PROSPECTUS SUPPLEMENT
(To Prospectus Dated April 20, 2001)
Filed pursuant to Rule 424(B)5
SEC File No. 333-57388
$381,113,000
D.R. Horton, Inc.
Zero Coupon Convertible Senior Notes Due 2021
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We are offering $381,113,000 principal amount at maturity of our Zero Coupon
Convertible Senior Notes Due 2021. Except under circumstances described below,
we will not pay cash interest on the notes prior to maturity. Instead, on May
11, 2021, the maturity date of the notes, noteholders will receive $1,000 per
note. The issue price per note of $524.78 per $1,000 principal amount at
maturity represents a yield to maturity of 3.25% per year calculated from May
11, 2001. If certain tax-related events were to occur and we so elect, the
notes will cease to accrete, and cash interest will accrue at a rate of 3.25%
per annum on the restated principal amount and be payable semi-annually.
Holders may convert their notes at any time on or before the maturity date,
unless the notes have been redeemed or purchased previously, into 17.4927
shares of our common stock per $1,000 note if (1) the sale price of our common
stock issuable upon conversion of a note reaches a specified threshold, (2) the
credit rating of the notes is reduced to or below a specified level by the
rating agencies, (3) the notes are called for redemption or (4) specified
corporate transactions have occurred. The conversion rate will be subject to
adjustment in some events.
We may, at any time on or after May 11, 2003, redeem the notes for cash in
an amount equal to the accreted value of the notes. Holders may require us to
purchase the notes on the following dates at the following prices: May 11, 2003
at $559.73; May 11, 2008 at $657.64; and May 11, 2013 at $772.66. In addition,
if we experience specific kinds of fundamental changes before May 11, 2003,
holders may require us to purchase the notes for an amount equal to the
accreted value of the notes. In either case, we may choose to pay the purchase
price in cash, in shares of our common stock valued at 95% of their market
price or any combination of cash and our common stock; provided that any
purchase made on May 11, 2003 will be only in cash.
Commencing May 11, 2003, we will pay contingent interest to the holders of
notes during specified six-month periods if the average market price of a note
for the five trading days ending on the second trading day immediately
preceding the relevant six-month period equals 120% or more of the accreted
value of a note on the day immediately preceding the relevant six-month period.
The amount of contingent interest payable per note in respect of any six-month
period will equal the greater of (1) cash dividends paid by us per share on our
common stock during that six-month period multiplied by the number of shares of
common stock issuable upon conversion of a note and (2) 0.125% of such average
market price of a note for the five-trading-day period referred to above,
except that no contingent interest payment shall exceed 1.62% of the accreted
value of the notes at the beginning of the relevant six-month period. For a
discussion of the special regulations governing contingent payment debt
instruments, see "Material U.S. Federal Income Tax Considerations--
Classification of the Notes."
The notes will be unsecured and will rank equally with our other unsecured
senior indebtedness. The notes will be junior to our secured indebtedness. The
notes will be guaranteed by our existing and future restricted subsidiaries.
We have granted the underwriter a 30-day option to purchase up to an
additional $57,166,000 principal amount at maturity of notes to cover over-
allotments, if any.
Our common stock is listed on the New York Stock Exchange under the symbol
"DHI." The last reported sale price of our common stock on the New York Stock
Exchange was $22.20 per share on May 3, 2001. We have applied to list the notes
on the New York Stock Exchange.
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Investing in the notes involves risks. See "Risk Factors" beginning on page
S-9.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities, or passed upon the
accuracy or adequacy of this prospectus supplement or the accompanying
prospectus. Any representation to the contrary is a criminal offense.
-----------
Per
Note Total (2)
------- ---------------
Public offering price(/1/) $524.78 $200,000,480.14
Underwriting discount $ 11.81 $ 4,500,944.53
Proceeds to D.R. Horton (before expenses) $512.97 $195,499,535.61
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(1) Plus the increase in accreted value, if any, from May 11, 2001.
(2) We have granted the underwriter a 30-day option to purchase from us up to
an aggregate of $57,166,000 principal amount at maturity of additional
notes to cover over-allotments, if any.
The underwriter is offering the notes subject to various conditions. The
underwriter expects to deliver the notes to purchasers on or about May 11,
2001.
-----------
Salomon Smith Barney
May 4, 2001
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.
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TABLE OF CONTENTS
Prospectus Supplement
Page
----
Prospectus Supplement Summary.............................................. S-1
Risk Factors............................................................... S-9
Use of Proceeds............................................................ S-13
Capitalization............................................................. S-14
Business................................................................... S-15
Description of the Notes................................................... S-22
Material U.S. Federal Income Tax Considerations............................ S-61
Underwriting............................................................... S-66
Legal Matters.............................................................. S-67
Experts.................................................................... S-67
Prospectus
The Company................................................................ 1
The Trusts................................................................. 1
Securities We May Offer.................................................... 3
Use of Proceeds............................................................ 4
Ratio of Earnings to Fixed Charges......................................... 4
Description of Debt Securities............................................. 4
Description of Common Stock, Preferred Stock and Depositary Shares......... 8
Description of Warrants.................................................... 11
Description of Stock Purchase Contracts and Stock Purchase Units........... 12
Description of Units....................................................... 12
Description of Trust Preferred Securities.................................. 13
Plan of Distribution....................................................... 23
Legal Matters.............................................................. 24
Experts.................................................................... 24
Where You Can Find More Information........................................ 24
Incorporation of Certain Documents by Reference............................ 25
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:
. changes in general economic, real estate and business conditions;
. changes in interest rates and the availability of mortgage financing;
. governmental regulations and environmental matters;
. our substantial leverage;
. competitive conditions within our industry;
. the availability of capital; and
. our ability to effect our growth strategies successfully.
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 $60,000 to $800,000. For the
year ended September 30, 2000, we closed 19,144 homes with an average sales
price approximating $182,600. For the three months ended December 31, 2000, we
closed 4,290 homes with an average sales price approximating $199,600.
We are one of the largest and most geographically diversified homebuilders
in the United States, with operating divisions in 23 states and 39 markets as
of December 31, 2000. The markets we operate in are: 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, 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 website address is www.drhorton.com. Information on our Internet
website is not part of this prospectus.
Recent Developments
Second Quarter Financial Results
Our net income for the second quarter ended March 31, 2001 increased 31% to
$51.6 million ($0.67 per diluted share), compared to $39.4 million ($0.52 per
diluted share) for the same quarter of fiscal 2000. Second quarter revenue
increased 14% to $906.8 million, compared to $798.9 million for the same
quarter of fiscal 2000. Homebuilding revenue was $892.4 million (4,330 homes
closed), compared to $788.1 million (4,364 homes closed) for the same period in
fiscal 2000.
Our net income for the six months ended March 31, 2001 increased 24% to
$101.4 million ($1.33 per diluted share), compared to $82.0 million ($1.08 per
diluted share) for the same period of fiscal 2000. Income before the cumulative
effect of a change in accounting principle for the six months ended March 31,
2001 was $99.3 million ($1.30 per diluted share). The cumulative after-tax
effect of the October 1, 2000 adoption of SFAS #133, "Accounting for Derivative
Instruments and Hedging Activities," amounted to an increase in income of $2.1
million ($0.03 per diluted share) for the first fiscal quarter of 2001. Revenue
for the six months increased 12% to $1.8 billion from $1.6 billion for the same
period of fiscal 2000. Homebuilding revenue for the six months increased 11% to
$1,766 million (8,620 homes closed), from $1,586 million (8,856 homes closed)
for the same period of fiscal 2000.
S-1
As of March 31, 2001, we had $3.1 billion of total assets, $2.0 billion of
total liabilities (including minority interests in joint ventures), and $1.1
billion of stockholders' equity. Net sales orders for the second quarter ended
March 31, 2001 increased 36% to $1,355.9 million (6,712 homes), compared to
$995.0 million (5,434 homes) for the same quarter of fiscal 2000. Net sales
orders for the first six months of fiscal 2001 increased 31% to $2.3 billion
(10,941 homes), compared to $1.7 billion (9,285 homes) for the same period of
fiscal 2000. Our backlog of homes under contract at March 31, 2001 increased
38% to $2.1 billion (9,709 homes), compared to $1.5 billion (7,738 homes) at
March 31, 2000.
Issuance of Senior Subordinated Notes
In March 2001, we issued $200,000,000 aggregate principal amount of our 9
3/8% Senior Subordinated Notes due 2011. The notes are unsecured and are
subordinated in right of payment to all of our existing and future senior debt,
including the notes being offered by this prospectus supplement. The net
proceeds from the March offering were used to reduce borrowings under our
revolving credit facility and for general corporate purposes.
Stock Dividend
In March 2001, we paid an 11% stock dividend to holders of record of our
common stock as of the close of business on March 9, 2001. We paid cash in lieu
of fractional shares.
Quarterly Cash Dividend
In April 2001, we declared a quarterly cash dividend of five cents ($0.05)
per share, which is a 25% increase over the quarterly dividend declared in the
prior year. The dividend is payable on May 15, 2001 to stockholders of record
on May 8, 2001.
Acquisition of Fortress-Florida Assets
In May 2001, we completed the acquisition of the assets of Fortress-Florida,
Inc., a wholly-owned subsidiary of The Fortress Group, Inc. The acquisition
also included the Jacksonville assets of Fortress Mortgage, Inc., an affiliated
mortgage company. The purchase price was approximately $28.5 million in cash,
subject to adjustment based on the book value of the assets acquired, and
approximately $17.5 million in repayment of outstanding debt of Fortress-
Florida. For the year ended December 31, 2000, Fortress-Florida closed 711
homes, generating revenue of approximately $99 million. The assets acquired
include a backlog of homes under contract of approximately $54.3 million (360
homes) at April 30, 2001.
Fortress-Florida's homebuilding and development operations have been
conducted in the Jacksonville and Daytona Beach areas. Fortress-Florida has
been building homes in 28 communities, and has been in various stages of
development and planning in an additional 12 communities. Fortress-Florida has
been offering a wide range of high-quality, single-family homes, designed
principally for the entry-level and move-up market segments. The homes
generally range in size from 1,100 to 3,800 square feet, and in price from
$90,000 to $400,000, with an average selling price of approximately $150,000
for the backlog of homes under contract at April 30, 2001.
S-2
The Offering
Notes Offered............... $381,113,000 principal amount at maturity of Zero
Coupon Convertible Senior Notes Due 2021. We will
not pay cash interest on the notes prior to
maturity, other than as described below under "--
Optional Conversion to Semi-Annual Cash Pay Notes
upon Tax Event." Each note will be issued at a
price of $524.78 and a principal amount at
maturity of $1,000.
Over-allotment Option....... We have granted the underwriter a 30-day option
to purchase up to an aggregate of $57,166,000
principal amount at maturity of additional notes,
solely to cover over-allotments, if any. The
purchase price will be the accreted value of the
notes at the time of such purchase less the
underwriting discount of 2.25% of gross proceeds.
Unless we indicate otherwise, all information in
this prospectus supplement assumes the
underwriter has not exercised its over-allotment
option.
Maturity.................... May 11, 2021.
Yield to Maturity of 3.25% per year (computed on a semi-annual bond
Notes....................... equivalent basis) calculated from May 11, 2001.
Conversion Rights........... Holders may convert their notes at any time prior
to the close of business on May 11, 2021 if any
of the following conditions are satisfied:
. the average per share sale price of our common
stock for the 20 trading days immediately
prior to the conversion date is at least 110%
of the accreted value of a note, divided by
the conversion rate;
. the credit ratings assigned to the notes by
Moody's Investors Service, Inc. and Standard &
Poor's Ratings Group are at least two rating
levels lower than the initial credit ratings
assigned to the notes by Moody's and S&P;
. we call the notes for redemption;
. we make specified distributions to our
stockholders; or
. we enter into any merger or binding share
exchange pursuant to which our common stock
would be converted into cash, securities or
other property.
For each note of $1,000 principal amount at
maturity converted, we will deliver 17.4927
shares of our common stock.
The ability to surrender notes for conversion
will expire at the close of business on May 11,
2021.
The conversion rate may be adjusted under certain
circumstances, but will not be adjusted for
increases in accreted value.
S-3
Guarantees.................. Each guarantor is our wholly owned subsidiary
that is restricted by 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.
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;
. equal with the rights of creditors under our
other unsecured unsubordinated debt, including
our revolving credit facility; and
. senior to the rights of creditors under debt
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;
. equal with the rights of creditors under the
guarantors' other unsecured unsubordinated
debt, including the guarantors' guarantees of
our revolving credit facility; and
. senior to the rights of creditors under the
guarantors' debt that is expressly
subordinated to the guarantees.
At December 31, 2000, assuming we had completed
the March 2001 $200 million senior subordinated
debt offering and this offering on that date, we
and the guarantors would have had approximately
$1,479.4 million of debt (including these notes)
outstanding, of which $52.3 million would have
been secured debt and of which $348.5 million
would have been subordinated to these notes. In
addition, at such date, our non-guarantor
subsidiaries had $78.3 million of indebtedness
outstanding.
Contingent Interest......... We will pay contingent interest to the holders of
notes during any six-month period from May 11 to
November 10 and from November 11 to May 10,
commencing May 11, 2003, if the average market
price of a note for the five trading days ending
on the second trading day immediately preceding
the beginning of the relevant six-month period
equals 120% or more of the accreted value of such
note on the day immediately preceding the
beginning of the relevant six-month period. The
amount of contingent interest payable per note in
respect of any six-month period will equal the
greater of (1) cash dividends paid by us per
share on our common stock during that six-month
period multiplied by the number of shares of
common stock issuable upon conversion of a note
and
S-4
(2) 0.125% of such average market price of a note
for the five-trading-day period referred to
above, except that no contingent interest payment
shall exceed 1.62% of the accreted value of the
notes at the beginning of the relevant six-month
period.
Accrual of Original Issue
Discount for U.S. Federal The notes should be subject to the U.S. federal
Income Tax Purposes......... income tax regulations governing contingent debt
instruments. Under these regulations, U.S.
investors must accrue interest as original issue
discount in an amount equal to the product of the
adjusted issue price of the notes and the
comparable yield, which we will report to be
8.88% . You should be aware that, although we may
not pay any cash interest on the notes, U.S.
investors must include in each taxable year in
their gross income for U.S. federal income tax
purposes interest in excess of the accruals on
the notes for non-tax purposes and in excess of
the contingent payment actually received in that
year prior to the conversion, redemption,
purchase or maturity of the notes (even if such
notes are ultimately not converted, redeemed,
purchased or paid at maturity). For a discussion
of the special regulations governing contingent
payment debt instruments, see "Material U.S.
Federal Income Tax Considerations--Accrual of
Interest on the Notes."
Sinking Fund................ None.
Optional Redemption......... We may, at any time on or after May 11, 2003,
redeem for cash all or a portion of the notes at
their accreted value. Indicative redemption
prices are set forth in this prospectus
supplement on page S-27.
Purchase of the Notes by Us
at the Option of the Holders may require us to purchase their notes on
Holder...................... any one of the following dates at the following
prices:
. On May 11, 2003 at a price of $559.73 per
note;
. On May 11, 2008 at a price of $657.64 per
note; and
. On May 11, 2013 at a price of $772.66 per
note.
Any notes purchased on May 11, 2003 will be paid
for in cash. Thereafter, we may choose to pay the
purchase price in cash or shares of our common
stock valued at 95% of market price, or a
combination of cash and shares of our common
stock.
Optional Conversion to
Semi-Annual Cash Pay Notes From and after the occurrence of a Tax Event, as
upon a Tax Event............ defined in this prospectus supplement, at our
option, the notes will cease to accrete, and cash
interest will accrue on each note from the date
on which we exercise such option at the rate of
3.25% per year on the restated principal amount
(i.e., the accreted value of the note on the
later of the date of the Tax Event and the date
we exercise such
S-5
option) and shall be payable semi-annually on
each interest payment date to holders of record
at the close of business on each regular record
date immediately preceding such interest payment
date. Interest will be computed upon a 360-day
year comprised of twelve 30-day months and will
initially accrue from the Option Exercise Date,
as defined in this prospectus supplement, and
thereafter from the last date to which interest
has been paid. In such an event, the redemption
prices, purchase prices and Fundamental Change,
as defined in this prospectus supplement,
purchase prices will be adjusted as described
herein. However, there will be no changes in a
holder's conversion rights.
Fundamental Change..........
Upon a Fundamental Change before May 11, 2003
involving us, each holder may require us to
purchase all or a portion of such holder's notes.
This purchase price will be equal to the accreted
value of the notes on the date of purchase. We
may choose to pay the purchase price in cash, in
shares of our common stock valued at 95% of
market price, or a combination of cash and our
common stock.
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 in 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 of this offering to
repay outstanding debt under our revolving credit
facility and for general corporate purposes.
Global Securities........... The notes will be issued only in book-entry form,
which means that they will be represented by one
or more permanent global securities registered in
the name of DTC. The global securities will be
deposited with the trustee as custodian for DTC.
Listing.....................
Our common stock is listed on the New York Stock
Exchange under the symbol "DHI." We have applied
for listing of the notes on the New York Stock
Exchange.
S-6
SUMMARY CONSOLIDATED FINANCIAL INFORMATION AND OPERATING DATA
(dollars in thousands)
The following summary consolidated financial information for the three years
ended September 30, 2000, is derived from our 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 for fiscal 1998 have been restated
as if we had been combined throughout the period. The following summary
consolidated financial information for the three months ended December 31, 2000
and 1999, is derived from our unaudited consolidated financial statements.
Three months ended
Year ended September 30, December 31,
-------------------------------------- ----------------------
1998 1999 2000 1999 2000
---------- ---------- ---------- ---------- ----------
(unaudited)
Income Statement Data:
Revenues:
Homebuilding........... $2,155,049 $3,118,960 $3,604,173 $ 797,564 $ 873,554
Financial services..... 21,892 37,251 49,522 11,376 14,109
Gross profit........... 394,901 570,464 663,064 150,927 170,223
Income before income
taxes:
Homebuilding........... 152,003 250,737 294,531 65,016 72,105
Financial services..... 7,096 13,089 14,693 3,585 4,256
Cumulative effect of
change in accounting
principle, net of
income taxes(/1/)..... -- -- -- -- 2,136
Net income............. 93,380 159,827 191,719 42,532 49,861
Net income per share,
before cumulative
effect of change in
accounting
principle(/2/)........ 1.29 2.07 2.53 0.56 0.63
Ratio of earnings to
fixed charges(/3/).... 3.13x 4.10x 3.52x 3.62x 3.16x
Cash dividends per
common share(/4/)..... $ .09 $ .11 $ .15 $ .03 $ .04
Selected Operating
Data--Homebuilding:
Gross profit margin.... 18.3% 18.3% 18.4% 18.9% 19.5%
Number of homes
closed................ 13,944 18,395 19,144 4,492 4,290
New sales orders, net
(homes)(/5/).......... 15,952 18,911 19,223 3,851 4,229
New sales orders, net
($value)(/5/)......... 2,533,181 3,266,220 3,676,406 722,333 900,273
Sales backlog at end of
period (homes)(/6/)... 6,341 7,309 7,388 6,668 7,327
Sales backlog at end of
period ($value)(/6/).. 1,052,894 1,356,550 1,536,865 1,296,511 1,581,061
Other Financial Data:
Depreciation and
amortization.......... 9,400 20,293 21,960 4,945 5,992
Interest
incurred(/7/)......... 70,436 80,976 109,976 23,650 30,676
EBITDA(/8/):
Homebuilding........... 234,950(/9/) 340,505 395,143 86,866 102,310(/10/)
Consolidated........... 244,651(/9/) 358,723 416,593 92,258 107,981(/10/)
Ratio of EBITDA to
interest incurred:
Homebuilding........... 3.44x 4.45x 3.79x 3.93x 3.46x
Consolidated........... 3.47x 4.43x 3.79x 3.90x 3.52x
As of September 30, As of December 31,
-------------------------------------- ----------------------
1998 1999 2000 1999 2000
---------- ---------- ---------- ---------- ----------
(unaudited)
Balance Sheet Data:
Inventories............ $1,358,033 $1,866,108 $2,191,031 $1,990,147 $2,391,393
Total assets........... 1,667,835 2,361,808 2,694,577 2,419,100 2,884,723
Total debt:
Homebuilding........... 826,007 1,086,273 1,245,586 1,149,469 1,406,720
Financial services..... 28,497 104,350 98,817 86,604 78,247
Stockholders' equity... 549,436 797,609 969,563 833,739 1,020,172
S-7
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(1) On October 1, 2000, we adopted Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities"
(SFAS #133) as amended by SFAS #137 and #138. Accordingly, the fair market
value of our interest rate swaps, which were not designated as hedges under
SFAS #133, was recorded, net of applicable income taxes, as a cumulative
effect of a change in accounting principle.
(2) All net income per share amounts are presented on a diluted basis and have
been restated to reflect the effects of the March 2001 11% stock dividend,
which was effected by issuing 4,889,928 shares of common stock and
transferring 2,589,200 shares of treasury stock to shareholders of record
on March 9, 2001.
(3) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of the sum of income before income taxes and the cumulative effect
of change in accounting principle, 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.
(4) Cash dividends per common share represent those dividends declared to our
shareholders, unadjusted for the 1998 merger with Continental.
(5) Represents homes placed under contract during the period, net of
cancellations. See the section "Business--Marketing and Sales."
(6) Represents homes under contract but not yet closed at the end of the
period. See the section "Business-- Marketing and Sales."
(7) Interest incurred consists of all interest costs, whether expensed or
capitalized, including amortization of debt issuance costs, if applicable.
(8) Earnings before interest, taxes, depreciation and amortization (known as
EBITDA) consist of the sum of income 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.
(9) EBITDA for fiscal 1998 is computed before approximately $11,917 in one-time
costs associated with the April 1998 merger with Continental.
(10) EBITDA for the three months ended December 31, 2000 includes the pre-tax
impact of approximately $3,400 related to the cumulative effect of a
change in accounting principle related to the adoption of SFAS #133.
S-8
RISK FACTORS
Before purchasing these securities, 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.
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 new home prices and reduce our margins on 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, drywall 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-9
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 limit the 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 costs 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.
Our substantial debt could adversely affect our financial health and prevent us
from fulfilling our obligations under these securities.
We have a significant amount of debt. As of December 31, 2000, assuming we
had completed the March 2001 $200 million offering and this offering on that
date and the proceeds were used to pay off borrowings under our revolving
credit facility, our consolidated debt would have been approximately $1,557.6
million. This offering will not reduce our debt, unless the holders of these
securities elect to convert them into common stock.
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.
S-10
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.
Our revolving credit facility matures in April 2002, and we have begun
discussions with our banks concerning a new facility. Based on our discussions,
we believe that a new facility will likely be different in size and costs from
our current facility. We may also need to refinance all or a portion of our
other debt, including these notes, on or before their 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, 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 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.
Homebuilding is very competitive, and competitive conditions could adversely
affect our business.
The homebuilding industry is highly competitive. 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 our sales or profit margin; or
. delays in construction of our homes.
Our future growth requires additional capital, which may not be available.
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 1993, we have acquired many homebuilding companies. In addition, in
1999, we began to make limited investments in emerging growth companies that
serve the homebuilding industry or provide diversification opportunities. We
are currently focusing on internal growth and strategic acquisitions of
homebuilding companies, and we have reduced our authorization for other
investments. Successful strategic acquisitions require the integration of
operations and management and other efforts to realize the benefits that may be
available. Although we believe that we have been successful in doing so in the
past, we can give no assurance that we will continue to be able to identify,
acquire and integrate future successful strategic acquisitions in the future.
Moreover, we may not be able to implement successfully our operating and growth
strategies within our existing markets or any further diversification efforts.
S-11
We may not be able to consummate any offer to purchase notes required by the
indenture.
If we are required to purchase notes as described in the section
"Description of the Notes" under the heading "Purchase of Notes at the Option
of the Holder" or "Fundamental Change Permits Holders to Require Us to Purchase
Notes," we may not be able to fulfill this obligation. If a purchase offer
obligation arises under the indenture governing your notes, a purchase offer
obligation may have also occurred under one or more of the other indentures
governing our debt or may result in the acceleration under our revolving credit
facility. 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 fundamental change.
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, a court could avoid or subordinate any guarantor's guarantee under
the fraudulent conveyance laws if existing or future creditors or such
guarantor 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, the shares
of common stock issuable upon conversion of these notes and the guarantees on
the New York Stock Exchange; however, we can give no assurance that these
notes, the underlying shares of common stock and the guarantees will be so
listed. The underwriters have advised us that, if these notes are not listed on
a securities exchange, they currently intend to make a market in these notes,
but the underwriters are 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.
S-12
You should consider the U.S. federal income tax consequences of owning notes.
The notes are characterized as indebtedness for U.S. federal income tax
purposes and should constitute contingent payment debt instruments for such
purposes. As a result, you will be required to include amounts in income, as
ordinary income, in advance of the receipt of the cash attributable thereto.
The amount of interest income required to be included by you for each year will
be in excess of the yield to maturity of the notes. You will recognize gain or
loss on the sale, purchase by us at your option, conversion or redemption of a
note in an amount equal to the difference between the amount realized on the
sale, purchase by us at your option, conversion or redemption, including the
fair market value of any common stock received upon conversion or otherwise,
and your adjusted tax basis in the note. Any gain recognized by you on the
sale, purchase by us at your option, or redemption of a note generally will be
ordinary interest income; any loss will be ordinary loss to the extent of the
interest previously included in income, and thereafter, capital loss. We intend
to take the position that the treatment described in the preceding sentence
applies to your conversion of a note. A summary of the U.S. federal income tax
consequences of ownership of the note is described in this prospectus
supplement under the heading "Material U.S. Federal Income Tax Considerations."
USE OF PROCEEDS
The net proceeds to us from the sale of these notes in this offering are
estimated to be approximately $195.1 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 3 to "Capitalization." Borrowings under our revolving credit facility
bear interest at an effective annual rate equal to the lesser of the 90-day
LIBOR plus 0.75% or the New York federal funds rate plus 0.90%, and a portion
of these borrowings are subject to an interest rate swap that effectively fixes
the annual rate at 5.10%.
S-13
CAPITALIZATION
The following table sets forth our capitalization at December 31, 2000, as
adjusted to reflect the sale of these notes, the March 2001 sale of the 9 3/8%
senior subordinated notes, the application of the estimated net proceeds of the
note sales and the March 2001 11% stock dividend.
As of December 31, 2000
-----------------------------------
Actual Adjusted(/1/)(/2/)(/3/)
---------- -----------------------
(dollars in thousands)
Homebuilding debt:
Notes payable under revolving credit
facility(/4/)........................... $ 327,000 $ --
Notes payable-other, secured............. 52,278 52,278
8 3/8% senior notes due 2004, net........ 148,646 148,646
10 1/2% senior notes due 2005, net....... 199,365 199,365
10% senior notes due 2006, net........... 147,448 147,448
8% senior notes due 2009, net............ 383,131 383,131
9 3/4% senior subordinated notes due
2010, net............................... 148,852 148,852
9 3/8% senior subordinated notes due
2011, net............................... -- 199,676
Zero coupon convertible senior notes due
2021, net............................... -- 200,000
---------- ----------
Total homebuilding debt................ 1,406,720 1,479,396
Notes payable under mortgage warehouse
facility.................................. 78,247 78,247
---------- ----------
Total debt............................. 1,484,967 1,557,643
---------- ----------
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,
70,320,663(/5/)(/6/) shares issued and
outstanding............................. 703 752
Additional capital....................... 540,593 670,905
Retained earnings........................ 515,823 348,515
Treasury stock, 2,589,200 shares, at
cost.................................... (36,947) --
---------- ----------
Total stockholders' equity............. 1,020,172 1,020,172
---------- ----------
Total capitalization................... $2,505,139 $2,577,815
========== ==========
- --------
(1) Adjusted to reflect the sale of $381.1 million of these notes and the
application of the estimated net proceeds to repay debt under our revolving
credit facility. See "Use of Proceeds."
(2) Adjusted to reflect the March 2001 sale of $200 million of the 9 3/8%
senior subordinated notes due 2011, and the application of the net proceeds
from such sale to repay debt under our revolving credit facility.
(3) Adjusted to reflect the 11% common stock dividend paid in March 2001, which
was effected through the issuance of 4,889,928 shares of common stock and
the transfer of 2,589,200 treasury stock shares to stockholders of record
as of March 9, 2001. The dividend was recorded as a $167.3 million
reduction of retained earnings, a $36.9 million reduction of treasury
stock, a $130.3 million increase to additional capital, and a $49 thousand
increase to common stock.
(4) 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, on December 31, 2000, we had another $25 million
standby letter of credit agreement, which thereafter was increased to $45
million, and a $5.7 million non-renewable letter of credit facility. The
revolving credit facility and our senior and senior subordinated note
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.
(5) Does not reflect 4,795,143 additional shares of common stock subject to
outstanding options as of December 31, 2000, pursuant to our 1991 Stock
Incentive Plan, as amended, or the effects on such options of the 11% stock
dividend referred to above.
(6) The actual number of shares as of December 31, 2000, does not reflect the
effects of the 11% stock dividend referred to above.
S-14
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 Entered 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;
. Existing relationships with land owners, developers, subcontractors and
suppliers;
. Brand name recognition; and
. Proven product acceptance by home buyers in the market.
S-15
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 seven 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 46 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;
. Payment of subcontractors' invoices;
. Administration of payroll and employee benefits;
. Final approval of land and lot acquisitions;
. Capital allocation; and
. Oversight of inventory levels.
S-16
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.
Our homebuilding revenues, which include land and lot sales, by geographic
region are:
Three months ended
Year ended September 30, December 31,
-------------------------- -------------------
1998 1999 2000 1999 2000
-------- -------- -------- --------- ---------
(dollars in millions)
Mid-Atlantic.................. $ 372.2 $ 540.6 $ 614.5 $ 124.2 $ 138.0
Midwest....................... 130.4 347.1 451.0 106.8 124.3
Southeast..................... 384.5 429.6 491.5 100.0 101.0
Southwest..................... 789.6 1,068.0 1,176.7 281.7 291.6
West.......................... 478.3 733.7 870.5 184.9 218.7
-------- -------- -------- --------- ---------
Total....................... $2,155.0 $3,119.0 $3,604.2 $ 797.6 $ 873.6
======== ======== ======== ========= =========
S-17
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 December 31, 2000, about 57% of our total
lot position of 85,474 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 December 31, 2000 is:
Finished lots we own.................................................. 16,254
Lots under development we own......................................... 32,727
------
Total lots owned...................................................... 48,981
Lots available under lot option and similar contracts................. 36,493
------
Total land/lot position............................................... 85,474
======
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.
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.
S-18
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 December 31, 2000, we owned
809 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 December 31, 2000, we averaged less
than five 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 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.
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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, Maryland,
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 51% of
the homes closed during the year ended September 30, 2000, 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, Custom Title, DRH Title Company of
Texas, Ltd., DRH Title Company of Florida, Inc., DRH Title Company of
Minnesota, Inc., Metro 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 December 31, 2000, we employed 3,595 persons, of whom 984 were sales and
marketing personnel, 1,109 were executive, administrative and clerical
personnel, 1,068 were involved in construction, and 434 worked in mortgage and
title operations. Fewer than 20 of our employees are covered by collective
bargaining agreements. Some of the subcontractors which we use are represented
by labor unions or 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.
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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-21
DESCRIPTION OF THE NOTES
The Notes will be issued under an indenture dated as of June 9, 1997, among
the Company, the Guarantors and American Stock Transfer & Trust Company, as
trustee (the "Trustee"), as supplemented (the "Indenture"). The base Indenture
has been filed as an exhibit to the registration statement of which this
prospectus forms a part, and the supplemental Indenture relating specifically
to the Notes will be filed as an exhibit to a Current Report on Form 8-K. 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 the Notes," the term "Company"
refers to D.R. Horton, Inc. and not any of its Subsidiaries.
The Notes are a series of debt securities described in the accompanying
prospectus. The following description of the particular terms of the Notes
supplements, and to the extent inconsistent therewith replaces, the description
of the general terms and provisions of debt securities set forth in the
accompanying prospectus.
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 be our unsecured senior obligations and will rank equally with all
of our other unsecured senior indebtedness and be junior to all of our
current and future secured indebtedness;
. will be limited to $381,113,000 aggregate principal amount at maturity,
plus up to $57,166,000 aggregate principal amount at maturity if the
underwriter's over-allotment option is exercised in full; and
. will mature on May 11, 2021.
Except under circumstances described under "--Optional Conversion to Semi-
Annual Cash Pay Note Upon Tax Event" and "Contingent Interest," we will not pay
cash interest on the Notes; rather the Notes will accrete to a principal amount
of $1,000 per Note upon maturity, representing a yield to maturity of 3.25% per
annum.
The Notes are redeemable prior to maturity only on or after May 11, 2003, as
described below under "--Optional Redemption," and do not have the benefit of a
sinking fund. Principal of the Notes will be payable, and the transfer of Notes
will be registrable, at the office of the Trustee.
The Notes will be debt instruments for U.S. federal income tax purposes and
should be subject to the contingent payment debt regulations under U.S. Federal
income tax laws. The Notes are being offered at a substantial discount from
their principal amount at maturity. Except as described below, we will not make
periodic cash payments of interest on the Notes. Each Note of $1,000 principal
amount at maturity will be issued at an issue price of $524.78 per Note. We
will report the accrual of original issue discount at the comparable yield of
8.88% under the contingent payment debt regulations while they remain
outstanding. The issue date for the Notes and the commencement date for the
accrual of original issue discount will be May 11, 2001. See "Material U.S.
Federal Income Tax Considerations--Accrual of Interest on the Notes."
The Notes will be issued only in registered form without coupons in
denominations of $1,000 and any integral multiple of $1,000 above that amount.
No service charge will be made for any registration of transfer or exchange of
Notes, but we may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith. The Notes will be
represented by one or more global securities registered in the name of a
nominee of The Depository Trust Company. See "--Book Entry, Delivery and Form."
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Ranking
The Notes are general unsecured obligations of the Company and rank senior
in right of payment to all future Indebtedness of the Company that is, by its
terms, expressly subordinated in right of payment to the Notes and pari passu
in right of payment with all existing and future unsecured Indebtedness of the
Company that is not so subordinated. The guarantees of the Notes (the
"Guarantees") described below will be general unsecured obligations of the
Guarantors and will rank senior in right of payment to all future Indebtedness
of the Guarantors that is, by its terms, expressly subordinated in right of
payment to the Guarantees and will rank pari passu in right of payment with all
existing and future unsecured Indebtedness of the Guarantors that is not so
subordinated.
Secured creditors of the Company and the Guarantors will have a claim on the
assets which secure the obligations of the Company and the Guarantors to such
creditors prior to claims of Holders of the Notes against those assets. At
December 31, 2000, as adjusted to give effect to the results of this offering
(which assumes all proceeds will be used to reduce other indebtedness) and the
March 2001 sale of our 9 3/8% senior subordinated notes due 2011, the Company
and the Guarantors would have had approximately $1,479.4 million (including the
Notes) of Indebtedness outstanding, of which $52.3 million would have been
secured Indebtedness and $348.5 million of which would have been subordinated
to the Notes. In addition, at such date, our non-guarantor subsidiaries had
$78.3 million of Indebtedness outstanding.
The Guarantees
The Notes will be guaranteed by each of the Guarantors pursuant to the
Guarantees. The Guarantors currently do not include our subsidiaries that are
engaged in the financial services segment. These subsidiaries currently also do
not guarantee our other senior notes. In addition, the Notes will not initially
be guaranteed by several of our insignificant subsidiaries.
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, if any, with respect to the Notes. The
Guarantees will be general unsecured obligations of the Guarantors and will
rank pari passu with all existing and future unsecured Indebtedness of the
Guarantors that is not, by its terms, expressly subordinated in right of
payment to the Guarantees. 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 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.
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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.
Conversion Rights
Holders may convert Notes, in multiples of $1,000 principal amount at
maturity, into Company Common Stock at any time prior to the close of business
on May 11, 2021 if any of the following conditions are met:
. Common Stock Price. The average Sale Price of the Company Common Stock
for the 20 trading days immediately prior to the conversion date is at
least 110% of the Accreted Value as of such date of conversion, divided
by the conversion rate.
. Credit Ratings. The credit ratings assigned to the Notes by Moody's and
S&P are at least two rating levels lower than the initial credit ratings
assigned to the Notes by Moody's and S&P.
. Redemption of Notes. If the Notes are called for redemption, at any time
prior to the close of business on the business day prior to the
redemption date.
. Occurrence of Specified Corporate Transactions. If we elect to:
(1) distribute to all holders of Company Common Stock certain rights
entitling them to purchase, for a period expiring within 60 days after
the date of such distribution, Company Common Stock at less than the
Sale Price at the time of such distribution; or
(2) distribute to all holders of Company Common Stock assets, debt,
securities or certain rights to purchase our securities, which
distribution has a per share value as determined by the Board of
Directors exceeding 15% of the Sale Price of Company Common Stock on
the day preceding the declaration date for such distribution; or
(3) become a party to a consolidation, merger or binding share
exchange pursuant to which Company Common Stock would be converted into
cash, securities or other property, in which case a Holder may
surrender Notes for conversion at any time from and after the date
which is 15 days prior to the anticipated effective date for the
transaction until 15 days after the actual effective date of such
transaction.
In the case of clause (1) or (2), we must notify the Holders of Notes at least
20 days prior to the ex-dividend date for such distribution. Once we have given
such notice, Holders may surrender their Notes for conversion at any time until
the earlier of the close of business on the business day prior to the ex-
dividend date or our announcement that such distribution will not take place.
A Note for which a Holder has delivered a purchase notice or a Fundamental
Change purchase notice requiring us to purchase the Note may be converted only
if such notice is withdrawn in accordance with the Indenture.
The initial conversion rate is 17.4927 shares of Company Common Stock per
Note with a principal amount at maturity of $1,000, subject to adjustment upon
the occurrence of certain events described below. The conversion rate will not
be adjusted for accretion.
In lieu of issuing fractional shares, we will pay an amount of cash based on
the Sale Price of Company Common Stock on the trading day immediately preceding
the conversion date. On conversion of a Note, a Holder will not receive any
cash payment representing accretion. Our delivery to the Holder of the fixed
number of shares of Company Common Stock into which the Note is convertible,
together with any cash payment for fractional shares, will be deemed:
S-24
. to satisfy our obligation to pay the principal amount at maturity of the
Note; and
. to satisfy any obligation to pay the increase in Accreted Value from the
Issue Date through the conversion date.
As a result, Accreted Value is deemed to be paid in full rather than
canceled, extinguished or forfeited.
A certificate for the number of full shares of Company Common Stock into
which any Note is converted, together with any cash payment for fractional
shares, will be delivered through the conversion agent as soon as practicable
following the conversion date.
The conversion rate will be adjusted for:
. dividends or distributions on Company Common Stock payable in Company
Common Stock or our other capital stock;
. subdivisions, combinations or certain reclassifications of Company
Common Stock;
. distributions to all holders of Company Common Stock of certain rights
to purchase Company Common Stock for a period expiring within 60 days at
less than the Sale Price at the time; and
. certain distributions to such holders of our assets or debt securities
or certain rights to purchase our securities (excluding (a) cash
dividends or other cash distributions from current or retained earnings
unless the annualized amount thereof per share exceeds 10% of the Sale
Price on the day preceding the date of declaration of such dividend or
other distribution; provided, however, that no adjustment to the
conversion rate will be made in respect of any such dividends or
distributions that result in the payment of contingent interest to
Holders and (b) distributions in connection with a transaction described
in the third succeeding paragraph).
However, no adjustment need be made if Holders may participate in the
transaction that would otherwise give rise to such an adjustment. In cases
where the fair market value of assets, debt securities or certain rights,
warrants or options to purchase our securities distributed to stockholders (a)
equals or exceeds the Market Price of Company Common Stock, or (b) such Market
Price exceeds the fair market value of such assets, debt securities or rights,
warrants or options so distributed by less than $1.00, rather than being
entitled to an adjustment in the conversion rate, the Holder will be entitled
to receive upon conversion, in addition to the shares of Company Common Stock,
the kind and amount of assets, debt securities or rights, warrants or options
comprising the distribution that such Holder would have received if such Holder
had converted such Holder's Notes immediately prior to the record date for
determining the stockholders entitled to receive the distribution.
The Indenture will permit us to increase the conversion rate from time to
time.
If we are party to a consolidation, merger or binding share exchange or a
transfer of all or substantially all of our assets, the right to convert a Note
into Company Common Stock may be changed into a right to convert it into the
kind and amount of securities, cash or other assets of the Company or another
Person which the Holder would have received if the Holder had converted the
Holder's Notes immediately prior to the transaction.
Holders of the Notes may, in certain circumstances, be deemed to have
received a distribution subject to U.S. Federal income tax as a dividend as the
result of:
. a taxable distribution to Holders of Company Common Stock which results
in an adjustment of the conversion rate; or
. an increase in the conversion rate at our discretion.
See "Material U.S. Federal Income Tax Considerations--Constructive Dividends."
S-25
If we exercise our option to have cash interest accrue on a Note following a
Tax Event, the Holder will be entitled on conversion to receive the same number
of shares of Company Common Stock the Holder would have received if we had not
exercised this option.
If we exercise this option, Notes surrendered for conversion by a Holder
during the period from the close of business on any regular record date to the
opening of business of the next interest payment date, except for Notes to be
redeemed on a date within this period or on the next interest payment date,
must be accompanied by payment of an amount equal to the contingent interest or
interest that the Holder is to receive on the Note.
Except where Notes surrendered for conversion must be accompanied by payment
as described above, we will not pay contingent interest or interest on
converted Notes on any interest payment date subsequent to the date of
conversion. See "--Optional Conversion to Semi-Annual Cash Pay Note Upon Tax
Event."
Contingent Interest
Subject to the accrual and record date provisions described below, we will
pay contingent interest to the Holders of Notes during any six-month period
from May 11 to November 10 and from November 11 to May 10, commencing May 11,
2003, if the averages of the Note Price for the five trading days ending on the
second trading day immediately preceding the relevant six-month period (the
"Average Note Price") equals 120% or more of the Accreted Value of such Note to
the day immediately preceding the relevant six-month period. See "--Optional
Redemption" for some of these values. Notwithstanding the above, if we declare
a dividend for which the record date falls prior to the first day of a six-
month period but the payment date falls within such six-month period, then the
five trading-day period for determining the Average Note Price will be the five
trading days ending on the second trading day immediately preceding such record
date. We will pay contingent interest only in cash.
The amount of contingent interest payable per Note in respect of any six-
month period will equal the greater of (1) cash dividends paid by us per share
on Company Common Stock during that six-month period multiplied by the number
of shares of Company Common Stock issuable upon conversion of a Note and
(2) 0.125% of such Average Note Price for the five trading-day period referred
to above, except that no contingent interest payment shall exceed 1.62% of the
Accreted Value of the Notes at the beginning of the relevant six-month period.
Contingent interest, if any, will accrue and be payable to Holders of Notes
as of the record date for the related Company Common Stock dividend or, if no
cash dividend is paid by us during a quarter within the relevant six-month
period, to Holders of Notes as of the fifteenth day preceding the last day of
the relevant six-month period. Such payment will be paid on the payment date of
the related Company Common Stock dividend or, if no cash dividend is paid by us
during a quarter within the relevant six-month period, on the last day of the
relevant six-month period. For U.S. federal income tax purposes, original issue
discount will continue to accrue at the comparable yield, which we will report
as 8.88% under the contingent debt payment regulations, subject to adjustment
for actual payments of contingent interest. See "Material U.S. Federal Income
Tax Considerations--Adjustments to Interest Accruals on the Notes."
For financial accounting purposes, our obligation to pay contingent interest
on the Notes will constitute an embedded derivative, the initial value of which
is not material to our consolidated financial position. Any changes in its
value will be reflected in our future income statements, in accordance with
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." We do not believe that such future changes
in value will have a significant effect on our future reported results of
operations.
Cash dividends are all cash dividends on Company Common Stock (whether
regular, periodic, extraordinary, special, nonrecurring or otherwise) as
declared by the Board of Directors as part of its cash dividend payment
practices.
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The "Note Price" on any date of determination means the average of the
secondary market bid quotations per Note obtained by the bid solicitation agent
for $10 million principal amount at maturity of Notes at approximately 4:00
p.m., New York City time, on such determination date from three unaffiliated
securities dealers we select, provided that if:
. at least three such bids are not obtained by the bid solicitation agent,
or
. in our reasonable judgment, the bid quotations are not indicative of the
secondary market value of the Notes,
then the Note Price will equal (a) the then applicable conversion rate of the
Notes multiplied by (b) the average Sale Price of Company Common Stock on the
five trading days ending on such determination date, appropriately adjusted.
The bid solicitation agent will initially be the Trustee. We may change the
bid solicitation agent, but the bid solicitation agent will not be our
Affiliate. The bid solicitation agent will solicit bids from securities dealers
that are believed by us to be willing to bid for the Notes.
Upon determination that Holders will be entitled to receive contingent
interest which may become payable during a relevant six-month period, on or
prior to the start of such six-month period, we will issue a press release.
Optional Redemption
No sinking fund is provided for the Notes. Prior to May 11, 2003, the Notes
will not be redeemable. Beginning on May 11, 2003, at our option we may redeem
the Notes for cash at any time as a whole, or from time to time in part, at
their Accreted Value, plus accrued and unpaid contingent interest, if any. We
will give not less than 30-days' nor more than 60-days' notice of redemption to
Holders by mail.
The table below shows what the Accreted Value of a Note would be on May 11,
2003, at each May 11 thereafter prior to maturity and at maturity on May 11,
2021. The Accreted Value, in dollars, of a Note of $1,000 principal amount at
maturity redeemed between such dates would include an additional amount
reflecting the increase in Accreted Value since the next preceding date in the
table.
Increase in Accreted Redemption
Redemption Date Issue Price(1) Value at 3.25%(2) Price(1+2)
- --------------- -------------- -------------------- ----------
May 11, 2003 524.78 34.95 559.73
May 11, 2004 524.78 53.29 578.07
May 11, 2005 524.78 72.23 597.01
May 11, 2006 524.78 91.79 616.57
May 11, 2007 524.78 111.99 636.77
May 11, 2008 524.78 132.86 657.64
May 11, 2009 524.78 154.40 679.18
May 11, 2010 524.78 176.65 701.43
May 11, 2011 524.78 199.64 724.42
May 11, 2012 524.78 223.37 748.15
May 11, 2013 524.78 247.88 772.66
May 11, 2014 524.78 273.20 797.98
May 11, 2015 524.78 299.34 824.12
May 11, 2016 524.78 326.35 851.13
May 11, 2017 524.78 354.23 879.01
May 11, 2018 524.78 383.03 907.81
May 11, 2019 524.78 412.78 937.56
May 11, 2020 524.78 443.49 968.27
May 11, 2021 524.78 475.22 1,000.00
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If converted to semi-annual cash pay Notes following the occurrence of a Tax
Event (such notes, "Cash Pay Notes"), the Notes will be redeemable at the
Restated Principal Amount plus accrued and unpaid interest from the date of
such conversion through the redemption date. However, in no event may the Notes
be redeemed prior to May 11, 2003. See "--Optional Conversion to Semi-Annual
Cash Pay Note Upon Tax Event."
If less than all of the outstanding Notes are to be redeemed, the Trustee
shall select the Notes to be redeemed in principal amounts at maturity of
$1,000 or integral multiples thereof. In this case the Trustee may select the
Notes by lot, pro rata or by any other method the Trustee considers fair and
appropriate. If a portion of a Holder's Notes is selected for partial
redemption and the Holder converts a portion of the Notes, the converted
portion shall be deemed to be the portion selected for redemption.
Purchase of Notes at the Option of the Holder
On the purchase dates of May 11, 2003, May 11, 2008 and May 11, 2013, we
will, at the option of the Holder, be required to purchase any outstanding Note
for which a written purchase notice has been properly delivered by the Holder
to the Trustee and not withdrawn, subject to specified additional conditions.
Holders may submit their Notes for purchase to the paying agent at any time
from the opening of business on the date that is 30 business days prior to such
purchase date until the close of business on such purchase date.
The purchase price of a Note will be:
. $559.73 per Note on May 11, 2003;
. $657.64 per Note on May 11, 2008, plus accrued and unpaid contingent
interest, if any; and
. $772.66 per Note on May 11, 2013, plus accrued and unpaid contingent
interest, if any.
The foregoing dollar amounts equal the Accreted Value on the respective
purchase dates. For any purchase date after May 11, 2003, we may, at our
option, instead of paying the purchase price in cash, pay all or a portion of
the purchase price in Company Common Stock, as long as Company Common Stock is
then listed on a national securities exchange or traded on the Nasdaq Stock
Market. The fair market value of Company Common Stock for such purpose shall be
95% of the Market Price of Company Common Stock. We may pay the purchase price
for any purchase on May 11, 2003 only in cash.
If prior to a purchase date the Notes have been converted to Cash Pay Notes,
the purchase price will be equal to the Restated Principal Amount plus accrued
and unpaid interest from the date of conversion to the purchase date. See "--
Optional Conversion to Semi-Annual Cash Pay Note Upon Tax Event."
We will be required to give notice on a date not less than 30 business days
prior to each purchase date to all Holders at their addresses shown in the
register of the registrar, and to beneficial owners if required by applicable
law, stating among other things:
. whether we will pay the purchase price of Notes in cash or Company
Common Stock or any combination thereof, specifying the percentages of
each;
. if we elect to pay in Company Common Stock, the method of calculating
the Market Price of Company Common Stock; and
. the procedures that Holders must follow to require us to purchase their
Notes.
The purchase notice given by each Holder electing to require us to purchase
Notes shall state:
. the certificate numbers of the Holder's Notes to be delivered for
purchase;
. the portion of the principal amount at maturity of Notes to be
purchased, which must be $1,000 or an integral multiple thereof;
S-28
. that the Notes are to be purchased by us pursuant to the applicable
provisions of the Notes and the Indenture; and
. in the event we elect, pursuant to the notice that we are required to
give, to pay the purchase price in Company Common Stock, in whole or in
part, but the purchase price is ultimately to be paid to the Holder
entirely in cash because any condition to payment of the purchase price
or portion of the purchase price in Company Common Stock is not
satisfied prior to the close of business on the purchase date, as
described below, whether the Holder elects: (1) to withdraw the purchase
notice as to some or all of the Notes to which it relates, or (2) to
receive cash in respect of the entire purchase price for all Notes or
portions of Notes subject to such purchase notice.
If the Holder fails to indicate the Holder's choice with respect to the
election described in the final bullet point above, the Holder shall be deemed
to have elected to receive cash in respect of the entire purchase price for all
Notes subject to the purchase notice in these circumstances.
For a discussion of the tax treatment of a Holder exercising the right to
require us to purchase Notes, see "Material U.S. Federal Income Tax
Considerations--Sale, Exchange, Conversion or Redemption."
Any purchase notice may be withdrawn by the Holder by a written notice of
withdrawal delivered to the paying agent prior to the close of business on the
purchase date.
The notice of withdrawal shall state:
. the principal amount at maturity being withdrawn;
. the certificate numbers of the Notes being withdrawn; and
. the principal amount at maturity of the Notes that remain subject to the
purchase notice, if any.
In connection with any purchase offer pursuant to these provisions, we will:
. comply with the provisions of Rule 13e-4, Rule l4e-1 and any other
tender offer rules under the Exchange Act which may then be applicable;
and
. file Schedule TO or any other required schedule under the Exchange Act.
Payment of the purchase price for a Note for which a purchase notice has
been delivered and not validly withdrawn is conditioned upon delivery of the
Note, together with necessary endorsements, to the paying agent at any time
after delivery of the purchase notice. Payment of the purchase price for the
Note will be made promptly following the later of the purchase date or the time
of delivery of the Note.
We will pay cash based on the Market Price for all fractional shares of
Company Common Stock in the event we elect to deliver Company Common Stock in
payment, in whole or in part, of the purchase price.
The "Market Price" means the average of the Sale Prices of Company Common
Stock for the 20 trading-day period ending on the third business day (if the
third business day prior to the applicable date is a trading day or, if not,
then on the last trading day) prior to the applicable date, appropriately
adjusted to take into account the occurrence, during the period commencing on
the first of such trading days during such 20 trading day period and ending on
such date, of certain events with respect to Company Common Stock that would
result in an adjustment of the conversion rate.
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The "Sale Price" of Company Common Stock on any date means the closing sale
price per share (or if no closing sale price is reported, the average of the
bid and ask prices or, if more than one in either case, the average of the
average bid and the average ask prices) on such date as reported in composite
transactions for the principal United States securities exchange on which
Company Common Stock is traded or, if Company Common Stock is not listed on a
United States national or regional securities exchange, as reported on the
Nasdaq Stock Market.
Because the Market Price of Company Common Stock is determined prior to the
applicable purchase date, Holders of Notes bear the market risk with respect to
the value of Company Common Stock to be received from the date such Market
Price is determined to such purchase date. We may pay the purchase price or any
portion of the purchase price in Company Common Stock only if the information
necessary to calculate the Market Price is published in a daily newspaper of
national circulation.
Our right to purchase Notes, in whole or in part, with Company Common Stock
is subject to our satisfying various conditions, including:
. the registration of Company Common Stock under the Securities Act and
the Exchange Act, if required; and
. any necessary qualification or registration under applicable state
securities law or the availability of an exemption from such
qualification and registration.
If such conditions are not satisfied with respect to a Holder prior to the
close of business on the purchase date, we will pay the purchase price of the
Notes of such Holder entirely in cash. We may not change the form or components
or percentages of components of consideration to be paid for the Notes once we
have given the notice that we are required to give to Holders of Notes, except
as described in the first sentence of this paragraph.
If the paying agent holds money or securities sufficient to pay the purchase
price of a Note on the business day following the purchase date in accordance
with the terms of the Indenture, then, immediately after the purchase date, the
Note will cease to be outstanding and will cease to accrete, whether or not the
Note is delivered to the paying agent. Thereafter, all other rights of the
Holder shall terminate, other than the right to receive the purchase price upon
delivery of the Note.
Our ability to purchase Notes may be limited by the terms of our then
existing indebtedness or financing agreements.
No Notes may be purchased at the option of Holders if there has occurred and
is continuing an Event of Default, other than a Default in the payment of the
purchase price with respect to such Notes.
Fundamental Change Permits Holders to Require Us to Purchase Notes
If a Fundamental Change occurs at any time prior to May 11, 2003, each
Holder will have the right, at the Holder's option, to require us to purchase
any or all of the Holder's Notes. The Notes may be purchased in multiples of
$1,000 principal amount at maturity. We will purchase the Notes at a price
equal to the Accreted Value of, plus accrued and unpaid contingent interest, if
any, on, the Notes on the purchase date. See the table under "--Optional
Redemption." If, prior to the purchase date, we elect to convert the Notes to
Cash Pay Notes, the purchase price will be equal to the Restated Principal
Amount plus accrued and unpaid interest from the date of conversion to the
purchase date. See "--Optional Conversion to Semi-Annual Cash Pay Note Upon Tax
Event." If a Fundamental Change occurs on or after May 11, 2003, no Holder will
have a right to require us to purchase any Notes.
We may, at our option, instead of paying the Fundamental Change purchase
price in cash, pay all or a portion of the Fundamental Change purchase price in
Company Common Stock, as long as Company Common
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Stock is then listed on a national securities exchange or traded on the Nasdaq
Stock Market. The fair market value of Company Common Stock for such purpose
shall be 95% of the Market Price of Company Common Stock.
A "Fundamental Change" will be deemed to have occurred at such time after
the original issuance of the Notes as any of the following occurs:
(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 Fundamental Change;
(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 Fundamental Change under the proviso contained
in clause (1) above shall not constitute a Fundamental Change.
A Fundamental Change will not be deemed to have occurred, however, if either:
(I) the Sale Price for (a) any 10 trading days within the 20 consecutive
trading days ending immediately before the Fundamental Change, and (b) at
least five trading days within the 10 consecutive trading days ending
immediately before the Fundamental Change shall equal or exceed 105% of the
Accreted Value, divided by the conversion rate, or
(II) both
(a) at least 90% of the consideration (excluding cash payments for
fractional shares) in the transaction or transactions constituting the
Fundamental Change consists of shares of Common Equity traded on a
national securities exchange or quoted on the Nasdaq Stock Market (or
which will be so traded or quoted when issued or exchanged in
connection with such Fundamental Change) (such securities being
referred to as "publicly traded securities") and as a result of such
transaction or transactions the Notes become convertible solely into
such publicly traded securities and
(b) the consideration in the transaction or transactions
constituting the Fundamental Change consists of cash, publicly traded
securities or a combination of cash and publicly traded securities with
an aggregate fair market value (which, in the case of publicly traded
securities, shall be equal to the average closing price of such
publicly traded securities during the five consecutive trading days
commencing with the trading day following consummation of the
transaction or transactions constituting the Fundamental Change) of at
least 105% of the Accreted Value, divided by the conversion rate.
On or before the 30th day after the occurrence of a Fundamental Change, we
will mail to all Holders of the Notes and the Trustee a notice of the
occurrence of the Fundamental Change and of the resulting purchase right. Such
notice shall state, among other things:
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. whether we will pay the purchase price of Notes in cash or Company
Common Stock or any combination thereof, specifying the percentages of
each;
. if we elect to pay in Company Common Stock, the method of calculating
the Market Price of Company Common Stock; and
. the procedures that Holders must follow to require us to purchase their
Notes.
To exercise the purchase right, Holders of Notes must deliver, on or before
the 60th day after the date of our notice of a Fundamental Change, the Notes to
be purchased, duly endorsed for transfer, together with a written purchase
notice and the form entitled "Option to Elect Purchase Upon a Fundamental
Change" on the reverse side of the Note duly completed, to the paying agent.
The purchase notice given by each Holder electing to require us to purchase
Notes shall state:
. the certificate numbers of the Holder's Notes to be delivered for
purchase;
. the portion of the principal amount at maturity of Notes to be
purchased, which must be $1,000 or an integral multiple thereof;
. that the Notes are to be purchased by us pursuant to the applicable
provisions of the Notes and the Indenture; and
. in the event we elect, pursuant to the notice that we are required to
give, to pay the purchase price in Company Common Stock, in whole or in
part, but the purchase price is ultimately to be paid to the Holder
entirely in cash because any condition to payment of the purchase price
or portion of the purchase price in Company Common Stock is not
satisfied prior to the close of business on the purchase date, as
described below, whether the Holder elects: (1) to withdraw the purchase
notice as to some or all of the Notes to which it relates or (2) to
receive cash in respect of the entire purchase price for all Notes or
portions of Notes subject to such purchase notice.
If the Holder fails to indicate the Holder's choice with respect to the
election described in the final bullet point above, the Holder shall be deemed
to have elected to receive cash in respect of the entire purchase price for all
Notes subject to the purchase notice in these circumstances. For a discussion
of the tax treatment of a Holder receiving cash instead of Company Common
Stock, see "Material U.S. Federal Income Tax Considerations--Sale, Exchange,
Conversion or Redemption."
Any purchase notice may be withdrawn by the Holder by a written notice of
withdrawal delivered to the paying agent prior to the close of business on the
purchase date. The notice of withdrawal shall state:
. the principal amount at maturity being withdrawn;
. the certificate numbers of the Notes being withdrawn; and
. the principal amount at maturity of the Notes that remain subject to the
purchase notice, if any.
We will pay cash based on the Market Price for all fractional shares of
Company Common Stock in the event we elect to deliver Company Common Stock in
payment, in whole or in part, of the purchase price.
Because the Market Price of Company Common Stock is determined prior to the
applicable purchase date, Holders of Notes bear the market risk with respect to
the value of Company Common Stock to be received from the date such Market
Price is determined to such purchase date. We may pay the purchase price or any
portion of the purchase price in Company Common Stock only if the information
necessary to calculate the Market Price is published in a daily newspaper of
national circulation.
Our right to purchase Notes, in whole or in part, with Company Common Stock
is subject to our satisfying various conditions, including:
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. the registration of Company Common Stock under the Securities Act and
the Exchange Act, if required; and
. any necessary qualification or registration under applicable state
securities law or the availability of an exemption from such
qualification and registration.
If such conditions are not satisfied with respect to a Holder prior to the
close of business on the purchase date, we will pay the purchase price of the
Notes of such Holder entirely in cash. We may not change the form or components
or percentages of components of consideration to be paid for the Notes once we
have given the notice that we are required to give to Holders of Notes, except
as described in the first sentence of this paragraph.
In connection with any purchase offer pursuant to these provisions, we will:
. comply with the provisions of Rule 13e-4, Rule 14e-1 and any other
tender offer rules under the Exchange Act which may then be applicable;
and
. file Schedule TO or any other required schedule under the Exchange Act.
The purchase rights of the Holders could discourage a potential acquiror of
the Company. The Fundamental Change purchase feature, however, is not the
result of management's knowledge of any specific effort to obtain control of
the Company by any means or part of a plan by management to adopt a series of
anti-takeover provisions.
The term Fundamental Change is limited to specified transactions and may not
include other events that might adversely affect our financial condition. Such
other events may include changes of control for the purposes of the indentures
for our outstanding senior and senior subordinated notes which permit holders
of such notes to tender them to us for purchase after a change in control. In
addition, the requirement that we offer to purchase the Notes upon a
Fundamental Change may not protect Holders in the event of a highly leveraged
transaction, reorganization, merger or similar transaction involving us.
No Notes may be purchased at the option of Holders upon a Fundamental Change
if there has occurred and is continuing an Event of Default. See "--Events of
Default". However, Notes may be purchased if the Event of Default is in the
payment of the Fundamental Change purchase price 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 Notes which may be tendered to
the Company upon the occurrence of a Fundamental Change.
The Indenture will require the payment of money for Notes or portions
thereof validly tendered to and accepted for payment by us pursuant to a
Fundamental Change offer. In the event that a Fundamental Change has occurred
under the Indenture, a change of control may have occurred under indentures
governing our outstanding senior and senior subordinated notes. In addition, a
Fundamental Change may also result in the acceleration of Indebtedness under
the Credit Facilities. If a Fundamental Change were to occur or we were
required to purchase outstanding Notes as described under "--Purchase of Notes
at the Option of the Holder," 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 purchase 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 Fundamental Change offer or if we were otherwise required to
purchase the outstanding Notes. In the event that the Company were required to
purchase outstanding Notes pursuant to a Fundamental Change offer or other
requirement, 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.
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Failure by the Company to purchase the Notes when required upon a
Fundamental Change will result in an Event of Default with respect to the
Notes.
Optional Conversion to Semi-Annual Cash Pay Note Upon Tax Event
From and after the date of the occurrence of a Tax Event, we will have the
option to elect to have cash interest accrue on all, and not less than all of,
the Notes at the rate of 3.25% per year. The principal amount of each Note will
be restated (the "Restated Principal Amount") and will equal its Accreted Value
on the date of the Tax Event or the date on which we exercise the option
described herein, whichever is later (the "Option Exercise Date").
Such interest will accrue from the Option Exercise Date and will be payable
in cash semi-annually on the interest payment dates of May 11 and November 11
of each year to Holders of record at the close of business on April 27 or
October 28 immediately preceding the interest payment date. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
Interest will initially accrue from the Option Exercise Date and thereafter
from the last date to which interest has been paid. In the event we exercise
this option to pay cash interest, the redemption price, purchase price and
Fundamental Change purchase price on the Notes will be adjusted. Contingent
interest payments will cease to accrue on the Option Exercise Date. However,
there will be no change in the Holder's conversion rights.
A "Tax Event" means that we shall have received an opinion from independent
tax counsel experienced in such matters to the effect that, on or after the
date of this prospectus supplement, as a result of:
(1) any amendment to, or change (including any announced prospective
change) in, the laws, rules or regulations thereunder of the United States
or any political subdivision or taxing authority thereof or therein, or
(2) any amendment to, or change in, an interpretation or application of
such laws, rules or regulations by any legislative body, court,
governmental agency or regulatory authority,
in each case which amendment or change is enacted, promulgated, issued or
announced or which interpretation is issued or announced or which action is
taken, on or after the date of this prospectus supplement, there is more than
an insubstantial risk that interest (including original issue discount or
contingent interest, if any) payable on the Notes either:
. would not be deductible on a current accrual basis, or
. would not be deductible under any other method,
in either case in whole or in part, by us (by reason of deferral, disallowance,
or otherwise) for U.S. Federal income tax purposes.
The Clinton Administration had proposed to change the tax law to defer the
deduction of original issue discount on convertible debt instruments until the
issuer pays the original issue discount. Congress has not enacted these
proposed changes in the law. If a similar proposal were ever enacted and made
applicable to the Notes in a manner that would limit our ability to either:
. deduct interest, including original issue discount and contingent
interest, on the Notes on a current accrual basis, or
. deduct interest, including original issue discount or contingent
interest, if any, payable on the Notes under any other method for U.S.
Federal income tax purposes,
such enactment would result in a Tax Event and the terms of the Notes would be
subject to modification at our option as described above.
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The modification of the terms of the Notes by us upon a Tax Event, as
described above, may alter the timing of income recognition by Holders of the
Notes with respect to the semi-annual payments of interest due on the Notes
after the Option Exercise Date.
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."
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.
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.
The Company will not, and will not cause or permit any Guarantor to,
directly or indirectly, in any event incur any Indebtedness that purports to
be by its terms (or by the terms of any agreement governing such Indebtedness)
subordinated to any other Indebtedness of the Company or of such Guarantor, as
the case may be, unless such Indebtedness is also by its terms (or by the
terms of any agreement governing such Indebtedness) made expressly
subordinated to the Notes or the Guarantee of such Guarantor, as the case may
be, to the same extent and in the same manner as such Indebtedness is
subordinated to such other Indebtedness of the Company or such Guarantor, as
the case may be.
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;
S-35
(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
(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
S-36
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
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.
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The Indenture will 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.
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 make a Net Cash Proceeds Offer for the
Notes and, if the Company or a Restricted Subsidiary elects or is required to
do so, repay, purchase or redeem any other unsubordinated Indebtedness (on a
pro rata basis if the amount available for such repayment, purchase or
redemption is less than the aggregate amount of (i) the Accreted Value of,
plus accrued and unpaid interest, if any, on, the Notes tendered in such Net
Cash Proceeds Offer and (ii) the lesser of the principal amount or accreted
value, of such other unsubordinated Indebtedness, plus any 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 any accrued interest to
the date of purchase or repayment.
Notwithstanding the foregoing, (A) the Company will not be required to
apply such Net Cash Proceeds to the purchase of Notes in accordance with
clause (b) of the preceding sentence except to the extent that such Net Cash
Proceeds, together with the aggregate Net Cash Proceeds of prior Asset
Dispositions (other than those so used) which have not been applied in
accordance with this provision and as to which no prior Net Cash Proceeds
Offer shall have been made, exceed 5% of Consolidated Tangible Assets and (B)
in connection with any Asset Disposition, the Company and the Restricted
Subsidiaries will not be required to comply with the
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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 are secured on an equal and ratable basis
with the obligation or liability so secured until such time as such obligation
or liability is no longer secured by a Lien.
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.
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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 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.
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Events of Default
The following are Events of Default under the Indenture:
(1) the default in payment of the principal amount at maturity (or if
the Notes have been converted to Cash Pay Notes, the Restated Principal
Amount), redemption price, purchase price or Fundamental Change purchase
price with respect to any Note when such amount becomes due and payable;
(2) the default in payment of any contingent interest or of interest
which becomes payable after the Notes have been converted to Cash Pay
Notes, which default in either case, continues for 30 days;
(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 "Fundamental Change Permits Holders to Require Us
to Purchase Notes" 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
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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).
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 at maturity 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 "Fundamental Change Permits
Holders to Require Us to Purchase Notes" 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 at maturity of the Notes
then outstanding by notice to the Company and the Trustee, may declare the
Accreted Value of, plus accrued and unpaid interest, if any, on, the 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 amounts 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 at maturity 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 at maturity 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 at maturity 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 "Fundamental Change Permits Holders to
Require Us to Purchase Notes") 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.
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 at maturity 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
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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 at maturity 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 Accreted Value or the rate of accretion of principal or
the rate of any interest, or change the time for payment of any 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", with respect to
mandatory offers to purchase Notes described under "Limitations on
Dispositions of Assets" or "Fundamental Change Permits Holders to Require
Us to Purchase Notes" or with respect to required purchases of Notes as
described under "Purchase of Notes at the Option of the Holder,"
(4) make any Note payable in money or securities other than that stated
in the Note,
(5) make any change that adversely affects the right to convert any
Note,
(6) 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,
(7) modify the ranking or priority of the Notes or any Guarantee,
(8) release any Guarantor from any of its obligations under its
Guarantee or the Indenture otherwise than in accordance with the Indenture,
or
(9) 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 Company Common Stock and
as trustee for other debt securities of the Company.
The Holders of a majority in principal amount at maturity 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
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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 are 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.
"Accreted Value" means, at any date of determination, (1) prior to such time
as the Notes are converted to Cash Pay Notes, the sum of (x) the initial
offering price of each Note and (y) the portion of the excess of the principal
amount of each Note over such initial offering price which shall have been
amortized by the Company in accordance GAAP through such date, such amount to
be so amortized on a daily basis and compounded semi-annually on each May 11
and November 11 at the rate of 3.25% per annum from the Issue Date through the
date of determination computed on the basis of a 360-day year of twelve 30-day
months and (2) at or after such time as the Notes are converted to Cash Pay
Notes, the Restated Principal Amount.
"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 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.
"Affiliate Transaction" has the meaning set forth in "Certain Covenants--
Limitations on Transactions with Affiliates."
"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:
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(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.
"Average Note Price" has the meaning set forth in "Contingent Interest."
"Bankruptcy Law" means title 11 of the United States Code, as amended, or
any similar federal or state law for the relief of debtors.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of or in
such Person's capital stock or other equity interests, and options, rights or
warrants to purchase such capital stock or other equity interests, whether now
outstanding or issued after the Issue Date, including, without limitation, all
Disqualified Stock and Preferred Stock.
"Capitalized Lease Obligations" of any Person means the obligations of such
Person to pay rent or other amounts under a lease that is required to be
capitalized for financial reporting purposes in accordance with GAAP, and the
amount of such obligations will be the capitalized amount thereof determined in
accordance with GAAP.
"Cash Equivalents" means:
(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
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(6) investments in money market funds substantially all of the assets of
which consist of securities described in the foregoing clauses (1) through
(5).
"Cash Pay Notes" has the meaning set forth in "Optional Redemption."
"Company Common Stock" means the common stock of the Company, par value $.01
per share, as it exists on the date of the Indenture and any shares of any
class or classes of capital stock of the Company resulting from any
reclassification or reclassifications thereof and which have no preference in
respect of dividends or of amounts payable in the event of any voluntary or
involuntary liquidation, dissolution or winding-up of the Company and which are
not subject to redemption by the Company; provided, however, that if at any
time there shall be more than one such resulting class, the shares of each such
class then so issuable on conversion of Notes shall be substantially in the
proportion which the total number of shares of such class resulting from all
such reclassifications bears to the total number of shares of all such classes
resulting from all such reclassifications.
"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 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) 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
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);
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(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 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,
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(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 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 any
such facility or line of credit or any successor facilities or lines of credit
and includes any facility or line of credit with one or more lenders
refinancing or replacing all or any portion of the Indebtedness under any such
facility or line of credit or any successor facility or line of credit.
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"Currency Agreement" of any Person means any foreign exchange contract,
currency swap agreement or other similar agreement or arrangement designed to
protect such Person or any of its Subsidiaries against fluctuations in currency
values.
"Custodian" means any receiver, trustee, assignee, liquidator or similar
official under any Bankruptcy Law.
"Default" means any event, act or condition that is, or after notice or the
passage of time or both would be, an Event of Default.
"Designation Amount" has the meaning provided in the definition of
Unrestricted Subsidiary.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, (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 in paragraphs
(1) through (4) under the caption "Fundamental Change Permits Holders to
Require Us to Purchase Notes" 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 purchase of the Notes as are required
pursuant to the provisions described in paragraphs (1) through (4) under the
caption "Fundamental Change Permits Holders to Require Us to Purchase Notes."
"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.
"Guarantors" means, (i) initially, each of:
C. Richard Dobson Builders, Inc., a Virginia corporation;
CH Investments of Texas, Inc., a Delaware corporation;
CHI Construction Company, an Arizona corporation;
CHTEX of Texas, Inc., a Delaware corporation;
S-49
Continental Homes, Inc., a Delaware corporation;
Continental Homes of Florida, Inc., a Florida corporation;
Continental Homes of Texas, L.P., a Texas limited partnership (formerly
Continental Homes of Austin, L.P.);
Continental Residential, Inc., a California corporation;
D.R. Horton, Inc.-Birmingham, an Alabama corporation;
D.R. Horton, Inc.-Chicago, a Delaware corporation;
D.R. Horton, Inc.-Denver, a Delaware corporation;
D.R. Horton, Inc.-Greensboro, a Delaware corporation;
D.R. Horton, Inc.-Jacksonville, a Delaware corporation (formerly D.R.
Horton, Inc.-San Diego);
D.R. Horton, Inc.-Louisville, a Delaware corporation;
D.R. Horton, Inc.-Minnesota, a Delaware corporation;
D.R. Horton, Inc.-New Jersey, a Delaware corporation;
D.R. Horton, Inc.-Portland, a Delaware corporation;
D.R. Horton, Inc.-Sacramento, a California corporation;
D.R. Horton-Texas, Ltd., a Texas limited partnership;
D.R. Horton, Inc.-Torrey, a Delaware corporation;
D.R. Horton Los Angeles Holding Company, Inc., a California corporation;
D.R. Horton Management Company, Ltd., a Texas limited partnership;
D.R. Horton San Diego Holding Company, Inc., a California corporation;
D.R. Horton Cambridge Homes, LLC, a Delaware limited liability company;
DRH Cambridge Homes, Inc., a California corporation (formerly D.R.
Horton Sacramento Management Company, Inc.);
DRH Construction, Inc., a Delaware corporation;
DRH Regrem I, Inc., a Delaware corporation;
DRH Regrem II, Inc., a Delaware corporation;
DRH Regrem III, Inc., a Delaware corporation;
DRH Regrem IV, Inc., a Delaware corporation;
DRH Regrem V, Inc., a Delaware corporation;
DRH Regrem VI, LP, a Texas limited partnership;
DRH Regrem VII, LP, a Texas limited partnership;
DRH Regrem VIII, LLC, a Delaware limited liability company;
DRH Southwest Construction, Inc., a California corporation;
DRH Title Company of Colorado, Inc., a Colorado corporation;
DRH Tucson Construction, Inc., a Delaware corporation;
S-50
DRHI, Inc., a Delaware corporation;
KDB Homes, Inc., a Delaware corporation;
Meadows I, Ltd., a Delaware corporation;
Meadows II, Ltd., a Delaware corporation;
Meadows VIII, Ltd., a Delaware corporation;
Meadows IX, Inc., a New Jersey corporation;
Meadows X, Inc., a New Jersey corporation;
SGS Communities at Grande Quay, LLC, a New Jersey limited liability
company;
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.
"incurrence" has the meaning set forth in "Certain Covenants--Limitations on
Indebtedness."
"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 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
S-51
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 Debt
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 accordance
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.
"Market Price" has the meaning set forth in "Purchase of Notes at the Option
of the Holder."
"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.
S-52
"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.
"Note Price" has the meaning set forth in "Contingent Interest."
"Option Exercise Date" has the meaning set forth in "Optional Conversion to
Semi-Annual Cash Pay Note Upon Tax Event."
"Permitted Indebtedness" means:
(1) Indebtedness under Credit Facilities which does not exceed $1.0
billion 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 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;
S-53
(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;
(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 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
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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, 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,
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(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, and
(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.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, incorporated or unincorporated association, joint stock
company, trust, unincorporated organization or government or any agency or
political subdivision thereof.
"Preferred Stock" of any Person means all Capital Stock of such Person which
has a preference in liquidation or with respect to the payment of dividends.
"Property" of any Person means all types of real, personal, tangible,
intangible or mixed property owned by such Person, whether or not included in
the most recent consolidated balance sheet of such Person and its Subsidiaries
under GAAP.
"Public Equity Offering" means an underwritten public offering of Common
Equity of the Company pursuant to an effective registration statement filed
under the Securities Act (excluding registration statements filed on Form S-8
or any successor form).
"Purchase Money Indebtedness" means Indebtedness of the Company or any
Restricted Subsidiary incurred for the purpose of financing all or any part of
the purchase price, or the cost of construction or improvement, of any property
to be used in the ordinary course of business by the Company and the Restricted
Subsidiaries; provided, however, that (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,
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(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
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.
"Restated Principal Amount" has the meaning set forth in "Optional
Conversion to Semi-Annual Cash Pay Note Upon Tax Event."
"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.
"Sale Price" has the meaning set forth in "Purchase of Notes at the Option
of the Holder."
"Significant Subsidiary" means any Subsidiary of the Company which would
constitute a "significant subsidiary" as defined in Rule 1-02 of Regulation S-
X under the Securities Act and the Exchange Act.
"Subsidiary" of any Person means any corporation or other entity of which a
majority of the Capital Stock having ordinary voting power to elect a majority
of the Board of Directors or other persons performing similar functions is at
the time directly or indirectly owned or controlled by such Person.
"Successor" has the meaning set forth in "Certain Covenants--Limitations on
Mergers, Consolidations and Sales of Assets."
"Tax Event" has the meaning set forth in "Optional Conversion to Semi-
Annual Cash Pay Note Upon Tax Event."
"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
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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 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 offered hereby 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
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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 Underwriter with portions of the
principal amount at maturity 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 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 at maturity 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 Participants.
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
"Purchase of Notes at the Option of the Holder," "Fundamental Change Permits
Holders to Require Us to Purchase Notes" 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
S-59
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.
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 at maturity, of the Notes to be
issued).
Same-Day Settlement and Payment
The Indenture requires 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.
S-60
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
General
This is a summary of certain material United States federal income tax
consequences relevant to holders of the notes. This summary is based upon laws,
regulations, rulings and decisions now in effect, all of which are subject to
change (including retroactive changes) or possible differing interpretations.
The discussion below deals only with notes held as capital assets and does not
purport to deal with persons in special tax situations, such as financial
institutions, insurance companies, regulated investment companies, dealers in
securities or currencies, tax-exempt entities, persons holding notes in a tax-
deferred or tax-advantaged account, or persons holding notes as a hedge against
currency risks, as a position in a "straddle" or as part of a "hedging" or
"conversion" transaction for tax purposes. It is also limited to original
purchasers of notes who acquire the notes at the issue price (as defined
below). Persons considering the purchase of the notes should consult their own
tax advisors concerning the application of the United States federal income tax
laws to their particular situations as well as any consequences of the
purchase, ownership and disposition of the notes arising under the laws of any
other taxing jurisdiction.
We do not address all of the tax consequences that may be relevant to a
holder of notes. In particular, we do not address:
. the United States federal income tax consequences to shareholders in, or
partners or beneficiaries of, an entity that is a holder of notes;
. the United States federal estate, gift or alternative minimum tax
consequences of the purchase, ownership or disposition of notes;
. persons who hold the notes whose functional currency is not the United
States dollar;
. any state, local or foreign tax consequences of the purchase, ownership
or disposition of notes; and
. any federal, state, local or foreign tax consequences of owning or
disposing of the common stock.
For purposes of this discussion, a U.S. Holder is a beneficial owner of the
notes who or which is:
. a citizen or individual resident of the United States for United States
federal income tax purposes;
. a corporation, including any entity treated as a corporation for United
States federal income tax purposes, created or organized in or under the
laws of the United States, any state thereof or the District of
Columbia;
. an estate if its income is subject to United States federal income
taxation regardless of its source; or
. a trust if (1) a United States court can exercise primary supervision
over its administration and (2) one or more United States persons have
the authority to control all of its substantial decisions.
Notwithstanding the preceding sentence, certain trusts in existence on
August 20, 1996, and treated as United States persons prior to such date, may
also be treated as U.S. Holders. A Non-U.S. Holder is a beneficial owner of the
notes other than a U.S. Holder.
No statutory, administrative or judicial authority directly addresses the
treatment of the notes, or instruments similar to the notes, for United States
federal income tax purposes. No rulings have been sought or are expected to be
sought from the Internal Revenue Service (to which we refer as the IRS) with
respect to any of the United States federal income tax consequences discussed
below, and no assurance can be given that the IRS will not take contrary
positions. As a result, no assurance can be given that the IRS will agree with
the tax characterizations and the tax consequences described below.
We urge prospective investors to consult their own tax advisors with respect
to the tax consequences to them of the purchase, ownership and disposition of
the notes and the common stock in light of their own particular circumstances,
including the tax consequences under state, local, foreign and other tax laws
and the possible effects of changes in United States federal or other tax laws.
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Classification of the Notes
It is the opinion of our counsel, Gibson, Dunn & Crutcher LLP, that the
notes will be treated as indebtedness for United States federal income tax
purposes and that the notes should be subject to the regulations governing
contingent payment debt instruments (to which we refer as the contingent
payment debt instrument regulations). Pursuant to the terms of the indenture,
we and each holder of the notes agree, for United States federal income tax
purposes, to treat the notes as debt instruments that are subject to the
contingent payment debt instrument regulations with a "comparable yield"
calculated in the manner described below.
Accrual of Interest on the Notes
Pursuant to the contingent payment debt instrument regulations, U.S.
Holders of the notes will be required to accrue interest income on the notes
in the amounts described below, regardless of whether the U.S. Holders use the
cash or accrual method of tax accounting. Accordingly, U.S. Holders will be
required to include interest in taxable income in each year in excess of the
accruals on the notes for non-tax purposes and in excess of any contingent
interest payments actually received in that year.
The contingent payment debt instrument regulations provide that a U.S.
Holder must accrue an amount of ordinary interest income, as original issue
discount for United States federal income tax purposes, for each accrual
period prior to and including the maturity date of the notes that equals:
(1) the product of (i) the adjusted issue price (as defined below) of
the notes as of the beginning of the accrual period; and (ii) the
comparable yield to maturity (as defined below) of the notes, adjusted for
the length of the accrual period;
(2) divided by the number of days in the accrual period; and
(3) multiplied by the number of days during the accrual period that the
U.S. Holder held the notes.
A note's issue price is the first price at which a substantial amount of
the notes is sold to the public, excluding sales to bond houses, brokers or
similar persons or organizations acting in the capacity of underwriters,
placement agents or wholesalers. The adjusted issue price of a note is its
issue price increased by any interest income previously accrued, determined
without regard to any adjustments to interest accruals described below, and
decreased by the projected amount of any payments previously made with respect
to the notes.
We intend to take the position that the "comparable yield" on the notes is
8.88%, which is the annual yield we believe we would pay, as of the initial
issue date of the notes, on a fixed-rate cash pay nonconvertible debt security
with no contingent payments, but with terms and conditions otherwise
comparable to the notes. We have been advised by Gibson, Dunn & Crutcher LLP
that the applicable regulations can be read to support this position; however,
because the regulations provide no specific guidance, another interpretation
could result in a calculation of comparable yield based on a convertible debt
security, which under the regulations would be equal to the applicable federal
rate (currently 5.36%). There can be no assurance that the IRS will not
challenge our calculation of the comparable yield or that such challenge will
not be successful.
The contingent payment debt instrument regulations require that we provide
to U.S. Holders, solely for United States federal income tax purposes, a
schedule of the projected amounts of payments (to which we refer as projected
payments) on the notes. This schedule must produce the comparable yield. The
projected payment schedule includes estimates for certain contingent interest
payments and an estimate for a payment at maturity taking into account the
conversion feature.
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Our calculation of the comparable yield and the projected payment schedule,
determined based on the discussion above, will be set forth in the indenture.
U.S. Holders may also obtain the projected payment schedule by submitting a
written request for such information to us at: 1901 Ascension Blvd., Suite 100,
Arlington, TX 76006, Attention: Chief Financial Officer.
For United States federal income tax purposes, a U.S. Holder must use the
comparable yield and the projected payment schedule in the indenture in
determining its interest accruals and the adjustments thereto described below
in respect of the notes unless such U.S. Holder timely discloses and justifies
the use of other estimates to the IRS. A U.S. Holder that determines its own
comparable yield or projected payment schedule must also establish that our
comparable yield or projected payment schedule is unreasonable.
The comparable yield and the projected payment schedule are not determined
for any purpose other than for the determination of a U.S. Holder's interest
accruals and adjustments thereof in respect of the notes for United States
federal income tax purposes and do not constitute a projection or
representation regarding the actual amounts payable on the notes.
Adjustments to Interest Accruals on the Notes
If, during any taxable year, a U.S. Holder receives actual payments with
respect to the notes for that taxable year that in the aggregate exceed the
total amount of projected payments for that taxable year, the U.S. Holder will
incur a "net positive adjustment" under the contingent payment debt instrument
regulations equal to the amount of such excess. The U.S. Holder will treat a
"net positive adjustment" as additional interest income. For this purpose, the
payments in a taxable year include the fair market value of property received
in that year.
If a U.S. Holder receives in a taxable year actual payments with respect to
the notes for that taxable year that in the aggregate are less than the amount
of projected payments for that taxable year, the U.S. Holder will incur a "net
negative adjustment" under the contingent payment debt instrument regulations
equal to the amount of such deficit. This adjustment will (a) reduce the U.S.
Holder's interest income on the notes for that taxable year, and (b) to the
extent of any excess after the application of (a), give rise to an ordinary
loss to the extent of the U.S. Holder's interest income on the notes during
prior taxable years, reduced to the extent such interest was offset by prior
net negative adjustments.
Sale, Exchange, Conversion or Redemption
Generally, the sale or exchange of a note or the redemption of a note for
cash will result in taxable gain or loss to a U.S. Holder. As described above,
our calculation of the comparable yield and the projected payment schedule for
the notes includes the receipt of stock upon conversion as a contingent payment
with respect to the notes. Accordingly, we intend to treat the receipt of our
common stock by a U.S. Holder upon (a) the conversion of a note or (b) a U.S.
Holder's exercise of a put right that we elect to pay in common stock as a
payment under the contingent payment debt instrument regulations. As described
above, holders generally are bound by our determination of the comparable yield
and the projected payment schedule.
The amount of gain or loss on a taxable sale, exchange, conversion or
redemption will be equal to the difference between (a) the amount of cash plus
the fair market value of any other property received by the U.S. Holder,
including the fair market value of any of our common stock received, and (b)
the U.S. Holder's adjusted tax basis in the note.
A U.S. Holder's adjusted tax basis in a note generally will be equal to the
U.S. Holder's original purchase price for the note, increased by any interest
income previously accrued by the U.S. Holder (determined without regard to any
adjustments to interest accruals described above), and decreased by the amount
of any projected payments that have been previously scheduled to be made in
respect of the notes (without regard to the actual amount paid).
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Gain recognized upon a sale, exchange, conversion or redemption of a note
generally will be treated as ordinary interest income; any loss will be
ordinary loss to the extent of interest previously included in income, and
thereafter capital loss (which will be long-term if the note is held for more
than one year). The deductibility of net capital losses is subject to
limitations.
A U.S. Holder's tax basis in our common stock received upon a conversion of
a note or upon a U.S. Holder's exercise of a put right that we elect to pay in
common stock will equal the then current fair market value of such common
stock. The U.S. Holder's holding period for the common stock received will
commence on the day immediately following the date of conversion or redemption.
Holders should consult their own tax advisors as to the applicability of the
recapitalization rules to the exchange of a note for common stock and the
determination of basis and holding period for such common stock under those
rules. Such rules, if applicable, would not permit a holder to recognize any
capital loss realized upon conversion of a note or receipt of stock upon
redemption of a note.
Constructive Dividends
If at any time we were to make a distribution of property to our
stockholders that would be taxable to the stockholders as a dividend for United
States federal income tax purposes and, in accordance with the anti-dilution
provisions of the notes, the conversion rate of the notes were increased, such
increase might be deemed to be the payment of a taxable dividend to holders of
the notes.
For example, an increase in the conversion rate in the event of
distributions of our evidences of indebtedness or our assets or an increase in
the event of an extraordinary cash dividend generally would result in deemed
dividend treatment to holders of the notes, but an increase in the event of
stock dividends or the distribution of rights to subscribe for common stock
generally will not.
Treatment of Non-U.S. Holders
Payments of contingent interest made to Non-U.S. Holders will not be exempt
from United States federal income or withholding tax and, therefore, Non-U.S.
Holders will be subject to withholding on such payments of contingent interest
at a rate of 30%, subject to reduction by an applicable treaty or upon the
receipt of a Form W-8ECI from a Non-U.S. Holder claiming that the payments are
effectively connected with the conduct of a United States trade or business. A
Non-U.S. Holder that is subject to the withholding tax should consult its own
tax advisor as to whether it can obtain a refund for a portion of the
withholding tax, either on the grounds that some portion of the contingent
interest represents a return of principal under the contingent payment debt
instrument regulations, or on some other grounds.
All other payments on the notes made to a Non-U.S. Holder, including a
payment in common stock pursuant to a conversion, and any gain realized on a
sale or exchange of the notes (other than gain attributable to accrued
contingent interest payments), will be exempt from United States income or
withholding tax, provided that: (i) such Non-U.S. Holder does not own, actually
or constructively, 10 percent or more of the total combined voting power of all
classes of our stock entitled to vote, and is not a controlled foreign
corporation related, directly or indirectly, to us through stock ownership;
(ii) the statement requirement set forth in section 871(b) or section 881(c) of
the Code has been fulfilled with respect to the beneficial owner, as discussed
below; (iii) such payments and gain are not effectively connected with the
conduct by such Non-U.S. Holder of a trade or business in the United States,
and (iv) our common stock continues to be regularly traded on an established
securities market and, during the five-year period ending on the date of any
payment on or sale or exchange of a note, as applicable, such Non-U.S. Holder
did not own more than 5% of our common stock.
The statement requirement referred to in the preceding paragraph will be
fulfilled if the beneficial owner of a note certifies on IRS Form W-8BEN, under
penalties of perjury, that it is not a United States person and provides its
name and address or otherwise satisfies applicable documentation requirements.
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If a Non-U.S. Holder of notes is engaged in a trade or business in the
United States, and if interest on the notes is effectively connected with the
conduct of such trade or business, the Non-U.S. Holder, although exempt from
the withholding tax discussed in the preceding paragraphs, will generally be
subject to regular U.S. federal income tax on interest and on any gain realized
on the sale or exchange of the notes in the same manner as if it were a U.S.
Holder. In lieu of the certificate described in the preceding paragraph, such a
Non-U.S. Holder will be required to provide to the withholding agent a properly
executed IRS Form W-8ECI in order to claim an exemption from withholding tax.
In addition, if such a Non-U.S. Holder is a foreign corporation, such holder
may be subject to a branch profits tax equal to 30% (or such lower rate
provided by an applicable treaty) of its effectively connected earnings and
profits for the taxable year, subject to certain adjustments.
Backup Withholding
Payments of principal, premium (if any) and interest (including original
issue discount) on, and the proceeds of dispositions of, the notes may be
subject to information reporting and United States federal backup withholding
tax at the rate of 31% if the holder thereof fails to supply an accurate
taxpayer identification number or otherwise fails to comply with applicable
United States information reporting or certification requirements. Any amounts
so withheld will be allowed as a refund with respect to, or credit against,
such holder's United States federal income tax liability.
Tax Event
The modification of the terms of the notes by us upon a Tax Event as
described in "Description of Notes--Optional Conversion to Semiannual Cash Pay
Upon Tax Event," would alter the timing of income recognition by the holders
with respect to the semiannual payments of interest due after the option
exercise date.
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UNDERWRITING
Subject to the terms and conditions stated in the underwriting agreement, we
have agreed to sell to Salomon Smith Barney Inc. (the "underwriter"), and the
underwriter has agreed to purchase, $381,113,000 principal amount at maturity
of notes. The underwriting agreement provides that, subject to the terms and
conditions set forth therein, the underwriter will be obligated to purchase all
the notes offered by this prospectus supplement (other than those covered by
the over-allotment option described below) if any notes are purchased.
The underwriter proposes to offer part 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.
We have granted to the underwriter an option, exercisable for 30 days from
the date of this prospectus supplement, to purchase up to $57,166,000
additional principal amount at maturity of notes at their accreted value at the
time of purchase less the underwriting discount. The underwriter may exercise
such option solely for the purpose of covering over-allotments, if any, in
connection with the offering of the notes offered by this prospectus
supplement.
The following table shows the underwriting discount we will pay to the
underwriter in connection with this offering:
Offering with
over-
allotment
Offering without option in
over-allotment option full(/1/)
--------------------- -------------
Per $1,000 note.......................... $11.81 $11.81
Total.................................... $4,500,944.53 $5,175,001.19
- --------
(1) Plus 2.25% of the increase in accreted value of the notes issuable upon
exercise of the over-allotment option from May 11, 2001 to the closing of
the over-allotment option purchase (assuming for this calculation that the
notes so issuable have been outstanding since May 11, 2001).
We estimate that our share of the total expenses of this offering, excluding
underwriting discounts and commissions, will be approximately $400,000.
We have agreed that, subject to certain exceptions, for a period of 90 days
from the date of this prospectus supplement, we will not, without the prior
written consent of the underwriter, offer, sell or contract to sell any shares
of our common stock or any securities convertible into or exercisable or
exchangeable for our common stock (other than the notes). Donald R. Horton, our
chairman, has agreed to a comparable restriction for a period of 45 days from
the date of this prospectus supplement, except that he will be permitted to
sell up to 1,000,000 shares of our common stock. The underwriter in its sole
discretion may release any securities subject to the lock-up at any time
without notice.
We have been advised by the underwriter that it intends to make a market in
the notes, but that it is not obligated to do so and may discontinue making a
market at any time without notice. Our common stock is listed on the New York
Stock Exchange under the symbol of "DHI." We have applied to list the notes on
the New York Stock Exchange.
The underwriting agreement provides that we will indemnify the underwriter
against certain liabilities, including liabilities under the Securities Act, or
contribute to payments the underwriter may be required to make in respect of
such liabilities.
The underwriter may engage in over-allotment, stabilizing transactions,
syndicate-covering transactions and penalty bids in accordance with Rule 104 of
Regulation M under the Exchange Act. Over-allotment involves syndicate sales in
excess of the offering size, which creates a short position for the
underwriter. Stabilizing transactions permit bids to purchase the underlying
security so long as the stabilizing bids do not
S-66
exceed a specified maximum. Syndicate-covering transactions involve purchases
of the notes in the open market after the distribution has been completed in
order to cover syndicate short positions. Penalty bids permit the underwriter
to reclaim a selling concession from an underwriter when the notes originally
sold by such an underwriter are purchased in a covering transaction to cover
syndicate short positions. Such over-allotment stabilizing transactions,
syndicate-covering transactions and penalty bids may cause the price of the
notes to be higher than it would be in the absence of such transactions. These
transactions, if commenced, may be discontinued at any time.
The underwriter and its affiliates may, from time to time, engage in
transactions with and perform services for us in the ordinary course of
business.
LEGAL MATTERS
Gibson, Dunn & Crutcher LLP, Dallas, Texas, will issue an opinion about the
validity of the notes and the shares of common stock issuable upon conversion
of the notes. Certain legal matters will be passed upon for the underwriters by
Cahill Gordon & Reindel, New York, New York.
EXPERTS
The consolidated financial statements of D.R. Horton, Inc., appearing in
D.R. Horton, Inc.'s Annual Report (Form 10-K) for the year ended September 30,
2000, have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon included therein and incorporated herein by
reference. Such consolidated financial statements are incorporated herein by
reference in reliance upon such report given on the authority of such firm as
experts in accounting and tauditing.
S-67
PROSPECTUS
D.R. Horton, Inc.
Debt Securities,
Preferred Stock, Depositary Shares,
Common Stock, Warrants,
Stock Purchase Contracts and Stock Purchase Units
Trust Preferred Securities of DRH Capital Trust I,
DRH Capital Trust II and DRH Capital Trust III
and Related Subordinated Trust Debt Securities
and Guarantees of D.R. Horton, Inc.
Units of These Securities
$750,000,000
----------------
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.
Our common stock is listed on the New York Stock Exchange under the symbol
"DHI."
----------------
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 20, 2001
TABLE OF CONTENTS
The Company................................................................. 1
The Trusts.................................................................. 1
Securities We May Offer..................................................... 3
Use of Proceeds............................................................. 4
Ratio of Earnings to Fixed Charges.......................................... 4
Description of Debt Securities.............................................. 4
Description of Common Stock, Preferred Stock and Depositary Shares.......... 8
Description of Warrants..................................................... 11
Description of Stock Purchase Contracts and Stock Purchase Units............ 12
Description of Units........................................................ 12
Description of Trust Preferred Securities................................... 13
Plan of Distribution........................................................ 23
Legal Matters............................................................... 24
Experts..................................................................... 24
Where You Can Find More Information......................................... 24
Incorporation of Certain Documents by Reference............................. 25
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:
. changes in general economic, real estate and business conditions;
. changes in interest rates and the availability of mortgage financing;
. governmental regulations and environmental matters;
. our substantial leverage;
. competitive conditions within our industry,
. the availability of capital; and
. the ability to effect acquisitions successfully.
We undertake no obligation to publicly update any forward-looking
statements, whether as a result of new information, future events or
otherwise. However, any further disclosures made on related subjects in
additional documents incorporated into this prospectus by reference should be
consulted.
i
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 $60,000 to
$800,000. For the year ended September 30, 2000, we closed 19,144 homes with
an average sales price approximating $182,600. For the three months ended
December 31, 2000, we closed 4,290 homes with an average sales price
approximating $199,600.
We are one of the largest and most geographically diversified homebuilders
in the United States, with operating divisions in 23 states and 39 markets as
of December 31, 2000. The markets we operate in are: 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, SGS, Torrey and Trimark.
Donald R. Horton began our homebuilding business in 1978. In 1991 we were
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.
Our principal executive offices are at 1901 Ascension Blvd., Suite 100,
Arlington, Texas 76006, our telephone number is (817) 856-8200, and our
Internet website address is www.drhorton.com. Information on our Internet
website is not part of this prospectus.
THE TRUSTS
We created three Delaware business trusts pursuant to three trust
agreements executed by us as sponsor for each trust, appointed trustees for
each trust and filed a certificate of trust for each trust with the Delaware
Secretary of State. The trusts are named DRH Capital Trust I, DRH Capital
Trust II and DRH Capital Trust III. The trust agreement for each trust will be
amended and restated prior to the issuance and sale by such trust of its trust
securities, which consist of trust preferred securities and trust common
securities. The original trust agreement is, and the form of the amended and
restated trust agreement will be, filed as an exhibit to the registration
statement of which this prospectus forms a part. The trust agreement for each
trust states the terms and conditions for each trust to issue and sell its
trust securities.
Each trust will exist solely to:
. issue and sell its trust securities;
. use the proceeds from the sale of its trust securities to purchase
and hold a series of our subordinated trust debt securities;
. maintain its status as a grantor trust for federal income tax
purposes; and
. engage in other activities that are necessary or incidental to these
purposes.
1
We will purchase all of the trust common securities of each trust. The
trust common securities will represent an aggregate liquidation amount equal
to at least 3% of each trust's total capitalization. The trust common
securities will have terms substantially identical to, and will rank equal in
priority of payment with, the trust preferred securities. However, if an event
of default under a trust agreement occurs, cash distributions and liquidation,
redemption and other amounts payable on the trust common securities will be
subordinate to the trust preferred securities in priority of payment.
We will guarantee the trust preferred securities as described later in this
prospectus.
Trustees appointed by us, as holder of the trust common securities, will
conduct each trust's business and affairs. Trust agreements will govern the
duties and obligations of the trustees. Pursuant to each trust agreement, the
number of trustees will initially be four, with three different functions. Two
of the trustees, who are administrative trustees, will be persons who are our
employees or officers or are otherwise affiliated with us. The third trustee,
which is the Delaware trustee, will be an individual resident of the State of
Delaware or a corporation which maintains a principal place of business in the
State of Delaware. The Delaware trustee will serve the sole purpose of
complying with certain Delaware laws. The fourth trustee will be a bank or
trust company unaffiliated with us and will serve as property trustee under
each trust agreement and as indenture trustee for purposes of the Trust
Indenture Act of 1939. Initially, an employee of CT Corporation System will
act as the Delaware trustee and American Stock Transfer & Trust Company as the
property trustee. The property trustee will also act as indenture trustee
under the indenture and guarantee trustee under the trust guarantee as
described later in this section. We, as the holder of all the trust common
securities, will have the right to appoint, remove or replace any trustee and
to increase or decrease the number of trustees, provided that the number of
trustees will be at least three, two of which will be the administrative
trustees and one of which will be the Delaware trustee.
The property trustee will hold title to our subordinated trust debt
securities held by the trust for the benefit of the holders of the trust
securities, and will have the power to exercise all rights, powers and
privileges as the holder of the subordinated trust debt securities under the
indenture pursuant to which the subordinated trust debt securities will be
issued. In addition, the property trustee will maintain exclusive control of a
segregated non-interest bearing bank account to hold all payments made in
respect of the subordinated trust debt securities for the benefit of the
holders of the trust securities. The property trustee will make payments of
distributions and payments on liquidation, redemption and otherwise to the
holders of the trust securities out of funds from the account. The guarantee
trustee will hold the guarantee by us of the trust securities for the benefit
of the holders of the trust preferred securities.
We will pay all fees and expenses related to each trust and each offering
of the related trust preferred securities and will pay all ongoing costs and
expenses of each trust, except such trust's obligations under the related
trust securities.
The rights of the holders of the trust preferred securities, including
economic rights, rights to information and voting rights, are set forth in
each trust's trust agreement and the Delaware Business Trust Act and the Trust
Indenture Act. The principal place of business of each trust is c/o D.R.
Horton, Inc., 1901 Ascension Blvd., Suite 100, Arlington, Texas 76006. The
telephone number is 817-856-8200.
2
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,
. depositary shares,
. common stock,
. warrants entitling the holders to purchase common stock, preferred
stock or debt securities,
. stock purchase contracts or
. stock purchase units.
In addition, from time to time by this prospectus, one or more of the trusts
may offer and sell trust preferred securities, which will include our trust
guarantees. The trusts will hold our subordinated trust debt securities, which
may be distributed to holders of trust securities under specified
circumstances.
We may also offer and sell units of the above securities, which may or may
not include trust preferred securities issued by one or more of the trusts.
The aggregate initial offering price of all securities sold will not exceed
$750,000,000. 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
dealers 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, agents or dealers, if any, through or
to which we will sell the securities;
. The compensation, if any, of those underwriters, agents or dealers;
. 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.
3
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.
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, 2000 and the three months ended December
31, 2000 and 1999:
Three months
ended
Year ended September 30, December 31,
------------------------ -------------
1996 1997 1998 1999 2000 1999 2000
---- ---- ---- ---- ---- ------ ------
Ratio................................. 3.15 2.88 3.13 4.10 3.52 3.62 3.16
==== ==== ==== ==== ==== ====== ======
For purposes of computing the ratio of earnings to fixed charges, earnings
consist of the sum of income before income tax and the cumulative effect of a
change in accounting principle, 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 entered into or
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 and appointed in a supplemental indenture with
respect to a particular series. The indentures are governed by the Trust
Indenture Act.
The following is a 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 will 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;
4
. 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;
. 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
Unless otherwise described in the prospectus supplement, 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
5
securities then outstanding may declare the principal of all the debt
securities of 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
judgment 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 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.
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;
6
. 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 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 indentures relating to
our 8-3/8% Senior Notes due 2004, 10-1/2% Senior Notes due 2005, 8% Senior
Notes due 2009, 9.75% Senior Subordinated Notes due 2010 and 9.375% Senior
Subordinated Notes due 2011. The indenture contains, or 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 claim as security or otherwise. The indenture permits,
or 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 provides, or 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 such person's 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 govern, or will govern, the indenture,
the debt securities and the guarantees of the debt securities.
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DESCRIPTION OF COMMON STOCK, PREFERRED STOCK AND DEPOSITARY SHARES
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
16, 2001, 75,522,011 shares of common stock and no shares of preferred stock
were outstanding.
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.
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 8-3/8% Senior Notes due 2004, 10-1/2% Senior Notes due 2005, 8%
Senior Notes due 2009, 9.75% Senior Subordinated Notes due 2010 and 9.375%
Senior Subordinated Notes due 2011 and may also serve as trustee under other
indentures 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
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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.
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.
Depositary Shares
General. We may, at our option, elect to offer fractional shares of
preferred stock, rather than full shares of preferred stock. If we exercise
this option, we will issue to the public receipts for depositary shares, and
each of these depositary shares will represent a fraction (to be set forth in
the applicable prospectus supplement) of a share of a particular series of
preferred stock.
The shares of any series of preferred stock underlying the depositary
shares will be deposited under a deposit agreement between us and a bank or
trust company selected by us. The depositary will have its principal office in
the United States and a combined capital and surplus of at least $50,000,000.
Subject to the terms of the deposit agreement, each owner of a depositary
share will be entitled, in proportion, to the applicable fraction of a share
of preferred stock underlying that depositary share, to all the rights and
preferences of the preferred stock underlying that depositary share. Those
rights include dividend, voting, redemption and liquidation rights.
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The depositary shares will be evidenced by depositary receipts issued
pursuant to the deposit agreement. Depositary receipts will be distributed to
those persons purchasing the fractional shares of preferred stock underlying
the depositary shares, in accordance with the terms of the offering. Copies of
the forms of deposit agreement and depositary receipt will be filed as
exhibits to the registration statement. The following summary of the deposit
agreement, the depositary shares and the depositary receipts is not complete.
You should refer to the forms of the deposit agreement and depositary receipts
that will be filed with the SEC in connection with the offering of the
specific depositary shares.
Pending the preparation of definitive engraved depositary receipts, the
depositary may, upon our written order, issue temporary depositary receipts
substantially identical to the definitive depositary receipts but not in
definitive form. These temporary depositary receipts entitle their holders to
all the rights of definitive depositary receipts which are to be prepared
without unreasonable delay. Temporary depositary receipts will then be
exchangeable for definitive depositary receipts at our expense.
Dividends and Other Distributions. The depositary will distribute all cash
dividends or other cash distributions received with respect to the preferred
stock to the record holders of depositary shares relating to the preferred
stock in proportion to the number of depositary shares owned by those holders.
If there is a distribution other than in cash, the depositary will
distribute property received by it to the record holders of depositary shares
that are entitled to receive the distribution, unless the depositary
determines that it is not feasible to make the distribution. If this occurs,
the depositary may, with our approval, sell the property and distribute the
net proceeds from the sale to the applicable holders.
Redemption of Depositary Shares. If a series of preferred stock represented
by depositary shares is subject to redemption, the depositary shares will be
redeemed from the proceeds received by the depositary resulting from the
redemption, in whole or in part, of that series of preferred stock held by the
depositary. The redemption price per depositary share will be equal to the
applicable redemption fraction of the redemption price per share payable with
respect to that series of the preferred stock. Whenever we redeem shares of
preferred stock that are held by the depositary, the depositary will redeem,
as of the same redemption date, the number of depositary shares representing
the shares of preferred stock so redeemed. If fewer than all the depositary
shares are to be redeemed, the depositary shares to be redeemed will be
selected by lot or pro rata as may be determined by the depositary.
Voting the Preferred Stock. Upon receipt of notice of any meeting at which
the holders of the preferred stock are entitled to vote, the depositary will
mail the information contained in such notice to the record holders of the
depositary shares underlying the preferred stock. Each record holder of the
depositary shares on the record date, which will be the same date as the
record date for the preferred stock, will be entitled to instruct the
depositary as to the exercise of the voting rights pertaining to the amount of
the preferred stock represented by the holder's depositary shares. The
depositary will then try, as far as practicable, to vote the number of shares
of preferred stock underlying those depositary shares in accordance with such
instructions. We will agree to take all actions which may be deemed necessary
by the depositary to enable the depositary to do so. The depositary will not
vote the shares of preferred stock to the extent it does not receive specific
instructions from the holders of depositary shares underlying the preferred
stock.
Amendment and Termination of the Depositary Agreement. The form of
depositary receipt evidencing the depositary shares and any provision of the
deposit agreement may at any time be amended by agreement between us and the
depositary. However, any amendment which materially and adversely alters the
rights of the holders of depositary shares will not be effective unless the
amendment has been approved by the holders of at least a majority of the
depositary shares then outstanding. The deposit agreement may be terminated by
us or by the depositary only if (a) all outstanding depositary shares have
been redeemed or (b) there has been a final distribution of the underlying
preferred stock in connection with our liquidation, dissolution or winding up
and the preferred stock has been distributed to the holders of depositary
receipts.
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Charges of Depositary. We will pay all transfer and other taxes and
governmental charges arising solely from the existence of the depositary
arrangements. We will also pay charges of the depositary in connection with
the initial deposit of the preferred stock and any redemption of the preferred
stock. Holders of depositary receipts will pay other transfer and other taxes
and governmental charges and those other charges, including a fee for the
withdrawal of shares of preferred stock upon surrender of depositary receipts,
as are expressly provided in the deposit agreement to be for their accounts.
Miscellaneous. The depositary will forward to holders of depositary
receipts all reports and communications from us that we deliver to the
depositary and that we are required to furnish to the holders of the preferred
stock.
Neither we nor the depositary will be liable if either of us is prevented
or delayed by law or any circumstance beyond our control in performing our
respective obligations under the deposit agreement. Our obligations and those
of the depositary will be limited to performance in good faith of our
respective duties under the deposit agreement. Neither we nor the depositary
will be obligated to prosecute or defend any legal proceeding in respect of
any depositary shares or preferred stock unless satisfactory indemnity is
furnished. We and the depositary may rely upon written advice of counsel or
accountants, or upon information provided by persons presenting preferred
stock for deposit, holders of depositary receipts or other persons believed to
be competent and on documents believed to be genuine.
Resignation and Removal of Depositary. The depositary may resign at any
time by delivering notice to us of its election to resign. We may remove the
depositary at any time. Any resignation or removal will take effect upon the
appointment of a successor depositary and its acceptance of the appointment.
The successor depositary must be appointed within 60 days after delivery of
the notice of resignation or removal and must be a bank or trust company
having its principal office in the United States and having a combined capital
and surplus of at least $50,000,000.
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. 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.
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;
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. 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.
DESCRIPTION OF STOCK PURCHASE CONTRACTS AND
STOCK PURCHASE UNITS
We may issue stock purchase contracts, including contracts obligating
holders to purchase from us, and obligating us to sell to the holders, a
specified number of shares of common stock at a future date or dates. The
consideration per share of common stock may be fixed at the time stock
purchase contracts are issued or may be determined by reference to a specific
formula set forth in the stock purchase contracts. The stock purchase
contracts may be issued separately, or as part of stock purchase units
consisting of a stock purchase contract and debt securities, trust preferred
securities or debt obligations of third parties, including U.S. treasury
securities, securing the holders' obligations to purchase the common stock
under the stock purchase contracts. The stock purchase contracts may require
us to make periodic payments to the holders of the stock purchase units or
vice versa, and such payments may be unsecured or prefunded on some basis. The
stock purchase contracts may require holders to secure their obligations
thereunder in a specified manner.
The applicable prospectus supplement will describe the terms of any stock
purchase contracts or stock purchase units. The description in the prospectus
supplement will not necessarily be complete, and reference will be made to the
stock purchase contract, and, if applicable, collateral or depositary
arrangements, relating to such stock purchase contracts or stock purchase
units. Material United States federal income tax considerations applicable to
the stock purchase units and the stock purchase contracts will be discussed in
the related prospectus supplement.
DESCRIPTION OF UNITS
As specified in the applicable prospectus supplement, units will consist of
one or more stock purchase contracts, warrants, debt securities, debt
securities guarantees, trust preferred securities, guarantees of trust
preferred securities, preferred stock, common stock, or any combination
thereof. You should refer to the applicable prospectus supplement for:
. all terms of the units and of the stock purchase contracts, warrants,
debt securities, debt securities guarantees, trust preferred securities,
guarantees of trust preferred securities, shares of preferred stock or
shares of common stock or any combination thereof comprising the units,
including whether and under what circumstances the securities comprising
the units may or may not be traded separately;
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. a description of the terms of any unit agreement governing the units; and
. a description of the provisions for the payment, settlement, transfer or
exchange of the units.
DESCRIPTION OF TRUST PREFERRED SECURITIES
Description of Trust Securities
Each trust may issue only one series of trust preferred securities having
terms described in its related prospectus supplement. Each trust agreement
will be qualified as an indenture under the Trust Indenture Act and will
contain the terms of the trust preferred securities. The property trustee will
act as indenture trustee for purposes of the Trust Indenture Act.
We will set forth the terms of the trust preferred securities, including
distributions, redemption, voting, liquidation rights and such other
preferred, deferred or other special rights or restrictions, in the trust
agreement. In addition, the Trust Indenture Act automatically makes some terms
a part of the trust agreement. The terms of the trust preferred securities
will correspond to the terms of the subordinated trust debt securities held by
the trust and described in the related prospectus supplement.
The prospectus supplement relating to the trust preferred securities of a
trust will include the specific terms of the series of trust preferred
securities being issued, including:
. the distinctive designation of the trust preferred securities;
. the number of trust preferred securities issuable by the trust;
. the annual distribution rate, or method of determining such rate, for
trust preferred securities and the date or dates upon which such
distributions will be payable and the record date or dates for the
payment of such distributions;
. whether distributions on trust preferred securities will be cumulative,
and, in the case of trust preferred securities having such cumulative
distribution rights, the date or dates or method of determining the date
or dates from which distributions on trust preferred securities will be
cumulative;
. the amount or amounts which will be paid out of the assets of the trust
to the holders of trust preferred securities upon voluntary or
involuntary dissolution, winding-up or termination of the trust;
. the obligation or right, if any, of the trust to purchase or redeem trust
preferred securities and the price or prices at which, the period or
periods within which, and the terms and conditions upon which trust
preferred securities will be purchased or redeemed, in whole or in part,
pursuant to such obligation or right;
. the voting rights, if any, of holders of trust preferred securities in
addition to those required by law, including the number of votes per
trust preferred security and any requirement for approval by the holders
of such trust preferred securities, or of trust preferred securities
issued by other trusts, or both, as a condition to specified action or
amendments to the trust agreement;
. the terms for any conversion or exchange into other securities;
. the terms and conditions, if any, upon which the subordinated trust debt
securities owned by the trust may be distributed to holders of trust
preferred securities;
. if applicable, any securities exchange upon which the trust preferred
securities will be listed; and
. any other relevant rights, preferences, privileges, limitations or
restrictions of trust preferred securities not inconsistent with the
trust agreement or with applicable law.
We will guarantee distributions on trust preferred securities to the extent
set forth below under "Description of the Trust Guarantee." We will describe
material United States federal income tax considerations applicable to trust
preferred securities in a prospectus supplement relating to the trust
preferred securities.
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Each trust will issue a series of trust common securities in connection
with the issuance of trust preferred securities. Except for voting rights, the
terms of trust common securities will be substantially identical to the terms
of trust preferred securities. Trust common securities will rank equally with
trust preferred securities except that, upon an event of default under the
trust agreement, the rights of holders of trust common securities to payments
will be subordinated to the rights of holders of trust preferred securities.
The trust common securities will also carry the right to vote to appoint,
remove or replace any trustee of the trust. We will own all of the trust
common securities.
Enforcement of Certain Rights by Holders of Trust Preferred Securities
If an event of default as defined in the applicable trust agreement occurs
and is continuing, then the holders of trust preferred securities of such
trust would rely on the enforcement by the property trustee of its rights as a
holder of the applicable series of subordinated trust debt securities against
us. In addition, so long as their directions do not conflict with any rule of
law or with such trust agreement, and could not involve such property trustee
in personal liability in circumstances where reasonable indemnity would not be
adequate, the holders of a majority in aggregate liquidation amount of trust
preferred securities of such trust may direct the property trustee as to:
. the time, method and place of conducting any proceeding for any remedy
available to such property trustee;
. the exercise of any trust or power conferred upon such property trustee
under such trust agreement; and
. the exercise of the remedies available to the property trustee as a
holder of subordinated trust debt securities.
If such property trustee fails to enforce its rights under the subordinated
trust debt securities held by such trust, a holder of trust preferred
securities of such trust may, to the extent permitted by law, institute a
legal proceeding directly against us to enforce such property trustee's rights
under such trust agreement. In such case, the holder would not be required to
institute a legal proceeding against the property trustee, the trust or any
other person. In no event will such holder be permitted or authorized to
affect, disturb or prejudice the rights of any other holder or to obtain or to
seek to obtain priority or preference over any other holder or to enforce any
right under such trust agreement, except in the manner described in the trust
agreement and for the equal and ratable benefit of all such holders.
Notwithstanding the foregoing, a holder of trust preferred securities of such
trust may institute a proceeding directly against us for enforcement of
payment to such holder of the principal of or interest on the subordinated
trust debt securities held by such trust having a principal amount equal to
the aggregate stated liquidation amount of such trust preferred securities
held by such holder, on or after the due dates specified or provided for in
such subordinated trust debt securities. In such case, the holder would not be
required to institute a legal proceeding against the property trustee, the
trust or any other person. In connection with such proceeding, we will be
subrogated to the rights of such holder under the trust agreement to the
extent of any payment made by us to such holder.
Description of Trust Guarantees
The following is a summary of information concerning the guarantees of the
trust preferred securities of each trust, which we refer to as the trust
guarantees. We will execute each trust guarantee for the benefit of holders of
trust preferred securities. We will qualify each trust guarantee as an
indenture under the Trust Indenture Act. We will identify the indenture
trustee for purposes of the Trust Indenture Act in a prospectus supplement
with respect to the trust preferred securities.
The following summary does not purport to be complete and is subject in all
respects to the provisions of, and is qualified by its entirety by reference
to, the form of trust guarantee, which will be filed as an exhibit to the
registration statement of which this prospectus forms a part. The trust
guarantee will be held by the property trustee for the benefit of holders of
trust preferred securities.
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General
To the extent set forth in the trust guarantee, we will agree to pay in
full the guarantee payments, described below, without duplication of amounts
theretofore paid by or on behalf of the trust, as and when due regardless of
any defense, right of set off or counter-claim which we may have. With respect
to trust preferred securities issued by a trust, we will pay in full the
following payments or distributions as guarantee payments to the extent the
trust fails to pay or make such guarantee payments:
. any accrued and unpaid distributions on trust preferred securities, to
the extent such trust has funds legally and immediately available
therefor;
. the redemption price, to the extent such trust has funds legally and
immediately available therefor with respect to trust preferred securities
called for redemption; and
. upon voluntary or involuntary dissolution, winding up or termination of
such trust, other than in connection with the distribution of
subordinated trust debt securities to holders of trust preferred
securities or the redemption of all trust preferred securities, the
lesser of:
. the aggregate of the liquidation amount and all accrued and unpaid
distributions on such trust preferred securities to the date of
payment, to the extent such trust has funds legally and immediately
available therefor, and
. the amount of assets of the trust remaining available for distribution
to holders of trust preferred securities in liquidation of the trust.
We will determine the redemption price and liquidation amount at the time
the trust preferred securities are issued. We may satisfy our obligation to
make a guarantee payment by direct payment of the required amounts to the
holders of such trust preferred securities or by causing the trust to pay such
amounts to such holders.
Each trust guarantee will not apply to any payment or distribution except
to the extent the applicable trust has funds legally available for such
payment or distribution. If we do not make interest payments on the
subordinated trust debt securities purchased by a trust, such trust will not
pay distributions on such trust preferred securities issued by such trust and
will not have funds legally available. The trust guarantee, when taken
together with our obligations under the subordinated trust debt securities,
the applicable indenture and the trust agreement, including our obligation to
pay costs, expenses, debt, and liabilities of such trust, other than with
respect to the trust securities, will be a full and unconditional guarantee,
on a subordinated basis, by us of payments due on the trust preferred
securities from the time of issuance.
Amendment of Trust Guarantee; Assignment
Except for changes which do not materially adversely affect the rights of
holders of trust preferred securities, each trust guarantee may be amended
only with the approval of a majority in liquidation amount of trust preferred
securities issued by the applicable trust. The manner of obtaining any such
approval will be as set forth in the applicable trust agreement. The trust
guarantee will bind the successors, assigns, receivers, trustees and
representatives of us and continue to benefit the trust guarantee trustee and
holders of trust preferred securities. Except in connection with a
consolidation, merger, conveyance, transfer or lease involving us, permitted
under the applicable indenture, we may not assign our rights or delegate our
obligations under the trust guarantee.
Termination of the Trust Guarantee
Each trust guarantee will terminate as to the trust preferred securities
issued by the applicable trust:
. upon full payment of the redemption price of all trust preferred
securities of such trust,
. upon distribution of subordinated trust debt securities held by such
trust to the holders of and in exchange for trust preferred securities,
or
. upon full payment of amounts payable in accordance with the trust
agreement upon liquidation of such trust.
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The trust guarantee will continue to be effective or will be reinstated, as
the case may be, if at any time any holder of trust preferred securities must
repay any sums paid to them under the trust preferred securities or trust
guarantee.
Events of Default
An event of default under a trust guarantee will occur if we fail to make
the payments required by the trust guarantee.
The holders of a majority in liquidation amount of trust preferred
securities relating to such trust guarantee have the right to direct the time,
method and place of conducting any proceeding for any remedy available to such
trust guarantee trustee or to direct the exercise of any trust or power
conferred upon such trust guarantee trustee under the trust guarantee. If the
trust guarantee trustee fails to enforce such trust guarantee, any holder of
record of trust preferred securities relating to such trust preferred
guarantee may institute a legal proceeding directly against us to enforce the
trust guarantee trustee's rights, without first instituting any other legal
proceeding.
Status of Trust Guarantee
The trust guarantee will constitute our unsecured obligation and will rank:
. subordinate and junior in right of payment to all of our other
liabilities, including the subordinated trust debt securities, except
those made equal or subordinate by their terms,
. equal with the most senior preferred stock which may now or hereafter be
issued or guaranteed by us; and
. senior to our common stock.
The terms of the trust preferred securities will provide that each holder
of trust preferred securities issued by such trust, by acceptance thereof,
agrees to the subordination provisions and other terms of the related trust
guarantee. Each trust guarantee will constitute a guarantee of payment and not
of collection. This means that the guaranteed party may institute a legal
proceeding directly against the guarantor to enforce its rights under such
trust guarantee without instituting a legal proceeding against any other
person or entity. Each trust guarantee will be deposited with the applicable
trust guarantee trustee to be held for the benefit of the holders of such
trust preferred securities. Except as otherwise noted herein, the trust
guarantee trustee has the right to enforce the trust guarantee on behalf of
the holders of the related trust preferred securities. Except as described
under "Termination of the Trust Guarantee" above, the trust guarantee will not
be discharged except by payment of the guarantee payments in full without
duplication of amounts theretofore paid by the trust.
Information Concerning Trust Guarantee Trustee
The trust guarantee trustee, prior to the occurrence of a default with
respect to the trust guarantee and after the curing of all such defaults that
may have occurred, will undertake to perform only such duties as are
specifically set forth in the trust guarantee and, during the continuance of
any default, will exercise the same degree of care as a prudent individual
would exercise in the conduct of such individual's own affairs. Subject to
such provisions, the trust guarantee trustee will be under no obligation to
exercise any of the powers vested in it by the trust guarantee at the request
of any holder of trust preferred securities, unless offered reasonable
indemnity against the costs, expenses and liabilities which might be incurred
thereby. However, in any event, the trust guarantee trustee must exercise the
rights and powers vested in it by such trust guarantee upon the occurrence of
an event of default under such trust guarantee. The trust guarantee trustee
also serves as property 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 indentures relating to our 8-3/8% Senior Notes due 2004, 10-1/2%
Senior Notes due 2005, 8% Senior Notes due 2009, 9.75% Senior Subordinated
Notes due 2010 and 9.375% Senior Subordinated Notes due 2011.
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Governing Law
The trust guarantee will be governed by the laws of the State of New York.
Agreement as to Expenses and Liabilities
As will be required by the trust agreement, we will enter into an agreement
in which we irrevocably and unconditionally guarantee to each person or entity
to whom the trust becomes indebted or liable the full payment of any
indebtedness, expenses or liabilities of the trust. This separate agreement as
to expenses and liabilities does not include obligations of the trust to pay
to the holders of the related trust securities or other similar interests in
the trust the amounts due such holders pursuant to the terms of such trust
securities or such other similar interests, as the case may be.
Additional Description of Subordinated Trust Debt Securities Issued to the
Trusts
Set forth below is a description of the terms of the subordinated trust
debt securities which each trust will hold as trust assets. The subordinated
trust debt securities may be issued from time to time in one or more series
under an indenture between us and American Stock Transfer and Trust Company,
as indenture trustee, or another trustee chosen by us, qualified to act as
such under the Trust Indenture Act and appointed in a supplemental indenture
with respect to a particular series. The following description does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, the applicable indenture and supplements creating and governing
the subordinated trust debt securities, which will be filed as exhibits to the
registration statement of which this prospectus forms a part. The terms of the
subordinated trust debt securities will include those stated in the indenture
and the related supplemental indenture and those made a part of the indenture
by reference to the Trust Indenture Act.
Upon a dissolution of a trust, the property trustee, following satisfaction
of liabilities to creditors of the trust in accordance with the provisions of
applicable law, may distribute the subordinated trust debt securities held by
such trust to the holders of trust securities in liquidation of such trust.
If the property trustee distributes any subordinated trust debt securities
to holders of trust preferred securities, we will use our best efforts to have
such subordinated trust debt securities traded on the same stock exchange, if
any, as the related trust preferred securities are traded.
General
Subordinated trust debt securities will be issued in a principal amount
equal to the aggregate stated liquidation amount of trust preferred
securities, plus our investment in trust common securities.
The entire principal amount of the subordinated trust debt securities held
by each trust will mature and become due and payable, together with any
accrued and unpaid interest thereon, including additional interest, if any, on
the date set forth in the applicable prospectus supplement.
If subordinated trust debt securities held by a trust are distributed to
holders of trust preferred securities of such trust in liquidation of such
holders' interests in such trust, such subordinated trust debt securities will
initially be issued as a global security. Under certain limited circumstances,
subordinated trust debt securities may be issued in certificated form in
exchange for a global security. In the event subordinated trust debt
securities are issued in certificated form, such subordinated trust debt
securities will be in denominations as specified in the applicable prospectus
supplement and integral multiples thereof and may be transferred or exchanged
at the offices described therein. We will make payments on subordinated trust
debt securities issued as a global security to the depositary for the
subordinated trust debt securities. In the event subordinated trust debt
securities are issued in certificated form, principal and interest will be
payable, the transfer of the subordinated trust debt securities will be
registrable and subordinated trust debt securities will be exchangeable for
subordinated trust debt securities of other denominations of a like aggregate
principal amount at the corporate trust office of the indenture trustee in New
York, New York. In such an event, however, at our option, we may pay interest
by check mailed to the address of the persons entitled thereto.
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Certain Covenants
If there has occurred any event that would constitute an indenture event of
default or we are in default with respect to our payment of any obligations
under the trust guarantee, then:
. we may not declare or pay any dividend on, make any distributions with
respect to, or redeem, purchase or make a liquidation payment with
respect to, any of our capital stock other than:
. purchases or acquisitions of shares of our common stock in connection
with the satisfaction by us of our obligations under any employee
benefit plans or any other contractual obligation of ours, other than a
contractual obligation ranking junior to the subordinated trust debt
securities,
. as a result of a reclassification of our capital stock or the exchange
or conversion of one class or series of our capital stock for another
class or series of our capital stock, or
. the purchase of fractional interests in shares of our capital stock
pursuant to the conversion or exchange provisions of such capital stock
or the security being converted or exchanged,
. we may not make any payment of interest, principal or premium, if any, on
or repay, repurchase or redeem any debt securities (including guarantees)
issued by us which rank junior to the subordinated trust debt securities,
and
. we may not make any guarantee payments with respect to the foregoing
(other than pursuant to the trust guarantee).
We will covenant, as long as trust preferred securities of a trust remain
outstanding:
. to maintain 100% ownership of trust common securities of such trust,
. not to cause such trust to terminate, except in connection with a
distribution of subordinated trust debt securities, and
. to use our reasonable efforts to cause such trust:
. to remain a statutory business trust, except in connection with the
distribution of subordinated trust debt securities held by such trust
to the holders of trust securities in liquidation of such trust, the
redemption of all trust securities, or certain mergers, consolidations
or amalgamations, each as permitted by the trust agreement, and
. to otherwise continue to be classified as a grantor trust for United
States federal income tax purposes.
Optional Redemption
We will have the right to redeem the subordinated trust debt securities, in
whole or in part, from time to time, without premium or penalty, on or after
the date set forth in the applicable prospectus supplement, upon not less than
30 or more than 60 days' notice, at a redemption price equal to a premium on
the principal amount to be redeemed plus any accrued and unpaid interest,
including additional interest, if any, to the redemption date, as specified in
the applicable prospectus supplement. If a partial redemption of the trust
preferred securities resulting from a partial redemption of the subordinated
trust debt securities held by a trust would result in the delisting of the
trust preferred securities of such trust, we may only redeem such subordinated
trust debt securities held by such trust in whole. In addition, if a change in
tax or securities laws occurs that adversely affects specified tax or
securities characteristics of the trust, upon not less than 30 or more than 60
days notice, within 90 days after the occurrence of such event and subject to
the terms and conditions of the subordinated indenture, we may redeem such
subordinated trust debt securities, in whole, at a price equal to 100% of the
principal amount to be redeemed plus any accrued but unpaid interest,
including additional interest, if any, to the redemption date. In the event of
redemption of such subordinated trust debt securities in part only, we will
issue new subordinated trust debt securities for the unredeemed portion in the
name or names of the holders who surrender their unredeemed subordinated trust
debt securities.
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Interest
Each subordinated trust debt security will bear interest at the rate set
forth in the applicable prospectus supplement from the original date of
issuance, payable quarterly in arrears on the interest payment dates which
will be specified in the prospectus supplement, to the person in whose name
such subordinated trust debt security is registered, subject to specified
exceptions, on the record date specified in the applicable prospectus
supplement.
The amount of interest payable for any period will be computed on the basis
of a 360-day year of twelve 30-day months. In the event that any date on which
interest is payable on the subordinated debt securities is not a business day,
then we will pay the interest payable on such date on the next succeeding day
which is a business day, and without any interest or other payment in respect
of any such delay, except that, if such business day is in the next succeeding
calendar year, such payment shall be made on the immediately preceding
business day, in each case with the same force and effect as if made on such
date.
Option To Extend Interest Payment Period
Except to the extent set forth in the applicable prospectus supplement, we
will have the right at any time to defer payments of interest on subordinated
trust debt securities by extending the interest payment period for up to 20
consecutive quarters. At the end of such an extension period, we will pay all
interest then accrued and unpaid, including any additional interest, together
with interest thereon at the rate specified and to the extent permitted by
applicable law. We will covenant in the applicable indenture for the benefit
of the holders of a series of subordinated trust debt securities, that,
subject to the next succeeding sentence:
. we will not declare or pay any dividend on, or make any distributions
with respect to, or redeem, purchase, acquire or make a liquidation
payment with respect to, any of our capital stock, and
. we will not make any payment of interest, principal or premium, if any,
on or repay, repurchase or redeem any debt securities (including
guarantees other than the trust guarantee) issued by us which rank junior
to the applicable series of subordinated trust debt securities:
. if at such time we will have given notice of our election to extend
an interest payment period for a series of subordinated trust debt
securities and such extension shall be continuing, or
. if at such time an event of default with respect to a series of
subordinated trust debt securities will have occurred and be
continuing.
The preceding sentence, however, shall not restrict:
. any of the actions described in the preceding sentence resulting from any
reclassification of our capital stock or the exchange or conversion of
one class or series of our capital stock for another class or series of
our capital stock,
. repurchases, redemptions or other acquisitions of shares of our capital
stock in connection with any employment contract, benefit plan or other
similar arrangement with or for the benefit of employees, officers or
directors or a stock purchase and dividend reinvestment plan,
. dividends or distributions in our capital stock, or
. the purchase of fractional interests in shares of our capital stock
pursuant to the conversion or exchange provisions of such capital stock
or the security being converted or exchanged.
Prior to the termination of any such extension period for a series of
subordinated trust debt securities, we may further defer payments of interest
on such subordinated trust debt securities, by extending the interest payment
period, provided that such extension period together with all such previous
and further extensions thereof for such series of subordinated trust debt
securities may not exceed 20 consecutive quarters or extend beyond the
maturity of such series of subordinated trust debt securities.
19
Upon the termination of any extension period for a series of subordinated
trust debt securities, and the payment of all accrued and unpaid interest on
the subordinated trust debt securities then due, we may select a new extension
period for such series of subordinated trust debt securities, as if no
extension period had previously been declared, subject to the above
requirements. We will not be required to pay interest on a series of
subordinated trust debt securities during an extension period until the end
thereof.
If the property trustee is the sole holder of the subordinated trust debt
securities, we will give the administrative trustees and the property trustee
notice of our selection of such extension period for such series of
subordinated trust debt securities one business day prior to the earlier of
(1) the next succeeding date on which distributions on the related trust
preferred securities are payable or (2) the date a trust is required to give
notice to the New York Stock Exchange or other applicable self-regulatory
organization or to holders of such trust preferred securities on the record
date or the date such distribution is payable, but in any event not less than
one business day prior to such record date. The administrative trustees shall
give notice of our selection of such extension period to the holders of such
trust preferred securities. If the property trustee is not the sole holder of
a series of subordinated trust debt securities, we will give the holders of
such subordinated trust debt securities notice of our selection of such
extension period ten business days prior to the earlier of (1) the interest
payment date or (2) the date we are required to give notice to the New York
Stock Exchange or other applicable self-regulatory organization or to holders
of such subordinated trust debt securities, but in any event at least two
business days before such record date.
We have no present intention to defer interest payments.
Additional Interest
If a trust is required to pay any taxes, duties, assessments or other
governmental charges, other than withholding taxes, imposed by the United
States, or any other taxing authority, we will pay as additional interest such
additional amounts as shall be required so that the net amounts received and
retained by a trust after paying any such charges will be equal to the amount
such trust would have received had no such charge been imposed.
Events of Default Under Applicable Indenture
We will define an event of default with respect to any series of
subordinated trust debt securities in the indenture or applicable supplemental
indenture. An event of default may include:
. our default in payment of the principal of or premium, if any, on any of
the subordinated trust debt securities of such series;
. default for 30 days in payment of any installment of interest, including
additional interest, on any subordinated trust debt security of such
series beyond a valid extension;
. default by us 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
. voluntary or involuntary dissolution, winding up, termination,
bankruptcy, insolvency or reorganization of a trust, except in connection
with:
. the distribution of subordinated trust debt securities to holders of
trust securities in liquidation of a trust,
. the redemption of all outstanding trust securities of such trust, or
. mergers or consolidations permitted by the trust agreement.
The holders of not less than a majority in aggregate principal amount of
subordinated trust debt securities may waive any past default, except (1) a
default in payment of principal, premium, interest or additional interest,
unless such default has been cured and a sum sufficient to pay all
installments due otherwise than by acceleration
20
has been deposited with the subordinated debt security trustee, or (2) a
default in a covenant or provision which under the applicable indenture may
not be modified or amended without the consent of each holder of a
subordinated trust debt security. The holders of trust preferred securities in
certain circumstances have the right to direct the property trustee to
exercise its rights as holder of subordinated debt securities.
Payment and Paying Agents
Payment of principal and premium, if any, on subordinated trust debt
securities will be made only if the holder of subordinated trust debt
securities surrenders them to the paying agent of the subordinated trust debt
securities.
Principal of and any premium and interest, if any, on subordinated trust
debt securities will be payable, subject to any applicable laws and
regulations, at the office of such paying agent or paying agents as we may
designate from time to time pursuant to the subordinated trust debt security
indenture. Payment of interest on the subordinated trust debt securities on
any interest payment date will be made to the person in whose name the
subordinated trust debt security is registered at the close of business on the
regular record date for such interest payment.
The indenture trustee will act as paying agent with respect to the
subordinated trust debt securities. We may at any time designate additional
paying agents or rescind the designation of any paying agent or approve a
change in the office through which any paying agent acts, except that we will
be required to maintain a paying agent at the place of payment.
Consolidation, Merger and Sale
The applicable indenture will provide that we will be permitted to
consolidate with, or sell, lease or convey all or substantially all of our
assets to, or merge with or into, any other entity provided that:
. either we shall be the continuing entity, or the successor entity formed
by or resulting from any such consolidation or merger or which shall have
received the transfer of such assets shall expressly assume our
obligations under the trust guarantee and the payment of the principal
of, and premium, if any, and interest on all of the subordinated trust
debt securities and the due and punctual performance and observance of
all of the covenants and conditions contained in the applicable
indenture;
. immediately after giving effect to such transaction and treating any
indebtedness that becomes an obligation of ours or any subsidiary as a
result thereof as having been incurred by us or such subsidiary at the
time of such transaction, no event of default under the applicable
indenture or the trust guarantee, and no event which, after notice or the
lapse of time, or both, would become such an event of default, shall have
occurred and be continuing; and
. an officer's certificate and legal opinion covering such conditions shall
be delivered to the indenture trustee.
The indenture will not otherwise contain any covenant which restricts our
ability to merge or consolidate with or into any other person, sell or convey
all or substantially all of our assets to any person or otherwise engage in
restructuring transactions.
Information Concerning Indenture Trustee for the Subordinated Trust Debt
Securities
The indenture trustee for the subordinated debt securities, prior to
default and after the curing of all defaults, if any, will undertake to
perform only such duties as will be specifically set forth in the applicable
indenture and, after a default that has not been cured or waived, will
exercise the same degree of care as a prudent individual would exercise in the
conduct of his or her own affairs. Subject to such provision, the indenture
trustee will be under no obligation to exercise any of the powers vested in it
by the indenture at the request of any holder of subordinated trust debt
securities, unless offered reasonable indemnity by such holder against the
costs, expenses and liabilities which might be incurred thereby. However, the
foregoing will not relieve the indenture trustee,
21
upon the occurrence of an indenture event of default, from exercising the
rights and powers vested in it by the indenture. The indenture trustee will
not be required to expend or risk its own funds or otherwise incur personal
financial liability in the performance of its duties if the indenture trustee
reasonably believes that repayment or adequate indemnity is not reasonably
assured to it.
Miscellaneous
We will have the right at all times to assign any of our rights or
obligations under the indenture to a direct or indirect wholly-owned
subsidiary of ours. However, in the event of any such assignment, we will
remain liable for all of such obligations under the indenture. Subject to the
foregoing, the indenture will be binding upon and inure to the benefit of the
parties thereto and their respective successors and assigns. The indenture
will provide that it may not otherwise be assigned by the parties thereto.
Effect of Obligations under Subordinated Trust Debt Securities and Trust
Preferred Securities Guarantee
As long as payments are made when due on subordinated trust debt
securities, the trust will have sufficient funds to be able to make all
appropriate payments on trust securities. This is primarily because:
. the aggregate principal amount of the subordinated debt securities will
be equal to the sum of the aggregate stated liquidation amount of such
trust securities;
. the interest rate and interest and other payment dates on the
subordinated trust debt securities will match the distribution rate and
distribution and other payment dates for the trust securities;
. we will pay for all costs and expenses of each trust; and
. the trust agreement will provide that the trustees may not cause or
permit the trust to, among other things, engage in any activity that is
not consistent with the purposes of the trust.
We will guarantee payments of distributions and other payments due on the
trust preferred securities, to the extent funds are available therefor and to
the extent set forth under "Description of the Trust Guarantees." If we do not
make interest payments on subordinated trust debt securities, it is expected
that the trust will not have sufficient funds to pay distributions on its
trust preferred securities. The trust guarantee is a full and unconditional
guarantee, but does not apply to any payment unless the trust has sufficient
funds for such payment.
If we fail to make payments on subordinated trust debt securities when due,
taking into account any extension period, the trust agreement will provide a
mechanism whereby holders of trust preferred securities may direct the
property trustee to enforce its rights, including proceeding directly against
us. If the property trustee fails to enforce its rights, a holder of trust
preferred securities may sue us directly to enforce those rights, without
first instituting legal proceedings against the trust, the property trustee or
any other person or entity.
If we fail to make payments under the trust guarantee, the trust guarantee
provides a mechanism whereby the holders of trust preferred securities may
direct the trust guarantee trustee to enforce its rights. If the trust
guarantee trustee fails to enforce its rights, any holder of trust preferred
securities may institute a legal proceeding against us directly to enforce
those rights without first instituting legal proceedings against the trust,
the trust guarantee trustee or any other person or entity.
Pursuant to an agreement as to expenses and liabilities to be entered into
by us under the trust agreement, we will irrevocably and unconditionally
guarantee to each person or entity to whom the trust becomes indebted or
liable the full payment of any indebtedness, expenses or liabilities of the
trust other than obligations of the trust to pay to the holders of the related
trust securities or other similar interests in the trust the amounts due such
holders pursuant to the terms of such trust securities or such other similar
interests, as the case may be.
The above mechanisms and obligations, taken together, are equivalent to a
full and unconditional guarantee by us of payments due on trust preferred
securities to the extent of funds available to the trust.
22
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.
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.
23
LEGAL MATTERS
Gibson, Dunn & Crutcher LLP, Dallas, Texas, has rendered an opinion with
respect to the validity of the securities being offered by this prospectus,
other than with respect to trust preferred securities. We filed the opinion as
an exhibit to the registration statement of which this prospectus is a part.
Morris, Nichols, Arsht & Tunnell, Wilmington, Delaware, has rendered an
opinion with respect to the validity of the trust preferred securities being
offered by this prospectus. We filed the opinion as an exhibit to the
registration statement of which this prospectus is a part. 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
The consolidated financial statements of D.R. Horton, Inc., appearing in
D.R. Horton, Inc.'s Annual Report (Form 10-K) for the year ended September 30,
2000, have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon included therein and incorporated herein by
reference. Such consolidated financial statements are incorporated herein by
reference in reliance upon such report given on the authority of such firm as
experts in accounting and auditing.
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 Center, Citicorp Center
450 Fifth Street, N.W. Street Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, New York 10048 Suite 1400
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
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, the trusts, 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, the trusts,
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.
24
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 or another 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, 2000
Quarterly Report on Form 10-Q Quarter ended December 31, 2000
Current Reports on Form 8-K April 18, 2001
Pages two through four under the caption "Election of Directors," pages twelve
through thirteen under the caption "Beneficial Ownership of Common Stock,"
pages fourteen through sixteen under the captions "Executive Compensation"
through "Compensation Committee Interlocks and Insider Participation," and
page twenty-one under the caption "Section 16(a) Beneficial Ownership
Reporting Compliance", contained in our Proxy Statement dated December 13,
2000, relating to our 2001 annual meeting of stockholders and incorporated
into our Annual Report on Form 10-K.
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 (other than filings under Item 9), 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 in 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
We have not authorized anyone to give any information or make any
representation about us that is different from, or in addition to, that
contained in this prospectus or in any of the materials that we have
incorporated by reference into this document. Therefore, if anyone does give
you information of this sort, you should not rely on it. If you are in a
jurisdiction where offers to sell, or solicitations of offers to purchase, the
securities offered by this document are unlawful, or if you are a person to
whom it is unlawful to direct these types of activities, then the offer
presented in this document does not extend to you. The information contained
in this document speaks only as of the date of this document, unless the
information specifically indicates that another date applies.
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$381,113,000
D.R. Horton, Inc.
Zero Coupon Convertible Senior Notes Due 2021
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PROSPECTUS SUPPLEMENT
May 4, 2001
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Salomon Smith Barney
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