completion of the transaction that resulted in the interested
stockholder becoming an interested stockholder, the interested stockholder
owned at least 85% of our voting stock outstanding at the time the
transaction commenced, excluding stock held by persons who are both
directors and officers of our corporation or by certain employee stock
plans; or
- on or following the date on which that person became an interested
stockholder, the business combination is approved by our board of
directors and authorized at a meeting of stockholders by the affirmative
vote of the holders of at least 66 2/3% of our outstanding voting stock
excluding shares held by the interested stockholder.
A "interested stockholder" is generally a person owning 15% or more of our
outstanding voting stock. A "business combination" includes mergers, asset sales
and other transactions resulting in a financial benefit to the interested
stockholder.
DESCRIPTION OF WARRANTS
We may issue warrants for the purchase of debt securities, preferred stock,
common stock, or units of two or more of these types of securities. Warrants may
be issued independently or together with debt securities, preferred stock or
common stock and may be attached to or separate from any offered securities.
Each series of warrants will be issued under a separate warrant agreement to be
entered into between us and a bank or trust company, as warrant agent. The
warrant agent will act solely as our agent in connection with the warrants and
will not assume any obligation or relationship of agency or trust for or with
any registered holders of warrants or beneficial owners of warrants.
11
We will distribute a prospectus supplement with regard to each issue of
warrants. Each prospectus supplement will describe:
- in the case of warrants to purchase debt securities, the designation,
aggregate principal amount, currencies, denominations and terms of the
series of debt securities purchasable upon exercise of the warrants and
the price at which you may purchase the debt securities upon exercise;
- in the case of warrants to purchase preferred stock, the designation,
number of shares, stated value and terms, such as liquidation, dividend,
conversion and voting rights, of the series of preferred stock purchasable
upon exercise of the warrants and the price at which you may purchase such
number of shares of preferred stock of such series upon such exercise;
- in the case of warrants to purchase common stock, the number of shares of
common stock purchasable upon the exercise of the warrants and the price
at which you may purchase such number of shares of common stock upon such
exercise;
- in the case of warrants to purchase units of two or more securities, the
type, number, and terms of the units purchasable upon exercise of the
warrants and the price at which you may purchase the units upon such
exercise;
- the period during which you may exercise the warrants;
- any provision adjusting the securities that may be purchased on exercise
of the warrants, and the exercise price of the warrants, to prevent
dilution or otherwise;
- the place or places where warrants can be presented for exercise or for
registration of transfer or exchange; and
- any other material terms of the warrants.
Warrants for the purchase of preferred stock and common stock will be
offered and exercisable for U.S. dollars only. Warrants will be issued in
registered form only. The exercise price for warrants will be subject to
adjustment as described in the applicable prospectus supplement.
Prior to the exercise of any warrants to purchase debt securities, preferred
stock or common stock, holders of the warrants will not have any of the rights
of holders of the debt securities, preferred stock or common stock purchasable
upon exercise, including:
- in the case of warrants for the purchase of debt securities, the right to
receive payments of principal of, any premium or interest on the debt
securities purchasable upon exercise or to enforce covenants in the
applicable indenture; or
- in the case of warrants for the purchase of preferred stock or common
stock, the right to vote or to receive any payments of dividends on the
preferred stock or common stock purchasable upon exercise.
PLAN OF DISTRIBUTION
Any of the securities being offered by this prospectus may be sold:
- through agents,
- to or through underwriters,
- through dealers,
- directly by us to purchasers, through a specific bidding, auction or other
process; or
- through a combination of any such methods of sale.
12
The distribution of securities may be effected from time to time in one or
more transactions at a fixed price, or prices which may be changed, or at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices or at negotiated prices.
Agents designated by us from time to time may solicit offers to purchase the
securities. We will name any such agent involved in the offer or sale of the
securities and set forth any commissions payable by us to such agent in the
prospectus supplement. Unless otherwise indicated in the prospectus supplement,
any such agent will be acting on a best efforts basis for the period of its
appointment. Any such agent may be deemed to be an underwriter, as that term is
defined in the Securities Act, of the securities.
If an underwriter or underwriters are utilized in the sale of securities, we
will execute an underwriting agreement with such underwriter or underwriters at
the time an agreement for such sale is reached. We will set forth in the
prospectus supplement the names of the specific managing underwriter or
underwriters, as well as any other underwriters, and the terms of the
transactions, including compensation of the underwriters and dealers. Such
compensation may be in the form of discounts, concessions or commissions.
Underwriters and others participating in any offering of securities may engage
in transactions that stabilize, maintain or otherwise affect the price of such
securities. We will describe any such activities in the prospectus supplement.
If a dealer is utilized in the sale of the securities, we or an underwriter
will sell such securities to the dealer, as principal. The dealer may then
resell such securities to the public at varying prices to be determined by such
dealer at the time of resale. The prospectus supplement will set forth the name
of the dealer and the terms of the transactions.
We may directly solicit offers to purchase the securities, and we may sell,
directly to institutional investors or others. These persons may be deemed to be
underwriters within the meaning of the Securities Act with respect to any resale
of the securities. The prospectus supplement will describe the terms of any such
sales, including the terms of any bidding or auction process, if utilized.
Agents, underwriters and dealers may be entitled under agreements which may
be entered into with us to indemnification by us against specified liabilities,
including liabilities under the Securities Act, or to contribution by us to
payments they may be required to make in respect of such liabilities. The
prospectus supplement will describe the terms and conditions of such
indemnification or contribution. Some of the agents, underwriters or dealers, or
their affiliates may be customers of ours, or engage in transactions with or
perform services for us and our subsidiaries in the ordinary course of business.
LEGAL MATTERS
Gibson, Dunn & Crutcher LLP, Dallas, Texas, will render an opinion with
respect to the validity of the securities being offered by this prospectus. We
will file the opinion as an exhibit to the registration statement. If counsel
for any underwriters passes on legal matters in connection with an offering made
by this prospectus, we will name that counsel in the prospectus supplement
relating to that offering.
EXPERTS
Ernst & Young LLP, independent auditors, have audited the consolidated
financial statements of D.R. Horton, Inc. appearing in our Annual Report on
Form 10-K for the year ended September 30, 1998, as set forth in their report
included in such financial statements and incorporated herein by reference. Such
auditors based their report in part on the report of Arthur Andersen LLP,
independent auditors. We incorporate by reference such consolidated financial
statements in this prospectus in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
The financial statements of Continental Homes Holding Corp. for the year
ended May 31, 1996, incorporated by reference in this registration statement
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said report.
13
WHERE YOU CAN FIND MORE INFORMATION
D.R. Horton, Inc. files annual, quarterly and special reports, proxy
statements and other information with the Securities and Exchange Commission
under the Securities Exchange Act of 1934. You may read and copy this
information at the following locations of the Commission:
Judiciary Plaza, Room 10024 Seven World Trade Citicorp Center
450 Fifth Street, N.W. Center, 500 West Madison Street
Street Suite 1300 Suite 1400
Washington, D.C. 20549 New York, New York 10048 Chicago, Illinois 60661
You can also obtain copies of this information by mail from the Public
Reference Room of the Commission, 450 Fifth Street, N.W., Room 10024,
Washington, D.C. 20549, at prescribed rates. You may obtain information on the
operation of the Public Reference Room by calling the Commission at
(800) SEC-0330.
The Commission also maintains an internet world wide web site that contains
reports, proxy statements and other information about issuers, like us, who file
electronically with the Commission. The address of that site is
http://www.sec.gov.
You can also inspect reports, proxy statements and other information about
us at the offices of the New York Stock Exchange, Inc., 20 Broad Street, New
York, New York 10005.
We and our guarantor subsidiaries have filed jointly with the Commission a
registration statement on Form S-3 that registers the securities we are
offering. The registration statement, including the attached exhibits and
schedules, contains additional relevant information about us, our guarantor
subsidiaries and the securities offered. The rules and regulations of the
Commission allow us to omit certain information included in the registration
statement from this prospectus.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Commission allows us to "incorporate by reference" information into this
prospectus. This means that we can disclose important information to you by
referring you to another document filed separately with the Commission. The
information incorporated by reference is considered to be part of this
prospectus, except for any information that is superseded by information that is
included directly in this document.
This prospectus includes by reference the documents listed below that we
have previously filed with the Commission and that are not included in or
delivered with this document. They contain important information about our
company and its financial condition.
FILING PERIOD
- ------ -------------------------------
Annual Report on Form 10-K Year ended September 30, 1998
Pages two through eleven, "Election of Directors", through
"Executive Compensation--Compensation Committee
Interlocks and Insider Participation" and page sixteen,
"Section 16(a) Beneficial Ownership Reporting
Compliance", contained in our Proxy Statement dated
December 10, 1998, relating to our 1999 annual meeting of
stockholders and incorporated into our Annual Report on
Form 10-K.
Quarterly Report on Form 10-Q Quarter ended December 31, 1998
Current Reports on Form 8-K Filed November 3, 1998
Filed February 2, 1999
14
We incorporate by reference additional documents that we may file with the
Commission between the date of this prospectus and the date of the closing of
each offering. These documents include periodic reports, such as Annual Reports
on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as
well as proxy statements.
You can obtain any of the documents incorporated by reference in this
document from us without charge, excluding any exhibits to those documents
unless the exhibit is specifically incorporated by reference as an exhibit to
this prospectus. You can obtain documents incorporated by reference in this
prospectus by requesting them in writing or by telephone from us at the
following address:
Assistant to Corporate Counsel
D.R. Horton, Inc.
1901 Ascension Boulevard
Suite 100
Arlington, Texas 76006
(817) 856-8200, ext. 1046
Our Internet address is http://www.DRHORTON.com.
15
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$150,000,000
D.R. HORTON, INC.
9.75% SENIOR SUBORDINATED NOTES DUE 2010
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PROSPECTUS SUPPLEMENT
SEPTEMBER 6, 2000
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SALOMON SMITH BARNEY
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